-----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, PMWqBSQ8o5hO2kgjda0kE1CBmgNYj5+VfZ+u/543f6x4aIP42bXWPzjvvWtLupdG sHSVo3A1ilmx9BBlrIsrhQ== 0000950114-96-000076.txt : 19960411 0000950114-96-000076.hdr.sgml : 19960411 ACCESSION NUMBER: 0000950114-96-000076 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19960410 SROS: NYSE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CALGENE II INC CENTRAL INDEX KEY: 0001011134 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE PRODUCTION - CROPS [0100] IRS NUMBER: 680369863 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-45705 FILM NUMBER: 96545813 BUSINESS ADDRESS: STREET 1: 1920 FIFTH ST CITY: DAVIS STATE: CA ZIP: 95616 BUSINESS PHONE: 9167536313 MAIL ADDRESS: STREET 1: 1920 FIFTH ST CITY: DAVIS STATE: CA ZIP: 95616 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: MONSANTO CO CENTRAL INDEX KEY: 0000067686 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 430420020 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 800 N LINDBERGH BLVD CITY: ST LOUIS STATE: MO ZIP: 63167 BUSINESS PHONE: 3146941000 FORMER COMPANY: FORMER CONFORMED NAME: MONSANTO CHEMICAL CO DATE OF NAME CHANGE: 19711003 SC 13D 1 SCHEDULE 13D 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ----------) Calgene, Inc. - --------------------------------------------------------------------------- (Name of Issuer) Common Stock, $.001 par value - --------------------------------------------------------------------------- (Title of Class of Securities) 129598 10 8 ------------------------------------------------------- (CUSIP Number) Karl R. Barnickol, 800 N. Lindbergh Boulevard, St. Louis, Missouri 63167, (314) 694-1000 - --------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) March 31, 1996 ------------------------------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box / /. Check the following box if a fee is being paid with the statement /X/. (A fee is not required only if the reporting person: (1) has a previous statement on file reporting beneficial ownership of more than five percent of the class of securities described in Item 1; and (2) has filed no amendment subsequent thereto reporting beneficial ownership of five percent or less of such class.) (See Rule 13d-7.) NOTE: Six copies of this statement, including all exhibits, should be filed with the Commission. See Rule 13d-1(a) for other parties to whom copies are to be sent. The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). 2 SCHEDULE 13D CUSIP NO. 129598 10 8 ------------------- ============================================================================= 1 NAME OF REPORTING PERSON S.S. or I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS Monsanto Company: 43-0420020 - ----------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) / / (b) / / n/a - ----------------------------------------------------------------------------- 3 SEC USE ONLY - ----------------------------------------------------------------------------- 4 SOURCE OF FUNDS WC, OO - ----------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO / / ITEMS 2(d) OR 2(e) n/a - ----------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - ----------------------------------------------------------------------------- 7 SOLE VOTING POWER NUMBER OF 30,143,441 SHARES ------------------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER OWNED BY EACH n/a REPORTING ------------------------------------------------------------- PERSON 9 SOLE DISPOSITIVE POWER WITH 30,143,441 ------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER n/a - ----------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 30,143,441 - ----------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES / / n/a - ----------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 49.9% - ----------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON CO ============================================================================= -2- 3 Item 1. Security and Issuer. - ---------------------------- This statement relates to the Common Stock, par value $.001 per share (the "Common Stock"), of Calgene, Inc. (formerly incorporated under the name Calgene II, Inc.), a Delaware corporation (the "Issuer"). The Common Stock was registered under Section 12(g) of the Securities Exchange Act of 1934 (the "Exchange Act") and the rules promulgated thereunder effective March 29, 1996. The issuer changed its name from "Calgene II, Inc." to "Calgene, Inc." effective March 31, 1996 and filed a Form 10-C notifying the Securities and Exchange Commission (the "Commission") of the name change shortly thereafter. The Issuer's executive offices are located at 1920 Fifth Street, Davis, California 95616. Item 2. Identity and Background. - -------------------------------- This statement is filed by Monsanto Company (the "Company"), a Delaware corporation. The Company and its subsidiaries are engaged in the worldwide manufacture and sale of a diversified line of agricultural products, chemical products, pharmaceuticals and food ingredients. The Company's principal business and principal office are located at 800 North Lindbergh Boulevard, St. Louis, Missouri 63167. During the last five years, neither the Company nor any of its executive officers, directors or controlling persons, has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). During the last five years, neither the Company nor any of its executive officers, directors or controlling persons, has been, and is not now (a) subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws, or (b) a party to a civil proceeding of a judicial or administrative body of competent jurisdiction finding any violation with respect to such laws. Item 3. Source and Amount of Funds or Other Consideration. - ---------------------------------------------------------- The amount and source of funds used by the Company to purchase the shares of Common Stock are (i) all outstanding shares of capital stock of Gargiulo, Inc., a Delaware corporation and wholly- owned subsidiary of the Company ("Gargiulo"), whose principal asset at the time of its contribution to the Issuer was the entire equity interest in Gargiulo, L.P., a Delaware limited partnership ("Gargiulo, L.P."), (ii) $30,000,000 in cash (less amounts previously advanced to Calgene (as defined below) under an existing subordinated promissory note, under which $23,000,000 was outstanding at March 29, 1996) from the Company's current working capital and (iii) certain technology licenses relating to fatty acid composition, fruit ripening control, virus and insect resistance, carbohydrate partitioning and gene expression. Gargiulo L.P. engages in the growing, packaging, marketing and distribution of tomatoes and strawberries and, to a lesser extent, other fresh fruits and vegetables. On April 3, 1996, Gargiulo L.P. was merged with and into Gargiulo, the sole general partner of Gargiulo L.P. at the time of such merger. -3- 4 Item 4. Purpose of Transaction. - ------------------------------- On October 13, 1995, Calgene Technology Corporation, (then incorporated under the name Calgene, Inc. ("Calgene") entered in to an Agreement and Plan of Reorganization with the Company (the "Reorganization Agreement"), pursuant to which Calgene and the Company agreed, subject to the approval of Calgene stockholders and the fulfillment of certain other conditions, to a series of transactions referred to herein as the "Reorganization." The first step of the Reorganization involved the merger (the "Merger") of Calgene Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of the Issuer, with and into Calgene, with Calgene being the surviving corporation in the Merger and becoming a wholly-owned subsidiary of the Issuer. Pursuant to the Merger, each stockholder of Calgene received one share of Common Stock for each share of Calgene common stock held by such stockholder immediately prior to the Effective Time. The shares of Common Stock received by Calgene stockholders in the Merger (i) are registered under and are the subject of the Issuer's prospectus prepared in accordance with the Securities Act of 1933, as amended (the "Securities Act"), (ii) are listed on the Nasdaq National Market under the symbol "CGNE," and (iii) represent 50.1% of the outstanding shares of Common Stock at the Effective Time. Because the common stock of Calgene was registered under Section 12(g) of the Exchange Act and the Reorganization required the approval of the holders of a majority of the issued and outstanding common stock of Calgene, Calgene prepared and filed with the Commission and distributed to all of the holders of Calgene common stock on the record date, a proxy statement describing the transaction which proxy statement contained other information about the transaction and the parties involved. The Prospectus of the Issuer and the Proxy Statement of Calgene were contained in one document filed as part of that certain Registration Statement on Form S-4 (333-739) dated February 6, 1996, which was declared effective by the Commission on February 7, 1996. The second step of the Reorganization involved the exchange by the Company of (i) all outstanding shares of capital stock of Gargiulo, whose principal asset was the entire equity interest in Gargiulo, L.P. (immediately following the Reorganization, Gargiulo, L.P. was merged into Gargiulo, thereby succeeding to all of the assets and liabilities of Gargiulo, L.P. by operation of law), (ii) $30,000,000 in cash (less amounts previously advanced to Calgene under an existing subordinated promissory note, under which $23,000,000 was outstanding at March 29, 1996) and (iii) certain technology licenses relating to fatty acid composition, fruit ripening control, virus and insect resistance, carbohydrate partitioning and gene expression, for that number of shares of Common Stock representing 49.9% of the outstanding shares of Common Stock at the Effective Time. The shares of Common Stock received by the Company in the Reorganization were not registered under the Securities Act. However, upon the occurrence of certain events, as set forth in a Stockholders Agreement, dated as March 31, 1996, between the Company and the Issuer (the "Stockholders Agreement"), the Company has certain registration rights with respect to its shares of Common Stock. The Stockholders Agreement is described in more detail below. On March 25, 1996, the holders of a majority of the issued and outstanding common stock of Calgene approved the Reorganization Agreement. Upon the Effective Time (March 31, -4- 5 1996), the Issuer then changed its name to "Calgene, Inc." and Calgene changed its name to "Calgene Technology Corporation." The Reorganization was structured in the manner described herein in order that the exchange of Calgene common stock in the Merger for Common Stock would qualify as a tax-free exchange under Section 351 of the Internal Revenue Code of 1986, as amended. The Stockholders Agreement contains provisions relating to: (a) the composition of the Boards of Directors of the Issuer, Calgene and Gargiulo; (b) restrictions upon the purchase of additional shares of Common Stock by the Company; (c) restrictions upon sales of shares of Common Stock by the Company; (d) rights of the Company to require the registration of shares of Common Stock under the Securities Act; (e) rights of the Company to participate in future equity financings of the Issuer; and (f) requirements that certain actions of the Issuer be approved by at least one Calgene designee on the Board of Directors of the Issuer (the "Issuer Board") and one Company designee on the Issuer Board. Pursuant to the Stockholders Agreement, the Issuer Board is to consist of nine directors, of which two are to be executive officers of the Issuer (but only one of which has been appointed as of the date hereof), three which are to be and which have been designated by the Issuer and four which are to be and which have been designated by the Company. At the Effective Time, the executive officers of Calgene immediately prior to the Effective Time, together with the Chairman and Chief Executive Officer of Gargiulo, L.P. (prior to its merger with and into Gargiulo), became the principal executive officers of the Issuer, except that Roderick N. Stacey, the President and Chief Operating Officer of Calgene, resigned. The Company acquired its shares of Common Stock for investment purposes. The Company believes that Calgene has established a leadership position in the genetic engineering of plant oils for the food and chemical industries and that plant oils represent a significant commercial opportunity. The Company anticipates that its indirect investment in Calgene, through ownership of Common Stock, will enable the Company to participate in that opportunity. The Company believes that combining the produce-related biotechnology and business assets of Gargiulo which it contributed to the Issuer with that of Calgene will result in an enterprise that is better positioned to develop, produce and market a family of high-value produce products on a nationwide basis. Finally, the Company believes that Calgene is a leader in the development of novel plant genetic engineering technologies, and that an indirect investment in Calgene will provide a vehicle for the Company to gain access to such technologies. Item 5. Interest in Securities of the Issuer. - --------------------------------------------- (a) As determined in accordance with Rule 13d-3, the Company is the beneficial owner of 30,143,441 shares of Common Stock, representing approximately 49.9% of the total issued and outstanding Common Stock. (b) As determined in accordance with Rule 13d-3, the Company has sole voting power and sole dispositive power with respect to 30,143,441 shares of Common Stock. -5- 6 (c) Except as set forth in this Schedule 13D, no transactions have been effected by the Company during the past sixty (60) days with respect to any shares of Common Stock. (d) Not applicable. (e) Not applicable. Item 6. Contracts, Arrangements, Understandings, or Relationships - ------------------------------------------------------------------ with Respect to Securities of the Issuer. - ---------------------------------------- THE REORGANIZATION AGREEMENT On October 13, 1995, Calgene and the Company entered into the Reorganization Agreement pursuant to which Calgene and the Company agreed, subject to the approval of Calgene stockholders and the fulfillment of certain other conditions, to the Reorganization, which included (i) the merger of Calgene Acquisition Corp., with and into Calgene, with Calgene, as the surviving corporation, becoming a wholly-owned subsidiary of the Issuer, and the stockholders of Calgene receiving shares of Common Stock representing 50.1% of the outstanding shares of Common Stock at the Effective Time, and (ii) the exchange by the Company of all outstanding shares of capital stock of Gargiulo, $30,000,000 in cash (less amounts previously advanced to Calgene under an existing subordinated promissory note) and certain technology licenses for that number of shares of Common Stock representing 49.9% of the outstanding shares of Common Stock at the Effective Time. THE STOCKHOLDERS AGREEMENT Pursuant to the Reorganization Agreement, the Company and the Issuer entered into the Stockholders Agreement at the Effective Time providing for, among other things, the following: Registration Rights The Stockholders Agreement provides that the Company and certain assignees may, subject to certain conditions and limitations, require the Issuer, whether or not the Issuer proposes to register its Common Stock for sale, to register all or part of the shares of Common Stock acquired by the Company in connection with the Reorganization or upon the later conversion into Common Stock of outstanding principal or interest under the Newco Credit Facility Agreement (as defined herein) or the Gargiulo Credit Facility Agreement (as defined herein) (collectively, the "Registrable Shares") under the Securities Act and to register or qualify such Registrable Shares under any applicable state securities or blue sky laws so as to permit the Company to sell such Registrable Shares in the public markets. The Issuer is not required to effect such a registration prior to September 30, 1998, unless an Event of Default (as defined in the Newco Credit Facility Agreement or the Gargiulo Credit Facility Agreement, as the case may be) has occurred and is continuing under the Newco Credit Facility Agreement or the Gargiulo Credit Facility Agreement, in which event the Issuer is required to effect a registration of the Registrable Shares received in such conversion at the request of the Company or its assignee. The Issuer is required to pay all of the expenses (other than certain expenses of the Company, such as underwriting discounts and selling commissions) with respect to up to four -6- 7 (4) such registrations. In the event the Issuer proposes to register any of its securities under the Securities Act at any time after September 30, 1998 for its own account (other than a registration relating to employee benefit plans or a transaction under Rule 145 of the Securities Act), the Company is entitled to notice of such registration and to include Registrable Shares in such registration, subject to certain conditions and limitations. The registration rights granted pursuant to the Stockholders Agreement shall terminate at such time as (a) all Registrable Shares can be sold within a given three month period without registration under the Securities Act pursuant to Rule 144 of the Securities Act and (b) all accrued interest and principal under the Newco Credit Facility Agreement and the Gargiulo Credit Facility Agreement has been repaid in full or converted into Common Stock (and such Common Stock can be sold as provided in clause (a) above). Anti-Dilution Rights If at any time after the Effective Time the Issuer agrees to sell shares of Common Stock or other securities having the right to vote generally in any election of directors of the Issuer (collectively, "Issuer Securities") in a private or public offering (other than pursuant to the Issuer's stock option plans), the Company is entitled to notice of such proposed sale and has the right, but not the obligation, to acquire all or any portion of Issuer Securities to be offered for sale sufficient for the Company to maintain, after the consummation of the proposed offering, the same percentage of ownership of Issuer Securities as the Company possessed immediately prior to such offering. With respect to shares of Issuer Securities issued pursuant to the Issuer's stock option plans, the Company shall have the right to maintain its percentage ownership of issued and outstanding Issuer Securities by making open market purchases in accordance with the Stockholders Agreement. Limitations on the Company's Ownership of Issuer Securities Except for purchases of Issuer Securities made in accordance with the Stockholders Agreement, during the term of the Stockholders Agreement, the Company shall not, directly or indirectly, acquire any Issuer Securities except as follows: (a) prior to the first anniversary of the Effective Time, the Company shall not increase its percentage of ownership of issued and outstanding Issuer Securities (the "Percentage Interest") above 49.9% except through one or more of the following: (i) conversion of principal and/or interest under the Newco Credit Facility Agreement or the Gargiulo Credit Facility Agreement into shares of Common Stock; (ii) issuance of Issuer Securities in an asset sale by the Company to the Issuer; or (iii) a tender offer by the Company for not less than 100% of all publicly-traded Issuer Securities at a price approved by the disinterested directors of the Issuer and based upon a fairness opinion delivered to the Issuer Board by an investment banking firm; (b) on and after the first anniversary of the Effective Time until the earlier of September 30, 1998, or the third anniversary of the Effective Time, the Company shall not increase or further increase its ownership of issued and outstanding Issuer Securities above 49.9% except through one or more of the following: (i) conversion of principal and/or interest under the Newco Credit Facility Agreement or the Gargiulo Credit Facility Agreement into shares of Common Stock; (ii) issuance of Issuer Securities in an asset sale by the Company to the Issuer; or (iii) a tender offer by the Company to increase its ownership to 70% or more of the issued and outstanding Issuer Securities at a price approved by the disinterested directors of the Issuer and based upon a fairness opinion delivered to the -7- 8 Issuer Board by an investment banking firm; provided, however, that if the Company makes a tender offer to increase its ownership to more than 80% of the issued and outstanding Issuer Securities, such tender offer must be for at least 100% of all publicly traded Issuer Securities; and (c) after the earlier of September 30, 1998, or the third anniversary of the Effective Time, the Company may increase its ownership of Issuer Securities through open market purchases or otherwise. Limitations on the Company's Resale of Issuer Securities The Stockholders Agreement provides that the Company shall not, directly or indirectly, sell any Issuer Securities (other than to an affiliate) except as follows: (a) on and after the first anniversary of the Effective Time until the earlier of September 30, 1998, or the third anniversary of the Effective Time, the Company may sell Issuer Securities (i) as part of a joint venture, merger or sale of all or substantially all of its current crop protection business unit, as such business may be subsequently renamed or reorganized, or (ii) pursuant to a tender offer by a third party to the stockholders of the Issuer; (b) after the earlier of September 30, 1998, or the third anniversary of the Effective Time, in addition to the rights set forth in (a) above, the Company may sell Issuer Securities (i) in a registered public offering pursuant to the registration rights granted to the Company under the Stockholders Agreement; (ii) through sales pursuant to Rule 144 under the Securities Act; (iii) through sales of not more than 10% of the total issued and outstanding Issuer Securities to a Non-Financial Purchaser (as defined in the Stockholders Agreement); or (iv) through sales to a Financial Purchaser (as defined in the Stockholders Agreement); (c) after the earlier of September 30, 1999, or the fourth anniversary of the Effective Time, in addition to the rights set forth in (a) and (b) above, the Company may sell Issuer Securities through a private sale of 35% or more of the total issued and outstanding Issuer Securities to a Non-Financial Purchaser under circumstances where such third party assumes the applicable and proportionate rights and obligations of the Company under the Stockholders Agreement and the other agreements signed pursuant to the Reorganization Agreement; and (d) notwithstanding the foregoing, at any time after the Effective Time, the Company may sell Issuer Securities issued to the Company upon conversion by the Company of principal or interest under the Newco Credit Facility Agreement or the Gargiulo Credit Facility Agreement after the occurrence of an Event of Default under the Newco Credit Facility or the Gargiulo Credit Facility as the case may be. Composition of the Issuer Board The Stockholders Agreement provides that the composition of the Issuer Board and the manner of nominating members thereof shall be as follows: (a) at and after the Effective Time, the Issuer Board shall be comprised of nine directors. The number of Issuer Directors may be increased only in accordance with the terms of the Stockholders Agreement; (b) at the Effective Time and until the earlier of any time that (i) the Company's percentage ownership of the outstanding Issuer Securities ("Percentage Interest") is at least 55% or (ii) the Issuer elects to convert borrowings made from the Company into equity securities of the Issuer and the Company's Percentage Interest is at least 50% after such conversion (a -8- 9 "Trigger Event"), the Issuer shall nominate for election as directors two directors who are either the Chief Executive Officer or Chief Operating Officer of the Issuer (or the next most highly ranking executive officers of the Issuer) ("Company Management Directors"), three Independent Directors (as defined in the Stockholders Agreement) designated by the Issuer ("Company Directors"), and four directors designated by the Company (each a "Monsanto Director"), at least one of whom shall be an Independent Director (as defined in the Stockholders Agreement); (c) at and after the occurrence of a Trigger Event, the Issuer Board shall be comprised of eleven directors and the Issuer shall nominate, subject to paragraph (d) below, two additional directors designated by the Company. (d) at any time that the Company's Percentage Interest is at least 70%, the Issuer shall nominate (i) eight directors to consist of the two Company Management Directors and six other directors designated by the Company (including at least one Independent Director) and (ii) three Independent Directors. At such time as the Company's Percentage Interest is at least 99%, the Issuer shall nominate eleven directors designated by the Company. Notwithstanding anything in the foregoing to the contrary (i) at any time the Company's Percentage Interest is less than 40% but at least twenty percent (20%), the Issuer shall nominate three directors designated by the Company, (ii) at any time the Company's Percentage Interest is less than 20% but at least 10%, the Issuer shall nominate two directors designated by the Company, and (iii) at any time the Company's Percentage Interest is less than 10% but at least 5%, the Issuer shall nominate one director designated by the Company. If, at any time, the Company's Percentage Interest is less than 5%, the Issuer shall not be obligated to nominate any director designated by the Company. At any such time, all Issuer Directors, other than Company Management Directors, shall be nominated by the Issuer. The Independent Directors to be nominated by the Issuer from time to time shall be designated by action of a majority of Company Directors then in office. In the event that no Company Directors are in office at such time, such Independent Directors shall be nominated by a majority of the Independent Directors then in office; provided, however, that the holders of a majority of the outstanding voting stock held by Unaffiliated Equity Holders (as defined in the Stockholders Agreement) shall be entitled to nominate and elect Independent Directors in lieu of any individuals so designated to be such Independent Directors by a majority of the Independent Directors. Solicitation and Voting of Shares The Issuer is obligated to use its best efforts to solicit from the stockholders of the Issuer proxies in favor of all directors nominated in accordance with the Stockholders Agreement. The Issuer and the Company shall also cooperate with each other with respect to the election, removal and replacement of all directors designated in accordance with the Stockholders Agreement. -9- 10 Committees of the Issuer Board The Stockholders Agreement provides that the Issuer shall establish, empower and maintain the following committees of the Issuer Board: (i) an Audit Committee, consisting of at least three Independent Directors; (ii) until the occurrence of a Trigger Event, a Retention/Replacement Committee, consisting of the Independent Directors then serving on the Issuer Board, responsible for retention and/or replacement of all of the executive officers of the Issuer; (iii) a Compensation Committee; and (iv) such other committees as the Issuer Board deems necessary or desirable. Except as otherwise provided in the Stockholders Agreement or as agreed by a majority of the Company Management Directors (as defined in the Stockholders Agreement), the number of the Company Directors on each committee of the Issuer Board shall be the same proportion (but not less than one) of the total membership of such committee as the number of the Company Directors, as the case may be, is of the entire the Issuer Board. The corporate governance provisions included in the Stockholders Agreement as discussed above have been incorporated into the Restated Certificate of Incorporation of the Issuer, as filed with the Secretary of State of the State of Delaware on March 29, 1996. Approval Required for Certain Actions (a) On and after the Effective Time until the earlier of a Trigger Event or such date on which the Company's Percentage Interest is less than 25%, a majority of the Issuer Board, including at least one Company Director and one Monsanto Management Director, shall be required to approve any of the following: (i) the entry by the Issuer or any of its Affiliates into any merger or consolidation or the acquisition by the Issuer or any of its Affiliates of any business or assets that would constitute more than 10% of the Issuer's total assets determined on a consolidated basis (a "Substantial Part"); (ii) the sale, pledge, grant of security interest in, transfer, retirement or other disposal of a Substantial Part of the Issuer, except pursuant to a security interest granted in connection with borrowings permitted under subsection (iv) below or the pledge or granting of a security interest in certain intangible property as further described in the Stockholders Agreement; (iii) any dividend by or return of capital by the Issuer or Gargiulo (other than such distributions by Gargiulo to the Issuer as are necessary for the Issuer to timely perform its obligations under the Gargiulo Credit Facility Agreement); (iv) any incurrence or assumption, in the aggregate, by the Issuer, any of its Affiliates or any combination thereof, of any indebtedness for borrowed money at any time outstanding exceeding in the aggregate (determined on a consolidated basis) the greater of (A) $15,000,000, increasing by $5,000,000 on each July 1 commencing July 1, 1996, plus amounts secured by inventory and/or receivables for seasonal working capital lines and indebtedness incurred to acquire property, plant or equipment and secured by the acquired asset, minus amounts outstanding under the Newco Credit Facility Agreement, or (B) the amounts set forth in the Issuer's Operating Plan (as defined in the Stockholders Agreement), provided that loans under the Gargiulo Credit Facility Agreement shall not be counted in this limitation; (v) the repurchase or redemption of any Issuer Securities, other than from employees upon termination of employment or service; (vi) the establishment of any new committees of the Issuer Board (or the Calgene Board) or a new or revised delegation(s) of Issuer Board (or Calgene Board) authority to any Issuer Board committee or changes or revisions to general delegations of authority to officers or other persons for categories of expenditures; (vii) the adoption of or amendment to any -10- 11 benefit or incentive plans of the Issuer or any of its Affiliates which would increase the annual cost thereof by more than fifteen percent (15%) from the prior fiscal year or any adoption of, or amendment to, any stock option plan; (viii) the election, appointment or removal of the Chief Executive Officer, Chief Operating Officer or Chief Financial Officer of the Issuer and Calgene and their successors and the establishment of their annual or long term compensation level and benefits (other than agreements in effect at the Effective Time); provided, however, that the Company shall have the right to select the Chief Technical Officer of the Issuer and a controller reporting to the Chief Financial Officer of the Issuer; (ix) approval of the Operating Plan and Strategic Plan (each as defined in the Stockholders Agreement) of the Issuer and its Affiliates, as well as the annual operating plan and long term strategic plan for the Gargiulo business, to be submitted to the Issuer Board annually for approval, and any material changes thereto; (x) any transaction between the Issuer (and its Affiliates), on the one hand, and its directors, officers or employees, on the other hand, which is not in the normal course of business; (xi) any modification of the Transaction Agreements; (xii) any amendment of the By-Laws or Certificate of Incorporation of the Issuer, Calgene or Gargiulo; (xiii) the issuance of additional Issuer Securities (other than warrants for the purchase of Issuer Securities) in excess of 4,000,000 shares of Common Stock in any two year period to a third party, other than pursuant to plans referred to in subsection (vii) above or the issuance of any warrants for the purchase of Issuer Securities; (xiv) the sale or licensing by the Issuer or any of its Affiliates of certain intangible property, as further described in the Stockholders Agreement, or any other intangible property for consideration (other than royalties contingent on future sales) exceeding $5,000,000 in the aggregate (determined on a consolidated basis) per transaction or per series of related transactions; (xv) new fixed capital investments, capital leases or noncancellable operating leases by the Issuer and its Affiliates having annual payments in the aggregate (determined on a consolidated basis) exceeding the aggregate amount set forth in the Operating Plan; (xvi) matters relating to Gargiulo L.P. covered in Article 5 of the Stockholders Agreement, including, without limitation, any changes in the composition of the Gargiulo Board of Directors (other than with respect to Messrs. Salquist and Stacey); (xvii) any press release which mentions or directly or indirectly refers to the Company, except as required by law and where Issuer Board approval cannot be obtained in a timely manner; (xviii) the initiation, settlement or termination of any suit or proceeding concerning intellectual property, any other matter which could have an adverse public affairs effect upon the Company or the filing of any insolvency or bankruptcy proceeding by or on behalf of the Issuer or any of its Affiliates; or (xix) the removal or election of the directors, subject to the terms of the Stockholders Agreement, of Gargiulo. (b) After a Trigger Event and until the earlier of (i) the third anniversary of the Effective Time or (ii) such time as the Company's Percentage Interest is at least seventy percent (70%), a majority of the Issuer Board, including at least two Company Directors, shall be required to approve any of the following: (i) except as provided in the Stockholders Agreement, the matters set forth in clauses (ii), (vi), (viii), (ix) and (xi) of paragraph (a) above; or (ii) any transaction between the Issuer (and its Affiliates) and the Company or any Affiliate of the Company. (c) From and after the occurrence of both (i) a Trigger Event and (ii) the third anniversary of the Effective Time, and until the Company's Percentage Interest is at least 99%, nether the Company nor any of its Affiliates shall enter into any transaction with the Issuer or any of its Affiliates without the approval of at least two Company Directors. -11- 12 NEWCO CREDIT FACILITY AGREEMENT At the Effective Time, the Issuer and the Company entered into a revolving credit facility agreement (the "Newco Credit Facility Agreement") pursuant to which the Company, subject to certain terms and conditions, agreed to make, at the request of the Issuer, three consecutive one-year subordinated loans of up to $15 million each to the Issuer for general corporate purposes, provided that not more than $15 million may be outstanding at any time. Under certain circumstances, the principal and interest due under such loans may be converted into shares of Common Stock. The loans made pursuant to the Newco Credit Facility Agreement are secured by the joint and several guaranties of certain subsidiaries of the Issuer. The agreement also contains a number of restrictions on the Issuer and its subsidiaries. For instance, the covenants contained in the Newco Credit Facility Agreement require the Issuer to maintain a minimum consolidated net worth of not less than $10,000,000 and a minimum consolidated working capital of not less than $5,000,000. The Newco Credit Facility Agreement also requires that the Issuer and its subsidiaries meet certain specified financial ratios, including a ratio of total long-term liabilities to net worth and a current ratio. In addition, the Newco Credit Facility Agreement imposes a number of limitations on the Issuer with respect to future acquisitions, liens, mergers and the sale of assets, loans and investments, guaranties, capital expenditures, the payment of dividends and the incurrence of indebtedness. At the Effective Time, the Company loaned the Issuer $15,000,000 pursuant to the terms of the Newco Credit Facility Agreement. GARGIULO CREDIT FACILITY AGREEMENT At the Effective Time, the Issuer and the Company entered into a revolving credit facility agreement (the "Gargiulo Credit Facility Agreement") pursuant to which the Company, subject to certain terms and conditions, shall make a loan of up to $40 million to the Issuer, the proceeds of which are to be used solely by Gargiulo. Gargiulo L.P. borrowed funds from the Company pursuant to an amendment of an existing credit facility to acquire Collier Farms, to support Gargiulo L.P.'s branded tomato strategy and to allow Gargiulo L.P. to make an approximately $2 million payment to the Company pursuant to the Development License Agreement dated December 23, 1992 (the "Development Agreement"), which amounts were converted into a loan under the Gargiulo Credit Facility Agreement at the Effective Time. The balance of any future borrowings under the Gargiulo Credit Facility Agreement will be used by Gargiulo to implement its branded tomato strategy. The loan is repayable out of a specified portion of the Cumulative Free Cash Flow (as defined in the Gargiulo Credit Facility Agreement) of Gargiulo or, if not repaid within eight years, may be converted by the Company under certain circumstances into shares of Common Stock. The loans made pursuant to the Gargiulo Credit Facility Agreement are secured by the joint and several guaranties of certain subsidiaries of the Issuer. The agreement also contains a number of restrictions on the Issuer and its subsidiaries. For instance, the covenants contained in the Gargiulo Credit Facility Agreement require the Issuer to maintain a minimum consolidated net worth of not less than $10,000,000 and a minimum consolidated working capital of not less than $5,000,000. The Gargiulo Credit Facility Agreement also requires that the Issuer and its subsidiaries meet certain specified financial ratios, including a ratio of total long-term liabilities to net worth and a current ratio. In addition, the Gargiulo Credit Facility Agreement imposes a number of limitations on the Issuer and its subsidiaries with respect to future acquisitions, liens, mergers and the sale of -12- 13 assets, loans and investments, guaranties, capital expenditures, the payment of dividends and the incurrence of indebtedness. Item 7. Material to be Filed as Exhibits - ----------------------------------------- 1. Agreement and Plan of Reorganization by and between Monsanto Company and Calgene Technology Corporation, formerly Calgene, Inc., dated as of October 13, 1995. 2. Stockholders Agreement by and between Monsanto Company and Calgene, Inc., formerly Calgene II, Inc., dated as of March 31, 1996. 3. Holding Company Credit Facility Agreement by and between Monsanto Company and Calgene, Inc., formerly Calgene II, Inc., dated as of March 31, 1996. 4. Gargiulo Credit Facility Agreement by and between Monsanto Company and Calgene, Inc., formerly Calgene II, Inc., dated as of March 31, 1996. Signature --------- After reasonable inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Date: April 10, 1996 MONSANTO COMPANY, a Delaware corporation By: --------------------------------------- Name: Karl R. Barnickol ------------------------------------- Title: Assistant Secretary ------------------------------------ -13- 14 EXHIBIT INDEX Exhibit - ------------------------------------------------------------------------------ 1. Agreement and Plan of Reorganization by and between Monsanto Company and Calgene Technology Corporation, formerly Calgene, Inc., dated as of October 13, 1995, filed as (i) Annex A to the Proxy Statement/Prospectus constituting part of the Registration Statement on Form S-4 (333-739) dated as of February 6, 1996, and (ii) Exhibit 2.1. to the aforementioned Registration Statement. 2. Stockholders Agreement by and between Monsanto Company and Calgene, Inc. (formerly incorporated under the name Calgene II, Inc.) dated as of March 31, 1996. 3. Holding Company Credit Facility Agreement by and between Monsanto Company and Calgene, Inc., formerly Calgene II, Inc., dated as of March 31, 1996. 4. Gargiulo Credit Facility Agreement by and between Monsanto Company and Calgene, Inc. (formerly incorporated under the name Calgene II, Inc.) dated as of March 31, 1996. -14- EX-2 2 STOCKHOLDERS AGREEMENT 1 CALGENE II, INC. AND MONSANTO COMPANY STOCKHOLDERS AGREEMENT as of March 31, 1996 2 TABLE OF CONTENTS
Page ---- ARTICLE 1 Effect of this Agreement ................................ 1 1.1 Effect of this Agreement ................................ 1 ARTICLE 2 Compliance with Securities Act .......................... 2 2.1 Certain Definitions ..................................... 2 2.2 Requested Registration .................................. 7 2.3 Company Registration .................................... 10 2.4 Expenses of Registration ................................ 12 2.5 Registration Procedures ................................. 12 2.6 Indemnification ......................................... 14 2.7 Information by Holder ................................... 16 2.8 Rule 144 Reporting ...................................... 17 2.9 Transfer of Registration Rights ......................... 17 2.10 Limitations on Subsequent Registration Rights ........... 17 2.11 Termination of Registration Rights ...................... 18 2.12 "Market Stand-off" Agreement ............................ 18 ARTICLE 3 Anti-Dilution Rights and Limitations on Owner ........... 18 3.1 Anti-Dilution Rights .................................... 18 3.2 Private Offering ........................................ 19 3.3 Public Offering ......................................... 19 3.4 Limitations ............................................. 20 3.5 Open Market Purchases to Maintain Ownership Percentage .............................................. 20 3.6 Limitations on Holder's Ownership ....................... 20 3.7 Limitations on Holder's Resale of Company Securities .............................................. 22 ARTICLE 4 Company and Calgene Corporate Governance ................ 23 4.1 Composition of the Board of Directors and Calgene Board ........................................... 23 4.2 Solicitation and Voting of Shares ....................... 26 4.3 Committees .............................................. 27 4.4 Approval Required for Certain Actions ................... 29 4.5 Enforcement of this Agreement ........................... 32 4.6 Certificate of Incorporation and By-laws ................ 32 4.7 Advisors ................................................ 32 4.8 Injunctive Relief ....................................... 33 ARTICLE 5 Governance of Gargiulo .................................. 33 5.1 Board of Tomato Associates .............................. 33 5.2 Operating and Strategic Plans ........................... 33 3 5.3 Compensation; Etc. ...................................... 34 5.4 Certificate of Incorporation and By-Laws ................ 34 5.5 Effective Period ........................................ 34 5.6 Injunctive Relief ....................................... 34 ARTICLE 6 Miscellaneous ........................................... 35 6.1 Governing Law ........................................... 35 6.2 Successors and Assigns .................................. 35 6.3 Entire Agreement; Amendment ............................. 35 6.4 Notices ................................................. 35 6.5 Delays or Omissions ..................................... 36 6.6 Counterparts ............................................ 36 6.7 Severability ............................................ 36 6.8 Stock Legends ........................................... 36 6.9 Sale of Assets of Tomato Associates ..................... 37 6.10 Audits, Consultants and Inspections ..................... 37 6.11 No Third Party Beneficiaries ............................ 37 6.12 Sections and Articles ................................... 38 6.13 Headings ................................................ 38
4 STOCKHOLDERS AGREEMENT ---------------------- AGREEMENT made as of the 31st day of March, 1996, by and between Calgene II, Inc., a Delaware corporation, having its principal place of business at 1920 Fifth Street, Davis, California 95616 (the "Company"), and Monsanto Company, a Delaware corporation, having its principal place of business at 800 North Lindbergh Boulevard, St. Louis, Missouri 63167 ("Monsanto"). WHEREAS, Calgene, Inc., a Delaware corporation ("Calgene"), and Monsanto have entered into an Agreement and Plan of Reorganization, dated as of October 13, 1995 (the "Reorganization Agreement"), and certain other Transaction Agreements (as defined in the Reorganization Agreement) whereby Monsanto has acquired shares of the Company's common stock, par value $.001 per share ("Common Stock") and may acquire additional shares of Common Stock; WHEREAS, the Company and Monsanto have agreed that the Company shall, at the request of a Holder (as hereafter defined), register under the Securities Act of 1933, as amended (the "Securities Act"), and register or qualify under any applicable state securities or blue sky laws the Common Stock of the Company acquired or to be acquired by Holder so as to permit a Holder to sell such Common Stock in the public markets; and WHEREAS, the Company and Monsanto have agreed on certain restrictions and obligations with respect to the management and operation of the Company, Calgene and Tomato Investment Associates, Inc., a Delaware corporation ("Tomato Associates"). NOW, THEREFORE, in consideration of the premises and the mutual covenants and conditions herein contained, the Company and Monsanto hereby agree as follows: ARTICLE 1 Effect of this Agreement ------------------------ 1.1 Effect of this Agreement. Effective upon the date hereof, and subject ------------------------ only to the conditions set forth herein, all provisions relating to the granting of registration rights and covenants related thereto made by the Company and Monsanto shall be contained in this Agreement. The registration rights and covenants provided herein set forth the sole and entire agreement between the Company and Monsanto on the subject matter of registration rights. 5 ARTICLE 2 Compliance with Securities Act ------------------------------ 2.1 Certain Definitions. As used in this Agreement, the following terms shall ------------------- have the following respective meanings (all terms defined in this Article 2 or in other provisions of this Agreement in the singular shall have the same meaning when used in the plural and vice versa): ---- ----- "Affiliate" has the same meaning as in Rule 12b-2 promulgated under the --------- Exchange Act. "Associate" has the same meaning as in Rule 12b-2 promulgated under the --------- Exchange Act. "Board" or "Board of Directors" means the Board of Directors of the ----- ------------------ Company except where the context otherwise requires. "Calgene" has the meaning set forth in the recitals herein. ------- "Calgene Board" means the Board of Directors of Calgene. ------------- "Calgene Director" means a member of the Calgene Board. ---------------- "Commission" means the Securities and Exchange Commission or any other ---------- federal agency at the time administering the Securities Act. "Common Stock" means the Common Stock, $.001 par value, of the Company. ------------ "Company" has the meaning set forth in the first paragraph hereof. ------- "Company Credit Facility" means the Holding Company Credit Facility ----------------------- Agreement made as of even date herewith between the Company and Monsanto. "Company Director" means an Independent Director who is designated for ---------------- such position by the Company in accordance with Section 4.1 hereof. "Company Management Director" means a Director who is either the Chief --------------------------- Executive Officer or Chief Operating Officer of the Company (or, if the Chief Executive Officer is the Chief Operating Officer or if there is no Chief Operating Officer, then the next most highly ranking executive officer of the Company). "Company Securities" has the meaning set forth in Section 3.1 hereof. ------------------ -2- 6 "Control Securities" means securities of the Company, other than ------------------ Restricted Securities, owned by a Holder at the time such Holder would be deemed to be an Affiliate of the Company. "Credit Facilities" means the Company Credit Facility and the Gargiulo ----------------- Credit Facility. "Director" means a member of the Board of Directors of the Company. -------- "Effective Date" means March 31, 1996. -------------- "Employment Agreements" has the meaning set forth in Section 6.9 hereof. --------------------- "Exchange Act" means the Securities Exchange Act of 1934, as amended. ------------ "Equity Security" means (i) any Common Stock or other Voting Stock, (ii) --------------- any securities of the Company convertible into or exchangeable for Common Stock or other Voting Stock or (iii) any options, rights or warrants (or any similar securities) issued by the Company to acquire Common Stock or other Voting Stock. "Financial Purchaser" means a Person (i) purchasing Company Securities ------------------- from Monsanto for investment purposes or otherwise in the ordinary course of business and not for the purpose nor with the effect of changing or influencing the control of the Company and (ii) which Person is not already primarily in the same lines of business as the Company. "Gargiulo" means Gargiulo, G.P. and Gargiulo, L.P. as such entities -------- existed prior to the Effective Date. "Gargiulo Business" means the business transacted by Tomato Associates ----------------- after the Effective Date, which business was transacted by Gargiulo prior to the Effective Date. "Gargiulo Credit Facility" means the Gargiulo Credit Facility Agreement ------------------------ made as of even date herewith between the Company and Monsanto. "Gargiulo, G.P." means Gargiulo G.P., Inc., a Delaware corporation. -------------- "Gargiulo, L.P." means Gargiulo, L.P., a Delaware limited partnership. -------------- "hereto", "hereunder", "herein", "hereof" and the like mean and refer to ------ --------- ------ ------ this Agreement as a whole and not merely to the specific article, section, paragraph or clause in which the respective word appears. -3- 7 "Holder" means Monsanto and, subject to Section 2.9 hereof and except for ------ purposes of Article 3 hereof, any subsequent holder of outstanding Registrable Securities. "Indemnified Party" has the meaning set forth in Section 2.6(c) hereof. ----------------- "Indemnifying Party" has the meaning set forth in Section 2.6(c) hereof. ------------------ "Independent Director" means a Director or Calgene Director (i) who is -------------------- not and has never been an officer or employee of Calgene, the Company, any Affiliate or Associate of Calgene or the Company or of a Person that derived five percent (5%) or more of its revenues or earnings in its most recent fiscal year from transactions involving Calgene, the Company or any Affiliate or Associate of Calgene or the Company, (ii) who is not and has never been an officer or employee of Monsanto, any Affiliate or Associate of Monsanto or of a Person that derived more than five percent (5%) of its revenues or earnings in its most recent fiscal year from transactions involving Monsanto or any Affiliate or Associate of Monsanto, (iii) who is not and never has been an officer or employee of Gargiulo, any Affiliate or Associate of Gargiulo or of a Person that derived more than five percent (5%) of its revenues or earnings in its most recent fiscal year from transactions involving Gargiulo or any Affiliate or Associate of Gargiulo, (iv) who has no affiliation, compensation, consulting or contracting arrangement with Calgene, the Company, Monsanto, Gargiulo or their respective Affiliates or Associates or any other Person such that a reasonable person would regard such Director as likely to be unduly influenced by management of Calgene, the Company or Monsanto, respectively (provided, however, that no Person shall be regarded as being unduly influenced by the management of Monsanto merely because such Person serves or previously served as a director of Monsanto or any Affiliate or Associate of Monsanto), and (v) who has an outstanding reputation for personal integrity and distinguished achievement in areas relevant to the Company. Notwithstanding the foregoing, no member of the immediate family of any Person who does not qualify to be an Independent Director by reason of clause (i), (ii), (iii) or (iv) above shall be considered an Independent Director. For purposes of the preceding sentence, the term "immediate family" shall have the same meaning as set forth in Item 404(a) of Regulation S-K. "Monsanto" has the meaning set forth in the first paragraph hereof. -------- -4- 8 "Monsanto Management Director" means a Director or Calgene Director who ---------------------------- is designated for such position by Monsanto in accordance with Section 4.1 hereof and who is or was an employee of Monsanto. "Monsanto Director" means a Director or Calgene Director, including any ----------------- Monsanto Management Director, who is designated for such position by Monsanto in accordance with Section 4.1 hereof. "New Percentage Ownership" has the meaning set forth in Section 3.6(d) ------------------------ hereof. "Non-Financial Purchaser" means a Person, other than a Financial ----------------------- Purchaser, purchasing Company Securities from Monsanto. "Operating Plan" has the meaning set forth in Section 4.4(a)(ix) hereof. -------------- "Other Selling Stockholders" has the meaning set forth in Section 2.2(c) -------------------------- hereof. "Percentage Interest" means the percentage of outstanding Voting Stock ------------------- that is controlled directly or directly by Monsanto and its Affiliates. "Person" means a corporation, association, partnership, joint venture, ------ limited liability company, individual, trust, unincorporated organization, a government agency or political subdivision thereof and any other entity. "Preliminary Prospectus" means a preliminary prospectus as contemplated ---------------------- by Rule 430 or 430A under the Securities Act included at any time in the Registration Statement. "Pre-Offering Percentage" has the meaning set forth in Section 3.1 hereof. ----------------------- "Prospectus" means (i) the prospectus as first filed with the Commission ---------- pursuant to Rule 424(b) under the Securities Act or, (ii) if no such filing is required, the form of final prospectus included in the Registration Statement at the effective date thereof or (iii) if a Term Sheet or Abbreviated Term Sheet (as such terms are defined in Rule 434(b) and 434(c), respectively, under the Securities Act) is filed with the Commission pursuant to Rule 424(b)(7) under the Securities Act, the Term Sheet or Abbreviated Term Sheet and the last Preliminary Prospectus filed with the Commission prior to the time the Registration Statement became effective, taken together (including, in each case, the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the Securities Act), together with any supplement to any of the foregoing. -5- 9 "Registration Statement" means any registration statement of the Company ---------------------- filed under the Securities Act which covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus relating thereto and all amendments and supplements to such registration statement, including post-effective amendments, all exhibits and all material incorporated or deemed to be incorporated by reference in such registration statement. "Registrable Securities" means shares of Common stock issued or issuable ---------------------- pursuant to the Transaction Agreements and all such other securities of the Company acquired by a Holder. "Register", "Registered" and "Registration", whether or not capitalized, -------- ---------- ------------ mean and refer to a registration effected by preparing and filing a Registration Statement in compliance with the Securities Act and applicable rules and regulations thereunder, and the declaration or ordering of the effectiveness of such Registration Statement. "Registration Expenses" means all expenses incurred by the Company in --------------------- compliance with this Article 2, including, without limitation, all registration fees, qualification fees, filing fees, advertising and road show expenses (excluding advertising and road show expenses incurred by a Holder), printing expenses, escrow fees, fees and disbursements of Counsel for the Company, blue sky fees and expenses, and the expense of any special audits incident to or required by any such registration (but excluding the Compensation of regular employees of the Company, which shall be paid in any event by the Company). "Reorganization Agreement" has the meaning set forth in the recitals ------------------------ herein. "Requesting Holder" means a Holder requesting any registration ----------------- pursuant to Section 2.2 hereof. "Restricted Securities" means the securities of the Company acquired by --------------------- a Holder from the Company or an Affiliate of the Company otherwise than pursuant to a public offering. "Section 16 Officers" has the meaning set forth in Section 4.3(b)(iii) ------------------- hereof. "Securities Act" means the Securities Act of 1933, as amended. -------------- "Selling Expenses" means all underwriting discounts and selling ---------------- commissions applicable to the sale of Registrable Securities. "Strategic Plan" has the meaning set forth in Section 4.4(a)(ix) hereof. -------------- -6- 10 "Subsidiary" has the same meaning as in Rule 12b-2 promulgated under the ---------- Exchange Act. "Substantial Part" means more than ten percent (10%) of the total ---------------- consolidated assets of the Company as shown on the Company's consolidated balance sheet as of the end of the most recent fiscal quarter ending prior to the time the determination is made. "Tomato Associates" has the meaning set forth in the recitals herein. ----------------- "Transaction Agreements" has the meaning set forth in the Reorganization ---------------------- Agreement. "Trigger Event" means the earlier of any time that (i) Monsanto's ------------- Percentage Interest is at least fifty-five percent (55%) or (ii) the Company elects to convert borrowings made from Monsanto into Equity Securities and Monsanto's Percentage Interest is at least fifty percent (50%) after such conversion. "Two Senior Gargiulo Officers" has the meaning set forth in Section 5.3 ---------------------------- hereof. "Unaffiliated Equity Holders" means holders of Equity Securities other --------------------------- than Monsanto or any of its Affiliates. "Voting Stock" means securities having the right to vote generally in ------------ any election of Directors of the Company (other than solely by reason of the occurrence of an event). 2.2 Requested Registration. ----------------------- (a) Request for Registration. Holders of Registrable Securities shall ------------------------ have the right to request (with such requests in writing and stating the number of shares of Registrable Securities to be disposed of and the intended method of disposition of shares by such Holders) up to two (2) registrations on Form S-3 (and up to two (2) additional registrations on Form S-3 for each conversion of outstanding principal or interest into shares of Common Stock upon the occurrence of an "Event of Default" under the Company Credit Facility or the Gargiulo Credit Facility (as defined in each such Credit Facility, respectively)) at the Company's expense and an unlimited number of additional registrations on Form S-3 at the selling Holder's expense, provided that the requests for additional registrations are made by Holders of at least ten percent (10%) of the Registrable Securities, subject only to the following: -7- 11 (i) The Company shall not be required to effect a registration pursuant to this Section 2.2 prior to September 30, 1998, unless an Event of Default has occurred and is continuing under the Company Credit Facility or under the Gargiulo Credit Facility, in which event the Company shall be required to effect a registration pursuant to this Section 2.2 at any time upon the request of a Holder with respect to any shares of Common Stock issued to a Holder upon conversion of outstanding principal or accrued interest under either the Company Credit Facility or the Gargiulo Credit Facility after the occurrence of an Event of Default under either of such agreements. (ii) The Company shall not be required to effect a registration pursuant to this Section 2.2 within one hundred eighty (180) days after the effective date of the last such registration pursuant to this Section 2.2. (iii) The Company shall not be required to effect a Registration Statement in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act or applicable rules or regulations thereunder. (iv) The Company shall not be required to effect a Registration Statement for a period of not more than ninety (90) days immediately following the delivery of a certificate signed by the President of the Company to the Requesting Holders stating that, in the good-faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such Registration Statement to be filed on or before the date filing would otherwise be required hereunder; provided, however, that the Company may not utilize this right more than once in any twelve (12) month period and the Company may not exercise this right based on the fact that the Company has recently registered any of its securities for the account of a security holder or holders exercising their respective demand registration rights. If the Company cannot qualify for registration on Form S-3, then the Company shall effect any registration required or requested by the Holder on Form S-1, or such -8- 12 other appropriate form, in which event this Section 2.2 shall apply in all respects as if the words "Form S-3" were replaced by the words "Form S-1" or the appropriate designation for such other form. (b) Notice of Inclusion. The Company shall give written notice to all ------------------- Holders of Registrable Securities of the receipt of a request for registration pursuant to this Section 2.2 and shall provide a reasonable opportunity for other Holders to participate in the registration; provided, however, that, if the registration is for an underwritten offering, then the terms of Section 2.2(c) hereof shall apply to all participants in such offering. Subject to the foregoing, the Company shall use its best efforts to effect promptly the registration of all shares of Registrable Securities on Form S-3 to the extent requested by the Holder or Holders thereof for purposes of disposition. (c) Underwriting. If the Requesting Holders intend to distribute the ------------ Registrable Securities covered by their request by means of an underwriting, then they shall so advise the Company as a part of their request made pursuant to this Section 2.2, and the Company shall include such information in the written notice referred to in Section 2.2(b) hereof. The right of any Holder to registration pursuant to this Section 2.2 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent requested and to the extent provided herein. The Company shall (together with all Holders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters of recognized national standing, selected for such underwriting by a majority in interest of the Requesting Holders and reasonably acceptable to the Company. Notwithstanding any other provision of this Section 2.2, if the representative advises the Requesting Holders in writing that marketing factors require a limitation on the number of shares to be underwritten, then the Requesting Holders shall so advise all Holders, and the number of shares of Registrable Securities that may be included in the registration and underwriting shall be allocated first among all Holders thereof in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by such Holders at the time of filing the Registration Statement. No Registrable Securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. -9- 13 If any Holder of Registrable Securities disapproves of the terms of the underwriting, then such person may elect to withdraw therefrom by written notice to the Company, the underwriter and the Requesting Holders. The Registrable Securities and/or other securities so withdrawn shall also be withdrawn from registration; provided, however, that, if, by the withdrawal of such Registrable Securities, a greater number of Registrable Securities held by other Holders may be included in such registration (up to the maximum of any limitation imposed by the underwriters), then the Company shall offer to all Holders who have included Registrable Securities in the registration the right to include additional Registrable Securities in the same proportion used to determine the underwriter limitation in this Section 2.2(c). If the underwriter has not limited the number of Registrable Securities to be underwritten, then the Company and its executive officers, and such other Persons as are determined by the Board of Directors, their successors, and their assigns ("Other Selling Stockholders"), may include securities for their own account in such registration if the underwriter so agrees and if the number of Registrable Securities held by the Holders that would otherwise have been included in such registration and underwriting will not thereby be limited for any reason, including but not limited to the price for which the Registrable Securities will be sold. To the extent that the underwriter wishes to limit the number of shares to be included in the registration on behalf of the Company and the Other Selling Stockholders, the shares of Common Stock to be registered held by the Other Selling Stockholders shall be excluded from such offering prior to excluding any shares held by the Company and those held by the Company shall be excluded prior to excluding any Registrable Securities held by the Holders. 2.3 Company Registration. -------------------- (a) Notice and Inclusion. If, at any time after September 30, 1998, the -------------------- Company shall determine to register any of its securities for its own account, other than a registration relating solely to employee benefit plans, or a registration relating solely to a Commission Rule 145 transaction, the Company shall: (i) promptly give to each Holder written notice thereof (which shall include a list of the jurisdictions in which the Company intends to attempt to qualify such securities under the applicable blue sky or other state securities laws); and -10- 14 (ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all Registrable Securities specified in a written request or requests, within twenty (20) days after receipt of the written notice from the Company, by any Holder or Holders. (b) Underwriting. If the registration of which the Company gives notice ------------ is for a registered public offering by the Company of its securities through an underwriting, then the Company shall so advise the Holders as a part of the written notice given pursuant to Section 2.3(a)(i) hereof. In such event, the right of any Holder to registration pursuant to this Section 2.3 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company, and all the Other Selling Stockholders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for underwriting by the Company. Notwithstanding any other provision of this Section 2.3, if the underwriter determines that marketing factors require a limitation on the number of shares to be underwritten, then the underwriter may exclude from such registration and underwriting some or all of the Registrable Securities held by the Holders or the stock held by Other Selling Stockholders in accordance with this Section 2.3(b). The Company shall so advise all Holders and all Other Selling Stockholders distributing their securities through such underwriting, and (i) as to the first registration in which Holders are entitled to participate pursuant to this Section 2.3, the number of Registrable Securities and other securities that may be included in the registration and underwriting shall be allocated among all Holders thereof on the basis that shares held by all the Other Selling Stockholders who are not Holders shall first be excluded to the extent required and, if further exclusion is necessary, shares held by the selling Holders shall then be excluded; provided, however, that, as among the respective Other Selling Stockholders as a group on the one hand and the Holders as a group on the other hand suffering such exclusion, the exclusion shall be in proportion, as nearly as practicable, to the amount of securities entitled to inclusion in such registration held by each of the Other Selling Stockholders as a group and each of the Holders at the time of filing the Registration Statement; and (ii) as to all subsequent registrations, the number of shares of Registrable Securities and other -11- 15 securities that may be included in the registration and underwriting shall be allocated among all Other Selling Stockholders and the Holders in proportion, as nearly as practicable, to the respective amounts of securities entitled to inclusion in such registration held by all such Other Selling Stockholders and Holders at the time of filing the Registration Statement. For purposes of the apportionment provisions in clause (i) above, for any selling Holder that is a partnership or corporation, the partners, retired partners, and shareholders of such Holder, the estate and family members of such partners and retired partners, and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "selling Holder," and any pro rata reduction with respect to such selling Holder shall be based upon the aggregate number of shares carrying registration rights owned by all entities and individuals included in such "selling Holder," as defined in this sentence. If any Other Selling Stockholder or Holder disapproves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to the Company and the underwriter. Any securities excluded or withdrawn from such underwriting shall be withdrawn from such registration. 2.4 Expenses of Registration. All Registration Expenses incurred in ------------------------ connection with any registration, qualification or compliance pursuant to this Article 2 shall be borne by the Company; provided, however, that the Registration Expenses for the fifth and all subsequent registrations under Section 2.2(a) hereof requested by the Holders shall be borne by the requesting Holders pro rata on the basis of the number of their shares so registered. All Selling Expenses relating to the securities registered by Holders and, if applicable, Other Selling Stockholders, and fees and disbursements of counsel, shall be borne by the Holders or the Other Selling Stockholders, as the case may be, of such securities pro rata on the basis of the number of their shares so registered. 2.5 Registration Procedures. ----------------------- (a) Company shall use its best efforts to register or qualify the Registrable Securities covered by such Registration Statement under such other securities or blue sky laws of such United States jurisdictions as Holder shall reasonably request and do any and all acts and things which may be necessary or desirable to enable Holder to consummate the public sale or other disposition in such jurisdictions; provided, however, that Company shall not be required in connection therewith or as a condition thereto to qualify to do business or file a general consent to service of process in any such jurisdictions. -12- 16 (b) The Company represents and warrants that, on the date of its effectiveness, the Registration Statement will comply in all material respects with the applicable requirements of the Securities Act and the rules thereunder, including without limitation Rule 415; on the date of its effectiveness, the Registration Statement will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein not misleading; provided, however, that no representation is made by Company with respect to information relative to any Holder; and the Prospectus will not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that no representation is made by Company with respect to information relative to any Holder. (c) If, at any time or times while the Registration Statement is effective, Company notifies Holder that a development has occurred or is pending which, based upon consultation with Company's legal counsel, Company reasonably believes may cause the then current Prospectus not to be in compliance with applicable securities laws, then Holder shall refrain from delivering the Prospectus and from making any offers or sales of Registrable Securities requiring the delivery of the Prospectus until such time as Company either notifies Holder that the Prospectus complies with such laws or delivers an amended Prospectus in replacement of the deficient Prospectus. Company shall use its reasonable best efforts to minimize the time during which Holder must so refrain, and no more than one (1) such period of refrain shall be imposed during any period of one hundred eighty (180) days. (d) At least two (2) business days prior to the initial filing of the Registration Statement or Prospectus and no fewer than two (2) business days prior to the filing of any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), Company shall furnish Holder, its legal counsel and the managing underwriter, if any, copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) shall be subject to review of Holder, its legal counsel and such underwriters, if any, and Company shall cause its officers and directors and the independent certified public accountants to Company to respond to such inquiries as shall be necessary, in the opinion of respective counsel to Company and any such underwriters, -13- 17 to conduct a reasonable investigation within the meaning of the Securities Act. Company shall not file any such Registration Statement or Prospectus or any amendments or supplements thereto to which Holder, its legal counsel, or the managing underwriters, if any, shall reasonably object on a timely basis (i.e., within two ---- (2) business days of receipt thereof). (e) Company shall promptly notify Holder when the Registration Statement is declared effective; notify Holder of any stop-order or similar proceeding by the Commission or any state securities authority; and furnish such number of Prospectuses, Prospectus supplements and other documents incident thereto as Holder from time to time may reasonably request. (f) In the event of any breach by Company of the provisions of Section 2.2, 2.3, 2.4 or 2.5, the parties agree that Holder will suffer irreparable harm. Accordingly, the parties agree that the provisions of Sections 2.2, 2.3, 2.4 and 2.5 are specifically enforceable by Holder and that Holder shall be entitled to temporary and permanent injunctive relief against Company and the other rights and remedies to which Holder may be entitled to at law, in equity or under this Agreement for any such breach. 2.6 Indemnification. --------------- (a) Indemnification by the Company. The Company shall indemnify each ------------------------------ Holder with respect to which registration, qualification or compliance has been effected pursuant to this Article 2, each of its officers, directors, employees, agents and partners, each Person controlling such Holder within the meaning of Section 15 of the Securities Act, each underwriter, if any, and each Person who controls any underwriter within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages and liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any Prospectus, offering circular or other document (including any related Registration Statement, notification or the like) incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of the Securities Act or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, -14- 18 qualification or compliance. The Company shall reimburse each such Holder, each of its officers, directors, employees, agents and partners, and each Person controlling such Holder, each such underwriter and each Person who controls any such underwriter for any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such expense, claim, loss, damage, liability or action; provided, however, that the Company shall not be liable in any such case to the extent that any such claim, loss, damage, liability, action or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder or underwriter and stated to be specifically for use therein. (b) Indemnification by the Holders. To the extent set forth in the ------------------------------ second sentence of this Section 2.6(b), each Holder shall, if Registrable Securities or other securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors, officers, employees and agents, each underwriter, if any, of the Company's securities covered by such a Registration Statement, each Person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, each other such Holder, each of such other Holder's officers, directors, employees, agents and partners, and each Person controlling such Holder within the meaning of Section 15 of the Securities Act against all expenses, claims, losses, damages and liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact made by the Holder and contained in any such Registration Statement, Prospectus, offering circular or other document, or any amendment or supplement thereto or incident to any such registration, qualification or compliance or based on any omission (or alleged omission) to state therein a material fact required to be made by the Holder and stated therein or necessary to make the statements therein not misleading or any violation by the Company of any rule or regulation promulgated under the Securities Act applicable to the Company in connection with such registration, qualification or compliance as a result of any statement (or based on any omission to state or alleged omission) required to be made by such Holder. Each such Holder shall reimburse the Company, such other Holders, directors, officers, employees, agents, partners, -15- 19 Persons, underwriters and control persons for any legal or any other expenses reasonably incurred in connection with investigating, preparing or defending any such expense, claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such Registration Statement, Prospectus, offering circular or other document or any amendment or supplement thereto in reliance upon and in conformity with written information furnished by the Holder to the Company by an instrument duly executed by such Holder and stated to be specifically for use therein; provided, however, that the obligations of such Holders hereunder shall be limited to an amount equal to the proceeds to each such Holder of Registrable Securities sold as contemplated herein in connection with the particular registration, qualification or compliance involved. (c) Notice. Each party entitled to indemnification under this Section 2.6 ------ (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom; provided, however, that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and that the Indemnified Party may participate in such defense at its own expense; and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 2.6 unless such failure resulted in detriment to the Indemnifying Party. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. 2.7 Information by Holder. Each Holder or Holders of Registrable Securities --------------------- in any registration shall furnish to the Company such information regarding such Holder or Holders and the distribution proposed by such Holder or Holders as the Company may reasonably request in writing but only to the extent as shall be required in connection with any registration, qualification or compliance referred to in this Article 2. -16- 20 2.8 Rule 144 Reporting. With a view to making available the benefits of ------------------ certain rules and regulations of the Commission which may permit the sale of the Restricted Securities or Control Securities to the public without registration, the Company agrees to: (a) Use its best efforts to make and keep public information available as those terms are understood and defined in Rule 144 under the Securities Act; (b) Use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); (c) For so long as a Holder owns any Restricted Securities or Control Securities, furnish to the Holder forthwith upon request (i) a written statement by the Company as to its compliance with the reporting requirements of Rule 144 and of the Securities Act and the Exchange Act, (ii) a copy of the most recent annual or quarterly report of the Company, and (iii) such other reports and documents so filed as such Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such securities without registration; and (d) When any Holder qualifies under Rule 144 for the unrestricted right of sale under Rule 144, the Company shall, upon written request of such Holder (such request to include sufficient detail as to establish how the Holder so qualifies under Rule 144), promptly remove any restrictive legend that may have been placed on any Restricted or Control Securities and issue Common Stock of the Company free of such restrictive or other legends. 2.9 Transfer of Registration Rights. The rights to cause the Company to ------------------------------- register the Registrable Securities granted to each Holder by the Company under Sections 2.2 and 2.3 hereof may be transferred or assigned to a transferee or assignee in connection with the transfer or assignment of not less than one million (1,000,000) shares of the Registrable Securities; provided, however, that the Company shall be entitled to notice of any such transfer of registration rights within thirty (30) days of the date such transfer is effected. 2.10 Limitations on Subsequent Registration Rights. No owner or prospective --------------------------------------------- owner of securities of the Company shall have any registration rights other than as set forth in this Agreement. The Company shall not, without the prior written consent of the Holders (which consent shall not be -17- 21 unreasonably withheld) of not less than sixty-six and two-thirds percent (66-2/3%) of the Registrable Securities then held by Holders, enter into any agreement with any owner or prospective owner of any securities of the Company that would allow such owner or prospective owner to include such securities in any registration filed under this Article 2 if such inclusion would adversely affect the rights of any Holder. 2.11 Termination of Registration Rights. The registration rights granted ---------------------------------- pursuant to this Article 2 shall terminate as to each Holder at such time as (a) all Registrable Securities can be sold within a given three (3) month period without compliance with the registration requirements of the Securities Act pursuant to Rule 144 supported by a written opinion of legal counsel for the Company, which opinion shall be reasonably satisfactory in form and substance to legal counsel for such Holders, and (b) all accrued interest and principal under the Company Credit Facility and the Gargiulo Credit Facility has been repaid in full or converted into Common Stock of the Company (and such Common Stock can be sold as provided in (a) above). 2.12 "Market Stand-off" Agreement. Each Holder hereby agrees that, to the ---------------------------- extent requested by the Company and an underwriter of a sale of Common Stock (or other securities) of the Company for the account of the Company and not for the account of a security holder or holders exercising their respective demand registration rights, it shall not sell or otherwise transfer or dispose of (other than to transferees who agree to be similarly bound) any Registrable Securities during the ninety (90) day period following the effective date of a registration statement of the Company filed under the Securities Act; provided, however, that all officers and directors of the Company, all Other Selling Stockholders and all other Persons with registration rights (whether or not pursuant to this Agreement) shall enter into similar agreements. To enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Holder (and the shares or securities of every other Person subject to the foregoing restriction) until the end of such ninety (90) day period. ARTICLE 3 Anti-Dilution Rights and Limitations on Owner --------------------------------------------- 3.1 Anti-Dilution Rights. If, at any time after the Effective Date, Company -------------------- agrees to sell shares of its Common Stock or other Voting Stock ("Company Securities") in a private or public offering (other than Company Securities issued pursuant to the Company's stock option plans), Holder shall have the right, but not the obligation, to acquire all or any portion of the Company Securities sufficient for Holder to -18- 22 maintain, after the offering, the same percentage of ownership of issued and outstanding Company Securities that Holder possessed immediately prior to the offering (the "Pre-Offering Percentage"). With respect to the issuance of Company Securities pursuant to the Company's stock option plans, Holder shall have a right to maintain its percentage ownership of issued and outstanding Company Securities by making open market purchases as provided in Section 3.5 hereof. 3.2 Private Offering. With respect to a private offering, other than pursuant ---------------- to a Company stock option plan, Company shall, within five (5) business days after the execution of any agreement entered into in connection with such private offering, notify Holder in writing of the proposed offering and provide Holder with copies of all related documentation, including, for example, any letter of intent and the final contract. Holder shall have twenty (20) business days from the date of receipt of Company's notice in which to advise Company whether Holder elects to exercise its rights under Section 3.1 hereof. If Holder does not respond, or if Holder indicates that it will not exercise its rights, Holder shall be considered irrevocably to have waived its rights under Section 3.1 hereof with respect to such specific private offering. If Holder timely advises Company that Holder will exercise its rights under Section 3.1 hereof, Holder shall have the right to acquire all or any portion of the necessary amount of the Company Securities to maintain Holder's Pre- Offering Percentage at the price or value of the consideration specified in the private offering agreement entered into between Company and the purchaser. Closing shall be in accordance with the terms of the private offering agreement, and Holder shall make such investment representations to Company and shall provide Company with such other documentation at closing as is reasonably required by Company to comply with applicable securities laws. 3.3 Public Offering. With respect to a public offering, Company shall notify --------------- Holder no later than five (5) business days after Company has entered into a letter of intent with its underwriters, and shall provide Holder with a copy of the letter of intent. Holder shall have twenty (20) business days from the date of receipt of Company's notice in which to advise Company whether Holder elects to exercise its rights under Section 3.1 hereof. If Holder does not respond or if Holder indicates that it will not exercise its rights, Holder shall be considered irrevocably to have waived its rights under Section 3.1 hereof with respect to the public offering. If Holder timely advises Company that Holder desires to retain its rights under Section 3.1 hereof, then, when Company files a Registration Statement containing a Preliminary Prospectus with the Commission, Company shall provide Holder with copies of the Preliminary Prospectus and all subsequent amendments. Holder shall have twenty (20) -19- 23 business days from its receipt of the Preliminary Prospectus in which to exercise its rights under Section 3.1 hereof by making an offer to acquire all or any portion of the necessary amount of Company Securities to maintain Holder's Pre-Offering Percentage based on the price, less all Selling Expenses, and the other terms contained in the final Prospectus. No such offer to buy shall be accepted prior to the time that the Registration Statement becomes effective. The Registration Statement shall indicate that Holder has anti-dilution rights to purchase Company Securities on the terms offered to the public. 3.4 Limitations. Notwithstanding the preceding provisions of this Article 3, ----------- Company shall not be required to issue any fractional shares as a result of Holder's exercise of its rights under Section 3.1 hereof. Company shall not be required to transfer any Company Securities to Holder under this Article 3 if to do so would result in the violation of any applicable law, rule or regulation. 3.5 Open Market Purchases to Maintain Ownership Percentage. Notwithstanding ------------------------------------------------------ any other provision hereof, at any time after the Effective Date, Holder may make such open market purchases of Company Securities as are necessary to maintain Holder's percentage of ownership of issued and outstanding Company Securities at forty-nine and nine-tenths percent (49.9%) (or such higher percentage as may be permitted under Section 3.6 hereof) or to increase its percentage of ownership of issued and outstanding Company Securities to forty-nine and nine-tenths percent (49.9%) (or such higher percentage as may be permitted under Section 3.6 hereof). With respect to the issuance of Company Securities pursuant to a Company stock option plan or any warrant, conversion right or other option, Company shall notify Holder no later than ten (10) calendar days after the end of each calendar quarter and within ten (10) calendar days of the record date for a shareholder meeting and for dividend payments for Company Securities of the number of shares and issuance price of Company Securities issued pursuant to Company's stock option plans or any warrant, conversion right or other option subsequent to the last notice given pursuant to this Section 3.5 so as to enable Holder to make open market purchases of Company Securities as permitted under this Section 3.5. 3.6 Limitations on Holder's Ownership. Except for purchases of Company --------------------------------- Securities made in accordance with this Article 3, during the term of this Agreement, Holder shall not directly or indirectly acquire any Company Securities except as follows: -20- 24 (a) Prior to the first anniversary of the Effective Date, Holder shall not increase its percentage of ownership of issued and outstanding Company Securities above forty-nine and nine-tenths percent (49.9%) except through one (1) or more of the following: (i) Conversion of principal and/or interest under the Company Credit Facility or the Gargiulo Credit Facility into shares of Common Stock; (ii) Issuance of Company Securities in an asset sale by Holder to Company; and (iii) A tender offer by Holder for no less than one hundred percent (100%) of the publicly-traded Company Securities at a price approved by the disinterested Directors of Company and based upon a fairness opinion delivered to the Board of Directors of the Company by an investment banking firm. (b) On and after the first anniversary of the Effective Date until the earlier of September 30, 1998, or the third anniversary of the Effective Date, Holder shall not increase or further increase its ownership of issued and outstanding Company Securities above forty- nine and nine-tenths percent (49.9%) except through one (1) or more of the following: (i) Conversion of principal and/or interest under the Company Credit Facility or the Gargiulo Credit Facility into shares of Common Stock; (ii) Issuance of Company Securities in an asset sale by Holder to Company; and (iii) A tender offer by Holder to increase its ownership to seventy percent (70%) or more of the issued and outstanding Company Securities at a price approved by the disinterested Directors of Company and based upon a fairness opinion delivered to the Board of Directors of the Company by an investment banking firm; provided, however, that, if Holder makes a tender offer to increase its ownership to more than eighty percent (80%) of the issued and outstanding Company Securities, such tender offer must be for one hundred percent (100%) of the publicly traded Company Securities. (c) After the earlier of September 30, 1998, or the third anniversary of the Effective Date, Holder may increase its ownership of Company Securities through open market purchases or otherwise. -21- 25 (d) If, at any time after the Effective Date, Holder shall elect to increase its percentage of ownership of issued and outstanding Company Securities above forty-nine and nine-tenths percent (49.9%) as provided in paragraphs (a) and/or (b) above (such increased percentage hereafter being the "New Percentage Ownership"), then thereafter Holder may make such open market purchases of Company Securities as are necessary to maintain such New Percentage Ownership or to increase its percentage of ownership of issued and outstanding Company Securities to such New Percentage Ownership. (e) Holder shall not be required to dispose of any Company Securities if Holder's percentage ownership of Company Securities is increased as a result of any recapitalization by Company or any other action taken by Company. 3.7 Limitations on Holder's Resale of Company Securities. Holder shall not ---------------------------------------------------- directly or indirectly sell any Company Securities (other than to an Affiliate of Holder) except as follows: (a) On and after the first anniversary of the Effective Date until the earlier of September 30, 1998, or the third anniversary of the Effective Date, Holder may sell Company Securities (i) as part of a joint venture, merger or sale of all or substantially all of its current Crop Protection business unit, as such business may be subsequently renamed or reorganized, or (ii) pursuant to a tender offer by a third party to the shareholders of Company. (b) After the earlier of September 30, 1998, or the third anniversary of the Effective Date, in addition to the rights to sell Company Securities set forth in paragraph (a) above, Holder may sell Company Securities (i) in a registered public offering pursuant to the registration rights granted to Holder under this Agreement, (ii) through sales pursuant to Rule 144 under the Securities Act, (iii) through sales of not more than ten percent (10%) of the total issued and outstanding Company Securities to a Non-Financial Purchaser, or (iv) through sales to a Financial Purchaser. (c) After the earlier of September 30, 1999, or the fourth anniversary of the Effective Date, in addition to the rights to sell Company Securities as set forth in paragraphs (a) and (b) above, Holder may sell Company Securities through a private sale of thirty-five percent (35%) or more of the total issued and outstanding -22- 26 Company Securities to a Non-Financial Purchaser under circumstances where such third party assumes the applicable and proportionate rights and obligations of Holder under this Agreement and the other Transaction Agreements. (d) Notwithstanding the foregoing, at any time after the Effective Date, Holder may sell Company Securities issued to Holder upon conversion by Holder of principal or accrued interest under either of the Credit Facilities after the occurrence of an Event of Default under either of such Credit Facilities. ARTICLE 4 Company and Calgene Corporate Governance ---------------------------------------- 4.1 Composition of the Board of Directors and Calgene Board. The number of ------------------------------------------------------- Directors comprising both the Board of Directors and the Calgene Board and the manner of nominating the members thereof shall be as follows: (a) The number of Directors comprising the Board of Directors shall initially be fixed at nine (9) Directors. The number of such Directors may be increased only in accordance with Section 4.1(c) or Section 4.4(a)(xii) hereof. The parties agree that the manner of nominating, and the governance provisions relating to, the Board of Directors and the Calgene Board shall be identical, and that the provisions of this Section 4.1 set forth below and of Sections 4.3(c) and 4.3(d) hereof shall be deemed to apply equally to the Calgene Board and Calgene Directors. Accordingly, when applied to the Calgene Board, the term "Director" shall be deemed to mean "Calgene Director", the term "Company", whether used alone or as a modifier, shall be deemed to mean "Calgene", and the term "Board of Directors" shall be deemed to mean "Calgene Board". (b) Until the occurrence of a Trigger Event, the Corporation shall nominate for election as Directors: (i) two (2) Corporation Management Directors, (ii) three (3) Corporation Directors, and (iii) four (4) Directors designated by Monsanto, at least one (1) of which shall be an Independent Director. (c) At and after the occurrence of a Trigger Event, the Board of Directors shall be comprised of eleven (11) Directors and the Corporation shall nominate, subject to paragraph (d) below, two (2) additional Directors designated by Monsanto for a total of six (6) nominees to be designated by Monsanto. -23- 27 (d) At any time that Monsanto's Percentage Interest is at least seventy percent (70%), (i) the Corporation shall nominate: (i) eight (8) Directors designated by Monsanto, which shall consist of the two (2) Corporation Management Directors and six (6) other Monsanto Directors (including at least one (1) Independent Director) and (ii) three (3) Independent Directors. At such time as Monsanto's Percentage Interest is at least ninety-nine percent (99%), the Corporation shall nominate eleven (11) Directors designated by Monsanto. (e) Notwithstanding anything in the foregoing paragraphs (b), (c) and (d) to the contrary,(i) at any time Monsanto's Percentage Interest is less than forty percent (40%) but at least twenty percent (20%). The Corporation shall nominate three (3) Directors designated by Monsanto, (ii) at any time Monsanto's Percentage Interest is less than twenty percent (20%) but at least ten percent (10%), the Corporation shall nominate two (2) Directors designated by Monsanto and (iii) at any time Monsanto's Percentage Interest is less than ten percent (10%) but at least five percent (5%), the Corporation shall nominate one (1) Director designated by Monsanto. If, at any time, Monsanto's Percentage Interest is less than five percent (5%), the Corporation shall not be obligated to nominate any Director designated by Monsanto. At any such time, all other Directors, other than the Corporation Management Directors, shall be nominated by the Corporation. (f) The Independent Directors to be nominated by the Corporation from time to time shall be nominated by action of a majority of the Corporation Directors then in office. In the event that no Corporation Directors are in office at such time, such Independent Directors shall be nominated by a majority of the Independent Directors then in office; provided, however, that the holders of a -------- ------- majority of the outstanding Voting Stock held by Unaffiliated Equity Holders shall be entitled to nominate and elect Corporation Directors in lieu of any individuals so nominated to be such Corporation Directors by a majority of the Corporation Directors. (g) The Corporation and Monsanto, respectively, shall have the right to nominate any replacement for a Director nominated in accordance with this Section 4.1 by the Corporation or Monsanto, respectively, upon the death, resignation, retirement, disqualification or removal from office for cause of such Director. Such replacement for any Independent Director shall also be an Independent Director unless, in the case of a replacement of a Monsanto Director, the Monsanto Directors include more than the required number of Independent Directors. The Board of Directors shall -24- 28 elect each person so nominated by Monsanto or the Corporation pursuant to this paragraph (g). In addition, the Board of Directors shall nominate the Corporation's Chief Executive Officer to replace such officer's predecessor in office as a Corporation Management Director. (h) In the event that the number of Monsanto Directors on the Board of Directors differs from the number that Monsanto has the right (and wishes) to designate for nomination pursuant to this Section 4.1, (i) if the number of Monsanto Directors exceeds such number, Monsanto shall promptly take all appropriate action to cause to resign that number of Monsanto Directors as is required to make the remaining number of such Monsanto Directors conform to this Section 4.1 or (ii) if the number of Monsanto Directors otherwise is less than such number, the Corporation shall promptly take all necessary action to create sufficient vacancies on the Board of Directors to permit Monsanto to designate the full number of Monsanto Directors which it is entitled (and wishes) to nominate pursuant to this Section 4.1 (such action to include seeking the resignation or removal of Directors or, at the request of Monsanto, calling a special meeting of the stockholders of the Corporation for the purpose of removing Directors to create such vacancies to the extent permitted by applicable law). Upon the creation of any vacancy pursuant to the preceding sentence, Monsanto shall nominate the person to fill such vacancy in accordance with this Section 4.1 and the Board of Directors shall elect each person so nominated. Notwithstanding the foregoing, at each annual meeting of the stockholders of the Corporation, the Corporation shall nominate such number of Directors as Monsanto is otherwise entitled to designate under this Section 4.1. (i) Notwithstanding anything herein to the contrary, no individual who is an officer, director, employee, agent, partner or principal stockholder of any competitor of the Corporation or any of its Affiliates (other than Monsanto and its Affiliates) or any competitor of Monsanto or any of its Affiliates (other than the Corporation) shall serve as a Director without the unanimous consent of the Board of Directors. (j) In the event that Monsanto desires to remove any Monsanto Director with or without cause and Monsanto is unable to procure the resignation of such Monsanto Director, then, upon the request of Monsanto, the Board of Directors shall promptly call a special meeting of stockholders of the Corporation for purposes of removing such Monsanto Director. In the event that the Corporation desires to remove any Corporation Director -25- 29 with or without cause and the Corporation is unable to procure the resignation of such Corporation Director, then, upon the request of a majority of the Corporation Directors then in office (or, in the event no Corporation Directors are then in office, upon the request of a majority of the Independent Directors then in office), the Board of Directors shall promptly call a special meeting of stockholders of the Corporation for purposes of removing such Corporation Director. In the event that the Chief Executive Officer's employment with the Corporation is terminated for any reason, then upon the request of either Monsanto or a majority of the Corporation Directors then in office (or, in the event no Corporation Directors are then in office, upon the request of a majority of the Independent Directors then in office), the Board of Directors shall promptly call a special meeting of stockholders of the Corporation for the purpose of removing such person as a Corporation Management Director. 4.2 Solicitation and Voting of Shares. --------------------------------- (a) The Company shall use its best efforts to solicit from the stockholders of the Company eligible to vote for the election of Directors proxies in favor of the Company Management Directors and the nominees designated in accordance with Section 4.1 hereof or the removal of any Director pursuant to Section 4.1(h) or 4.1(j) hereof. (b) In any election of Directors or any meeting of the stockholders of the Company called expressly for the removal of Directors, so long as the Board of Directors includes (and will include after any such removal) the number of Monsanto Directors contemplated by Section 4.1 hereof and so long as such meeting is properly called and Monsanto is properly notified in accordance with the Company's by-laws and certificate of incorporation, Monsanto and its Affiliates shall attend such meeting for purposes of establishing a quorum and shall vote all their shares of Voting Stock (i) in favor of any nominee or Director designated in accordance with Section 4.1 hereof, (ii) in favor of removal of any Director as contemplated by Section 4.1(h) or 4.1(j) hereof, and (iii) otherwise against the removal of any Director designated in accordance with Section 4.1 hereof (other than in cases of removal of a Director for cause); provided, however, that, if Monsanto and its Affiliates elect to cumulate their votes in accordance with the Company's by-laws and certificate of incorporation, then, in any vote electing Monsanto Directors, Monsanto and its Affiliates may cast all of their votes in favor of one (1) or more of the Monsanto Directors designated by Monsanto and in any vote with respect to the removal of a Monsanto Director, Monsanto and its Affiliates may -26- 30 cast all or any portion of their votes either in favor or against the removal of any Monsanto Director unless a Monsanto Director is otherwise required to be removed in accordance with Section 4.1(h) hereof. In any other matter submitted to a vote of the stockholders of the Company, Monsanto and its Affiliates may vote any or all of their shares in their sole discretion. (c) Monsanto agrees that it will, and will cause any of its Subsidiaries (other than the Company and its Subsidiaries) to, take all action as a stockholder of the Company or as is otherwise reasonably within its control, as necessary to effect the provisions of this Agreement, including, without limitation, voting all shares of Voting Stock in favor of all persons nominated in accordance with Section 4.1 hereof; provided, however, that, if Monsanto cannot so take actions to give effect to all of the provisions of this Agreement, it may first take actions to ensure that it receives all of its benefits hereunder and then, to the extent possible, to give effect to the provisions in favor of the Company. 4.3 Committees. ---------- (a) The Board of Directors shall establish, empower and maintain the committees of the Board of Directors contemplated by this Section 4.3. (b) The following committees shall be established, empowered and maintained by the Board of Directors at all times during the term of this Agreement: (i) an Audit Committee, consisting of at least three (3) of the Company's Independent Directors, which committee shall be authorized and empowered to cause an audit to be performed of the Company and each of its Subsidiaries; (ii) until the occurrence of a Trigger Event, a Retention/Replacement Committee, consisting of the Independent Directors then serving on the Board, responsible for the retention and/or replacement of all of the executive officers of the Company, to be based on the financial and behavioral criteria established by the Retention/Replacement Committee; in the event that such committee decides to replace any executive officer, Monsanto shall have the right to nominate a replacement for such executive officer for consideration by the committee along with any other candidates identified by such committee; the rights of the Retention/Replacement Committee shall be subject to the provisions set forth in Section 4.4(a)(viii) hereof; -27- 31 (iii) a Compensation Committee, responsible, among other things, for recommending to the Board of Directors, for approval by a majority of the Board of Directors, (a) the adoption and amendment of all employee benefit plans and arrangements, (b) the engagement of, terms of any employment agreements and arrangements with, and termination of, all persons designated by the Company as "officers" for purposes of Section 16 of the Exchange Act ("Section 16 Officers"), (c) the policies, limitations and procedures under which the Stock Option Plan Administration Committee shall operate and (d) the granting under the Company's employee benefit plans of stock options and other equity rights to Section 16 Officers, and consisting solely of the Independent Directors then serving on the Board provided each such Independent Director is (A) a disinterested person (as such term is defined in Rule 16b-3(d) under the Exchange Act) and (B) an "independent director" for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended; and (iv) such other committees as the Board of Directors deems necessary or desirable; provided, however, that such committees are established in compliance with Section 4.4(a)(vi) hereof. For purpose of clause (ii) above, "executive officers" shall have the same meaning as in Rule 3b-7 promulgated under the Exchange Act. (c) Except as otherwise provided in Section 4.3(b) hereof or as agreed by a majority of the Monsanto Management Directors, the number of Monsanto Directors on each committee of the Board of Directors shall be the same proportion (but not less than one (1)) of the total membership of such committee as the number of Monsanto Directors, as the case may be, is of the entire Board of Directors. Except as otherwise provided in Section 4.3(b) hereof, the Monsanto Directors on each committee of the Board of Directors shall be determined by a majority of the Monsanto Management Directors. (d) No action by any committee of the Board of Directors shall be valid unless taken by unanimous written consent as provided in the Company's by-laws or taken at a meeting for which adequate notice has been duly given or waived by the members of such committee. Such notice shall include a description of the general nature of the business to be transacted at the meeting, and no other business may be transacted at such meeting unless all members of the committee are present and consent to the consideration of such other business. Any committee -28- 32 member unable to participate in person at any meeting shall be given the opportunity to participate by telephone. The Board of Directors or the remaining committee members shall designate an Independent Director or Company Management Director Director to replace any absent or disqualified Independent Director member or Company Management Director member, respectively, of any committee and a majority of the Monsanto Management Directors shall designate a Monsanto Director to replace any absent or disqualified Monsanto Director member of any committee. Each of the committees established by the Board of Directors pursuant to this Section 4.3 shall establish such other rules and procedures for its operation and governance (consistent with the terms of this Agreement) as it shall see fit and may seek such consultation and advice as to matters within its purview as it shall require. 4.4 Approval Required for Certain Actions. ------------------------------------- (a) On and after the Effective Date and until the earlier of a Trigger Event or such date on which Monsanto's Percentage Interest is less than twenty-five (25%), a majority of the board, including at least one (1) Company Director and one (1) Monsanto Management Director, shall be required to approve any of the following: (i) the entry by the Company or any of its affiliates into any merger or consolidation or the acquisition by the Company or any of its Affiliates of any business or assets that would constitute a Substantial Part of the Company (determined on a consolidated basis) whether such acquisition be by merger of consolidation or the purchase of stock or assets or otherwise; (ii) the sale, pledge, grant of security interest in, transfer, retirement or other disposal of (A) a Substantial Part of the Company (determined on a consolidated basis), except pursuant to a security interest granted in connection with borrowings permitted under subsection (iv) below or (B) the pledge or granting of a security interest in any intangible property set forth in Exhibit B attached to the disclosure letter from --------- Monsanto to Calgene dated June 27, 1995; (iii) any dividend by or return of capital by the Company or Tomato Associates (other than such distributions by Tomato Associates to the Company as are necessary for the Company to timely perform its obligations under Sections 1.02 and 5.02(c) of the Gargiulo Credit Facility); -29- 33 (iv) any incurrence or assumption, in the aggregate, by the Company, any of its Affiliates or any combination thereof, of any indebtedness for borrowed money at any time outstanding exceeding in the aggregate (determined on a consolidated basis) the greater of (i) Fifteen Million Dollars ($15,000,000), increasing by Five Million Dollars ($5,000,000) on each July 1 commencing July 1, 1996, plus amounts secured by inventory and/or receivables for seasonal working capital lines and indebtedness incurred to acquire property, plant or equipment and secured by the acquired asset, minus amounts outstanding ----- under the Company Credit Facility, or (ii) the amounts set forth in the Company's Operating Plan (hereinafter defined), provided that loans under the Gargiulo Credit Facility shall not be counted in this limitation; (v) the repurchase or redemption of any Equity Securities of the Company, other than from employees upon termination of employment or service; (vi) the establishment of any new committees of the Board (or the Calgene Board) or new or revised delegation(s) of Board (or the Calgene Board) authority to any Board (or Calgene Board) committee or changes or revisions to general delegations of authority to officers or other Persons for categories of expenditures; (vii) the adoption of or amendment to any benefit or incentive plans of the Company or any of its Affiliates which would increase the annual cost thereof by more than fifteen percent (15%) from the prior fiscal year or any adoption of, or amendment to, any stock option plan; (viii) the election, appointment or removal of the Chief Executive Officer, Chief Operating Officer or Chief Financial Officer of the Company and Calgene and their successors and the establishment of their annual or long term compensation level and benefits and basis for awards (other than agreements in effect on the Effective Date); provided, however, that Monsanto shall have the right to select the Chief Technical Officer of the Company and a controller reporting to the Chief Financial Officer of the Company; (ix) approval of the annual operating plan ("Operating Plan") and long-term strategic plan ("Strategic Plan") of the Company and its Affiliates, as well -30- 34 as the annual operating plan and long-term strategic plan for the Gargiulo Business, to be submitted to the Board annually for approval, and any material changes thereto; (x) any transaction between the Company (and its Affiliates), on the one hand, and its (their) directors, officers or employees, on the other hand, which is not in the normal course of business; (xi) any modification of the Transaction Agreements; (xii) any amendment of the by-laws or certificate of incorporation of the Company, Calgene or Tomato Associates by the respective Boards of Directors thereof; (xiii) the issuance of any warrants for the purchase of Equity Securities or the issuance of additional Equity Securities (other than warrants for the purchase of Equity Securities) in excess of four million (4,000,000) shares of Common Stock in any two (2) year period to a third party, other than pursuant to plans referred to in subsection (vii) above; (xiv) the sale or licensing by the Company or any of its Affiliates of (A) any intangible property set forth in Exhibit B attached --------- to the disclosure letter from Monsanto to Calgene dated June 27, 1995 or (B) any other intangible property for consideration (other than royalties contingent on future sales) exceeding Five Million Dollars ($5,000,000) in the aggregate (determined on a consolidated basis) per transaction or per series of related transactions; (xv) new fixed capital investments, capital leases or noncancellable operating leases by the Company and its Affiliates having annual payments in the aggregate (determined on a consolidated basis) exceeding the aggregate amount set forth in the Operating Plan; (xvi) matters covered in Article 5 hereof, including, without limitation, any changes in the composition of the Tomato Associates' Board of Directors other than with respect to Messrs. Salquist and Stacey; (xvii) any press release which mentions or directly or indirectly refers to Monsanto, except as required by law and where Board approval cannot be obtained in a timely manner; -31- 35 (xviii) the initiation, settlement or termination of any suit or proceeding concerning intellectual property, any other matter which could have an adverse public affairs effect upon Monsanto or the filing of any insolvency or bankruptcy proceeding by or on behalf of the Company or any of its Affiliates; or (xix) the removal or election of the directors, subject to Section 5.1 hereof, of Tomato Associates. (b) After a Trigger Event and until the earlier of (i) the third anniversary of the Effective Date or (ii) Monsanto's Percentage Interest is at least seventy percent (70%), a majority of the Board, including at least two (2) Company Directors, shall be required to approve any of the following: (i) Except as provided in Section 4.4(a)(xvi) hereof, the matters set forth in subsections (i), (ii), (vi), (viii), (ix) and (xi) of paragraph (a) above; or (ii) Any transaction between the Company (and its Affiliates) and Monsanto or any Affiliate of Monsanto. (c) From and after the occurrence of both (i) a Trigger Event and (ii) the third anniversary of the Effective Date, and until Monsanto's Percentage Interest is at least ninety-nine percent (99%), neither Monsanto nor any of its Affiliates shall enter into any transaction with the Company or any of its Affiliates without the approval of at least two (2) Company Directors. 4.5 Enforcement of this Agreement. A majority of the Company Directors ----------------------------- shall have full and complete authority on behalf of the Company to enforce the terms of this Agreement. 4.6 Certificate of Incorporation and By-Laws. The Company and Monsanto ---------------------------------------- shall take or cause to be taken all lawful action necessary to ensure at all times that the Company's and Calgene's Certificate of Incorporation and By-laws are not at any time inconsistent with the provisions of this Agreement. Not later than the Effective Date, the Board of Directors shall amend the Company's By-laws and the Calgene Board shall amend Calgene's By-laws to reflect the provisions of this Agreement. 4.7 Advisors. The Company Directors shall be entitled to retain, at the cost -------- and expense of the Company, the services of an investment banking firm of national reputation of their -32- 36 choice and one (1) law firm of their choice to advise them in their capacity as Independent Directors with respect to any matter on which the Company Directors are required or permitted to act hereunder. 4.8 Injunctive Relief. In the event of a breach of the provisions of this ----------------- Article 4, a party hereto entitled to rights under this Article 4 will suffer irreparable harm and the total amount of monetary damages will be impossible to calculate and will therefore be an inadequate remedy. Accordingly, in such event, such party shall be entitled to temporary and permanent injunctive relief against the Company and any other breaching party and to any other rights and remedies to which such party may be entitled to at law or in equity. ARTICLE 5 Governance of Gargiulo ---------------------- 5.1 Board of Tomato Associates. -------------------------- (a) Upon the Effective Date, the Board of Directors of Tomato Associates shall consist of Jeffrey D. Gargiulo, John Gargiulo, Hendrik A. Verfaillie, Robert T. Fraley, Roger H. Salquist, Roderick N. Stacey and an additional director who shall be (and whose successor shall be) designated by the company who shall need to be reasonably acceptable to Monsanto and Jeffrey D. Gargiulo (as long as he serves as a director). In addition, the Board of Directors of Tomato Associates shall include two (2) advisory, non-voting directors designated by Monsanto from members of the senior management of Tomato Associates. Upon request by Monsanto, Company shall remove and replace Messrs. Verfaillie and Fraley, and their respective successors, and replace them with Persons designated by Monsanto. (b) The Chief Executive Officer and Chairman of the Board of Tomato Associates shall be Jeffrey D. Gargiulo as long as he is employed by Tomato Associates. The Board of Directors of Tomato Associates shall appoint a Vice Chairman of the Board, Chief Operating Officer, Senior Vice President and such other positions as they may designate. 5.2 Operating and Strategic Plans. The annual operating plan and long-term ----------------------------- strategic plan for the Gargiulo Business shall be subject to approval by the Board of Directors in accordance with Section 4.4 hereof. The annual operating plan shall include, among other things: (i) capital expenditure budget, (ii) borrowing forecast, (iii) monthly profit and loss, cash flow and balance sheet forecasts, (iv) hiring and compensation plans, (v) profit and loss forecasts by crop -33- 37 production area, (vi) material asset acquisition plans and (vi) account level details for each cost center. From and after the approval of each annual operating plan for a fiscal year (or portion thereof), the Board of Directors of Tomato Associates shall have authority to operate the Gargiulo Business during such year in the ordinary cause of business and within the confines of such annual operating plan and the strategic plan then in effect (as it may be modified by the Board of Directors of Tomato Associates, subject to approval of the Board of Directors in accordance with Section 4.4 hereof) and other delegations of authority from the Board of Directors which shall be similar in scope to the delegation of such Board to the Chief Executive Officer of the Company (except that such delegations shall apply solely to the Gargiulo Business). As of the Effective Date, the Board of Directors shall approve, as part of the strategic plan for the Gargiulo Business, the branded tomato strategy plan previously approved by Monsanto. 5.3 Compensation; Etc. The initial compensation for the Chief Executive ------------------ Officer and the Chief Operating Officer of Tomato Associates (the "Two Senior Gargiulo Officers") shall be determined by agreement of Monsanto and the company prior to the Effective Date. Thereafter, the compensation of the Two Senior Gargiulo Officers shall not be reduced without the approval of Monsanto. The initial employment agreements for the Two Senior Gargiulo Officers shall be upon terms agreed to by Monsanto and the Company prior to the Effective Date. The employment of any of the Two Senior Gargiulo Officers with Tomato Associates shall not be terminated without the approval of the Board of Directors of Tomato Associates. 5.4 Certificate of Incorporation and By-Laws. The Company shall take or ---------------------------------------- cause to be taken all lawful action necessary to ensure at all times that Tomato Associates' Certificate of Incorporation and By-Laws are not at any time inconsistent with the provisions of this Agreement. Not later than the Effective Date, the Board of Directors shall cause Tomato Associates to amend Tomato Associates' By-Laws to reflect the provisions of this Agreement. 5.5 Effective Period. The provisions of Sections 5.1, 5.2, 5.3 and 5.4 ---------------- shall be effective from the Effective Date until the earlier of (a) a Trigger Event or (b) such time as Monsanto's Percentage Interest is less than forty percent (40%). 5.6 Injunctive Relief. In the event of a breach of the provisions of this ----------------- Article 5, a party hereto entitled to rights under this Article 5 will suffer irreparable harm and the total amount of monetary damages will be impossible to calculate and will therefore be an inadequate remedy. -34- 38 Accordingly, in such event, such party shall be entitled to temporary and permanent injunctive relief against the Company and any other breaching party and to any other rights and remedies to which such party may be entitled to at law or in equity. ARTICLE 6 Miscellaneous ------------- 6.1 Governing Law. This Agreement shall be governed in all respects by the ------------- laws of the State of Delaware (exclusive of such state's choice of laws rules). 6.2 Successors and Assigns. Except as otherwise provided herein, the ---------------------- provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto. 6.3 Entire Agreement; Amendment. This Agreement and the other documents --------------------------- delivered pursuant hereto constitute the complete, exclusive and final understanding and agreement between the parties with regard to the subjects hereof and thereof. Except as specifically set forth herein, any term of Section 2 or 3 hereof may be waived only with the prior written consent of the Company and the Holders of at least sixty-six and two-thirds (66-2/3%) of the outstanding shares of the Registrable Securities. Any amendment or waiver effected in accordance with this Section 6.3 shall be binding upon each holder of the Registrable Securities (including securities into which such Registrable Securities have been converted) outstanding at the time, each future Holder of all such securities, and the Company. 6.4 Notices. Any notice required or permitted to be given under this ------- Agreement shall be in writing, and shall be deemed sufficiently given when delivered in person or transmitted by telegram or telecopier (confirmed by mail), addressed as follows: If to Monsanto: Monsanto Company 800 North Lindbergh Boulevard St. Louis, Missouri 63167 Attention: Senior Vice President and General Counsel Telecopy Number: 314-694-3011 If to any other Holder, at such address and telecopy number as such Holder shall have furnished the Company in writing. -35- 39 If to Company: Calgene, Inc. 1920 Fifth Street Davis, California 95616 Attention: Chairman and Chief Executive Officer Telecopy Number: 916-753-1510 or to such other address as may be specified from time to time in a notice given by such party. The parties agree to acknowledge in writing the receipt of any such notice delivered in person. 6.5 Delays or Omissions. No delay or omission to exercise any right, power ------------------- or remedy accruing to any Holder of any Registrable Securities, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy of such Holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party or any waiver on the part of any party of any provisions or conditions of this Agreement must be made in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, at law, in equity or otherwise afforded to any party, shall be cumulative and not alternative. 6.6 Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 6.7 Severability. In the event that any provision of this Agreement becomes ------------ or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided, however, that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party. 6.8 Stock Legends. Subject to Section 2.8(d) hereof, certificates ------------- representing Restricted Securities (other than Restricted Securities issued to Monsanto in connection with the conversion of principal and/or accrued interest under the Company Credit Facility or the Gargiulo Credit Facility upon the occurrence of an Event of Default under either such Credit Facility) issued to Monsanto pursuant to the Transaction Agreements shall bear the following legend: "The securities represented by this certificate are subject to certain resale restrictions and entitled to the benefits set forth in a Stockholders Agreement dated -36- 40 March 31, 1996, between Calgene II, Inc., a Delaware corporation, and Monsanto Company, a Delaware corporation (the "Agreement"). A copy of the Agreement and all amendments thereto is on file in the office of the Secretary of the Company." 6.9 Sale of Assets of Tomato Associates. For so long as Jeffrey Gargiulo ----------------------------------- or Robert Shulman are employed by Tomato Associates under employment agreements with Tomato Associates (the "Employment Agreements"), the Company shall cause Tomato Associates not to sell or otherwise dispose of (by merger, consolidation or otherwise) all or substantially all of its assets unless the acquiring entity assumes all of Tomato Associates' obligations under each of the Employment Agreements then in effect. 6.10 Audits, Consultants and Inspections. Monsanto (using Monsanto's internal ----------------------------------- and/or external auditors or any other Person appointed by Monsanto to whom the Company does not reasonably object) shall have the right (i) to audit the books and records, other financial information and business practices and operations of the Company and its Affiliates, and (ii) to discuss the business practices and operations, affairs, finances and accounts of the Company and its Affiliates with the officers of the Company and its Affiliates and the independent public accountants who review or audit the Company's financial statements, all at such reasonable times and as often as may reasonably be requested. The Company shall also permit inspection of its (and its Affiliates') properties, books and records by Monsanto (using the Persons identified above) during normal business hours or at other reasonable times. The scope of all such audits, discussions and inspections shall be determined by Monsanto in its sole discretion. Any authorized representative of Monsanto who or which is not employed by Monsanto (i) shall be required to execute a confidentiality agreement in a form approved by the Board of Directors (which approval shall not be unreasonably withheld or delayed) and (ii) may not be employed by or affiliated with a competitor of the Company, as reasonably determined by the Board of Directors; provided, however, that an independent certified public accounting firm shall not be deemed to be employed by or affiliated with a competitor of the Company even if such firm provides services to a competitor of the Company. 6.11 No Third Party Beneficiaries. Nothing contained in this Agreement, ---------------------------- express or implied, is intended to or shall confer upon anyone other than the parties hereto (and their successors and assigns, including, without limitation, subsequent Holders and purchasers under Section 3.7(c)) any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. -37- 41 6.12 Sections and Articles. All sections and articles referred to herein are --------------------- sections and articles of this Agreement. 6.13 Headings. Headings as to the contents of particular articles and -------- sections are for convenience only and are in no way to be construed as part of this Agreement or as a limitation of the scope of the particular articles or sections to which they refer. -38- 42 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the day and year first above written. CALGENE II, INC. By: /s/ Roger H. Salquist --------------------------------- ----------------------------- President MONSANTO COMPANY By: /s/ Hendrik A. Verfaillie --------------------------------- Hendrik A. Verfaillie Executive Vice President -39- EX-3 3 HOLDING COMPANY CREDIT FACILITY AGREEMENT 1 HOLDING COMPANY CREDIT FACILITY AGREEMENT THIS AGREEMENT is made as of the 31st day of March, 1996, by and between CALGENE II, INC., a Delaware corporation having its principal office at 1920 Fifth Street, Davis, California 95616 (the "Company"), and MONSANTO COMPANY, a Delaware corporation with its main offices at 800 N. Lindbergh Boulevard, St. Louis, Missouri 63167 ("Monsanto"). In consideration of the mutual benefits accruing to each of the parties, the receipt and sufficiency of which are hereby acknowledged, and in further consideration of the mutual performance of this Agreement, the parties hereto agree as follows: ARTICLE I AMOUNT AND TERMS OF THE LOANS Section 1.01. Loans. During the Commitment Period ----- (hereinafter defined), Monsanto agrees, on the terms and conditions hereafter set forth, to make three (3) one (1) year loans, totalling not more than $45,000,000, to the Company for general corporate purposes from time to time after the date hereof, not to exceed at any time outstanding Fifteen Million Dollars ($15,000,000), said sum being the "Commitment." Within said limits and prior to the occurrence of an Event of Default (hereinafter defined), the Company may borrow, repay and reborrow under this Agreement, each such borrowing or reborrowing being referred to herein as an "Advance." Each Advance shall be in an amount of not less than One Hundred Thousand Dollars ($100,000) and shall be in increments of One Hundred Thousand Dollars ($100,000). Each request for an Advance shall be made in writing substantially in the form attached hereto as Exhibit A and incorporated herein or on such --------- other forms acceptable to Monsanto or in any other manner acceptable to Monsanto. Monsanto shall process each request for an Advance as soon as reasonably practicable but no later than ten (10) working days after receipt of the Company's request. Each of the Loans (hereinafter defined) shall consist of no more than twelve (12) Advances. Upon fulfillment of the applicable conditions set forth in Article II hereof and -1- 2 subject to the provisions of this Agreement, Monsanto shall make such Advances available to the Company by wire transfer or otherwise as reasonably directed by the Company, but the Company agrees to reimburse Monsanto for all such wire and other transfer costs incurred by Monsanto, and the Company shall bear all risks of delays or nondelivery or misdelivery of any such funds so wired or otherwise transferred other than those caused by Monsanto's negligence or failure to transfer such funds in accordance with the Company's directions. Any Advance under this Agreement shall be deemed made on the day that the Advance proceeds are wired or otherwise transferred or, if the Advance proceeds are used to repay an outstanding Loan, on the day such proceeds are so applied. All Advances made on or after the date of this Agreement and before the first anniversary of this Agreement shall be considered to be part of "Loan One"; all Advances made on or after the first anniversary of this Agreement and before the second anniversary of this Agreement shall be considered to be part of "Loan Two"; all Advances made on or after the second anniversary of this Agreement and before the earlier of the third anniversary of this Agreement and September 30, 1998, shall be considered to be part of "Loan Three." Loan One, Loan Two and Loan Three shall hereinafter be collectively referred to as the "Loans" and individually as a "Loan." The "Commitment Period" means the period from the date of this Agreement to the earlier of September 30, 1998, or the third anniversary of the execution of this Agreement or the date Monsanto terminates its obligations to make further Advances or Loans hereunder pursuant to Section 5.02 hereof. The Loans made pursuant to this Agreement shall be supported by the joint and several guaranty (the "Guaranty") of the subsidiaries of the Company which are listed on Exhibit B hereto --------- (the "Subsidiaries" or a "Subsidiary") in the form attached hereto as Exhibit C. --------- Section 1.02. Notes. Each of the Loans shall be evidenced by ----- a promissory note in the form of Exhibit D attached hereto (a --------- "Note"), payable to the order of Monsanto and representing the obligation of the Company to pay the amount of the aggregate unpaid principal amount of such Loans made by Monsanto, together with interest on the principal amount outstanding from time to time, as provided in this Agreement. Each Note shall provide that the Company shall pay all outstanding principal and accrued interest to Monsanto on the first anniversary of the date of such Note or, in the case of the Note evidencing Loan Three, on the earlier of September 30, 1998, or the first anniversary of the date of such Note; provided, however, that the Company -2- 3 shall have the option to convert the outstanding principal and accrued interest into shares of the Company's common stock as provided in Section 1.06 hereof, subject to Monsanto's right to require the Company to sell shares and pay cash (as provided in such Section 1.06). The Notes evidencing Loan One, Loan Two and Loan Three shall be dated as of the date of this Agreement, as of the first anniversary of this Agreement and as of the second anniversary of this Agreement, respectively. Section 1.03. Interest Rate. The outstanding principal ------------- balance of the Loans from time to time shall bear interest at two percent (2%) above Citibank's published prime rate ("Note Rate"). Interest shall be compounded daily and adjusted quarterly on each January 1, April 1, July 1 and October 1 pursuant to calculations performed by Monsanto. Section 1.04. Effects of Event of Default or Potential ---------------------------------------- Default. Notwithstanding the foregoing and in addition to the - ------- remedies set forth in Sections 5.02 and 5.03 hereof, upon an Event of Default and so long as such Event of Default shall continue or, if Monsanto shall have accelerated the maturity date of the then outstanding Loans pursuant to Section 5.02 hereof, until the Loans are repaid in full, the principal amount of all Loans then outstanding, together with all interest then accrued, shall thereafter bear interest at the Default Rate (hereinafter defined), with interest payable upon demand. The "Default Rate" shall be the per annum rate equal to three percent (3%) above the Note Rate that would otherwise be applicable and thereafter until paid in full. During the continuance of an Event of Default, the Company shall have no right to obtain any new Advances under this Agreement. A "Potential Default" shall be an event which, solely but for the lapse of time or the giving of notice, or both, would constitute an Event of Default. If a Potential Default then exists and has not been waived in writing by Monsanto and does not itself constitute or is not declared an Event of Default, the Company shall have no right to borrow any additional money beyond the principal amount of Loans then outstanding. Section 1.05. Miscellaneous Provisions Regarding Loan --------------------------------------- Payments and Interest. All payments on any Loan shall be made to - --------------------- Monsanto by wire transfer for deposit in Citibank, New -3- 4 York, New York, Account #00000502 unless Monsanto notifies Company of a different place for payments to be made. Loan One shall be due and payable on the first anniversary of the Note evidencing Loan One or such earlier date as all of the outstanding Loans have been declared due and payable pursuant to Section 5.02 hereof. Loan Two shall be due and payable on the first anniversary of the Note evidencing Loan Two or such earlier date as all of the outstanding Loans have been declared due and payable pursuant to Section 5.02 hereof. Loan Three shall be due and payable on the earlier of September 30, 1998, or the first anniversary of the Note evidencing Loan Three or such earlier date as all of the outstanding Loans have been declared due and payable pursuant to Section 5.02 hereof. The date each Loan shall be due and payable shall hereafter from time to time be referred to as the "Maturity Date" and, collectively, as the "Maturity Dates." If Monsanto makes a new Loan hereunder on a day on which the Company is required to or has elected to repay all or any part of an outstanding Loan and the Company has not elected to exercise its conversion rights under Section 1.06 hereof, Monsanto shall apply the proceeds of this new Loan to make such repayment, and only an amount equal to the difference (if any) between the amount being borrowed and the amount being repaid shall be made available by Monsanto to the Company, as provided in Section 1.01 hereof. All interest rates respecting any Loan hereunder are stated on a per annum basis with a year of three hundred and sixty (360) days, and interest is calculated on the actual number of days elapsed (including the first day, but excluding the last day of any period for any Loan under this Agreement). All Loans outstanding after their respective Maturity Dates or such earlier date as all of the outstanding Loans have been declared due pursuant to Section 5.02 hereof shall thereafter bear interest at the Default Rate on all unpaid amounts until the Loans are fully paid. Section 1.06 Right of Conversion in Lieu of Repayment. In ---------------------------------------- lieu of repayment in cash of outstanding principal and accrued interest on each Maturity Date, the Company, subject to Monsanto's right to require the Company to sell shares and pay cash, as provided below, may elect to convert all or any portion of the principal and accrued interest due under the applicable Loan into shares of common stock of the Company at the average of the closing market prices for such shares during the thirty (30) trading days immediately preceding the Maturity Date for such Loan (the "Average Market Price"). In order to exercise its conversion rights, at least thirty (30) days prior to the Maturity Date for a Loan, the Company shall send a written notice -4- 5 (the "Conversion Notice") to Monsanto, stating that the Company intends to exercise such conversion rights. The Conversion Notice shall specify the amount of the principal and accrued interest that the Company intends to convert (the "Conversion Amount"). Monsanto may, in its sole discretion and within five (5) business days after its receipt of any Conversion Notice from the Company, give written notice (the "Alternative Notice") to the Company, stating that all or any part of the Conversion Amount set forth in such Conversion Notice (the "Alternative Conversion Amount") shall be payable in cash. Upon receipt of an Alternative Notice, (i) the Alternative Conversion Amount may no longer be converted into shares of common stock of the Company (unless the Alternative Notice shall have been withdrawn as provided below) and (ii) the difference, if any, between the Conversion Amount and the Alternative Conversion Amount shall be converted into shares of common stock of the Company in accordance with the terms of the Conversion Notice and the applicable provisions of this Section 1.06. The Company shall proceed promptly, using its best efforts and at its expense, to take such actions as are necessary to effect the public sale of a number of shares of its common stock (rounded to the next lowest full share) equal to the Alternative Conversion Amount divided by the Average Market Price (the "Offering"). The Alternative Conversion Amount shall be due and payable to Monsanto in cash on the closing date for the Offering. On such closing date, the net proceeds of such Offering shall be paid by the Company to Monsanto in full payment and satisfaction of such Alternative Conversion Amount, even if such net proceeds are less than or greater than such Alternative Conversion Amount. If the Offering has not closed within sixty (60) days after the Company's receipt of an Alternative Notice, Monsanto may, thereafter and in its sole discretion, withdraw its Alternative Notice at any time. If Monsanto withdraws an Alternative Notice, then, within five (5) business days thereafter, the Company shall issue to Monsanto a number of shares of common stock of the Company (rounded to the next lowest full share) equal to the Alternative Conversion Amount divided by the Average Market Price. If (i) the Company properly notifies Monsanto as provided above in this Section 1.06 and (ii) Monsanto does not give an Alternative Notice for the full Conversion Amount, then, within -5- 6 five (5) business days after the Maturity Date for a Loan, the Company shall issue to Monsanto a number of shares of common stock of the Company (rounded to the next lowest full share) equal to the Conversion Amount (or the difference between the Conversion Amount and Alternative Conversion Amount, as applicable) divided by the Average Market Price. Any portion of the Conversion Amount not converted as provided above (i.e., because such amount would require conversion into a fractional share) shall be paid to Monsanto by wire transfer as set forth above. Upon any such conversion, the amount converted shall first be applied to reduce the accrued interest due on the Loan as of the Maturity Date, and any remaining portion of the amount converted shall be applied to reduce the principal due on such Loan. Each time the Company issues shares of its common stock (including any shares issued pursuant to Section 5.03 hereof) to Monsanto, it shall deliver to Monsanto an opinion from counsel to the Company in a form reasonably satisfactory to Monsanto relating to the issuance of such shares. Notwithstanding anything to the contrary contained in this Agreement, on each Maturity Date, all outstanding principal and accrued interest not to be repaid, or converted by the Company to shares of common stock of the Company, in accordance with this Section 1.06 shall be repaid in full to Monsanto in accordance with Section 1.05 hereof. Section 1.07. Prepayments. The Loans may be prepaid in whole ----------- or in part at any time after giving at least three (3) days' prior written notice to Monsanto. Section 1.08. Approved Persons. All requests for Advances ---------------- (including any requests for continuation of Loans) shall be made by an Approved Person (hereinafter defined). An "Approved Person" shall be any person designated in writing from time to time by the Company who is authorized to make requests for Advances in the name of the Company hereunder. Unless Monsanto otherwise agrees, there shall not be more than three (3) Approved Persons at any one time nor shall any Approved Person have his or her office located at any place other than the -6- 7 Company's main office in Davis, California, but the Company shall have the right to change the persons so designated upon written notice thereof to Monsanto. Any such designation shall be executed by the President or the Chief Financial Officer of the Company and shall contain a specimen signature of the Approved Person. Monsanto shall be entitled to rely on any direction by an Approved Person regarding the making of Advances or the transfer of funds hereunder, or any such direction that Monsanto believes to be made by the Approved Person, whether such direction be received by telephone, by facsimile transmission, by TELEX, by mail or otherwise. ARTICLE II CONDITIONS OF LENDING Section 2.01. Conditions Precedent to Loan One. The -------------------------------- obligation of Monsanto to make the first Advance under Loan One is subject to the following conditions precedent that: (a) Acquisition Agreement Conditions. All of the -------------------------------- conditions set forth in Section 8.2 of the Agreement and Plan of Reorganization ("Acquisition Agreement") between Monsanto and Calgene, Inc. ("Calgene"), dated October 13, 1995 must be fulfilled (or waived in writing by Monsanto) and all the documents that Calgene or the Company is required to deliver to Monsanto pursuant to such Section 8.2 must be delivered (or waived in writing by Monsanto). (b) Documents. Monsanto shall receive the following, --------- each dated the date hereof or such other date as may be specifically permitted, in form and substance satisfactory to Monsanto: (i) Note. The Note for Loan One, duly executed by ---- the Company. (ii) Guaranty. The Guaranty, duly executed by all -------- the Subsidiaries. (iii) Other Approvals. Such other approvals, --------------- resolutions, opinions or documents, as Monsanto may reasonably request. -7- 8 Section 2.02. Conditions Precedent to Each Advance. The ------------------------------------ obligation of Monsanto to make any Advances under Loan One, Loan Two or Loan Three shall be subject to the further conditions precedent that, on the funding date, (i) all representations and warranties of the Company and the Subsidiaries contained in this Agreement and the Guaranty shall be true, correct, accurate and complete in all material respects as if made on such date (except (A) to the extent such representations speak as of an earlier date or (B) for changes arising from events permitted by the covenants specified in this Agreement), (ii) all covenants specified in this Agreement shall have been complied with in all material respects, (iii) no event shall have occurred and be continuing, or would result from such Advance, which constitutes an Event of Default or Potential Default, (iv) there shall not be initiated against the Company or any Subsidiary any action, suit or proceeding at law or in equity or by or before any court or government agency or authority or arbitral tribunal and there shall not have occurred any legal, regulatory or other development or any other circumstances whatsoever which, in the opinion of Monsanto, could reasonably be expected to have a material adverse effect on (a) the business, assets, operations or financial condition of the Company and its Subsidiaries taken as a whole, or (b) the ability of the Company and its Subsidiaries to perform any of their respective obligations hereunder or under the documents contemplated hereby (each of the foregoing being hereafter referred to as a "Material Adverse Effect"); provided, however, that no Material Adverse Effect shall be deemed to have occurred based solely on the outcome of the litigation between the Company and Enzo Biochem, Inc. ("Enzo"), (v) the Note evidencing Loan Two and the Note evidencing Loan Three shall have been delivered by the Company to Monsanto before any Advance under Loan Two or Loan Three, respectively, and (vi) an Advance request in proper form shall have been submitted or made to Monsanto by the Company. The making of a request by the Company for an Advance or a Loan hereunder, whether in writing, or by telephone confirmed in writing, or otherwise, shall constitute a certification by the Company that all representations and warranties recited or referred to in this Section 2.02 and Article III hereof are true as of and as if made the date of such request (except as set forth above) and that all required conditions to the making of such Loan and any Advance thereunder have been met. -8- 9 ARTICLE III REPRESENTATIONS AND WARRANTIES Section 3.01. Representations and Warranties of the Company. --------------------------------------------- The representations and warranties of Calgene set forth in Section 6.2 of the Acquisition Agreement are incorporated by reference herein. All such representations and warranties shall be deemed made by the Company herein and shall survive and be continuing so long as any principal or accrued interest is outstanding under any of the Loans. ARTICLE IV COVENANTS OF THE COMPANY Section 4.01. Affirmative Covenants. So long as any of the --------------------- Loans or accrued interest shall remain unpaid or Monsanto shall have any Commitment hereunder, the Company shall (and, where appropriate even if not so stated, shall cause each of the Subsidiaries to), unless Monsanto shall otherwise consent in writing, which consent shall not be unreasonably withheld: (a) Preservation of Business and Corporate Existence. ------------------------------------------------ As to the Company and each Subsidiary, carry on and conduct its business affairs in substantially the same manner as presently carried on and conducted, and maintain in good standing its existence and its right to transact business in those states in which it is now or may hereafter be doing business; and maintain all licenses, permits and registrations necessary to the conduct of its business. (b) Use of Proceeds. Use the proceeds of the Loans --------------- solely for general corporate purposes of the Company and the Subsidiaries. Regardless of the general corporate purposes to which the Company chooses to apply the proceeds of the Loans (including loaning any portion of the proceeds to Gargiulo Inc., formerly Tomato Investment Associates, Inc. ("Tomato Associates") and Calgene), all outstanding principal and accrued interest of each Loan shall be due on each respective Maturity Date. -9- 10 (c) Reporting Requirements. Furnish to Monsanto: ---------------------- (i) As soon as available and in any event within sixty (60) days after the end of each calendar quarter, one (1) copy of the consolidated and consolidating financial statements prepared by the Company and certified by the Chief Financial Officer of the Company, and as soon as available and in any event within one hundred twenty (120) days after the end of its fiscal year, one (1) copy of its financial statements audited by an independent public accountant. The financial statements so provided shall include, but not be limited to, the balance sheet, income statement and cash flow statement of the Company, as well as consolidated and consolidating statements of all Subsidiaries (which consolidating statement need not be audited). Such financial statements shall be accompanied by a written certification from the Chief Financial Officer of the Company (A) stating that the financial statements present fairly the consolidated financial condition of the Company and that no event has since occurred which would constitute a Material Adverse Effect on the consolidated financial condition of the Company from that represented on the financial statements; (B) demonstrating in detail, satisfactory to Monsanto, the Company's compliance with the financial covenants set forth in Sections 4.01(f) and 4.01(g) hereof at and as of the end of the quarter or fiscal year, as applicable; (C) stating that no Event of Default or Potential Default is then existing at the date of the certification; and (D) stating that the representations and warranties contained in this Agreement and the Guaranty are accurate and complete in all material respects. (ii) Promptly after the sending or filing thereof, copies of all reports which the Company sends to any of its stock or security holders and copies of all reports and other materials (including registration statements, if any) which the Company hereafter files with the Securities and Exchange Commission or any national securities exchange. -10- 11 (iii) Such other information respecting the condition or operations, financial or otherwise, of the Company as Monsanto may from time to time reasonably request. (d) Insurance. Insure and keep insured at all times --------- with good and responsible insurance companies reasonably acceptable to Monsanto all of its property of an insurable nature and maintain insurance against liability on account of damage to persons or property in such manner and to the extent that like risks are usually insured by others conducting similar businesses in the general areas where the Company and each of the Subsidiaries conduct their business. Company shall, upon request of Monsanto at any time, furnish a written summary of the amount and type of insurance carried, the names of the insurers and the policy numbers. (e) Government Actions. Obtain and maintain all ------------------ material authorizations and approvals, and other actions by, and make and maintain all notices to or filings with, any governmental authority or regulatory body now or hereafter required for the making and performance of this Agreement and the Notes. (f) Net Worth. Maintain, at and as of the end of the --------- quarter or fiscal year, as applicable, consolidated Net Worth (hereinafter defined) of not less than Ten Million Dollars ($10,000,000) and a minimum consolidated working capital of not less than Five Million Dollars ($5,000,000) (which consolidated working capital shall be the excess of Current Assets (hereinafter defined) over Current Liabilities (hereinafter defined). Further, the ratio of Total Long-Term Liabilities (hereinafter defined) to Net Worth shall not exceed the ratio of one-to-one. As used herein, "Net Worth" shall mean the total of common and preferred stock, paid in surplus, retained earnings and additional stockholders' equity of the Company and the Subsidiaries on a consolidated basis less intangibles, determined in accordance with generally accepted accounting principles, consistently applied. -11- 12 "Total Long-Term Liabilities" shall mean the total of all long-term liabilities of the Company and the Subsidiaries on a consolidated basis, determined in accordance with generally accepted accounting principles,consistently applied. "Current Assets" shall mean the total of all current assets of the Company and the Subsidiaries on a consolidated basis, determined in accordance with generally accepted accounting principles, consistently applied. "Current Liabilities" shall mean the total of all current liabilities of the Company and its Subsidiaries on a consolidated basis, determined in accordance with generally accepted accounting principles, consistently applied. For purposes of making any calculation under this Article IV, the outstanding principal of amounts loaned by Monsanto to the Company pursuant to this Agreement or the Gargiulo Credit Facility Agreement of even date herewith between Monsanto and the Company (the "Gargiulo Credit Facility Agreement") (except to the extent of the "Repayment Portion of Cumulative Free Cash Flow," as defined therein, which has not been paid to Monsanto), shall be deemed to be stockholders' equity and not liabilities. (g) Current Ratio. Maintain, on a consolidated basis, ------------- a ratio of Current Assets to Current Liabilities of at least one- to-one. (h) Audits, Consultants and Inspections. Permit ----------------------------------- Monsanto (using Monsanto's internal and/or external auditors or any other person appointed by Monsanto to whom the Company does not reasonably object) (i) to audit the books and records, other financial information and business practices and operations of the Company and its Subsidiaries, and (ii) to discuss the business practices and operations, affairs, finances and accounts of the Company and its Subsidiaries with the officers of the Company and its Subsidiaries and the independent public accountants who review or audit the Company's financial statements, all at such reasonable times and as often as may reasonably be requested. The Company shall also permit inspection of its (and its Subsidiaries') properties, books and records by Monsanto (using the -12- 13 persons identified above) during normal business hours or at other reasonable times. The scope of all such audits, discussions and inspections shall be determined by Monsanto in its sole discretion. Any authorized representative of Monsanto who or which is not employed by Monsanto (i) shall be required to execute a confidentiality agreement in a form approved by the Board of Directors of the Company (which approval shall not be unreasonably withheld or delayed) and (ii) may not be employed by or affiliated with a competitor of the Company, as reasonably determined by the Board of Directors of the Company; provided, however, that an independent certified public accounting firm shall not be deemed to be employed by or affiliated with a competitor of the Company even if such firm provides services to a competitor of the Company. (i) Payment of Taxes. Pay and discharge, before they ---------------- become delinquent, all taxes, assessments and other governmental charges imposed upon the Company, the Subsidiaries or any of its or their properties, or any part thereof, or upon the income or profits therefrom and all claims for labor, materials or supplies which, if unpaid, might be or become a lien or charge upon any of its or their property, except such items as it or they are in good faith appropriately contesting and as to which adequate reserves have been provided. (j) Payment of Indebtedness. Pay any and all ----------------------- indebtedness for borrowed money payable or guaranteed by the Company (or any Subsidiary), and any interest or premium thereon, when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) in accordance with the agreement or instrument relating to such indebtedness or guarantee, except those being contested in good faith and as to which adequate reserves have been provided. (k) Notice of Subsequent Events. Immediately upon the --------------------------- President or Chief Financial Officer of the Company obtaining knowledge of (i) any material adverse change in the condition or operation, financial or otherwise, of the Company and its Subsidiaries; (ii) any Event of Default or Potential Default under this Agreement; (iii) any default or potential default by the Company or any of the Subsidiaries under or with respect to any instrument, contract or agreement to which the Company or any of the Subsidiaries is a party or by which the Company -13- 14 or any of the Subsidiaries is bound which may constitute a Material Adverse Effect; (iv) any default or potential default by the Company or any of the Subsidiaries under or with respect to any order, writ, injunction, decision or decree of any court, governmental authority or arbitral body to which the Company or any of the Subsidiaries is a party or by which the Company or any of the Subsidiaries is bound which may constitute a Material Adverse Effect; or (v) any action or proceeding pending or, to the knowledge of the President or Chief Financial Officer of the Company, threatened against the Company or any of the Subsidiaries before any court, governmental authority or arbitral body which, if decided adversely to the Company or such Subsidiary, would result in a Material Adverse Effect, deliver to Monsanto a written certificate signed by such officer specifying the nature thereof, the period of existence thereof and what action the Company has taken and proposes to take with respect thereto. (l) ERISA Compliance. If the Company or any of the ---------------- Subsidiaries shall have any pension plan, comply with all requirements of the Employee Retirement Income Security Act of 1974, as amended from time to time ("ERISA") relating to such plan. Without limiting the generality of the foregoing, the Company (and each of the Subsidiaries) shall not: (i) Permit any Plan maintained by it to engage in any non-exempt "prohibited transaction" as such term is defined in Section 4975 of the Internal Revenue Code of 1986, as amended; (ii) Permit any Plan maintained by it to incur any "accumulative funding deficiency," as such term is defined in Section 302 of ERISA, 29 U.S.C Section 1082, whether or not waived; (iii) Terminate any such Plan in a manner which could result in the imposition of a lien on the property of Company pursuant to Section 4068 of ERISA, 29 U.S.C. Section 1368; or -14- 15 (iv) Take any action which would constitute a complete or partial withdrawal from a Multiemployer Plan (hereinafter defined) within the meaning of Sections 4203 and 4205 of Title IV of ERISA, 29 U.S.C. Sections 1383 and 1385. Notwithstanding any provision contained in this Section 4.01(l) to the contrary, an act by the Company shall not be deemed to constitute a violation of subparagraphs (i) through (iv) hereof unless Monsanto determines in good faith that said action, individually or cumulatively with other acts of the Company, does have or is likely to cause, a Material Adverse Effect. Company shall have the affirmative obligation hereunder to report to Monsanto any of those acts identified in subparagraphs (i) through (iv) hereof, regardless of whether said act does or is likely to cause a Material Adverse Effect. (m) Compliance with Laws. Comply in all material -------------------- respects with all applicable laws, rules, regulations and orders. (n) Additional Subsidiaries. If the Company or any ----------------------- Subsidiary acquires or creates any additional majority-owned subsidiary hereafter, promptly notify Monsanto in writing. Such additional subsidiary shall also, upon capitalization and election of officers, execute and deliver to Monsanto a guaranty of the Loans in the form attached hereto as Exhibit C and, upon such --------- delivery, shall become a Subsidiary under this Agreement. (o) Reservation of Shares. Reserve adequate shares of --------------------- common stock of the Company to be issued upon the occurrence of a conversion as described in Sections 1.06 and 5.03 hereof. (p) Further Assurances. From time to time, execute and ------------------ deliver to Monsanto such additional documents and provide such additional information as Monsanto may reasonably require to carry out the terms of this Agreement and be informed of the status and affairs of the Company and its Subsidiaries. -15- 16 Section 4.02. Negative Covenants. Except as specifically ------------------ provided otherwise hereinbelow, so long as any Loan shall remain unpaid or Monsanto shall have any Commitment hereunder, without the written consent of Monsanto, the Company (and each of the Subsidiaries): The following negative covenants set forth in this Section 4.02 shall be of no force or effect during such period as the "Supermajority Requirements" set forth in Article 4 of the Stockholders Agreement dated of even date herewith between the Company and Monsanto are in effect. In the event such "Supermajority Requirements" are no longer in effect, the foregoing negative covenants shall be fully applicable to the Company (and, where appropriate, each of the Subsidiaries). (a) Acquisitions. Shall not enter into any merger or ------------ consolidation or acquire any business or assets that would constitute a Substantial Part (hereinafter defined) of the Company and its Subsidiaries, taken as a whole, whether such acquisition be by merger or consolidation or the purchase of stock or assets or otherwise. "Substantial Part" means more than ten percent (10%) of the total assets of the Company and its Subsidiaries, taken as a whole, as shown on the Company's consolidated balance sheet as of the end of the most recent fiscal quarter ending prior to the time the determination is made. (b) Liens. Shall not, and shall 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 the Company or any Subsidiary other than: (i) liens, pledges or deposits for workmen'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 the Company or any Subsidiary is a party or other deposits required to be made in the ordinary course of business, provided in each case the obligation -16- 17 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, consistently applied, and that the obligation is not for borrowed money, customer advances, trade payables, or obligations to agricultural producers; (ii) 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 the Company or any Subsidiary so secured by a pledge of property permitted under this subsection (ii) including interest and penalties thereon, if any, shall not be in excess of One Million Dollars ($1,000,000) at any one time outstanding; (iii) liens, pledges, mortgages, security interests or other charges existing on the date hereof and disclosed in Exhibit E hereto; and --------- (iv) liens, pledges, mortgages, security interests and other encumbrances on property which secure indebtedness permitted under Section 4.02(l) hereof. (c) Limitations on Merger and Disposition of Assets. ----------------------------------------------- Shall not merge into or consolidate with any other entity, or lease, sell, transfer or otherwise dispose of all or any Substantial Part of the Company and its Subsidiaries, taken as a whole, except (i) pursuant to security interests granted in connection with borrowings permitted under Section 4.02(l) hereof and (ii) in the case of a merger or consolidation of the Company, (A) the shareholders of the Company immediately prior to the merger or consolidation continue to hold more than fifty percent (50%) of the outstanding voting power of the surviving entity, (B) the surviving entity (after giving effect to the merger or consolidation) has a net worth equal to or greater than the Company's consolidated net worth (determined immediately prior to the merger or consolidation) and (C) the surviving entity expressly assumes all of the obligations of the Company under this Agreement. (d) Non-Default Under Other Agreements. Shall not ---------------------------------- default upon or fail to pay any indebtedness for money borrowed as the same matures under any agreement or permit -17- 18 to occur any other event which creates a default under such or under any other agreement to which the Company is a party or by which it is bound, in either case in an amount in excess of One Million Dollars ($1,000,000). (e) Conflicting Agreement. Shall not enter into any --------------------- agreement, any term or condition of which conflicts with any term or condition of this Agreement. (f) Changes in Accounting Principles. Shall not make -------------------------------- any change in its principles or methods of accounting as currently in effect, except such changes as are required by generally accepted accounting principles, or, without prior written notice to Monsanto, change its fiscal year. (g) Loans and Investments. Shall not make any --------------------- investment in a corporation, firm or business or make loans or advances to any person except: (i) Investments in interest bearing obligations of the United States government, certificates of deposit issued by United States banks, commercial paper and repurchase agreements or other short-term, high grade (A-1, P-1 or similar rating) investments; (ii) Advances to others in the form of progress payments, prepaid rents, security deposits, grower loans or other advances customary in transactions made in the ordinary course of business between persons not affiliated with each other; (iii) Subject to the provisions of Section 4.02(a) hereof, investments in any partially- or wholly-owned Subsidiary or any corporation, firm or business in the same type of business as the Company, which line of business will continue after such investment; -18- 19 (iv) The loans listed and described on Exhibit F --------- hereto and additional purchase money loans to purchasers of assets of the Company or its Subsidiaries which at no time in the aggregate exceed One Million Dollars ($1,000,000); (v) Loans and travel advances to employees of the Company which, in the aggregate (inclusive of the employee loans listed on Exhibit G hereto), do not exceed One Hundred --------- Thousand Dollars ($100,000); (vi) Loans or advances to any wholly-owned Subsidiary; or (vii) Stock, obligations or securities received in settlement of debts (created in the ordinary course of business) owing to the Company or any Subsidiary. Nothing in this subsection (g) shall be construed as preventing Company or any Subsidiary from making any acquisition permitted under subsection (a) above of this Section 4.02. (h) Guaranties. Shall not guarantee the obligations of ---------- any corporation, person or entity, except endorsements of negotiable instruments or checks deposited for collection acquired in the ordinary course of business and except guaranties by (i) the Company or any Subsidiary of the obligations of any of the wholly- owned Subsidiaries or any subsidiary hereinafter acquired and becoming a wholly-owned Subsidiary hereunder or (ii) any Subsidiary of the obligations of the Company. (i) Capital Expenditures. Shall not make capital -------------------- expenditures (including capitalized leases but excluding fixed assets acquired in connection with corporate acquisitions), during any fiscal year of the Company, on a consolidated basis, in an aggregate amount in excess of Sixty Million Dollars ($60,000,000). (j) Dividends. Shall not pay or declare any dividends --------- (either in cash or property) or make distributions on, or redeem, repurchase, retire or otherwise acquire for value, -19- 20 any shares of stock of the Company (including, options, warrants or other rights to acquire such shares of stock), other than repurchases or redemptions of equity securities of the Company. (l) Limit on Indebtedness. Shall not create, assume or --------------------- incur any indebtedness, in the aggregate, exceeding Fifteen Million Dollars ($15,000,000), increasing by Five Million Dollars ($5,000,000) on each July 1 commencing July 1, 1996, plus amounts secured by inventory and/or receivables for working capital lines and indebtedness incurred to acquire property, plant or equipment and secured by the acquired asset, and any refinancing of any of the foregoing, exclusive of (i) amounts outstanding under this Agreement or the Gargiulo Credit Facility Agreement, and (ii) indebtedness approved by the Board of Directors of the Company while the "Supermajority Provisions" were in effect. (m) Limitations on Use of Proceeds. Shall not use the ------------------------------ proceeds of the Loans to make advances, loans or capital contributions to, or to otherwise make an investment in or benefit, either directly or indirctly, any subsidiary of the Company which is not a Subsidiary listed on Exhibit B hereto and which is not as --------- a signatory to the Guaranty. ARTICLE V EVENTS OF DEFAULT Section 5.01. Events of Default. Any one (1) or more of the ----------------- following events shall constitute an Event of Default under this Agreement, the Notes and any other document or instrument pertaining to or necessary to carry out the purposes of this Agreement: (a) Payment Default. The Company fails to pay when due --------------- any principal, interest or other amount which it is obligated to pay under this Agreement and the Notes and such failure shall continue unremedied for five (5) days after the date on which such payment was due. (b) Representation Default. Any representation or ---------------------- warranty made by the Company in this Agreement, the Notes, or in any certificate, notification or report furnished -20- 21 hereunder, proves to have been incorrect or misleading in any material respect when made or renewed and is material to the ability of the Company to perform its obligations under this Agreement or the Notes. (c) Other Provisions Default. The Company fails to ------------------------ perform or observe any material covenant or agreement to be performed or observed by it under this Agreement or the Notes or the Company fails to perform or observe any other material term, covenant or condition in this Agreement or the Notes to be made and performed by the Company and, in the case of any such default that is curable by the Company, such default is not cured within ten (10) days after written notice thereof by Monsanto. (d) Authorizations Default. Any governmental filing, ---------------------- registration, consent or approval necessary in connection with this Agreement or any document contemplated hereby is withheld, revoked or restricted in a way which constitutes a Material Adverse Effect, unless such revocation or restriction is withdrawn. (e) Cross Default. The Company or any Subsidiary (i) ------------- fails to pay when due any indebtedness (in an amount in excess of One Million Dollars ($1,000,000)) senior to any of the Loans for which it is liable, contingently or otherwise, and the lender declares such indebtedness to be immediately due and payable, or (ii) commits a material breach of or defaults in the performance or observance of any of the representations, warranties, covenants, terms or provisions of, or a default otherwise occurs under, (a) the Acquisition Agreement or any of the other Transaction Agreements (as defined in the Acquisition Agreement), (b) the Insect-Protected Cotton License and Seed Services Agreement dated as of September 26, 1995 between Monsanto and Calgene, (c) the Gargiulo Credit Facility Agreement, (d) the Stockholders Agreement between Monsanto and the Company of even date herewith or (e) any other agreement or instrument between Monsanto and the Company or any Subsidiary and, in the case of any such default that is curable, such default is not cured within ten (10) days after the Company or Subsidiary, as applicable, receives notice thereof. -21- 22 (f) Lien Default. The holder of any lien, whether now ------------ or hereafter existing, granted or assumed by the Company, and securing any indebtedness exceeding One Million Dollars ($1,000,000) in the aggregate (whether or not indebtedness of the Company) takes substantial steps to enforce the same because of the nonpayment (whether by acceleration or otherwise) of the indebtedness secured thereby. (g) Judgment Default. A final judgment, order or ---------------- conviction (whether criminal or civil) is rendered against the Company or any of its Subsidiaries or its or its Subsidiaries' properties or assets which constitutes a Material Adverse Effect and such judgment or order shall continue unsatisfied and the execution thereof unstayed for a period of ninety (90) consecutive days. (h) Bankruptcy Default. (i) the Company or any of the ------------------ Subsidiaries shall fail to pay or shall admit in writing its inability to pay its debts as they become due, shall become insolvent, howsoever evidenced, or shall make a general assignment for the benefit of creditors; (ii) any proceeding shall be instituted by or against the Company or any of the Subsidiaries under any law relating to bankruptcy, insolvency, reorganization or relief of debtors or any similar law or seeking appointment of a receiver, trustee, or other similar person for it or for any Substantial Part of its property and, if such proceeding is not commenced by the Company or any of the Subsidiaries, it is consented to or acquiesced in by the Company or any of the Subsidiaries or remains undismissed for forty-five (45) days after institution; (iii) all or a Substantial Part of the Company's or any Subsidiary's property is attached, seized, levied upon or comes within the possession of any receiver, trustee or similar person for the benefit of creditors; (iv) any action is taken or any proceeding is filed or commenced with respect to the Company's liquidation, dissolution or termination of existence; or (v) the Company shall take any corporate action to authorize any of the actions described in this subsection (h); (i) Tax Lien Default. Any local, state or federal ---------------- government agency places a material lien against any asset of the Company or any Subsidiary as a result of nonpayment of any tax obligation owed by the Company or such Subsidiary, which lien is not removed within forty-five (45) days after placement. -22- 23 (j) ERISA Default. Any of the following events occur or ------------- exist with respect to the Company or any Subsidiary: (a) any Prohibited Transaction (hereinafter defined) involving any Plan; (b) any Reportable Event (hereinafter defined) with respect to any Plan; (c) the filing under Section 4041 of ERISA of a notice of intent to terminate any Plan or the termination of any Plan; (d) any event or circumstance that might constitute grounds entitling the PBGC (hereinafter defined) to institute proceedings under Section 4042 of ERISA for the termination of, or for the appointment of a trustee to administer, any Plan, or the institution by the PBGC of any such proceedings; (e) complete or partial withdrawal under Section 4201 or 4204 of ERISA from a Multiemployer Plan or the reorganization, insolvency or termination of any Multiemployer Plan; and, in each case above, such event or condition, together with all other events or conditions, if any, could, in the opinion of Monsanto, subject the Company to any tax, penalty, or other liability to a Plan, a Multiemployer Plan, the PBGC, or otherwise. For purposes of this Agreement: "Plan" means any employee benefit or other plan established, maintained, or to which contributions have been made by the Company or any ERISA Affiliate; "Reportable Event" means any of the events set forth in Section 4043 of ERISA; "ERISA Affiliate" means any trade or business (whether or not incorporated) that, together with Company, is treated as a single employer under Section 414 of the Internal Revenue Code of 1986, as amended; "Multiemployer Plan" means a Plan described in Section 4001(a)(3) of ERISA which covers employees of the Company or any ERISA Affiliate; "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA; and "Prohibited Transaction" means any transaction set forth in Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended from time to time. (k) Guaranty Default. Any Subsidiary shall fail to ---------------- perform or observe its obligations under the Guaranty and such failure (other than failure to pay to Monsanto sums due thereunder) shall not have been remedied within thirty (30) days after written notice thereof shall have been given by Monsanto. Section 5.02. Rights of Monsanto. Upon the occurrence of an ------------------ Event of Default, Monsanto may, at its election, without notice of its election and without demand, do any one (1) or more of the following (all of which are authorized by the Company): -23- 24 (a) Cease advancing money or extending credit to or for the benefit of the Company; (b) Subject to the provisions of Section 5.03 hereof, declare the obligation of Monsanto to make Loans and Advances hereunder to be terminated, whereupon the same shall forthwith terminate; and (c) Subject to the provisions of Section 5.03 hereof, declare the Notes, including all principal and accrued interest thereon, and all other amounts payable under this Agreement to be forthwith due and payable, without presentment, protest or further notice of any kind, all of which are hereby expressly waived by the Company. Section 5.03. Default Conversion. Upon the occurrence and ------------------ during the continuation of an Event of Default, for a period of thirty (30) days from the occurrence of the Event of Default (the "Election Period"), the Company, subject to Monsanto's right to require the Company to sell shares and pay cash, as provided below, may elect to convert all or any portion of the principal and accrued interest under any outstanding Loan into shares of common stock of the Company at the average of the closing market prices for such shares during the thirty (30) trading days immediately preceding the Default Conversion Date (hereinafter defined) for such Loan (the "Default Average Market Price"). Monsanto shall not take any of the actions set forth in paragraphs (b) or (c) of Section 5.02 hereof until the end of such Election Period. If all of the principal and accrued interest are converted into shares of common stock of the Company or paid in cash pursuant to this Section 5.03, Monsanto shall have no further rights under Section 5.02 hereof, arising because of the Event of Default for which such conversion or payment was made hereunder. If the Company does not elect to convert all of the principal and accrued interest under any outstanding Loan into shares of common stock of the Company during the Election Period, then, within ten (10) days after such Election Period, Monsanto may, in addition to any other remedies set forth in this Agreement, elect to convert all or any portion of the remaining principal and accrued interest under such Loan into shares of common stock of the Company at -24- 25 the Default Average Market Price; provided, however, that in no event shall Monsanto elect to convert principal and accrued interest into more than three million (3,000,000) shares of common stock of the Company (as such number is adjusted for stock dividends, stock splits and similar events affecting holders of the Company's common stock) for each Loan. In order to exercise the conversion rights described above, at any time after the occurrence and during the continuation of an Event of Default, a party shall send a written notice (the "Default Conversion Notice") to the other party, stating that the exercising party intends to exercise such conversion rights; provided, however, that, in the case of the Company, the Default Conversion Notice may only be given during the Election Period. The Default Conversion Notice shall specify (i) the amount of the principal and accrued interest that the exercising party intends to convert (the "Default Conversion Amount") and (ii) the date as of which such conversion shall take place (the "Default Conversion Date"), which date shall not be later than ten (10) days after the date of the Default Conversion Notice. Monsanto may, in its sole discretion and within five (5) business days after its receipt of any Default Conversion Notice from the Company, give written notice (the "Alternative Default Notice") to the Company, stating that all or any part of the Default Conversion Amount set forth in such Default Conversion Notice (the "Alternative Default Conversion Amount") shall be payable in cash. Upon receipt of an Alternative Default Notice, (i) the Alternative Default Conversion Amount may no longer be converted into shares of common stock of the Company (unless the Alternative Default Notice shall have been withdrawn as provided below) and (ii) the difference, if any, between the Default Conversion Amount and the Alternative Default Conversion Amount shall be converted into shares of common stock of the Company in accordance with the terms of the Default Conversion Notice and the applicable provisions of this Section 5.03. The Company shall proceed promptly, using its best efforts and at its expense, to take such actions as are necessary to effect the public sale of a number of shares of its common stock (rounded to the next lowest full share) equal to the Alternative Default Conversion Amount divided by the Default Average Market Price (the "Default Offering"). The Alternative Default Conversion Amount shall be due and payable to Monsanto in cash on the closing date for the Default Offering. On such closing date, the net proceeds of such Default -25- 26 Offering shall be paid by the Company to Monsanto in full payment and satisfaction of such Alternative Default Conversion Amount, even if such net proceeds are less than or greater than such Alternative Default Conversion Amount. If the Default Offering has not closed within sixty (60) days after the Company's receipt of an Alternative Default Notice, Monsanto may, thereafter and in its sole discretion, withdraw its Alternative Default Notice at any time. If Monsanto withdraws an Alternative Default Notice, then, within five (5) business days thereafter, the Company shall issue to Monsanto a number of shares of common stock of the Company (rounded to the next lowest full share) equal to the Alternative Default Conversion Amount divided by the Default Average Market Price. If (i) either party properly gives the other party a Default Conversion Notice and (ii) in the case of a Default Conversion Notice given by the Company, Monsanto does not give an Alternative Default Notice for the full Default Conversion Amount, then, within five (5) business days after the Default Conversion Date, the Company shall issue to Monsanto a number of shares of common stock of the Company (rounded to the next lowest full share) equal to the Default Conversion Amount (or the difference between the Default Conversion Amount and the Alternative Default Conversion Amount, as applicable) divided by the Default Average Market Price. Any portion of the Default Conversion Amount not so converted (i.e., because such amount would require conversion into a fractional share or, in the case of Monsanto, because the number of shares available are not adequate to convert all of the Default Conversion Amount) shall be paid to Monsanto in cash. Upon any such conversion, the Default Conversion Amount (including any portion thereof paid to Monsanto in cash) shall first be applied to reduce the accrued interest due on the Loan as of the Default Conversion Date, and any remaining portion of the Default Conversion Amount shall be applied to reduce the principal due on such Loan. Section 5.04. Company's Obligations. The Company recognizes --------------------- that, if the Company fails to perform, observe or discharge any of its obligations under this Agreement or the other -26- 27 collateral agreements hereto, a remedy at law may not provide adequate relief to Monsanto; therefore, the Company agrees that Monsanto shall be entitled to seek temporary and permanent injunctive relief in any such case without the necessity of proving actual damages. All of Monsanto's rights and remedies granted under this Agreement and the collateral agreements hereto are cumulative and nonexclusive. The Company shall pay upon demand all costs and expenses, including, without limitation, reasonable attorneys' fees and expenses, incurred by Monsanto in enforcing this Agreement. All such sums not paid on demand shall be treated as outstanding principal under the Notes. ARTICLE VI RIGHT OF SETOFF Section 6.01. Right of Setoff. Upon the occurrence and --------------- during the continuance of any Event of Default, Monsanto is hereby authorized at any time and from time to time, without notice to the Company (any such notice being expressly waived by the Company), to set off and apply any and all funds at any time held and other indebtedness at any time owing by Monsanto to or for the credit or the account of the Company or any of the Subsidiaries against any and all of the obligations of the Company now or hereafter existing under this Agreement and the Notes, irrespective of whether or not Monsanto shall have made any demand under this Agreement or the Notes and although such obligations may be unmatured. Notwithstanding the preceding sentence, Monsanto shall not apply any of such setoff amounts until the end of the notice periods set forth in Section 5.03 hereof. The rights of Monsanto under this Section 6.01 are in addition to other rights and remedies (including, without limitation, other rights of setoff) which Monsanto may have. ARTICLE VII SUBORDINATION Section 7.01 Subordination. ------------- (a) All of the obligations of the Company to Monsanto under this Agreement and the Notes, including, without limitation, the Company's obligation to repay any Advances -27- 28 (collectively, the "Subordinated Indebtedness"), shall to the extent and in the manner hereinafter set forth, be subordinated and subject in right of payment to the prior payment in full of a Senior Indebtedness. "Senior Indebtedness" means (a) all indebtedness of the Company, including the principal of and interest on such indebtedness, whether outstanding on the date of this Agreement or thereafter created (i) arising under working capital lines of credit secured by inventory and/or receivables, (ii) incurred to acquire property, plant or equipment and secured by the acquired asset or (iii) otherwise permitted under Section 4.02(l) hereof at the time such indebtedness is incurred, and (b) any modifications, refundings, deferrals, renewals or extensions of any such Senior Indebtedness, or securities, notes or other evidences of indebtedness issued in exchange for such Senior Indebtedness; provided, however, that in no event shall the obligations of the Company under the Gargiulo Credit Facility Agreement constitute Senior Indebtedness under this Agreement. No payment on account of principal or interest on the Subordinated Indebtedness shall be made if, at the time of such payment or immediately after giving the effect thereto, (i) there shall exist a default in any payment with respect to any Senior Indebtedness or (ii) there shall have occurred an event of default (other than a default in the payment of amounts due thereon) with respect to any Senior Indebtedness, as defined in the instrument under which the same is outstanding, permitting the holders thereof to accelerate the maturity thereof, and such event of default shall not have been cured or waived or shall not have ceased to exist. Notwithstanding the foregoing or any other provision of this Section 7.01, nothing in this Section 7.01 shall restrict or otherwise limit Monsanto's or Company's rights under Sections 1.06 or 5.03 hereof. (b) In the event of any distribution, dividend, or application, partial or complete, voluntary or involuntary, by operation or law or otherwise, of all or any part of the assets of the Company or of the proceeds thereof to the creditors of the Company or upon any indebtedness of the Company, occurring by reason of the liquidation, dissolution, or other winding up of the Company, or by reason of any execution sale, or bankruptcy, receivership, reorganization, arrangement, insolvency, liquidation or foreclosure proceeding of or for the Company or involving its property, no dividend, distribution or application shall be made, and Monsanto shall not be entitled to receive or retain any dividend, distribution, or application on or in respect of principal of or interest on Subordinated Indebtedness, unless and until all -28- 29 principal of and any interest on Senior Indebtedness then outstanding shall have been paid and satisfied in full, and in any such event any dividend, distribution or application otherwise payable in respect of Subordinated Indebtedness shall be paid and applied on Senior Indebtedness until such Senior Indebtedness has been fully paid and satisfied. (c) The holders of Senior Indebtedness need not at any time give Monsanto notice of any kind of the creation or existence of any Senior Indebtedness, nor of the amount or terms thereof, all such notice being hereby expressly waived. Also, the holders of Senior Indebtedness may at any time and from time to time, without the consent of or notice to Monsanto, without incurring responsibility to Monsanto, and without impairing or releasing the obligation of Monsanto under this Agreement (i) renew, refund or extend the maturity of any Senior Indebtedness, or any part thereof, or otherwise revise, amend or alter the terms and conditions thereof, (ii) sell, exchange, release or otherwise deal with any property by whomsoever at any time pledged, mortgaged or otherwise hypothecated or subjected to a lien to secure any Senior Indebtedness, and (iii) exercise or refrain from exercising any rights against the Company and others, including Monsanto. (d) Monsanto shall not sell, assign or otherwise transfer any Subordinated Indebtedness, or any part thereof, except (i) upon the agreement of the transferee or assignee to abide by and be bound by the terms hereof and (ii) when Monsanto may assign its rights under the Stockholders Agreement dated of even date herewith between Company and Monsanto. (e) Monsanto shall cause all Subordinated Indebtedness to be at all times evidenced by the Notes of the Company and shall cause all such Notes to bear thereon a legend substantially as follows: "The indebtedness evidenced by this Note is subordinate to any and all indebtedness, obligations and liabilities of the maker hereof to the holders of Senior Indebtedness in the manner and to the extent set forth in the Credit Facility Agreement (as defined below) to which reference is hereby made for a more full statement thereof." -29- 30 (f) If, notwithstanding the provisions of this Agreement, Monsanto shall receive any payment of principal or interest on Subordinated Indebtedness which the Company is not entitled to make pursuant to the terms hereof, whether or not Monsanto has knowledge that the Company is not entitled to make such payment, Monsanto shall promptly account for such payment and upon the demand of the holders of Senior Indebtedness pay over such payment to such holders for application to the Senior Indebtedness owing to such holders. No payment or any distribution received by the holders of the Senior Indebtedness in respect of Subordinated Indebtedness pursuant to any of the terms hereof shall entitle Monsanto to any right, whether by virtue of subrogation or otherwise, in and to any Senior Indebtedness unless and until all Senior Indebtedness has been fully paid and satisfied and any commitment of the holders of Senior Indebtedness to extend Senior Indebtedness to the Company has terminated. ARTICLE VIII MISCELLANEOUS Section 8.01. Incorporation of Acquisition Agreement. The -------------------------------------- provisions contained in Article 12 of the Acquisition Agreement are incorporated herein by this reference and shall apply to this Agreement to the same extent as if fully set forth herein. Section 8.02. Reinstatement of Indebtedness. This Agreement ----------------------------- shall continue to be effective, or be reinstated, as the case may be, if, at any time, payment, or any part thereof, of any amount paid by or on behalf of the Company to Monsanto with regard to any Note is rescinded or must otherwise be restored or returned (i) upon or in connection with the insolvency, bankruptcy, dissolution, liquidation, or reorganization of the Company, or any Subsidiary, or (ii) upon or as a result of the appointment of a receiver, intervenor, or conservator of, or trustee, or similar officer for the Company or any Subsidiary or any Substantial Part of the property of such entity or (iii) as a result of Article VII hereof, all as though such payment has not been made. -30- 31 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. CALGENE II, INC. By: /s/Michael J. Motroni ----------------------------------- Title: Vice President -------------------------------- MONSANTO COMPANY By: /s/Hendrik A. Verfaillie ----------------------------------- Title: Executive Vice President -------------------------------- -31- EX-4 4 GARGIULO CREDIT FACILITY AGREEMENT 1 GARGIULO CREDIT FACILITY AGREEMENT THIS AGREEMENT is made as of the 31st day of March, 1996, by and between CALGENE II, INC., a Delaware corporation having its principal office at 1920 Fifth Street, Davis, California 95616 (the "Company"), and MONSANTO COMPANY, a Delaware corporation with its main offices at 800 N. Lindbergh Boulevard, St. Louis, Missouri 63167 ("Monsanto"). In consideration of the mutual benefits accruing to each of the parties, the receipt and sufficiency of which are hereby acknowledged, and in further consideration of the mutual performance of this Agreement, the parties hereto agree as follows: ARTICLE I AMOUNT AND TERMS OF THE LOAN Section 1.01. Loan. During the Commitment Period ---- (hereinafter defined), Monsanto agrees, on the terms and conditions hereafter set forth, to make a loan ("Loan") to the Company, the proceeds of which shall be used solely to support the branded tomato strategy ("Strategy") of Gargiulo, Inc., formerly Tomato Investment Associates, Inc., a Delaware corporation, or its successors ("Tomato Associates") (such Strategy shall be agreed upon by the Board of Directors of Tomato Associates and incorporated herein by reference), from time to time after the date hereof, in an aggregate amount not to exceed at any time outstanding Forty Million Dollars ($40,000,000), said sum being the "Commitment." Amounts advanced by Monsanto to Gargiulo, G.P., Inc., a Delaware corporation ("Gargiulo, G.P."), or Gargiulo, L.P., a Delaware limited partnership ("Gargiulo, L.P."), (Gargiulo, G.P. and Gargiulo, L.P. collectively, "Gargiulo") prior to the date of this Agreement (the "Gargiulo Loan") and outstanding on the date hereof, plus any accrued interest thereon, shall be re-financed under, and shall become subject to the terms and conditions of, this Agreement, and the total of such prior advances and accrued interest shall be deemed, without any action, to be an Advance (hereinafter defined) -1- 2 hereunder on the date hereof used to repay such total. Within said limits and prior to the occurrence of an Event of Default (hereinafter defined), the Company may borrow, repay and reborrow under this Agreement, each such borrowing or reborrowing being referred to herein as an "Advance." Each Advance shall be in an amount of not less than One Hundred Thousand Dollars ($100,000) and shall be in increments of One Hundred Thousand Dollars ($100,000). Each request for an Advance (except the Advance relating to repayment of the Gargiulo Loan referred to above) shall consist of documentation submitted to Monsanto by Tomato Associates and the Company that is reasonably acceptable to Monsanto, verifying that Tomato Associates has reached certain milestones and achieved certain goals as set forth on Exhibit A attached hereto and --------- incorporated herein by reference, as it may be amended from time to time, and shall be accompanied by a written request substantially in the form attached hereto as Exhibit B and incorporated herein or in --------- such other form acceptable to Monsanto. The maximum amount of each Advance shall be determined in accordance with the schedule set forth on Exhibit A. At no time shall Monsanto be obligated to make --------- any Advance to the Company in connection with any milestone or goal set forth on Exhibit A until such time as Tomato Associates and the --------- Company have provided Monsanto with documentation reasonably acceptable to Monsanto, verifying Tomato Associates' achievement of the goal and milestone for which Tomato Associates and the Company are seeking the Advance. Upon achievement of the applicable goal and milestone and upon fulfillment of the applicable conditions set forth in Article II hereof and subject to the provisions of this Agreement, Monsanto shall make such Advances available by wire transfer directly into Tomato Associates' bank account pursuant to wiring instructions to be provided at the time the request for each Advance is submitted, but the Company agrees to reimburse Monsanto for all wire and other transfer costs incurred by Monsanto, and the Company shall bear all risks of delays or nondelivery or misdelivery of any such funds so wired or otherwise transferred other than those caused by Monsanto's negligence or failure to transfer such funds in accordance with the Company's directions. Any Advance under this Agreement shall be deemed made on the day that the Advance proceeds are wired or otherwise transferred or, if the Advance proceeds are used to repay the Gargiulo Loan, on the date hereof. Monsanto shall process each request for an Advance as soon as reasonably practicable but no later than ten (10) working days after receipt of the Company's request. The "Commitment Period" means the period from the date of this Agreement to the earlier of the fourth anniversary of the -2- 3 execution of this Agreement or the date Monsanto terminates its obligations to make further Advances hereunder pursuant to Section 5.02 hereof. The Loan made pursuant to this Agreement shall be supported by the joint and several guaranty (the "Guaranty") of the subsidiaries of the Company which are listed on Exhibit C hereto --------- (the "Subsidiaries" or a "Subsidiary") in the form attached hereto as Exhibit D. --------- Section 1.02. Note. The Loan shall be evidenced by a ---- promissory note in the form of Exhibit E attached hereto (the --------- "Note"), dated as of the date hereof, payable to the order of Monsanto and representing the obligation of the Company to pay the amount of the aggregate unpaid principal amount of the Loan, together with interest on the principal amount outstanding from time to time, as provided in this Agreement. Subject to the other provisions of this Agreement, the Note shall provide that the Company shall pay all outstanding principal and accrued interest to Monsanto on the fourth anniversary of this Agreement (the "Maturity Date"), unless extended as provided herein, in one (1) payment in an amount equal to the lesser of the Repayment Portion (hereinafter defined) of the Cumulative Free Cash Flow (hereinafter defined) of Tomato Associates' total business during the period between the date of this Agreement and the Maturity Date and the amount of outstanding principal and accrued interest on the Loan. For purposes of this Section 1.02, "Free Cash Flow" shall mean, for any Fiscal Year (hereinafter defined) of Tomato Associates, the Operating Income (hereinafter defined) of Tomato Associates' total business for such Fiscal Year, adjusted by: (i) the addition of the amount of depreciation and amortization in such Fiscal Year, as included in calculating such Operating Income, as reflected in Tomato Associates' consolidated statement of operations for such Fiscal Year; (ii) the addition of the net loss, and subtraction of the net gain, from the following events during such Fiscal Year, in all cases as included in calculating such Operating Income, as reflected in Tomato Associates' consolidated statement of operations for such Fiscal Year: - the disposition of assets outside the ordinary course of business; -3- 4 - the retirement of assets; and - write-down of assets. (iii) the addition of the aggregate net amount of any decrease, and subtraction of the aggregate net amount of any increase, in current assets (excluding cash, cash equivalents and short-term investments) which include, but are not limited to, the following items as included in Tomato Associates' consolidated balance sheet at the end of such Fiscal Year as compared to the corresponding items included in Tomato Associates' consolidated balance sheet at the end of the then preceding Fiscal Year: Receivables, net; Inventories; Prepaid expenses; and Deferred charges; (iv) the addition of the aggregate net amount of any increase, and subtraction of the aggregate net amount of any decrease, in current liabilities, which include, but are not limited to, the following items as included in Tomato Associates' consolidated balance sheet at the end of such Fiscal Year compared to the corresponding items included in Tomato Associates' consolidated balance sheet at the end of the then next preceding Fiscal Year: Accounts payable; Accrued expenses; Amounts due to growers; Deferred compensation; Deferred income taxes; and Liability reserves; (v) the subtraction of the aggregate amount of capital expenditures and investments and expenditures for other noncurrent assets during such Fiscal Year, as -4- 5 included in Tomato Associates' consolidated statement of cash flows for such Fiscal Year; (vi) the addition of the amount of any net decrease, and the subtraction of the amount of any net increase, in such Operating Income due to accounting changes for such Fiscal Year; in all cases as included in Tomato Associates' consolidated financial statements for such Fiscal Year prepared in accordance with generally accepted accounting principles, consistently applied, and audited by Tomato Associates' independent certified public accountants; and (vii) the addition of the aggregate net amount of any increase, and subtraction of the aggregate net amount of any decrease, in noncurrent liabilities as reflected in Tomato Associates' consolidated balance sheet at the end of such Fiscal Year compared to the corresponding items included in Tomato Associates' consolidated balance sheet at the end of the then next preceding Fiscal Year. For purposes of this calculation, changes in any loans which are unsecured, secured by assets existing on the date hereof or amounts due Monsanto hereunder shall be excluded from noncurrent liabilities. "Fiscal Year" shall mean the period commencing with July 1 and ending with the following June 30 and "Operating Income" shall mean, for any Fiscal Year, the consolidated net income of Tomato Associates and its consolidated subsidiaries for such Fiscal Year as reflected in the consolidated statement of operations of Tomato Associates and its consolidated subsidiaries for such Fiscal Year prepared in accordance with generally accepted accounting principles, consistently applied, and audited by Tomato Associates' independent certified public accountants. Notwithstanding the provisions of the preceding sentence, the initial Fiscal Year under this Agreement shall be the period commencing on the first day of the fiscal quarter beginning after the date hereof and ending with the following June 30. "Cumulative Free Cash Flow" shall mean the aggregate of the Free Cash Flow of Tomato Associates during the period between the execution date of this Agreement and the Maturity Date, during the period between the Maturity Date and the Extended Maturity Date (hereinafter -5- 6 defined) and during the period between the Extended Maturity Date and the Final Maturity Date (hereinafter defined), respectively. At the end of each Fiscal Year, the Chief Financial Officer of the Company shall certify the amount of Tomato Associates' Free Cash Flow for the Fiscal Year just ended. "Repayment Portion" shall mean the sum of (i) 20% of the first $10 million of Cumulative Free Cash Flow or portion thereof, (ii) 50% of the next $10 million of Cumulative Free Cash Flow or portion thereof and (iii) 80% of the remaining balance of Cumulative Free Cash Flow, if any. All transactions between Tomato Associates and any affiliate of Tomato Associates during the term of this Agreement shall be accounted for on an arm's-length basis. Further, (i) dividends and returns of capital by Tomato Associates to Company, (ii) investments by Company in Tomato Associates and (iii) any loans between Tomato Associates and Company (or any direct or indirect subsidiary of Company that is not a direct or indirect subsidiary of Tomato Associates) shall not be considered when determining "Free Cash Flow." If the Repayment Portion of Cumulative Free Cash Flow is not sufficient to pay all the then outstanding principal and accrued interest on the Maturity Date, then the Company shall pay to Monsanto on the Maturity Date the Repayment Portion of the Cumulative Free Cash Flow, the Maturity Date as to the principal and accrued interest remaining outstanding after such payment is applied, if any, shall be extended to the sixth anniversary of this Agreement ("Extended Maturity Date"). If the Repayment Portion of the Cumulative Free Cash Flow (less the aggregate amount of principal and accrued interest previously paid) is not sufficient to pay all the then outstanding principal and accrued interest on the Extended Maturity Date, then the Company shall pay to Monsanto on the Extended Maturity Date the Repayment Portion of the Cumulative Free Cash Flow, and the Extended Maturity Date as to the principal and accrued interest remaining outstanding after such payment is applied, if any, shall be extended to the eighth anniversary of this Agreement ("Final Maturity Date"). If the Repayment Portion of the Cumulative Free Cash Flow (less the aggregate amount of principal and accrued interest previously paid) is not sufficient to pay all the then outstanding principal and accrued interest -6- 7 on the Final Maturity Date, then (i) the Company shall pay to Monsanto on the Final Maturity Date the Repayment Portion of the Cumulative Free Cash Flow and (ii) Monsanto, at its sole option, may do any one or combination of the following: (A) convert all or any remaining portion of the then outstanding principal and accrued interest to the Company's common stock in compliance with the terms of Section 1.06 hereof, (B) further extend the Final Maturity Date on the same terms and conditions as are contained in this Agreement or (C) elect, in its sole discretion, to require the Company to sell publicly, at the Company's expense, such number of shares of its common stock as is equal to that portion of such remaining portion of the then outstanding principal and accrued interest for which Monsanto has not made an election to convert under clause (A) above and/or to extend the Final Maturity Date under clause (B) above ("Election Amount"), whereupon the Company shall proceed promptly to use its best efforts to take such actions as are necessary to effect a sale of such shares of its common stock, the net proceeds of which shall be paid to Monsanto in full payment and satisfaction of the Election Amount. If the Company has not so sold such shares within sixty (60) days after its receipt of notice of Monsanto's election under clause (C) above, then, at any time thereafter, Monsanto may, in its sole discretion, withdraw any such election, whereupon the rights and obligations of the parties hereto shall be restored. Section 1.03. Interest Rate. The outstanding principal ------------- balance of the Loan from time to time shall bear interest at two percent (2%) above Citibank's published prime rate ("Note Rate"). Interest shall be compounded daily and adjusted quarterly on each January 1, April 1, July 1 and October 1 pursuant to calculations performed by Monsanto. Section 1.04. Effects of Event of Default or Potential ---------------------------------------- Default. Notwithstanding the foregoing and in addition to the - ------- remedies set forth in Sections 5.02 and 5.03 hereof, upon an Event of Default and so long as such Event of Default shall continue, the principal amount of the Loan then outstanding, together with all interest then accrued, shall thereafter bear interest at the Default Rate (hereinafter defined), with interest payable upon demand. The "Default Rate" shall be the per annum rate equal to three percent (3%) above the Note Rate that would otherwise be applicable and thereafter until paid in full. During the continuance of an Event of Default, the Company shall have no right to obtain any new Advances under this Agreement. -7- 8 A "Potential Default" shall be an event which, solely but for the lapse of time or the giving of notice, or both, would constitute an Event of Default. If a Potential Default then exists and has not been waived in writing by Monsanto and does not itself constitute or is not declared an Event of Default, the Company shall have no right to borrow any additional money beyond the principal amount of the Loan then outstanding. Section 1.05. Miscellaneous Provisions Regarding Loan --------------------------------------- Payments and Interest. All payments on the Loan shall be made to - --------------------- Monsanto by wire transfer for deposit in Citibank, New York, New York, Account #00000502 unless Monsanto notifies the Company of a different place for payments to be made. All interest rates respecting the Loan hereunder are stated on a per annum basis with a year of three hundred and sixty (360 days), and interest is calculated on the actual number of days elapsed (including the first day, but excluding the last day of any period for the Loan). Any outstanding principal and accrued interest that has been declared due pursuant to Section 5.02 hereof shall thereafter bear interest at the Default Rate on all unpaid amounts until such amounts are fully paid. Section 1.06 Right of Conversion in Lieu of Repayment. In ---------------------------------------- addition to any other remedies that Monsanto may have, in lieu of repayment of outstanding principal and accrued interest on and after the Final Maturity Date, Monsanto may elect, at any time after the Final Maturity Date, to convert all or any portion of the principal and accrued interest due under the Loan into shares of common stock of the Company at the average of the closing market prices for such shares during the thirty (30) trading days immediately preceding the Conversion Date (as hereafter defined) for such Loan. In order to exercise its conversion rights, at any time on or after the Final Maturity Date, Monsanto may send a written notice (the "Conversion Notice") to the Company that Monsanto intends to exercise such conversion rights and the date as of which such conversion shall take place (the "Conversion Date"). The Conversion Notice shall specify the amount of the principal and accrued interest that Monsanto intends to convert (the "Conversion Amount"). If Monsanto properly notifies the Company as provided in the preceding sentences, then within five (5) business days after the Conversion Date, the Company shall issue to Monsanto a number of shares (the "Conversion Shares") of common stock of the Company (rounded to the next lowest full share) equal to the Conversion Amount divided by the average -8- 9 of the closing market prices for such shares during the thirty (30) trading days immediately preceding the Conversion Date. Any portion of the Conversion Amount not so converted (because such amount would require conversion into a fractional share) shall be paid to Monsanto by wire transfer as set forth above. Upon any such conversion, the Conversion Amount shall first be applied to reduce the accrued interest due on the Loan as of the Conversion Date, and any remaining portion of the Conversion Amount shall be applied to reduce the principal due on such Loan. If Monsanto elects to receive Conversion Shares (including any Default Conversion Shares pursuant to Section 5.03 hereof) in lieu of repayment, the Company shall deliver to Monsanto, simultaneously with the delivery of the Conversion Shares, an opinion from counsel to the Company in a form reasonably satisfactory to Monsanto relating to the issuance of the Conversion Shares. Section 1.07. Prepayments. The Loan may be prepaid in whole ----------- or in part at any time after giving at least three (3) days' prior written notice to Monsanto. Section 1.08. Approved Persons. All requests for Advances ---------------- (including any requests for continuation of the Loan) shall be made by an Approved Person (hereinafter defined). An "Approved Person" shall be any person designated in writing from time to time by the Company who is authorized to make requests for Advances in the name of the Company hereunder. Unless Monsanto otherwise agrees, there shall not be more than three (3) Approved Persons at any one time nor shall any Approved Person have his or her office located at any place other than the Company's main office in Davis, California, but the Company shall have the right to change the persons so designated upon written notice thereof to Monsanto. Any such designation shall be executed by the President or the Chief Financial Officer of the Company and shall contain a specimen signature of the Approved Person. Monsanto shall be entitled to rely on any direction by an Approved Person regarding the making of Advances or the transfer of funds hereunder, or any such direction that Monsanto believes to be made by the Approved Person, whether such direction be received by telephone, by facsimile transmission, by TELEX, by mail or otherwise. -9- 10 ARTICLE II CONDITIONS OF LENDING Section 2.01. Conditions Precedent to Loan. The obligation ---------------------------- of Monsanto to make the first Advance under the Loan is subject to the following additional conditions precedent that: (a) Acquisition Agreement Conditions. All of the -------------------------------- conditions set forth in Section 8.2 of the Agreement and Plan of Reorganization ("Acquisition Agreement") between Monsanto and Calgene, Inc., a Delaware corporation ("Calgene"), dated October 13, 1995 must be fulfilled (or waived in writing by Monsanto) and all the documents that Calgene or the Company is required to deliver to Monsanto pursuant to such Section 8.2 must be delivered (or waived in writing by Monsanto). (b) Documents. Monsanto shall receive the following, --------- each dated the date hereof or such other date as may be specifically permitted, in form and substance satisfactory to Monsanto: (i) Note. The Note, duly executed by the Company. ---- (ii) Guaranty. The Guaranty, duly executed by all -------- the Subsidiaries. (iii) Other Approvals. Such other approvals, --------------- resolutions, opinions or documents, as Monsanto may reasonably request. Section 2.02. Conditions Precedent to Each Advance. The ------------------------------------ obligation of Monsanto to make any Advances under the Loan shall be subject to the further conditions precedent that, on the funding date, (i) all representations and warranties of the Company and the Subsidiaries contained in this Agreement and the Guaranty shall be true, correct, accurate and complete in all material respects as if made on such date (except (A) to the extent such representations speak as of an earlier date or (B) for changes arising from events permitted by the covenants specified in this Agreement), (ii) all covenants specified in this Agreement shall have been complied with -10- 11 in all material respects, (iii) no event shall have occurred and be continuing, or would result from such Advance, which constitutes an Event of Default or Potential Default, (iv) there shall not be initiated against the Company or any Subsidiary any action, suit or proceeding at law or in equity or by or before any court or government agency or authority or arbitral tribunal and there shall not have occurred any legal, regulatory or other development or any other circumstances whatsoever which, in the opinion of Monsanto, could reasonably be expected to have a material adverse effect on (a) the business, assets, operations or financial condition of the Company and its Subsidiaries taken as a whole, or (b) the ability of the Company and its Subsidiaries to perform any of their respective obligations hereunder or under the documents contemplated hereby (each of the foregoing being hereafter referred to as a "Material Adverse Effect"); provided, however, that no Material Adverse Effect shall be deemed to have occurred based solely on the outcome of the litigation between the Company and Enzo Biochem, Inc. ("Enzo"), (v) Monsanto shall have received documentation reasonably acceptable to Monsanto, verifying that Tomato Associates has reached certain milestones and achieved certain goals of the Strategy reflected in the request for the Advance, (vi) Monsanto shall have received certificates and evidence reasonably acceptable to Monsanto as to the financial condition of Tomato Associates, and (vii) an Advance request in proper form shall have been submitted or made to Monsanto by the Company. The making of a request by the Company for an Advance hereunder, whether in writing, or by telephone confirmed in writing, or otherwise, shall constitute a certification by the Company that all representations and warranties recited or referred to in this Section 2.02 and Article III hereof are true as of and as if made the date of such request (except as set forth above) and that all required conditions to the making of such Advance have been met. ARTICLE III REPRESENTATIONS AND WARRANTIES Section 3.01. Representations and Warranties of the Company. --------------------------------------------- The representations and warranties of Calgene set forth in Section 6.2 of the Acquisition Agreement are incorporated by reference herein. All such representations and warranties shall be deemed made by the Company -11- 12 herein and shall survive and be continuing so long as any principal or accrued interest is outstanding under the Loan. ARTICLE IV COVENANTS OF THE COMPANY Section 4.01. Affirmative Covenants. So long as any portion --------------------- of the Loan or accrued interest shall remain unpaid or Monsanto shall have any Commitment hereunder, the Company shall (and, where appropriate even if not so stated, shall cause each of the Subsidiaries to), unless Monsanto shall otherwise consent in writing, which consent shall not be unreasonably withheld: (a) Preservation of Business and Corporate Existence. ------------------------------------------------ As to the Company and each Subsidiary, carry on and conduct its business affairs in substantially the same manner as presently carried on and conducted, and maintain in good standing its existence and its right to transact business in those states in which it is now or may hereafter be doing business; and maintain all licenses, permits and registrations necessary to the conduct of its business. (b) Use of Proceeds. Use the proceeds of the Loan --------------- solely to make capital contributions or loans to Tomato Associates, which capital contributions or loans shall be used solely by Tomato Associates to implement the Strategy or to finance the Collier Farms acquisition. All such capital contributions shall be evidenced by appropriate written documentation. (c) Reporting Requirements. Furnish to Monsanto: ---------------------- (i) As soon as available and in any event within sixty (60) days after the end of each calendar quarter, one (1) copy of the consolidated and consolidating financial statements prepared by the Company and certified by the Chief Financial Officer of the Company, and as soon as available and in any event within one hundred twenty (120) days after the end of its Fiscal Year, one (1) copy of its financial statements -12- 13 audited by an independent public accountant. The financial statements so provided shall include, but not be limited to, the balance sheet, income statement and cash flow statement of the Company, as well as consolidated and consolidating statements of all Subsidiaries including Tomato Associates (which consolidating statement need not be audited). Such financial statements shall be accompanied by a written certification from the Chief Financial Officer of the Company (A) stating that the financial statements present fairly the consolidated financial condition of the Company and that no event has since occurred which would constitute a Material Adverse Effect on the consolidated financial condition of the Company from that represented on the financial statements; (B) demonstrating in detail, satisfactory to Monsanto, the Company's compliance with the financial covenants set forth in Sections 4.01(f) and 4.01(g) hereof at and as of the end of the quarter or Fiscal Year, as applicable; (C) stating that no Event of Default or Potential Default is then existing at the date of the certification; and (D) stating that the representations and warranties contained in this Agreement and the Guaranty are accurate and complete in all material respects. (ii) Promptly after the sending or filing thereof, copies of all reports which the Company sends to any of its stock or security holders and copies of all reports and other materials (including registration statements, if any) which the Company hereafter files with the Securities and Exchange Commission or any national securities exchange. (iii) Such other information respecting the condition or operations, financial or otherwise, of the Company as Monsanto may from time to time reasonably request. (d) Insurance. Insure and keep insured at all times --------- with good and responsible insurance companies reasonably acceptable to Monsanto all of its property of an insurable nature and maintain insurance against liability on account of damage to persons or property in such manner and to the extent that like risks are usually insured by others conducting similar businesses in the general areas where the Company and each of the Subsidiaries conduct their -13- 14 business. Company shall, upon request of Monsanto at any time, furnish a written summary of the amount and type of insurance carried, the names of the insurers and the policy numbers. (e) Government Actions. Obtain and maintain all ------------------ material authorizations and approvals, and other actions by, and make and maintain all notices to or filings with, any governmental authority or regulatory body now or hereafter required for the making and performance of this Agreement and the Note. (f) Net Worth. Maintain, at and as of the end of the --------- quarter or Fiscal Year, as applicable, consolidated Net Worth (hereinafter defined) of not less than Ten Million Dollars ($10,000,000) and a minimum consolidated working capital of not less than Five Million Dollars ($5,000,000) (which consolidated working capital shall be the excess of Current Assets (hereinafter defined) over Current Liabilities (hereinafter defined)). Further, the ratio of Total Long-Term Liabilities (hereinafter defined) to Net Worth shall not exceed the ratio of one-to-one. As used herein, "Net Worth" shall mean the total of common and preferred stock, paid in surplus, retained earnings and additional stockholders' equity of the Company and the Subsidiaries on a consolidated basis less intangibles, determined in accordance with generally accepted accounting principles, consistently applied. "Total Long-Term Liabilities" shall mean the total of all long-term liabilities of the Company and the Subsidiaries on a consolidated basis, determined in accordance with generally accepted accounting principles, consistently applied. "Current Assets" shall mean the total of all current assets of the Company and the Subsidiaries on a consolidated basis, determined in accordance with generally accepted accounting principles, consistently applied. -14- 15 "Current Liabilities" shall mean the total of all current liabilities of the Company and its Subsidiaries on a consolidated basis, determined in accordance with generally accepted accounting principles, consistently applied. For purposes of making any calculation under this Article IV, the outstanding principal of amounts loaned by Monsanto to the Company pursuant to this Agreement (except to the extent of the Repayment Portion of Cumulative Free Cash Flow, which has not been paid to Monsanto), or the Holding Company Credit Facility Agreement of even date herewith between Monsanto and the Company (the "Company Credit Facility Agreement") shall be deemed to be stockholders' equity and not liabilities. (g) Current Ratio. Maintain, on a consolidated basis, ------------- a ratio of Current Assets to Current Liabilities of at least one- to-one. (h) Audits, Consultants and Inspections. Permit ----------------------------------- Monsanto (using Monsanto's internal and/or external auditors or any other person appointed by Monsanto to whom the Company does not reasonably object) (i) to audit the books and records, other financial information and business practices and operations of the Company and its Subsidiaries, and (ii) to discuss the business practices and operations, affairs, finances and accounts of the Company and its Subsidiaries with the officers of the Company and its Subsidiaries and the independent public accountants who review or audit the Company's financial statements, all at such reasonable times and as often as may reasonably be requested. The Company shall also permit inspection of its (and its Subsidiaries') properties, books and records by Monsanto (using the persons identified above) during normal business hours or at other reasonable times. The scope of all such audits, discussions and inspections shall be determined by Monsanto in its sole discretion. Any authorized representative of Monsanto who or which is not employed by Monsanto (i) shall be required to execute a confidentiality agreement in a form approved by the Board of Directors of the Company (which approval shall not be unreasonably withheld or delayed) and (ii) may not be employed by or affiliated with a competitor of the Company, as reasonably determined by the Board of Directors of the Company; provided, however, that an independent certified public accounting firm shall not be deemed to be employed by or affiliated -15- 16 with a competitor of the Company even if such firm provides services to a competitor of the Company. (i) Payment of Taxes. Pay and discharge, before they ---------------- become delinquent, all taxes, assessments and other governmental charges imposed upon the Company, the Subsidiaries or any of its or their properties, or any part thereof, or upon the income or profits therefrom and all claims for labor, materials or supplies which, if unpaid, might be or become a lien or charge upon any of its or their property, except such items as it or they are in good faith appropriately contesting and as to which adequate reserves have been provided. (j) Payment of Indebtedness. Pay any and all ----------------------- indebtedness for borrowed money payable or guaranteed by the Company (or any Subsidiary), and any interest or premium thereon, when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) in accordance with the agreement or instrument relating to such indebtedness or guarantee, except those being contested in good faith and as to which adequate reserves have been provided. (k) Notice of Subsequent Events. Immediately upon the --------------------------- President or Chief Financial Officer of the Company obtaining knowledge of (i) any material adverse change in the condition or operation, financial or otherwise, of the Company and its Subsidiaries; (ii) any Event of Default or Potential Default under this Agreement; (iii) any default or potential default by the Company or any of the Subsidiaries under or with respect to any instrument, contract or agreement to which the Company or any of the Subsidiaries is a party or by which the Company or any of the Subsidiaries is bound which may constitute a Material Adverse Effect; (iv) any default or potential default by the Company or any of the Subsidiaries under or with respect to any order, writ, injunction, decision or decree of any court, governmental authority or arbitral body to which the Company or any of the Subsidiaries is a party or by which the Company or any of the Subsidiaries is bound which may constitute a Material Adverse Effect; or (v) any action or proceeding pending or, to the knowledge of the President or Chief Financial Officer of the Company, threatened against the Company or any of the Subsidiaries before any court, governmental authority or arbitral body which, if decided adversely to the Company or such -16- 17 Subsidiary, would result in a Material Adverse Effect, deliver to Monsanto a written certificate signed by such officer specifying the nature thereof, the period of existence thereof and what action the Company has taken and proposes to take with respect thereto. (l) ERISA Compliance. If the Company or any of the ---------------- Subsidiaries shall have any pension plan, comply with all requirements of the Employee Retirement Income Security Act of 1974, as amended from time to time ("ERISA") relating to such plan. Without limiting the generality of the foregoing, the Company (and each of the Subsidiaries) shall not: (i) Permit any Plan (hereinafter defined) maintained by it to engage in any non-exempt "prohibited transaction" as such term is defined in Section 4975 of the Internal Revenue Code of 1986, as amended; (ii) Permit any Plan maintained by it to incur any "accumulative funding deficiency," as such term is defined in Section 302 of ERISA, 29 U.S.C Section 1082, whether or not waived; (iii) Terminate any such Plan in a manner which could result in the imposition of a lien on the property of Company pursuant to Section 4068 of ERISA, 29 U.S.C. Section 1368; or (iv) Take any action which would constitute a complete or partial withdrawal from a Multiemployer Plan (hereinafter defined) within the meaning of Sections 4203 and 4205 of Title IV of ERISA, 29 U.S.C. Sections 1383 and 1385. Notwithstanding any provision contained in this Section 4.01(l) to the contrary, an act by the Company shall not be deemed to constitute a violation of subparagraphs (i) through (iv) hereof unless Monsanto determines in good faith that said action, individually or cumulatively with other acts of the Company, does have or is likely to cause, a Material Adverse Effect. -17- 18 Company shall have the affirmative obligation hereunder to report to Monsanto any of those acts identified in subparagraphs (i) through (iv) hereof, regardless of whether said act does or is likely to cause a Material Adverse Effect. (m) Compliance with Laws. Comply in all material -------------------- respects with all applicable laws, rules, regulations and orders. (n) Additional Subsidiaries. If the Company or any ----------------------- Subsidiary acquires or creates any additional majority-owned subsidiary hereafter, promptly notify Monsanto in writing. Such additional subsidiary shall also, upon capitalization and election of officers, execute and deliver to Monsanto a guaranty of the Loan in the form attached hereto as Exhibit D and, upon such delivery, --------- shall become a Subsidiary under this Agreement. (o) Reservation of Shares. Reserve adequate shares of --------------------- common stock of the Company to be issued upon the occurrence of a conversion as described in Sections 1.02, 1.06 and 5.03 hereof. (p) Further Assurances. From time to time, execute and ------------------ deliver to Monsanto such additional documents and provide such additional information as Monsanto may reasonably require to carry out the terms of this Agreement and be informed of the status and affairs of the Company and its Subsidiaries. Section 4.02. Negative Covenants. Except as specifically ------------------ provided otherwise hereinbelow, so long as the Loan shall remain unpaid or Monsanto shall have any Commitment hereunder, without the written consent of Monsanto, the Company and each of the Subsidiaries: The following negative covenants set forth in this Section 4.02 shall be of no force or effect during such period as the "Supermajority Requirements" set forth in Article 4 of the Stockholders Agreement of even date herewith between the Company and Monsanto are in effect. In the event such "Supermajority Requirements" are no longer in effect, the -18- 19 foregoing negative covenants shall be fully applicable to the Company (and, where appropriate, each of the Subsidiaries). (a) Acquisitions. Shall not enter into any merger or ------------ consolidation or acquire any business or assets that would constitute a Substantial Part (hereinafter defined) of the Company and its Subsidiaries, taken as a whole, whether such acquisition be by merger or consolidation or the purchase of stock or assets or otherwise. "Substantial Part" means more than ten percent (10%) of the total assets of the Company and its Subsidiaries, taken as a whole, as shown on the Company's consolidated balance sheet as of the end of the most recent fiscal quarter ending prior to the time the determination is made. (b) Liens. Shall not, and shall 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 the Company or any Subsidiary other than: (i) liens, pledges or deposits for workmen'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 the Company or any 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, consistently applied, and that the obligation is not for borrowed money, customer advances, trade payables, or obligations to agricultural producers; (ii) 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 the Company or any Subsidiary so secured by a pledge of property permitted under -19- 20 this subsection (ii) including interest and penalties thereon, if any, shall not be in excess of One Million Dollars ($1,000,000) at any one time outstanding; (iii) liens, pledges, mortgages, security interests or other charges existing on the date hereof and disclosed in Exhibit F hereto; and --------- (iv) liens, pledges, mortgages, security interests and other encumbrances on property which secure indebtedness permitted under Section 4.02(k) hereof. (c) Limitations on Merger and Disposition of Assets. ----------------------------------------------- Shall not merge into or consolidate with any other entity, or lease, sell, transfer or otherwise dispose of all or any Substantial Part of the Company and its Subsidiaries, taken as a whole, except (i) pursuant to security interests granted in connection with borrowings permitted under Section 4.02(k) hereof and (ii) in the case of a merger or consolidation of the Company, (A) the shareholders of the Company immediately prior to the merger or consolidation continue to hold more than fifty percent (50%) of the outstanding voting power of the surviving entity, (B) the surviving entity (after giving effect to the merger or consolidation) has a net worth equal to or greater than the consolidated net worth of the Company (determined immediately prior to the merger or consolidation), and (C) the surviving entity expressly assumes all of the obligations of the Company under this Agreement. (d) Non-Default Under Other Agreements. Shall not ---------------------------------- default upon or fail to pay any indebtedness for money borrowed as the same matures under any agreement or permit to occur any other event which creates a default under such or under any other agreement to which the Company is a party or by which it is bound, in either case in an amount in excess of One Million Dollars ($1,000,000). (e) Conflicting Agreement. Shall not enter into any --------------------- agreement, any term or condition of which conflicts with any term or condition of this Agreement. -20- 21 (f) Changes in Accounting Principles. Shall not make -------------------------------- any change in its principles or methods of accounting as currently in effect, except such changes as are required by generally accepted accounting principles, or, without prior written notice to Monsanto, change its Fiscal Year. (g) Loans and Investments. Shall not make any --------------------- investment in a corporation, firm or business or make loans or advances to any person except: (i) Investments in interest bearing obligations of the United States government, certificates of deposit issued by United States banks, commercial paper and repurchase agreements or other short-term, high grade (A-1, P-1 or similar rating) investments; (ii) Advances to others in the form of progress payments, prepaid rents, security deposits, grower loans or other advances customary in transactions made in the ordinary course of business between persons not affiliated with each other; (iii) Subject to the provisions of Section 4.02(a) hereof, investments in any partially- or wholly-owned Subsidiary or any corporation, firm or business in the same type of business as the Company, which line of business will continue after such investment; (iv) The loans listed and described on Exhibit G --------- hereto and additional purchase money loans to purchasers of assets of the Company or its Subsidiaries which at no time in the aggregate exceed One Million Dollars ($1,000,000); (v) Loans and travel advances to employees of the Company which in the aggregate (inclusive of the employee loans listed on Exhibit H hereto), do not exceed One Hundred --------- Thousand Dollars ($100,000); -21- 22 (vi) Loans or advances by the Company to any wholly- owned Subsidiary, or by Tomato Associates to the Company or any other wholly-owned Subsidiary; or (vii) Stock, obligations or securities received in settlement of debts (created in the ordinary course of business) owing to the Company or any Subsidiary. Nothing in this subsection (g) shall be construed as preventing Company or any Subsidiary from making any acquisition permitted under subsection (a) above of this Section 4.02. (h) Guaranties. Shall not guarantee the obligations of ---------- any corporation, person or entity, except endorsements of negotiable instruments or checks deposited for collection acquired in the ordinary course of business and except guaranties by (i) the Company or any Subsidiaries of the obligations of any of the wholly-owned Subsidiaries or any subsidiary hereinafter acquired and becoming a wholly-owned Subsidiary hereunder or (ii) any Subsidiary of the obligations of the Company. (i) Capital Expenditures. Shall not make capital -------------------- expenditures (including capitalized leases but excluding fixed assets acquired in connection with corporate acquisitions), during any Fiscal Year of the Company, on a consolidated basis, in an aggregate amount in excess of Sixty Million Dollars ($60,000,000). (j) Dividends. Shall not pay or declare any dividends --------- (either in cash or property) or make distributions on, or redeem, repurchase, retire or otherwise acquire for value, any shares of stock of the Company or Tomato Associates (including, options, warrants or other rights to acquire such shares of stock) other than repurchases or redemptions of equity securities of the Company. (k) Limit on Indebtedness. Shall not create, assume or --------------------- incur any indebtedness, in the aggregate, exceeding Fifteen Million Dollars ($15,000,000), increasing by Five Million Dollars ($5,000,000) per Fiscal Year, plus amounts secured by inventory and/or receivables for -22- 23 working capital lines and indebtedness incurred to acquire property, plant or equipment and secured by the acquired asset, and any refinancing of any of the foregoing, exclusive of (i) amounts outstanding under this Agreement or the Company Credit Facility Agreement and (ii) indebtedness approved by the Board of Directors of the Company while the "Supermajority Provisions" were in effect. ARTICLE V EVENTS OF DEFAULT Section 5.01. Events of Default. Any one (1) or more of the ----------------- following events shall constitute an Event of Default under this Agreement, the Note and any other document or instrument pertaining to or necessary to carry out the purposes of this Agreement: (a) Payment Default. The Company fails to pay when due --------------- any principal, interest or other amount which it is obligated to pay under this Agreement and the Note and such failure shall continue unremedied for five (5) days after the date on which such payment was due. (b) Representation Default. Any representation or ---------------------- warranty made by the Company in this Agreement, the Note, or in any certificate, notification or report furnished hereunder, proves to have been incorrect or misleading in any material respect when made or renewed and is material to the ability of the Company to perform its obligations under this Agreement or the Note. (c) Other Provisions Default. The Company fails to ------------------------ perform or observe any material covenant or agreement to be performed or observed by it under this Agreement or the Note or the Company fails to perform or observe any other material term, covenant or condition in this Agreement or the Note to be made and performed by the Company and, in the case of any such default that is curable by the Company, such default is not cured within ten (10) days after written notice thereof by Monsanto. -23- 24 (d) Authorizations Default. Any governmental filing, ---------------------- registration, consent or approval necessary in connection with this Agreement or any document contemplated hereby is withheld, revoked or restricted in a way which constitutes a Material Adverse Effect, unless such revocation or restriction is withdrawn. (e) Cross Default. The Company or any Subsidiary (i) ------------- fails to pay when due any indebtedness (in an amount in excess of One Million Dollars ($1,000,000)) senior to this Loan for which it is liable, contingently or otherwise, and the lender declares such indebtedness to be immediately due and payable, or (ii) commits a material breach of or defaults in the performance or observance of any of the representations, warranties, covenants, terms or provisions of, or a default otherwise occurs under, (a) the Acquisition Agreement or any of the other Transaction Agreements (as defined in the Acquisition Agreement), (b) the Insect-Protected Cotton License and Seed Services Agreement dated as of September 26, 1995, between Monsanto and Calgene, (c) the Company Credit Facility Agreement, (d) the Stockholders Agreement between Monsanto and the Company of even date herewith or (e) any other agreement or instrument between Monsanto and the Company or any Subsidiary and, in the case of any such default that is curable, such default is not cured within ten (10) days after the Company or Subsidiary, as applicable, receives notice thereof. (f) Lien Default. The holder of any lien, whether now ------------ or hereafter existing, granted or assumed by the Company, and securing any indebtedness exceeding One Million Dollars ($1,000,000) in the aggregate (whether or not indebtedness of the Company) takes substantial steps to enforce the same because of the nonpayment (whether by acceleration or otherwise) of the indebtedness secured thereby. (g) Judgment Default. A final judgment, order or ---------------- conviction (whether criminal or civil) is rendered against the Company or any of its Subsidiaries or its or its Subsidiaries' properties or assets which constitutes a Material Adverse Effect and such judgment or order shall continue unsatisfied and the execution thereof unstayed for a period of ninety (90) consecutive days. -24- 25 (h) Bankruptcy Default. (i) the Company or any of the ------------------ Subsidiaries shall fail to pay or shall admit in writing its inability to pay its debts as they become due, shall become insolvent, howsoever evidenced, or shall make a general assignment for the benefit of creditors; (ii) any proceeding shall be instituted by or against the Company or any of the Subsidiaries under any law relating to bankruptcy, insolvency, reorganization or relief of debtors or any similar law or seeking appointment of a receiver, trustee, or other similar person for it or for any Substantial Part of its property and, if such proceeding is not commenced by the Company or any of the Subsidiaries, it is consented to or acquiesced in by the Company or any of the Subsidiaries or remains undismissed for forty-five (45) days after initiation; (iii) all or a Substantial Part of the Company's or any Subsidiary's property is attached, seized, levied upon or comes within the possession of any receiver, trustee or similar person for the benefit of creditors; (iv) any action is taken or any proceeding is filed or commenced with respect to the Company's or Tomato Associates' liquidation, dissolution or termination of existence; or (v) the Company or Tomato Associates shall take any corporate action to authorize any of the actions described in this subsection (h). (i) Tax Lien Default. Any local, state or federal ---------------- government agency places a material lien against any asset of the Company or any Subsidiary as a result of nonpayment of any tax obligation owed by the Company or such Subsidiary, which lien is not removed within forty-five (45) days after placement. (j) ERISA Default. Any of the following events occur or ------------- exist with respect to the Company or any Subsidiary: (a) any Prohibited Transaction (hereinafter defined) involving any Plan; (b) any Reportable Event (hereinafter defined) with respect to any Plan; (c) the filing under Section 4041 of ERISA of a notice of intent to terminate any Plan or the termination of any Plan; (d) any event or circumstance that might constitute grounds entitling the PBGC (hereinafter defined) to institute proceedings under Section 4042 of ERISA for the termination of, or for the appointment of a trustee to administer, any Plan, or the institution by the PBGC of any such proceedings; (e) complete or partial withdrawal under Section 4201 or 4204 of ERISA from a Multiemployer Plan or the reorganization, insolvency or termination of any Multiemployer Plan; and, in each case above, such event or condition, together with all -25- 26 other events or conditions, if any, could, in the opinion of Monsanto, subject the Company to any tax, penalty, or other liability to a Plan, a Multiemployer Plan, the PBGC, or otherwise. For purposes of this Agreement: "Plan" means any employee benefit or other plan established, maintained, or to which contributions have been made by the Company or any ERISA Affiliate; "Reportable Event" means any of the events set forth in Section 4043 of ERISA; "ERISA Affiliate" means any trade or business (whether or not incorporated) that, together with Company, is treated as a single employer under Section 414 of the Internal Revenue Code of 1986, as amended; "Multiemployer Plan" means a Plan described in Section 4001(a)(3) of ERISA which covers employees of the Company or any ERISA Affiliate; "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA; and "Prohibited Transaction" means any transaction set forth in Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended from time to time. (k) Guaranty Default. Any Subsidiary shall fail to ---------------- perform or observe its obligations under the Guaranty and such failure (other than failure to pay to Monsanto sums due thereunder which shall have no cure period) shall not have been remedied within thirty (30) days after written notice thereof shall have been given by Monsanto. Section 5.02. Rights of Monsanto. Upon the occurrence of an ------------------ Event of Default, Monsanto may, at its election, without notice of its election and without demand, do any one (1) or more of the following (all of which are authorized by the Company): (a) Cease advancing money or extending credit to or for the benefit of the Company; (b) Declare the obligation of Monsanto to make Advances hereunder to be terminated, whereupon the same shall forthwith terminate; and (c) Declare the Note, including all principal and accrued interest thereon, and all other amounts payable under this Agreement to be forthwith due and payable, to the extent and only to the extent of the Repayment Portion of Cumulative Free Cash Flow that has not been -26- 27 paid to Monsanto, without presentment, protest or further notice of any kind, all of which are hereby expressly waived by the Company. Section 5.03. Additional Remedy. Upon the occurrence and ----------------- during the continuation of an Event of Default, in addition to the other remedies set forth in this Agreement, Monsanto may demand that the Company convert all or any portion of the principal and accrued interest under the Loan into shares of common stock of the Company at the average of the closing market prices for such shares during the thirty (30) trading days immediately preceding the Default Conversion Date (hereafter defined) for such Loan; provided, however, that in no event shall Monsanto elect to convert principal and accrued interest into more than eight million (8,000,000) shares of common stock of the Company (as such number is adjusted for stock dividends, stock splits and similar events affecting holders of the Company's common stock). In order to exercise its conversion rights, at any time after the occurrence and during the continuation of an Event of Default, Monsanto may send a written notice (the "Default Conversion Notice") to the Company that Monsanto intends to exercise such conversion rights. The Default Conversion Notice shall specify (i) the amount of the principal and accrued interest that Monsanto intends to convert (the "Default Conversion Amount") and (ii) the date as of which such conversion shall take place (the "Default Conversion Date"), which date shall not be later than ten (10) days after the date of the Default Conversion Notice. If Monsanto properly notifies the Company as provided in the preceding sentences, then within five (5) business days after the Default Conversion Date, the Company shall issue to Monsanto a number of shares (the "Default Conversion Shares") of common stock of the Company (rounded to the next lowest full share) equal to the Default Conversion Amount divided by the average of the closing market prices for such shares during the thirty (30) trading days immediately preceding the Default Conversion Date. Any portion of the Default Conversion Amount not so converted (i.e., because such amount would require conversion into a fractional share) shall be paid to Monsanto in cash. Upon any such conversion, the Default Conversion Amount (including any portion thereof paid to Monsanto in cash) shall first be applied to reduce the accrued interest due on the Loan as of the Default Conversion Date, and any remaining portion of the Default Conversion Amount shall be applied to reduce the principal due on such Loan. -27- 28 Section 5.04. Company's Obligations. The Company recognizes --------------------- that, if the Company fails to perform, observe or discharge any of its obligations under this Agreement or the other collateral agreements hereto, a remedy at law may not provide adequate relief to Monsanto; therefore, the Company agrees that Monsanto shall be entitled to seek temporary and permanent injunctive relief in any such case without the necessity of proving actual damages. All of Monsanto's rights and remedies granted under this Agreement and the collateral agreements hereto are cumulative and nonexclusive. The Company shall pay upon demand all costs and expenses, including, without limitation, reasonable attorneys' fees and expenses, incurred by Monsanto in enforcing this Agreement. All such sums not paid on demand shall be treated as outstanding principal under the Note. ARTICLE VI RIGHT OF SETOFF Section 6.01. Right of Setoff. Upon the occurrence and --------------- during the continuance of any Event of Default, Monsanto is hereby authorized at any time and from time to time, without notice to the Company (any such notice being expressly waived by the Company), to set off and apply any and all funds at any time held and other indebtedness at any time owing by Monsanto to or for the credit or the account of the Company or any of the Subsidiaries against any and all of the obligations of the Company now or hereafter existing under this Agreement and the Note to the extent and only to the extent of the Repayment Portion of the Cumulative Free Cash Flow that has not been paid to Monsanto, irrespective of whether or not Monsanto shall have made any demand under this Agreement or the Note and although such obligations may be unmatured. The rights of Monsanto under this Section 6.01 are in addition to other rights and remedies (including, without limitation, other rights of setoff) which Monsanto may have. ARTICLE VII SUBORDINATION Section 7.01 Subordination. ------------- -28- 29 (a) All of the obligations of the Company to Monsanto under this Agreement and the Note, including, without limitation, the Company's obligation to repay any Advances (collectively, the "Subordinated Indebtedness"), shall to the extent and in the manner hereinafter set forth, be subordinated and subject in right of payment to the prior payment in full of a Senior Indebtedness. "Senior Indebtedness" means (a) all indebtedness of the Company, including the principal of and interest on such indebtedness, whether outstanding on the date of this Agreement or thereafter created (i) arising under working capital lines of credit secured by inventory and/or receivables, (ii) incurred to acquire property, plant or equipment and secured by the acquired asset or (iii) otherwise permitted under Section 4.02(k) hereof at the time such indebtedness is incurred, and (b) any modifications, refundings, deferrals, renewals or extensions of any such Senior Indebtedness, or securities, notes or other evidences of indebtedness issued in exchange for such Senior Indebtedness; provided, however, that in no event shall the obligations of the Company under the Company Credit Facility Agreement constitute Senior Indebtedness under this Agreement. No payment on account of principal or interest on the Subordinated Indebtedness shall be made if, at the time of such payment or immediately after giving the effect thereto, (i) there shall exist a default in any payment with respect to any Senior Indebtedness or (ii) there shall have occurred an event of default (other than a default in the payment of amounts due thereon) with respect to any Senior Indebtedness, as defined in the instrument under which the same is outstanding, permitting the holders thereof to accelerate the maturity thereof, and such event of default shall not have been cured or waived or shall not have ceased to exist. Notwithstanding the foregoing or any other provision of this Section 7.01, nothing in this Section 7.01 shall restrict or otherwise limit Monsanto's or Company's rights under Sections 1.02, 1.06 and 5.03 hereof. (b) In the event of any distribution, dividend, or application, partial or complete, voluntary or involuntary, by operation or law or otherwise, of all or any part of the assets of the Company or of the proceeds thereof to the creditors of the Company or upon any indebtedness of the Company, occurring by reason of the liquidation, dissolution, or other winding up of the Company, or by reason of any execution sale, or bankruptcy, receivership, reorganization, arrangement, insolvency, liquidation or foreclosure proceeding of or for the Company or involving its property, no dividend, distribution or application shall be made, and -29- 30 Monsanto shall not be entitled to receive or retain any dividend, distribution, or application on or in respect of principal of or interest on Subordinated Indebtedness, unless and until all principal of and any interest on Senior Indebtedness then outstanding shall have been paid and satisfied in full, and in any such event any dividend, distribution or application otherwise payable in respect of Subordinated Indebtedness shall be paid and applied on Senior Indebtedness until such Senior Indebtedness has been fully paid and satisfied. (c) The holders of Senior Indebtedness need not at any time give Monsanto notice of any kind of the creation or existence of any Senior Indebtedness, nor of the amount or terms thereof, all such notice being hereby expressly waived. Also, the holders of Senior Indebtedness may at any time, from time to time, without the consent of or notice to Monsanto, without incurring responsibility to Monsanto, and without impairing or releasing the obligation of Monsanto under this Agreement (i) renew, refund or extend the maturity of any Senior Indebtedness, or any part thereof, or otherwise revise, amend or alter the terms and conditions thereof, (ii) sell, exchange, release or otherwise deal with any property by whomsoever at any time pledged, mortgaged or otherwise hypothecated or subjected to a lien to secure any Senior Indebtedness, and (iii) exercise or refrain from exercising any rights against the Company and others, including Monsanto. (d) Monsanto shall not sell, assign or otherwise transfer any Subordinated Indebtedness, or any part thereof, except (i) upon the agreement of the transferee or assignee to abide by and be bound by the terms hereof and (ii) when Monsanto may assign its rights under the Stockholders Agreement dated of even date herewith between Company and Monsanto. (e) Monsanto shall cause all Subordinated Indebtedness to be at all times evidenced by the Note of the Company and shall cause such Note to bear thereon a legend substantially as follows: "The indebtedness evidenced by this Note is subordinate to any and all indebtedness, obligations and liabilities of the maker hereof -30- 31 to the holders of Senior Indebtedness in the manner and to the extent set forth in the Credit Facility Agreement (as defined below) to which reference is hereby made for a more full statement thereof." (f) If, notwithstanding the provisions of this Agreement, Monsanto shall receive any payment of principal or interest on Subordinated Indebtedness which the Company is not entitled to make pursuant to the terms hereof, whether or not Monsanto has knowledge that the Company is not entitled to make such payment, Monsanto shall promptly account for such payment and upon the demand of the holders of Senior Indebtedness pay over such payment to such holders for application to the Senior Indebtedness owing to such holders. No payment or any distribution received by the holders of the Senior Indebtedness in respect of Subordinated Indebtedness pursuant to any of the terms hereof shall entitle Monsanto to any right, whether by virtue of subrogation or otherwise, in and to any Senior Indebtedness unless and until all Senior Indebtedness has been fully paid and satisfied and any commitment of the holders of Senior Indebtedness to extend Senior Indebtedness to the Company has terminated. ARTICLE VIII MISCELLANEOUS Section 8.01. Incorporation of Acquisition Agreement. The -------------------------------------- provisions contained in Article 12 of the Acquisition Agreement are incorporated herein by this reference and shall apply to this Agreement to the same extent as if fully set forth herein. Section 8.02. Reinstatement of Indebtedness. This Agreement ----------------------------- shall continue to be effective, or be reinstated, as the case may be, if, at any time, payment, or any part thereof, of any amount paid by or on behalf of the Company to Monsanto with regard to the Note is rescinded or must otherwise be restored or returned (i) upon or in connection with the insolvency, bankruptcy, dissolution, liquidation, or reorganization of the Company, or any Subsidiary, or (ii) upon or as a result of the appointment of a receiver, intervenor, or -31- 32 conservator of, or trustee, or similar officer for the Company or any Subsidiary or any Substantial Part of the property of such entity or (iii) as a result of Article VII hereof, all as though such payment has not been made. -32- 33 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. CALGENE II, INC. By: /s/Michael J. Motroni ----------------------------------- Title: Vice President -------------------------------- MONSANTO COMPANY By: /s/Hendrik A. Verfaillie ----------------------------------- Title: Executive Vice President -------------------------------- -33- 34 The undersigned covenants to distribute adequate amounts of Cumulative Free Cash Flow to enable the Company to timely perform its obligations under Sections 1.02 and 5.02(c) hereof to the extent such distributions are not unlawful. The undersigned further covenants that all capital contributions or loans from the Company made through the use of the proceeds of the Loan shall be used solely by the undersigned to implement the Strategy or to finance the Collier Farms acquisition. Notwithstanding the foregoing, the undersigned covenants that none of such capital contributions or loans shall be used to make advances, loans or capital contributions to, or to otherwise make an investment in or benefit, either directly or indirectly, any subsidiary of the Company which is not a Subsidiary listed on Exhibit C hereto and --------- which is not a signatory to the Guaranty. GARGIULO, INC. By: /s/Frank E. Vigus ----------------------------------- Title: Vice President -------------------------------- -34- -----END PRIVACY-ENHANCED MESSAGE-----