-----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, TakQ2nHBY+5lhoSHsXe0iQnAEPDD+nC56lyEBb1VyCNVgBY6uYnBI/p42Ci8JCX+ QhXSznOlOfiQVUNYIIrvZw== 0000898430-95-002139.txt : 19951106 0000898430-95-002139.hdr.sgml : 19951106 ACCESSION NUMBER: 0000898430-95-002139 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19950831 FILED AS OF DATE: 19951103 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MYCOGEN CORP CENTRAL INDEX KEY: 0000813742 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE SERVICES [0700] IRS NUMBER: 953802654 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15881 FILM NUMBER: 95587160 BUSINESS ADDRESS: STREET 1: 4980 CARROLL CANYON RD CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 6194538030 MAIL ADDRESS: STREET 1: 4980 CARROLL CANYON ROAD CITY: SAN DIEGO STATE: CA ZIP: 92121 10-K 1 FORM 10-K DATED 08/31/95 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ------- EXCHANGE ACT OF 1934 (FEE REQUIRED) For fiscal year ended August 31, 1995. OR ------- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from ___________ to______________. Commission File Number: 0-15881 MYCOGEN CORPORATION (Exact name of Registrant as specified in its charter) CALIFORNIA 95-3802654 (State or other jurisdiction (I.R.S. Employer or incorporation or Identification No.) organization) 5501 Oberlin Drive, San Diego, California 92121 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (619) 453-8030 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No____ -------- 1 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of the voting stock held by nonaffiliates of the registrant as of September 30, 1995 was approximately $138,070,000. For the purposes of this calculation, shares owned by officers, directors, and 5% stockholders known to the registrant have been deemed to be owned by affiliates. The number of shares outstanding of the registrant's Common Stock as of September 30, 1995 was 19,425,421. Documents Incorporated by Reference - ----------------------------------- Portions of Registrant's Proxy Statement (the "Proxy Statement") for the Annual Meeting of Stockholders scheduled to be held on December 14, 1995, are incorporated by reference in Part III. PART I ITEM 1. BUSINESS Mycogen Corporation (the "Company") is a diversified agricultural biotechnology company that develops and markets technology-based products and provides crop protection services to control agricultural pests and improve food and fiber production. The Company has two business units: Agrigenetics, Inc., a majority-owned subsidiary doing business as Mycogen Plant Sciences ("Mycogen Plant Sciences" or "MPS"), and Mycogen Crop Protection, Inc. ("Mycogen Crop Protection" or "MCP"). MPS produces and markets seeds for major agricultural crops and uses biotechnology and traditional and marker-assisted breeding techniques to develop improved crop varieties with genetically enhanced pest- resistance and other value-added characteristics. MCP develops, manufactures and markets microbial and fatty acid based biopesticide products and operates Soilserv, Inc. ("Soilserv"), a wholly-owned subsidiary of the Company that provides crop protection services to growers of high value crops in California and Arizona. Mycogen was incorporated in California in December 1982. In November 1986, the Company reincorporated in Delaware. In October 1995, it again reincorporated in California. Mycogen's headquarters are located at 5501 Oberlin Drive, San Diego, California 92121-1718; its telephone number is (619) 453-8030. Unless otherwise indicated by the context, "Mycogen" and the "Company" refer to Mycogen Corporation and its consolidated subsidiaries. Mycogen Corporation(R), M(R) and design, CellCap(R), CocciprobeTM, Control Without Compromise(TM), DeMoss(TM), Mattch(TM), M-One(R), M-Pede(R), M- Peril(R), M-Press(TM), M-Trak(R), MVP(R), Parashoot(TM), Parasitix(TM), ParaVet(TM), SaFarm(TM), Scythe(R), Thinex(TM), XCP(TM) and XPO(TM) are trademarks of Mycogen Corporation. Agrigenetics(R), Chieftan(R), Field and Future(TM), G&A(R) and design, Golden Acres(R), GroAgri(R), Growers(R), Jacques(R), Kow Kandy(R), McCurdy(R), Mycogen(TM), Naturepel(TM), NatureGard(TM), ORO(R), Sigco(R), Surgro(R), Totally Managed Forages(R) and Totally Managed Feedstuffs(TM) are trademarks of Agrigenetics, Inc., a majority-owned subsidiary of Mycogen. Soilserv(R) is a registered trademark of Soilserv, Inc., a wholly-owned subsidiary of Mycogen. Paradyme(TM) and Safecide(R) are trademarks of Parasitix Corporation, a wholly-owned subsidiary of Mycogen. 2 BUSINESS STRATEGY The Company's strategy is to continue using biotechnology and other advanced techniques to develop new and improved products for its seed and crop protection businesses, and to leverage its technology for strategic transactions to strengthen and expand those businesses. Mycogen is using its proprietary Bacillus thuringiensis ("Bt") biotoxin gene technology both to develop transgenic crop varieties with built-in insect resistance and to expand its portfolio of biopesticide products. The Company also is using other advanced plant science technology to develop crop varieties with improved oil, nutritional, fiber and agronomic characteristics. Mycogen believes that it has a strong proprietary position for its Bt and plant science technology. As of August 31, 1995, the Company had 147 U.S. patents and approximately 246 foreign patents. Approximately 113 additional U.S. patent applications are pending, and corresponding applications are pending in other agriculturally important jurisdictions around the world. Mycogen uses traditional and marker-assisted plant breeding to obtain pest resistance and other value-added characteristics from native plant sources, and is breeding those characteristics into elite plant parent lines for its seed products. Seed products incorporating pest resistance and other value-added characteristics are being commercialized through MPS. Mycogen's primary near-term seed product development focus is on corn, cotton, soybean, sunflower, canola, sorghum and alfalfa, all of which generate significant seed and/or pesticide sales. In August 1995, the Company received U.S. Environmental Protection Agency (the "EPA") approval to commercialize corn hybrids genetically engineered with a Bt gene that causes the plants to produce a protein that makes them resistant to European corn borer, a major pest in the U.S., Europe and Argentina. In 1993, the Company entered into a cross-license agreement and research collaboration with the Ciba Seeds division of Ciba-Geigy Corporation for development of corn hybrids with Bt-based insect resistance. In September 1995, the Company signed a letter of intent for a technology and development collaboration with Pioneer Hi-Bred International, Inc. ("Pioneer") to develop multiple transgenic crops with Bt-based pest resistance. The Company also is pursuing opportunities to use its intellectual property, technology and expertise to establish collaborative development programs with third parties for additional crops. Biopesticide products embodying Mycogen's core technology are sold to crop protection and, to a lesser extent, certain animal health markets through Mycogen Crop Protection. Mycogen intends to broaden its participation in the crop protection industry by continuing to refine and apply its technology to better meet the needs of the market and by pursuing strategic transactions and acquisitions. INDUSTRY BACKGROUND Agricultural biotechnology is creating differentiated products with value- added characteristics, including: improved crop production; extended product shelf life; enhanced protein, starch and other nutritional properties; improved yield of compounds such as waxes, esters and oils for industrial applications and reduced production costs and risks. Mycogen believes that biological crop protection will focus on genetically engineered, pest-resistant crop varieties for large acreage crops such as corn, cotton, soybean, sunflower, canola and alfalfa, and on spray-on biopesticide products for smaller acreage crops such as fruits, vegetables and vines. Crop varieties with pest resistance incorporated into the planting seed reduce or eliminate the need for pesticide applications, thereby significantly reducing production input and labor costs. Mycogen believes that farmers will use both pest-resistant crop varieties and spray-on pesticides, including biopesticides, as part of 3 integrated pest management programs to control pests and to avoid or delay the development of pest tolerance to any single pest control mechanism. The Company estimates that U.S. farmers annually purchase approximately $3.5 billion of planting seed, including approximately $1.5 billion of hybrid seed corn, $400 million of soybean seed, $400 million of alfalfa seed, $90 million of cotton seed, $67 million of hybrid sorghum seed and $25 million of hybrid sunflower seed. In addition to the $3.5 billion they spend each year for planting seeds, U.S. farmers annually spend over $6 billion on pesticides to protect their crops. Over $600 million is spent annually on insecticides to protect corn and cotton crops alone. Despite these pesticide expenditures, destructive pests cost U.S. farmers billions of dollars each year in lost yields. Many chemical pesticides have efficacy, environmental or regulatory disadvantages. Over 500 insect species have developed tolerance to one or more classes of chemical insecticides that previously were effective in controlling them. In addition, chemical pesticides often suppress beneficial insect populations. As pest populations develop pesticide tolerance, and as beneficial insect populations are reduced, farmers must use escalating dosages and more frequent applications of chemical pesticides. This raises environmental and food and worker safety concerns and ultimately renders the pesticides obsolete. The Company believes that the use of genetically engineered pest-resistant crop varieties and biopesticides will continue to increase because they offer four major advantages over chemical pesticides: 1) they do not contaminate the environment, soil or ground water; 2) they do not harm beneficial insects that naturally suppress pest populations; 3) they have unique modes of action that make them effective against pests that have developed tolerance to chemical pesticides and 4) they do not leave undesirable residues in food crops. Concerns over the safety of chemical pesticides and their impact on the food supply, environment and agricultural workers have led the EPA to prohibit or restrict the use of many chemical pesticides. This has created opportunities for replacement products, including pest-resistant plants and biopesticides. SEED BUSINESS Mycogen Plant Sciences is the seventh largest producer and marketer of planting seeds in the U.S. Hybrid seed corn accounts for the majority of MPS's planting seed sales. Other key seed products include soybean, hybrid sunflower, hybrid sorghum and alfalfa. Most of the Company's seed is produced by an established network of contract growers under specified planting conditions. MPS contracts with these independent growers annually. The seed is dried and treated at Company-owned production facilities, packaged and sold through an extensive seed sales organization. In North America and in certain other regions of the world, the Company markets its seeds under the single brand of "Mycogen(TM)". RESEARCH, PRODUCTION AND MARKETING - Mycogen Plant Sciences maintains research and production facilities in California, Georgia, Indiana, Iowa, Michigan, Minnesota, Nebraska, Puerto Rico, Texas and Wisconsin. These facilities, along with contract growing arrangements in the U.S. and Canada, give the Company the geographic dispersion required to produce and market crop varieties suitable for virtually all important North American agricultural regions. MPS markets its seed products in North America through a network of more than 100 sales managers and approximately 4,000 farmer/sales representatives and professional agricultural retail outlets. In September 1995, the Company entered into an agreement through which Cargill Hybrid Seeds will distribute Mycogen's hybrid seed corn products with Bt-based insect resistance in 1996 under the Mycogen(TM) label. Outside North America, the Company markets seeds primarily through local distributors. In France, Italy and Argentina, MPS also produces and markets its products through wholly-owned seed companies. 4 PRODUCT DEVELOPMENT AND APPLIED TECHNOLOGY - The Company's business strategy is to develop differentiated, value-added seed products to meet the needs of the agriculture and food industries. Special emphasis will be placed on development of pest-resistant corn, cotton, soybean, sunflower, canola and alfalfa varieties. Mycogen believes that by providing seed products with pest- resistance and other value-added characteristics, it can expand its market share. The Company also develops oilseed products for the food and chemical industries for a subsidiary of the Lubrizol Corporation ("Lubrizol"). In addition to extensive plant breeding programs in corn, soybeans, cotton, sorghum and sunflower to improve yield and other agronomic characteristics, the Company is pursuing numerous plant product development and applied technology opportunities as follows:
- ---------------------------------------------------------------------------------------------------- PROGRAM COMMERCIAL OPPORTUNITY TARGET CROPS - ---------------------------------------------------------------------------------------------------- Pest Resistance Via Plant Yield improvement and displacement corn, cotton, soybean, Transformation of certain chemical pesticides sunflower, alfalfa, canola, sorghum - ---------------------------------------------------------------------------------------------------- Pest Resistance Via Yield improvement and displacement corn, cotton, alfalfa Marker Assisted Breeding of certain chemical pesticides - ---------------------------------------------------------------------------------------------------- Oilseed Program Specialty food and industrial oils program sunflower, corn, funded by Lubrizol safflower, canola - ----------------------------------------------------------------------------------------------------
PEST RESISTANCE VIA PLANT TRANSFORMATION - This program uses advanced plant science and gene technology to transform genetic material from bacteria, plants and other sources into the genomes of target crops. Mycogen's primary current focus is on genes isolated from strains of Bt that cause transformed plants to produce proteins that are toxic to insects. Bt genes that produce proteins toxic to certain insects, including Lepidoptera (worms and moths) and Coleoptera (beetles), have been isolated, restructured for efficient plant expression and inserted into several crop varieties. The first product of this development effort is hybrid seed corn with Bt-based resistance to European corn borer, a pest that costs farmers in the U.S., Europe and South America hundreds of millions of dollars in yield losses each year. MPS has produced an introductory quantity of these seeds and is introducing them commercially in the U.S. for the 1996 growing season. Mycogen also has isolated and restructured Bt genes that produce proteins toxic to corn rootworm, another pest that causes substantial economic loss. The Bt gene sequences that produce these insecticidal proteins are covered by issued or pending patents. CORN BORER AND CORN ROOTWORM RESISTANCE VIA MARKER ASSISTED BREEDING - The Company also is developing and marketing products with pest resistance derived from native plant sources. Using licensed marker-assisted breeding ("MAB") technology and DNA mapping and analysis, Mycogen has identified and tracked separate multigenetic resistance traits for European corn borer and corn rootworm. The Company has bred the multigenetic trait for European corn borer into its elite commercial corn parent lines, and resulting resistant corn hybrids were sold commercially in 1994 and 1995. The genetic trait for corn rootworm is being bred into the Company's elite commercial parent lines, and resulting resistant corn hybrids are being field tested. Mycogen also is using MAB technology to identify certain pest-resistance traits in cotton and alfalfa. VIRAL RESISTANCE - Plant viruses also cause considerable economic loss each year. Plant varieties with native resistance to viral diseases that cause significant economic losses have been identified, but the number of genes involved often make it difficult to breed these resistance traits into productive crop varieties. One such case is Maize Dwarf Mosaic Virus ("MDMV"), a corn virus. Mycogen has completed a research program using MAB technology to locate genes responsible for resistance to MDMV on the corn chromosome. The 5 Company has bred the multigenetic trait for MDMV resistance into its elite commercial corn parent lines and is field testing the resulting resistant corn hybrids. OILSEED PROGRAM - MPS is developing genetically enhanced oilseed crops for a Lubrizol subsidiary. This research and development activity, relating primarily to specialty oils from sunflower, rape (canola) and corn, is funded primarily by Lubrizol. Lubrizol markets the specialty oils and related byproducts resulting from this program. Mycogen is Lubrizol's exclusive supplier of planting seed for these crops and manages the production of crops from the seed for Lubrizol. Lubrizol has agreed to provide funding to support this oilseed program through 1998. CROP PROTECTION BUSINESS BIOPESTICIDE PRODUCTS - The Company currently markets eight environmentally compatible biopesticide products. These products are based on natural agents such as microorganisms and fatty acid compounds that, in general, have specific toxic activity on target pests and are not harmful to mammals, fish, birds and beneficial insects. In addition, because biopesticides have unique modes of action, they often are effective in controlling pest populations that have developed tolerance to chemical pesticides. The Company's Bt-based biopesticides are derived from varietal strains of Bt that produce proteins that are toxic to specific pests when ingested. Mycogen's Bt based biopesticides utilize the Company's proprietary CellCap(R) technology, which encapsulates Bt toxin crystals inside cells of genetically engineered bacteria. The Company believes that its CellCap(R) encapsulation technology offers two important advantages over conventional Bt products: 1) it prolongs insecticidal activity resulting in superior crop protection and 2) it allows for development of superior product formulations that facilitate production and application. The Company's fatty acid based biopesticides are derived from a wide variety of generally inexpensive natural sources, such as coconut, palm, sunflower and tall oil and tallow from animal fats. Fatty acid pesticides disrupt or destroy membranes of soft-bodied insects, weeds and microbial plant pathogens. BIOPESTICIDE MARKETING AND COMMERCIAL DEVELOPMENT - Mycogen Crop Protection's marketing and commercial development staff is responsible for commercializing Mycogen's biopesticides in commercial and specialty markets worldwide, and for cooperative development and marketing efforts in Far East Asia through collaborations with Kubota Corporation and Japan Tobacco, Inc. Biopesticide products are sold through established agricultural product distributors in the U.S. and certain other countries worldwide. PRODUCT DEVELOPMENT AND APPLIED TECHNOLOGY - Mycogen conducts active discovery and product development programs for new biopesticides and to improve existing products. The Company primarily uses two different technologies to develop its biopesticides. MICROBIAL BIOPESTICIDE TECHNOLOGY - Mycogen's microbial bioinsecticide products and technology are based on two key components: 1) discovery, selection and enhancement of biotoxins that are active against commercially important pests and 2) the Company's proprietary CellCap/(R)/ encapsulation delivery system. Certain naturally occurring microorganisms produce biotoxins that are toxic to specific pests when ingested. The primary current source of such biotoxins is varietal strains of Bt. Mycogen researchers have found Bt strains with pesticidal activity against a broad range of pests. Several Bt strains discovered by Mycogen and others are active ingredients for commercial pesticide products. 6 Bt biotoxins have a different mode of action than chemical pesticides and are active only when consumed by the target pest. Field experience has demonstrated that these products are effective in controlling some pest populations that have developed tolerance to certain chemical pesticides and extensive toxicology testing has shown that Bt biotoxins are nontoxic to mammals, wildlife and other non-target species, including certain beneficial insects. Biotoxins generally degrade rapidly, leaving little or no residue in food, ground water or soil. While this makes them environmentally compatible, historically it has limited their practical use as commercial pesticides. To prolong biotoxin activity in the field, Mycogen developed technology that uses a microorganism as a protective delivery system. This patented CellCap(R) delivery system employs cells that have been killed and stabilized to serve as microcapsules to protect fragile biotoxin crystals that have been produced by and accumulated within the cells. Mycogen has identified Bt strains with pesticidal activity against caterpillars, beetles, weevils, parasitic plant and animal nematodes, protozoan pathogens, grubs, mites, liver flukes and adult houseflies. The Company believes that Bt strains with activity against non-insect pests could extend the use of Bt-based biopesticides beyond current crop protection markets. FATTY ACID TECHNOLOGY - Fatty acids disrupt or destroy cellular membranes of soft-bodied insects, plants and microbial plant pathogens such as fungi. The pesticidal benefits of fatty acids are based on four key properties: 1) they act rapidly on contact, 2) they have a unique mode of action, 3) they use naturally occurring active ingredients and 4) treated areas require limited worker safety re-entry restrictions. These characteristics make fatty acid pesticides useful in targeted markets. For example, the contact activity of fatty acids has been shown to enhance the efficacy of certain synthetic chemical pesticides. By using tank mixes of fatty acids and other chemicals, growers can reduce treatment costs, lower the synthetic chemical load on the environment and prolong the usefulness of their pest control tools by managing resistance. MICROBIAL BIOPESTICIDE MANUFACTURING - Mycogen's microbial biopesticide products are manufactured through a large-scale fermentation process. After fermentation, the mass-produced microorganisms are harvested for product formulation. These products use virtually the entire fermentation biomass, so little, if any, purification is required. The concentrated microorganisms are processed differently, depending on whether a liquid or dry product formulation is to be produced. Mycogen develops final product formulations and the related fermentation manufacturing processes for all its microbial biopesticides at its San Diego research facility. Once the basic process is developed, it is scaled up in the Company's pilot plant. This facility has sufficient capacity to produce quantities of material required for small scale field trials. Once a process is proven at the pilot plant scale it is available for transfer to Mycogen's manufacturing facility for commercial scale-up. To implement a high-yield fermentation process, Mycogen entered into a long-term exclusive manufacturing agreement with Enzyme Bio-Systems, Ltd. ("EB"), a wholly-owned subsidiary of CPC International, Inc. Under the manufacturing agreement, EB added dedicated fermentation capacity and certain equipment at its Beloit, Wisconsin, facility to support the production, recovery, formulation and packaging of Mycogen's microbial products. Capital funding of $10.9 million was provided by Mycogen. EB is responsible for the manufacture of Mycogen's microbial biopesticide products and Mycogen pays EB the actual costs of manufacturing plus a fee based on the number of units produced. Manufacturing began at EB in 1995. 7 BIOPESTICIDE PRODUCTS REGISTERED BY THE EPA FOR COMMERCIAL USE
- -------------------------------------------------------------------------------------------------------------------- PRODUCT AND BIOTOXIN TARGET PEST MARKET - -------------------------------------------------------------------------------------------------------------------- MVP (Bt) Leaf-eating caterpillar pests cotton, tree fruits, vines, corn MVPII (Bt concentrate)/1/ - -------------------------------------------------------------------------------------------------------------------- M-Pede (Fatty acid) Soft-bodied insects Fruits, vegetables, grapes and Powdery mildew ornamentals - -------------------------------------------------------------------------------------------------------------------- M-Trak (Bt) Colorado potato beetle Potato, tomato and eggplant - -------------------------------------------------------------------------------------------------------------------- M-Peril (Bt) European corn borer Corn (solid granules) - -------------------------------------------------------------------------------------------------------------------- Mattch (Bt) Leaf-eating caterpillar pests Vegetables and nursery crops - -------------------------------------------------------------------------------------------------------------------- Scythe Herbicide Broad spectrum of weeds Horticulture and landscape (fatty acid) management - -------------------------------------------------------------------------------------------------------------------- DeMoss (Fatty acid) Moss, algae, lichens Roofs, buildings, sidewalks and greenhouses - -------------------------------------------------------------------------------------------------------------------- Thinex (fatty acid)/1/ Blossom Thinner Apples, pears, stone fruits - -------------------------------------------------------------------------------------------------------------------- /1/ EPA registration pending.
FATTY ACID PRODUCT MANUFACTURING - Mycogen manufactures its fatty acid based biopesticide products under short-term toll manufacturing agreements. MANUFACTURING CAPACITY - The Company believes that its current manufacturers have adequate capacity to meet Mycogen's product needs for the foreseeable future, and that the required raw materials for all its biopesticides are readily available. The Company does not anticipate shortages of these raw materials that would materially affect availability or cost. BIOPESTICIDE PRODUCTS FOR POULTRY AND LIVESTOCK MARKETS - Under a 1994 agreement between Mycogen and Schering-Plough Animal Health ("SPAH"), a division of Schering-Plough Corporation, Mycogen is leveraging its Bt and fatty acid technology by developing biopesticide products for commercialization by SPAH in the poultry industry. Under the agreement, the Company granted a license to SPAH to market Mycogen's SafeCide(R) line of boric acid products to poultry operators in the U.S. and Canada. SPAH also licensed commercial rights in the U.S. and Canada for additional poultry pest control products being developed by Mycogen, including a protein biotoxin product to control filth flies. SPAH is currently marketing a fatty acid product to control northern fowl mites licensed from Mycogen. SOILSERV - CROP PROTECTION SERVICES - Soilserv, founded in 1945 and acquired by Mycogen in 1991, provides customized crop protection services to growers of high value crops in California and Arizona. Soilserv monitors fields, recommends and supplies pest control products and applies such products, principally in the Salinas Valley, California, and Yuma, Arizona, regions. Soilserv has developed customized spray rigs and other application equipment for specific vegetable crops, and uses a proprietary database system to verify that pesticide recommendations made by its licensed pest control advisors to its grower customers comply with EPA, state and local government regulations. As a further service to its customers, Soilserv provides notifications and files documents regarding pesticide applications with state and local agencies. 8 PATENTS AND PROPRIETARY TECHNOLOGY As of August 31, 1995, Mycogen held approximately 147 U.S. patents and approximately 246 foreign patents. The Company has filed and is pursuing approximately 113 additional patent applications in the U.S., with corresponding applications pending in other countries. In addition to patents, the Company relies on trade secrets and proprietary information to protect its technology. PLANT SCIENCE PATENTS - As a result of research conducted by Agrigenetics Corporation, a Delaware corporation (now Mycogen Plant Sciences) in the 1980s, the Company has applied for, and in some cases been granted, fundamental patents in key technical areas. Patents and patent applications include claims to a number of plant science inventions and discoveries, such as insect-resistant plants utilizing Bt genes, plant transformation systems and the synthesis of Bt genes to optimize expression of pesticidal proteins in plants. In January 1995, Mycogen received a broad U.S. patent covering its method of modifying Bt gene sequences to make them resemble those of the plants into which they are to be inserted. Such modifications improve Bt genes' efficiency in producing pesticidal proteins. In June 1995, the Company received a Notice of Allowance from the European Patent Office covering Mycogen's method of modifying Bt genes to resemble plant genes, and to modified genes and transgenic plant cells developed by using that method. Several major crop plants, including corn, cotton, canola, potatoes and tomatoes, have been transformed with synthetic Bt genes by Mycogen and other companies, and seeds for some will be introduced commercially in 1996. BIOPESTICIDE PATENTS - A number of the Company's issued U.S. patents relate to its CellCap(R) encapsulation technology. Mycogen's issued patents and patent applications also include claims to more than 30 specific protein biotoxins and associated genes, certain insecticidal and nematicidal microorganisms, plant colonizing microbial delivery systems and certain bioherbicides and related technology. The Company has a number of issued patents and patent applications covering certain pesticidal uses of fatty acids by themselves and in combination with certain chemical pesticides. The Company has licensed certain rights to its patents and technology in specific fields to corporate partners. Mycogen has exclusive licenses to a number of issued patents and patent applications in the U.S. and other countries, and certain trade secret technology relating to fatty acid pesticides and their use. PROPRIETARY SEED PRODUCTS - Mycogen's seed products are either hybrid seeds resulting from a cross of inbred parent lines or varieties produced from a single parent line. In the case of hybrids, the Company can maintain a proprietary position because hybrid seeds progressively lose their agronomic advantage from generation to generation, and the inbred parent lines from which hybrids are produced generally are not sold to growers. In the case of crops that are not produced as hybrids, the Company sells varieties that breed true from generation to generation. For these crops, the Company relies on Plant Variety Protection certificates granted by the U.S. government pursuant to the Plant Variety Protection Act (the "PVPA"), or similar rights granted by foreign governments. These certificates give the holder certain exclusive rights for a period of time (18 years under the PVPA) to reproduce the covered variety and sell it for planting. Mycogen has filed applications for utility patent protection for certain of its crop varieties and plant materials to obtain broader utility patent protection for unique plants that the Company has developed or bioengineered. UNCERTAINTY OF BIOTECHNOLOGY PATENTS - The status of biotechnology patents is highly uncertain. A substantial number of patent applications have been filed. Some issued and pending patents claim basic aspects of genetic engineering technology related to transformed plants, biopesticides and other areas of agriculture. Mycogen has royalty-bearing nonexclusive licenses relating to the use of certain processes employed in 9 recombinant DNA technology, plant transformation, microbial biopesticide production and other aspects of the Company's business. If the broad claims of existing and future genetic engineering patents are upheld, the holders of such patents may be in a position to require other companies to obtain licenses. There can be no assurance that licenses the Company may need for its processes or products will be available on reasonable terms, if at all. GOVERNMENTAL REGULATION AND PRODUCT REGISTRATION Agricultural biotechnology comes under the jurisdiction of three federal regulatory agencies: the Food and Drug Administration ("FDA"), the EPA, and the United States Department of Agriculture ("USDA"). Agency jurisdiction generally is a function of three factors: 1) the particular substances or products involved (for example, grains), 2) the uses and other purposes of such products and 3) the commercial activities involved (for example, research, field testing, production and distribution). FDA review of biotechnology products focuses on their intended uses, and is conducted on a case-by-case basis. Unless a food product or food additive is generally recognized as safe, based on scientific evaluation by qualified experts, under the conditions of its intended use, FDA must approve a petition for the product's intended use before it can be introduced into commerce. FDA's approval generally includes specified conditions under which the product may be used. Field testing, production and marketing of pesticide products are regulated by federal, state, local and foreign governments. The EPA regulates pesticides in the U.S. under the Federal Insecticide, Fungicide and Rodenticide Act, as amended ("FIFRA"). Pesticides also are regulated by the states. Field testing of nonindigenous microbial biopesticides requires approval of both the EPA and the USDA's Animal and Plant Health Inspection Service. The Federal Seed Act defines USDA's regulatory authority over importation and interstate shipment of agricultural and vegetable seeds. In general, seeds may not be imported or shipped interstate if they are deemed by USDA to be "noxious weed" seeds or to contain "noxious weed" seeds above levels prescribed by USDA or individual states. Thus, to the extent that a seed resulting from a biotechnology process is adulterated with a "noxious weed" seed, it would be subject to these regulations. In addition, USDA regulates importation and interstate movement of "plant pests" and plants that may be or contain "plant pests" under the Plant Quarantine Act and the Federal Plant Pest Act. Shipment and field release of a plant that is genetically engineered to contain a "plant pest" is subject to the regulatory oversight of USDA and of individual states. USDA and various states also regulate production and distribution of crop seeds under the Federal Seed Act and state seed acts, which require that commercial seed products meet certain purity and labeling requirements. Similarly, plant inoculants are subject to regulation under various state acts that establish labeling and effectiveness standards. Genetically altered plants that have pesticidal traits, such as the ability to produce pesticidal proteins, are regulated by the EPA under FIFRA with respect to their pesticidal properties. The EPA requires completion of certain tests prior to registration of a pesticidal plant to ensure that such plants pose no risk to human health or the environment. 10 SEASONALITY OF BUSINESS Due to the seasonal nature of its planting seed and crop protection businesses, Mycogen's operating revenues are higher during the second and third quarters of the fiscal year, thus causing variations in quarter to quarter financial results. Working capital needs also are seasonal. Weather conditions also cause year-to-year fluctuations in operating revenues. For example, temperature, precipitation and other factors influence pest populations and the effectiveness of pesticides. Weather also affects seed production yields, planting decisions by farmers and seed commodity prices. BACKLOG Mycogen's distribution and marketing practices do not require an extraordinary amount of working capital. The Company maintains inventory to meet customer requirements. Mycogen Crop Protection does not manufacture biopesticide products against a backlog of firm orders; inventory levels are geared primarily to projections of future demand. Except with respect to planting seed produced under an exclusive arrangement with a subsidiary of Lubrizol, Mycogen Plant Sciences does not produce planting seed against a backlog of firm orders; inventory levels are geared primarily to projections of future demand. The Company generally is not dependent upon one customer or a group of customers and has no material contracts with the U.S. government or with any state, local or foreign government. RESEARCH AND DEVELOPMENT Mycogen's product development programs involve a significant level of research and development activity. Company sponsored research and development expenses totaled $18.2 million for Mycogen's fiscal year ended August 31, 1995. For the two comparable fiscal years ended August 31, the Company-sponsored research and development expenses were $13.5 million in 1994, and $16.1 million in 1993. Lubrizol is obligated by contract to provide a minimum of $4.6 million of funding to the Company through 1998 to support development of planting seeds for crops yielding special oils. In exchange, Lubrizol has exclusive rights to planting seeds for plants that produce certain special oils. Under a separate agreement, the Company is the exclusive supplier of such planting seeds to a subsidiary of Lubrizol. COMPETITION The Company faces intense competition. Competition in planting seeds is based primarily on price, crop yields, other crop performance characteristics including crop resistance to disease and pests, and customer service. Competition in biopesticides is based primarily on efficacy, price, ease of application and safety. COMPETITION IN SEEDS - Mycogen believes that it has three categories of competitors in planting seeds: large, multinational seed companies, smaller regional seed companies and agricultural biotechnology companies engaged in the development of new, genetically engineered crop varieties. The planting seed industry is dominated by large multinational companies located in the U.S. and Europe. These include Pioneer, the world's largest seed company, DeKalb Genetics Corporation, Sandoz Holding AG, Ciba-Geigy Corporation, Cargill, Inc., Limagrain and others. These firms generally operate throughout the world and have substantial financial and marketing resources, as well as extensive research, plant breeding and production facilities and expertise. Some of these companies and a number of others have significant plant biotechnology research programs to develop new crop varieties that are genetically enhanced for increase yield, pest- or disease-resistance and other value-added characteristics. 11 COMPETITION IN BIOPESTICIDES - Mycogen believes that it has three categories of competitors in biopesticides: large chemical pesticide companies, established companies with biopesticide product lines and other companies developing new biopesticide products. The pesticide industry is dominated by large chemical companies located in the U.S. and Europe. These firms generally operate throughout the world and have extensive financial and marketing resources as well as extensive product registration experience and highly efficient manufacturing capabilities. Some chemical pesticide companies have added biopesticide products to their product lines. These include Abbott Laboratories, Sandoz A.G. and Ciba-Geigy Corporation all of which are large multinational firms with substantial financial resources and, in certain cases, large-scale fermentation manufacturing capabilities and extensive experience in formulating biopesticide products. HUMAN RESOURCES As of August 31, 1995, the Company had approximately 757 employees. The Company's management believes that it maintains positive relations with its employees. ITEM 2. PROPERTIES The Company owns its principal executive and administrative facilities located in San Diego, California. In addition, Mycogen owns its principal biopesticide research and development facilities located in San Diego, and leases greenhouse space near its headquarters. The Company also owns office, warehouse and formulation facilities located in Salinas, California, as well as several smaller satellite facilities in the Salinas area, that are used by Soilserv. Mycogen's seed production, conditioning and storage facilities are located in the U.S., Argentina, France and Italy. The Company maintains seed research, production, warehouse, distribution or administrative space at the following principal locations: Lincoln, Illinois; Lynnville, Schaller and Vinton, Iowa; Breckenridge and Hastings, Minnesota; York, Nebraska; Dumas and Tulia, Texas and Prescott, Wisconsin. The Company also has a plant research facility in Madison, Wisconsin. All of the foregoing facilities are owned by the Company. In addition, Mycogen leases field plant research and storage facilities in Woodland, California; Griffin, Georgia; Huxley, Iowa; Leland, Mississippi; Plainview, Texas and DeForest, Wisconsin. The Company believes that its present facilities are adequate to maintain its businesses. ITEM 3. LEGAL PROCEEDINGS MPS filed suit against Monsanto Company ("Monsanto") for patent infringement on May 19, 1995, in Federal District Court in San Diego, California. The patent infringement action claims that Monsanto's use of synthetic Bt genes to develop and sell plants and seeds for insect-resistant crops infringes Mycogen's patent covering the process used to synthesize Bt genes. The suit also contains state law claims relating to Monsanto's published statements disparaging Mycogen's patents and technology. The patent infringement claim seeks an injunction to halt Monsanto's development and commercialization of plants and seeds using the process covered by Mycogen's patent. The state law claims seek unspecified damages. This litigation is not expected to have a material adverse effect on the Company's business or consolidated financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the security holders of the Company during the fourth quarter of fiscal year 1995. 12 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock of Mycogen Corporation trades on The Nasdaq Stock Market under the symbol "MYCO." Following are high and low trade prices for Mycogen Corporation Common Stock, as reported by Nasdaq.
Year ended August 31, 1995 High Low 4th Quarter..................... 11 1/4 7 3/4 3rd Quarter..................... 10 3/4 8 2nd Quarter..................... 12 7 7/8 1st Quarter..................... 10 1/2 9 1/4 Year ended August 31, 1994 High Low 4th Quarter..................... 12 9 1/2 3rd Quarter..................... 11 3/4 9 1/4 2nd Quarter..................... 12 9 1/2 1st Quarter..................... 13 1/2 9 3/4
At September 30, 1995, there are approximately 3,300 holders of record of the Company's Common Stock. No dividends have been declared or paid on the Common Stock. The Company has no intention of paying dividends on Common Stock in the foreseeable future. 13 ITEM 6. SELECTED FINANCIAL DATA FIVE YEAR SELECTED FINANCIAL DATA (In thousands except per share data)
EIGHT MONTHS ENDED YEARS ENDED YEARS ENDED AUGUST 31,/1/ AUGUST 31, DECEMBER 31, ------------------------------------------------------ ------------------------------------------ 1995 1994/2/ 1993/2/ 1992/2/ 1991/2/ 1990/2/ ---- ------ ------ ------- ------- ------ (unaudited) Net Operating Revenues $106,169 $104,383 $12,583 $ 23,427 $13,218 $2,512 Total Revenue 113,218 112,760 118,011 24,630 18,312 10,724 Net Loss Applicable to (15,946) (33,234)/3/ (27,514)/4/ (3,030)/5/ (3,305) (4,492)/6/ Common Shares Net Loss Per Common Share (.83) (1.81)/3/ (1.69)/4/ (.21)/5/ (.27) (.44)/6/ Cash, Cash Equivalents and Securities Available-for-Sale 17,600 37,887 66,314 66,456 75,835 8,578 Total Assets 159,608 165,726 201,533 112,714 114,540 79,747 Long-term Liabilities 3,291 1,207 1,141 1,256 1,041 --- Redeemable Preferred Stock --- --- 40,897 --- --- --- Stockholders' Equity 113,703 125,406 107,885 105,207 107,011 76,750
/1/ In May 1995, Mycogen Corporation changed its fiscal year end from December 31 to August 31 and has elected to report the three years ended August 31, 1995. /2/ The acquisitions of MPS in 1993 and 1994 and Soilserv, Inc. in 1991 affect the comparability of the Selected Financial Data. /3/ Net loss in 1994 includes charges of $26.6 million for the write-off of acquired in-process technology and $9.8 million for restructuring. /4/ Net loss in 1993 includes charges of $21.6 million for the write-off of acquired in-process technology and $2.1 million for restructuring. /5/ Net loss in 1992 includes charges of $2.1 million for a patent litigation settlement. /6/ Net loss in 1990 includes a charge of $2.6 million for the write-down of an investment. 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS SUMMARY Mycogen develops and markets value-added planting seeds for major agricultural crops and environmentally compatible biopesticide products and provides crop protection services to control pests and improve food and fiber production. The Company is organized into two business units, Seed and Crop Protection. Mycogen's Seed business, MPS, the seventh largest seed company in the U.S., markets a complete line of planting seeds for corn, soybean, sunflower, sorghum and other crops. Using both traditional breeding and advanced biotechnology techniques, the Company is moving rapidly to augment and improve the genetic makeup of major crops to produce seed products that give growers value-added performance characteristics. Mycogen's Crop Protection business, Mycogen Crop Protection, develops, manufactures and markets biopesticide products and provides crop protection services to growers of high value crops in California and Arizona. In May 1995, the Company decided to change its fiscal year-end from December 31 to August 31 to better match financial reporting with the Company's business cycle. The Company's businesses are highly seasonal. Seed operating revenues are concentrated mainly in the second and third fiscal quarters which end in February and May and Crop Protection operating revenues are concentrated mainly in the third and fourth quarters which end in May and August. However, varying climatic conditions can shift revenues between quarters. Operating revenues and seed costs are impacted by weather. Weather can influence pest populations, the effectiveness of pesticides and seeds, seed production yields, commodity prices, growers' planting decisions and other factors affecting revenues and costs. Operating revenues also depend on a number of other factors, including market acceptance of products, competition and U.S. and foreign government policies that affect crop acreage and farm income. Planted acreage is a key factor in determining volumes of seed, crop protection services and biopesticide products purchased by growers. In December 1982, Mycogen was formed to use genetic engineering to develop environmentally compatible biological alternatives to chemical pesticides. In January 1990, the Company acquired a line of fatty acid based pesticides to complement its line of microbial products. In August 1991, it acquired Soilserv, a provider of crop protection services to growers in California and Arizona, to establish a revenue base and to gain experience in crop protection practices. During this time, Mycogen continued to develop a library of Bt gene sequences that code for production of protein biotoxins with pesticidal activity. In December 1992, Mycogen acquired 51% of the Agrigenetics division of Lubrizol, which currently is doing business as Mycogen Plant Sciences. The acquisition was driven by the opportunity to pool Mycogen's and Lubrizol's respective plant science and Bt gene technology patent estates and technological expertise to develop pest resistant crops. Such crops are developed by inserting synthetic Bt genes into plant tissue, causing plants to produce proteins that protect them from damage by certain pests. Once fixed in plant parent lines, this pest-resistance trait is carried in planting seeds that are produced and marketed as value-added products. 15 In December 1993, the Company acquired an additional 29.5% of MPS and agreed to purchase Lubrizol's remaining 19.5% ownership over time. As a result of these transactions, Mycogen expensed, as special charges, certain acquired in-process technologies which totaled $26.6 million and $21.6 million for the fiscal years ended August 1994 and 1993, respectively. In August 1993, the Company decided to combine certain biopesticide discovery and plant science research programs to accelerate development of pest- resistant crops. The Company also decided to completely restructure MPS. When Mycogen acquired Agrigenetics, Agrigenetics consisted of four independent seed companies selling products under ten different brand names. In some areas, these companies competed against each other with the same products. Their businesses were based mainly on marketing seed products developed from publicly available parent lines as lower priced alternatives to premium priced seed products sold by other companies. Volumes and margins had declined each year and inventory was increasing and aging. Mycogen decided to consolidate these separate companies into one, MPS. The Company consolidated administration, production, sales, marketing and general management at the headquarters of the largest of the four companies in Prescott, Wisconsin. Mycogen also decided to eliminate all of the existing brand names and commercialize all seed products under the Mycogen(TM) brand, to eliminate overlapping sales territories and to replace older, lower value generic products with new, proprietary, value-added products. These changes resulted in restructuring charges totaling $9.8 million and $2.1 million for the fiscal years ended August 1994 and 1993, respectively. This consolidation has improved efficiency and reduced expenses. The number of separate seed corn products has been reduced from 270 to approximately 90, and the number of farmer/dealers has been reduced from more than 5,000 to approximately 2,600. However, the elimination of familiar brands, heavy turnover in the sales force and repositioning of MPS from a discounter to a marketer of proprietary, value-added products under a new brand name has created significant disruption in the business, and seed volumes and market share have declined. Additionally, MPS' 1995 sales performance was adversely affected by a reduction in planted acres in many key territories and crops. All of these negative factors contributed to lower sales in 1995. Despite these disappointing 1995 results, the Company believes that its progress in commercializing new, proprietary, value-added corn hybrids and other products will enable it to reverse declining volumes and margins in 1996. MPS' new NatureGard(TM) seed corn with genetically enhanced insect-resistance and Totally Managed Feedstuffs(TM) silage hybrids were well received by growers. Limited quantities of these products virtually sold out, accounting for 20% of total seed corn volumes for 1995, and the Company has produced significantly larger quantities of both for 1996 planting. Additionally, Mycogen Crop Protection brought on-line a new microbial biopesticide production and packaging facility and implemented a higher-yielding fermentation process that has reduced variable production costs and assures future production capacity. The Company intends to take advantage of this improved biopesticide cost position and production capacity to rapidly increase sales of its microbial based biopesticide products. However, as noted earlier, weather, competition, regulation and other external factors may affect Mycogen's ability to increase operating revenues and achieve profitability. The Company also must continue to invest in commercializing existing products and in discovery and development of new products, so the trend in losses from operations may continue if revenues do not increase. The Company will continue to pursue an aggressive acquisition and joint venture strategy to complement existing technologies and to expand distribution. 16 SEGMENT OPERATING REVENUES AND OPERATING LOSS
Years ended August 31, (In thousands) 1995 1994 1993 ------------ ------------- ------------- Operating Revenues Seed Corn $ 28,537 $ 32,020 $ 36,764 Soybean 8,794 10,386 11,364 Sunflower 10,376 9,888 8,920 Other 7,548 9,494 11,906 International 10,074 8,541 10,911 ------------ ------------ ----------- 65,329 70,329 79,865 ------------ ------------ ----------- Crop Protection Soilserv 32,887 29,139 29,310 Biopesticides 7,953 4,915 3,408 ------------ ------------ ----------- 40,840 34,054 32,718 ------------ ------------ ----------- Total Operating Revenues $ 106,169 $ 104,383 $ 112,583 ============ ============ =========== Operating Loss Seed (11,922) (45,052)* (19,266)* Crop Protection (2,336) (859) (6,268) Corporate (1,259) (2,894) (2,461) ------------ ------------- ------------ Total Operating Loss $ (15,517) $ (48,805) $ (27,995) ============ ============= ============
*The net operating loss for the Seed segment includes special charges of $36.4 million and $23.7 million in 1994 and 1993, respectively. The net operating loss for 1993 for the Seed segment includes only nine months of operating expenses incurred from the date of acquisition in December 1992 and affects the comparability of the net operating losses. SEED SEGMENT FISCAL YEAR ENDED AUGUST 1995 COMPARED TO 1994 OPERATING REVENUES: Seed operating revenues for the fiscal year ended August 1995 were $65.3 million compared to $70.3 million for the fiscal year ended August 1994. The net $5.0 million decrease in revenues is attributable mainly to lower volumes: . Corn acres planted industry-wide decreased 10% from last year due to a cool, wet spring which caused growers to either not plant or to shift to other crops. However, the Company's corn volumes decreased 12%. Although soybean acres industry-wide are estimated to have been flat from 1994 to 1995, the Company's soybean volumes were down 15%. Corn and soybeans were the seed products most impacted by the reduction in hybrids, trade names and farmer/dealers. . Sunflower revenues increased a net 5%, or $.5 million. Higher sales of confection sunflower and hi-oleic sunflower to a related party more than offset a 13% decline in oil 17 sunflower volume. This decline in oil sunflower was due to disease and government programs which caused acres in certain territories where the Company has a strong market share to be shifted to wheat and canola. . Other seed sales, comprised mainly of sorghum and alfalfa, also had lower sales volumes. Sorghum acreages continue to decline and shift to other crops, such as cotton. The Company believes that, as a result of the relatively mild winter, an unusual amount of pasture survived the normal winter kill, which resulted in lower alfalfa sales. . International revenues increased 18%, or $1.5 million, due to higher corn and sunflower sales, mainly in France. OPERATING LOSS: Seed operating loss for the fiscal year ended August 1995 was $11.9 million compared to $8.7 million (excluding special charges of $36.4 million) for the fiscal year ended August 1994. Gross profit is $4.3 million lower due mainly to lower sales volumes and higher cost of operating revenues as a percent of sales. Cost of operating revenues are higher due mainly to obsolescence as a result of repositioning corn inventory from non-proprietary hybrids to new value-added hybrids. Lower sales volumes are also responsible for increasing unit fixed costs and costs incurred to dispose of excess and poor quality inventory. Expenses were slightly lower. Higher research and development expenses were partially offset by lower selling, marketing, general and administrative expenses resulting from the completion of the company-wide restructuring and lower provisions for doubtful accounts. FISCAL YEAR ENDED AUGUST 1994 COMPARED TO 1993 OPERATING REVENUES: Seed operating revenues for the fiscal year ended August 1994 which totaled $70.3 million were $9.5 million less than the fiscal year ended August 1993. North American sales of planting seeds decreased $7.2 million. Although acreage was higher in 1994 than in 1993 industry-wide, sales volume of certain of the Company's products declined due to the consolidation of separate seed divisions and a number of overlapping sales territories in addition to the elimination of certain brand names and hybrids. These volume declines were partially offset by $1.3 million in price gains due to a favorable product mix and fewer discounts. International sales declined $2.4 million due mainly to the one-time sale of sunflower oil in 1993. OPERATING INCOME AND LOSS: Excluding special charges of $36.4 million and $23.7 million in 1994 and 1993, respectively, Seed operating income of $4.4 million for the fiscal year ended August 1993 decreased $13.1 million to a $8.7 million loss for the fiscal year ended August 1994. This decrease is due to the inclusion of MPS for a full year in 1994 as compared to nine months in 1993 which resulted in higher operating expenses of $6.7 million. Also contributing to the decrease were higher provisions for doubtful accounts of $1.3 million and lower margins of $7.7 million resulting mainly from provisions for excess and obsolete seed. These decreases were offset by higher contract revenues of $2.0 million. CROP PROTECTION SEGMENT FISCAL YEAR ENDED AUGUST 1995 COMPARED TO 1994 OPERATING REVENUES: Crop Protection operating revenues for the fiscal year ended August 1995 were $40.8 million compared to $34.1 million for the fiscal year ended August 1994. . Soilserv operating revenues were $3.7 million higher than last year due to the flooding in California's Salinas Valley during the second quarter of this year which created higher insect and disease pressure that increased the demand for Soilserv's air applications of pesticides. 18 . Biopesticide operating revenues were up 62%, or $3.0 million, due to the introduction of Scythe(R) herbicide and increases in MVP(R) for control of heliothis in cotton and M-Peril(R) for control of European corn borer in corn. International sales of biopesticides were ahead of last year due to expanded sales of MVP(R) liquid in Asia and MVP(R) powder to Kubota Corporation. OPERATING LOSS: Crop Protection recorded operating losses for the fiscal year ended August 1995 of $2.3 million compared to an operating loss of $.9 million for the fiscal year ended August 1994. The decline is due mainly to a $1.6 million write-down of crop protection technology resulting from the discontinuation of a certain product development program. Contract and other revenues declined $1.5 million. These decreases were partially offset by higher margins. Soilserv margins improved in total and as a percent of sales due to higher volumes. FISCAL YEAR ENDED AUGUST 1994 COMPARED TO 1993 OPERATING REVENUES: Crop Protection operating revenues increased by $1.3 million from 1993 to 1994 due mainly to the introduction of M-Peril(R) for the control of European corn borer in corn and MVP(R) for control of heliothis in cotton. However, this increase was less than anticipated due to lower insect pressures in these markets, and was partially offset by the discontinuance of certain other products. International operating revenues increased due to introductory sales of MVP(R) liquid to Europe and Asia. Soilserv operating revenues remained relatively flat during the fiscal year ended 1994 compared to the same period in 1993. OPERATING LOSS: Crop Protection operating loss improved $5.4 million during fiscal year 1994 due primarily to lower operating expenses of $4.3 million resulting mainly from the consolidation of certain research and administrative functions with the Seed segment. Contract and other revenues increased $1.0 million due to the receipt of $2.6 million in one-time license fees for certain herbicide technology and products for control of pests in poultry markets offset by revenues under other arrangements that declined in 1994 as existing funding requirements concluded and a one-time license fee received in 1993. CORPORATE FISCAL YEAR ENDED AUGUST 1995 COMPARED TO 1994 The reduction of $1.6 million in the Corporate operating loss from $2.9 million in 1994 to $1.3 million in 1995 is due to lower general and administrative expenses resulting from the consolidation and allocation of Corporate general and administrative resources to the Seed business during the 1993 restructuring of MPS' operations. FISCAL YEAR ENDED AUGUST 1994 COMPARED TO 1993 Corporate operating loss increased $.4 million from $2.5 million in 1993 to $2.9 million in 1994. The higher general and administrative expenses reflect the full year effect of MPS' operations in fiscal year 1994 and increased efforts required at the Corporate level. NON-OPERATING ITEMS INTEREST INCOME AND EXPENSE, NET Interest income and expense, net, decreased $1.4 million to $.9 million in 1995. The decrease is due mainly to less cash available for investment and higher levels of borrowing under the Company's line of credit during the year. Interest income and expense, net, decreased $.8 million to $2.3 million in 1994 due primarily to lower cash balances available for investment. 19 MINORITY INTEREST Effective December 31, 1993, the Company agreed to purchase the remaining 19.46% ownership interest in MPS from Lubrizol. Lubrizol's minority interest in MPS is recorded at the minimum agreed upon purchase price and the earnings from MPS have been recognized as if the Company owned 100% of MPS. Therefore, no minority interest has been recognized for periods after December 31, 1993. LIQUIDITY AND CAPITAL RESOURCES The Company's cash, cash equivalents and securities available-for-sale decreased by $20.3 million to $17.6 million during the fiscal year ended August 31, 1995. This decrease was due primarily to prepaid contract manufacturing costs of $8.8 million, the purchase of land and buildings for $2.5 million, other capital expenditures which totaled $4.1 million, patent expenditures of $1.8 million and cash used in operations of $6.5 million. Cash used in operations resulted primarily from higher trade accounts receivable and inventory balances. These cash outflows were offset by cash proceeds of $2.5 million from a seven-year note payable to a bank to fund the purchase of the land and buildings. In September 1995, the Company signed a letter of intent for a technology and development collaboration with Pioneer. Under the agreement, Pioneer will purchase three million shares of the Company's common stock for $30 million and provide $21 million in research and development funding over the next five years. The transaction is subject to completion of definitive agreements. Dividends on the Series A preferred stock are cumulative and are payable quarterly to Lubrizol in additional shares of preferred stock. Starting in December 1997 and thereafter, the dividends are payable in cash. Also, the Company has agreed to purchase the remaining ownership interest of MPS from Lubrizol for additional Common Stock or, after November 2000, for cash at a price between $21.4 million and $26.3 million. The Company plans to pursue an acquisition strategy to complement existing technologies. It is anticipated that any acquisitions would be financed with existing cash, stock or debt. The Company has a $25 million bank line of credit facility which expires November 30, 1995, to fund portions of its seasonal working capital needs, all of which was unused at August 31, 1995. The Company anticipates that its current cash position, and revenue from operations and contract and other revenues will be sufficient to finance working capital and capital requirements for the immediate future. However, the Company's capital requirements may vary as a result of competitive and technological developments, the timing of regulatory approval for new products and the terms and conditions of any future strategic transactions. If such requirements change, the Company may need to raise additional capital. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Index to Financial Statements appearing after the signature page of this Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 20 PART III Certain information required by Part III is omitted from this report in that the Company will file the Proxy Statement pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report, and certain information included therein is incorporated herein by reference. Only those sections of the Proxy Statement which specifically address the items set forth herein are incorporated by reference. Such incorporation does not include the Compensation Committee Report or the Performance Graph included in the Proxy Statement. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) Identification of Directors. The information under the caption "Election of Directors," appearing in the Proxy Statement, is incorporated herein by reference. (b) Identification of Executive Officers. The information under the headings "Executive Officers" and "Responsibilities and Business Experience of Executive Officers," appearing in the Proxy Statement, is incorporated herein by reference. (c) Compliance with Section 16(a) of the Exchange Act. Based solely upon a review of Forms 3, 4 and 5 and amendments thereto furnished to the Registrant and upon written representations of all individuals required to file forms pursuant to Section 16(a), the Registrant knows of no such individual that failed to file Forms 3, 4 and 5 on a timely basis during the last fiscal year. ITEM 11. EXECUTIVE COMPENSATION The information under the heading "Executive Compensation" appearing in the Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information under the headings "Principal Stockholders" and "Executive Compensation-Security Ownership of Directors and Management as of September 30, 1995," appearing in the Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information under the headings "Election of Directors," "Executive Compensation" and "Certain Relationships and Related Transactions" appearing in the Proxy Statement is incorporated herein by reference. 21 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Financial Statements and Report of Ernst and Young LLP, Independent Auditors. See Index to Financial Statements at page 31 of this Form 10-K. (b) No reports on Form 8-K have been filed during the last quarter of the period covered by this report on Form 10-K. (c) Exhibits:
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGE 3.1 Certificate of Incorporation of the Company. Incorporated by -- reference from Exhibit 3.1 to the Company's Registration Statement on Form S-1, Registration No. 33-13846, filed on April 29, 1987. 3.2 Certificate of Amendment of Certificate of Incorporation of -- the Company. Incorporated by reference from Exhibit 3.2 to the Company's Registration Statement on Form S-1, Registration No. 33-13846, filed on April 29, 1987. 3.3 Certificate of Retirement. Incorporated by reference from -- Exhibit 3.3 to the Company's Form 10-K for the fiscal year ended September 30, 1988, filed on December 23, 1988. 3.4 Certificate of Amendment. Incorporated by reference from -- Exhibit 3.4 to the Company's Form 10-K for the fiscal year ended December 31, 1991, filed on March 19, 1992. 3.5 Amended Certificate of Designation, Powers, Preferences and -- Rights of the Senior Redeemable convertible Preferred Stock, Series A. Incorporated by reference from Exhibit 3.5 to the Company's Form 8-K, filed on January 13, 1994. 3.6 Bylaws of the Company. Incorporated by reference from Exhibit -- 3.3 to the Company's Registration Statement on Form S-1, Registration No. 33-13846, filed on April 29, 1987. 4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, 3.5 and 3.6 -- above. 4.2 Specimen Common Stock Certificate, $0.001 par value. -- Incorporated by reference from Exhibit 4.2 to the Company's Registration Statement on Form S-1, Registration No. 33-13846, filed on April 29, 1987. 4.3 Rights Agreement. Incorporated by reference from Exhibit 1 to -- the Company's Form 8-K, filed on February 21, 1992.
22 4.4 Amendment to the Rights Agreement. Incorporated by reference -- from Exhibit 4.5 to the Company's form 8-K, filed on January 13, 1994. 4.5 Amendment to the Rights Agreement. Incorporated by reference -- from Exhibit 4.5 to the Company's Form 10-K for the year ended December 31, 1994, filed on March 3, 1995. 10.1 Registration Rights Agreement under Stock Purchase Agreement -- dated March 6, 1989. Incorporated by reference from Exhibit 10.2 to the Company's Form 10-K for the year ended September 30, 1989, filed on December 28, 1989. 10.2 Bioherbicide/Biotoxin Research and Development Agreement, -- dated March 6, 1989, between JT Biotech USA Inc. ("JT") and Mycogen Corporation (with certain confidential portions omitted). Incorporated by reference from Exhibit 10.3 to the Company's Form 10-K for the year ended September 30, 1989, filed on December 28, 1989. 10.3 Bioherbicide Commercialization License Agreement (Japan). -- Incorporated by reference from Exhibit 10.4 to the Company's Form 10-K for the year ended September 30, 1989, filed on December 28, 1989. 10.4 Mycogen Version - Technology License Agreement BH/BT between -- Mycogen and MJT BH/BT Partnership, L.P. (with certain confidential portions omitted). Incorporated by reference from Exhibit 10.5 to the Company's Form 10-K for the year ended September 30, 1989, filed on December 28, 1989. 10.5 JT Version - Technology License Agreement BH/BT between JT and -- MJT BH/BT Partnership, L.P. (with certain confidential portions omitted). Incorporated by reference from Exhibit 10.6 to the Company's Form 10-K for the year ended September 30, 1989, filed on December 28, 1989. 10.6 Guarantee and Undertakings of Japan Tobacco Inc. -- (Bioherbicide/Biotoxin), including Technology License Agreement (BH/BT), delivered pursuant to Section 8(j) of the Research and Development Agreement (with certain confidential portions omitted). Incorporated by reference from Exhibit 10.7 to the Company's Form 10-K for the year ended September 30, 1989, filed on December 28, 1989.
23 10.7 Guarantee and Undertakings of Mycogen Corporation -- (Bioherbicide/Biotoxin), delivered pursuant to Section 8(j) of the Research and Development Agreement (with certain confidential portions omitted). Incorporated by reference from Exhibit 10.8 to the Company's Form 10-K for the year ended September 30, 1989, filed on December 28, 1989. 10.8 Limited Partnership Agreement of MJT BH/BT Partnership, L.P., -- dated March 6, 1989, between Mycosub/BH, Inc. and JT Biotech USA, Inc. (with certain confidential portions omitted). Incorporated by reference from Exhibit 10.9 to the Company's Form 10-K for the year ended September 30, 1989, filed on December 28, 1989. 10.9 Bioadjuvant Research and Development Agreement, dated March 6, -- 1989, between Mycogen Corporation and JT Biotech USA Inc. (with certain confidential portions omitted). Incorporated by reference from Exhibit 10.10 to the Company's Form 10-K for the year ended September 30, 1989, filed on December 28, 1989. 10.10 Mycogen Version - Technology Licensing Agreement (BA) between -- Mycogen and MJT BA Partnership, L.P. (with certain confidential portions omitted). Incorporated by reference from Exhibit 10.11 to the Company's Form 10-K for the year ended September 30, 1989, filed on December 28, 1989. 10.11 JT Version - Technology Licensing Agreement (BA) between JT -- and MJT BA Partnership, L.P. (with certain confidential portions omitted). Incorporated by reference from Exhibit 10.12 to the Company's Form 10-K for the year ended September 30, 1989, filed on December 28, 1989. 10.12 Guarantee and Undertakings of Japan Tobacco (Bioadjuvant), -- including Technology License Agreement (BA), delivered pursuant to Section 8 (i) of the Research and Development Agreement (with certain confidential portions omitted). Incorporated by reference from Exhibit 10.13 to the Company's Form 10-K for the year ended September 30, 1989, filed on December 28, 1989. 10.13 Guarantee and Undertakings of Mycogen Corporation, delivered -- pursuant to Section 9(i) of the Research and Development Agreement. Incorporated by reference from Exhibit 10.14 to the Company's Form 10-K for the year ended September 30, 1989, filed on December 28, 1989. 10.14 Limited Partnership Agreement of MJT BA Partnership, L.P., -- dated March 6, 1989, between Mycosub/BA, Inc. and JT Biotech USA Inc. (with certain confidential portions omitted). Incorporated by reference from Exhibit 10.15 to the Company's Form 10-K for the year ended September 30, 1989, filed on December 28, 1989.
24 10.15 Registrant's 1988 Stock Purchase Plan. Incorporated by -- reference from Exhibit 10.19 to the Company's Form 10-K for the fiscal year ended December 31, 1991, filed on March 19, 1992. 10.16 Registrant's 401(k) Plan. Incorporated by reference from -- Exhibit 10.4 to the Company's form 10-K for the fiscal year ended September 30, 1988, filed on December 23, 1988. 10.17 Amendment No. 1 to Registrant's 401(k) Plan. Incorporated by -- reference from Exhibit 10.21 to the Company's Form 10-K for the year ended December 31, 1990, filed on March 29, 1991. 10.18 Amendment to Registrant's 401(k) Plan dated January 1, 1994. -- Incorporated by reference from Exhibit 10.18 to the Company's Form 10-K for the year ended December 31, 1994, filed on March 3, 1995. 10.19 Registrant's Restricted Stock Issuance Plan. Incorporated by -- reference from Exhibit 28.1 to the Company's Registration Statement on Form S-8, Registration No. 33-40349, filed on May 3, 1991. 10.20 Form of Agreements pertaining to Restricted Stock Issuance -- Plan. Incorporated by reference from exhibit 28.2 to the Company's Registration Statement on form S-8, Registration No. 33-40349, filed on May 3, 1991. 10.21 Form of Indemnity Agreement between the Company and each of -- its directors. Incorporated by reference from Exhibit 10.28 to the Company's Form 10-K for the year ended December 31, 1991, filed on March 19, 1992. 10.22 Manufacturing Agreement dated September 15, 1988 between the -- Company and International Bio-Synthetics Inc. (with certain confidential portions omitted). Incorporated by reference from Exhibit 10.19 to the Company's Form 10-K for the year ended September 30, 1988, filed on December 23, 1988. 10.23 Agreement for Purchase and Sale of Assets by and between -- Mycogen Corporation, Safer, Inc. and Safer Ltd., dated January 4, 1990. Incorporated by reference from Exhibit 10.30 to the Company's Registration Statement on Form S-1, Registration No. 33-34591, filed on April 27, 1990. 10.24 Commercial License Agreement by and between Mycogen -- Corporation and Safer, Inc., dated January 4, 1990. Incorporated by reference from Exhibit 10.32 to the Company's Registration Statement on Form S-1, Registration No. 33-34591, filed on April 27, 1990.
25 10.25 Stock Purchase Agreement, dated as of July 31, 1991, among the -- Company, Griffin Corporation of Valdosta, Georgia, Kocide Chemical Corporation, A.J. Larronde and D.J. Sites, individually and under power of attorney for other shareholders of Soilserv, Inc. Incorporated by reference from Exhibit 2.1 to the Company's Form 8-K, filed on August 14, 1991. 10.26 Covenant Not to Compete dated as of August 1, 1991, among the -- Company, Griffin Corporation of Valdosta, Georgia, Kocide Chemical Corporation. Incorporated by reference from exhibit 28.1 to the Company's Form 8-K, filed on August 14, 1991. 10.27 Representations, Warranties and Indemnification Agreement -- dated August 25, 1992, among Registrant, Lubrizol Corporation ("Lubrizol") and Agrigenetics L.P. Incorporated by reference from Exhibit 10.44 to the Company's Form 8-K, filed on December 14, 1992. 10.28 Stock Exchange Agreement dated August 25, 1992, between -- Registrant and Lubrizol. Incorporated by reference from Exhibit 10.45 to the Company's Form 8-K, filed on December 14, 1992. 10.29 Agreement of Limited Partnership dated August 25, 1992, among -- Registrant, AGC Holdings, Inc. (a wholly owned subsidiary of Lubrizol) and Lubrizol Genetics, Inc. (subsequently renamed Mycogen Plant Science, Inc.). Incorporated by reference from Exhibit 10.47 to the Company's Form 8-K, filed on December 14, 1992. 10.30 License Agreement dated December 1, 1992, between Registrant -- and Agrigenetics L.P. Incorporated by reference from Exhibit 10.48 to the Company's Form 8-K, filed on December 14, 1992. 10.31 Mycogen 1992 Stock Option Plan. Incorporated by reference from -- Exhibit 28.1 to the Company's Registration Statement on Form S-8, Registration Statement No. 33-55508, filed on December 9, 1992. 10.32 Form of Agreements pertaining to 1992 Stock Option Plan. -- Incorporated by reference from Exhibits 28.2, 28.3, 28.4 and 28.5 to the Company's Registration Statement on Form S-8, Registration No. 33-55508, filed on December 9, 1992. 10.33 Technology and Development Agreement dated December 1, 1991, -- between SVO Specialty Products, Inc. (a wholly owned subsidiary of Lubrizol) and Agrigenetics, L.P. Incorporated by reference from Exhibit 28.1 to the Company's Form 8-K, filed on December 14, 1992.
26 10.34 Revolving Credit Note of Mycogen Corporation to Harris Trust -- and Savings Bank ("Harris Bank") dated August 5, 1994. Incorporated by reference from Exhibit 10.34 to the Company's Form 10-K for the year ended December 31, 1994, filed on March 3, 1995. 10.35 Revolving Credit Agreement between Mycogen Corporation and -- Harris Bank dated August 5, 1994. Incorporated by reference from Exhibit 10.35 to the Company's Form 10-K for the year ended December 31, 1994, filed on March 3, 1995. 10.36 Guaranty Agreement from the Company to Harris Bank dated -- August 5, 1994. Incorporated by reference from Exhibit 10.36 to the Company's Form 10-K for the year ended December 31, 1994, filed on March 3, 1995. 10.37 Form of Employment/Severance Agreement between the Company and -- certain executive officers of the Company. Incorporated by reference from Exhibit 10.55 to the Company's Form 10-K for the year ended December 31, 1992, filed on March 20, 1993. 10.38 Partnership Interest Purchase Agreement dated December 31, -- 1993, between Registrant and Lubrizol. Incorporated by reference from Exhibit 10.59 to the Company's Form 8-K, filed on January 13, 1994. 10.39 Contribution Agreement dated December 31, 1993, between the -- Registrant and Mycogen Plant Science, Inc. Incorporated by reference from Exhibit 10.60 to the Company's Form 8-K, filed on January 13, 1994. 10.40 Contribution and Liquidation Agreement dated December 31, -- 1993, among Agrigenetics, L.P., Mycogen Plant Science, Inc., Lubrizol and Agrigenetics, Inc. Incorporated by reference from Exhibit 10.61 to the Company's Form 8-K, filed on January 13, 1994. 10.41 Termination Agreement dated December 31, 1993, between Mycogen -- and Lubrizol. Incorporated by reference from Exhibit 10.62 to the Company's Form 8-K, filed on January 13, 1994. 10.42 Amended and Restated Equity Investment Agreement dated -- December 31, 1993, among Registrant, Mycogen Plant Science, Inc., Agrigenetics, Inc. and Lubrizol. Incorporated by reference from Exhibit 10.63 to the Company's Form 8-K, filed on January 13, 1994. 10.43 Amended and Restated Registration Rights Agreement dated -- December 31, 1993, between the Registrant and Lubrizol. Incorporated by reference from Exhibit 10.64 to the Company's Form 8-K, filed on January 13, 1994.
27 10.44 Manufacturing Agreement dated December 1, 1993, between the -- Registrant and Enzyme Bio Systems. Confidential treatment has been requested regarding certain portions of the agreement. Incorporated by reference from Exhibit 10.44 to the Company's Form 10-K for the year ended December 31, 1994, filed on March 3, 1995. 10.45 Agreement for Exchange of Insect Control Technology and Patent -- Rights dated July 14, 1993, between the Registrant and Ciba Seeds. Confidential treatment has been requested regarding certain portions of the agreement. Incorporated by reference from Exhibit 10.45 to the Company's Form 10-K for the year ended December 31, 1994, filed on March 3, 1995. 10.46 Commercial Promissory Note dated January 31, 1995, between the -- Company and Union Bank. Incorporated by reference from Exhibit 10.48 to the Company's Form 10-K for the year ended December 31, 1994, filed on March 3, 1995. 10.47 Term Loan Agreement dated January 31, 1995 between the Company -- and Union Bank. Incorporated by reference from Exhibit 10.49 to the Company's Form 10-K for the year ended December 31, 1994, filed on March 3, 1995. 21.1 Mycosub BH/BT, a Delaware corporation. Incorporated by -- reference from Exhibit 22.1 to the Company's Form 10-K for the year ended September 30, 1989, filed on December 28, 1989. 21.2 Mycosub BA, a Delaware corporation. Incorporated by reference -- from Exhibit 22.2 to the Company's Form 10-K for the year ended September 30, 1989, filed on December 28, 1989. 21.3 Soilserv, Inc., a California corporation. Incorporated by -- reference from Exhibit 22.3 to the Company's Form 10-K for the year ended December 31, 1991, filed on March 19, 1992. 21.4 Parasitix Corporation, a California corporation. Incorporated -- by reference from Exhibit 22.4 to the Company's Form 10-K for the year ended December 31, 1991, filed on March 19, 1992. 21.5 Mycogen Plant Science, Inc., a Delaware corporation. -- Incorporated by reference from Exhibit 10.55 to the Company's Form 10-K filed on March 20, 1993. 21.6 Agrigenetics, Inc. (d/b/a/ Mycogen Plant Sciences), a Delaware -- corporation. Incorporated by reference from Exhibit 22.6 to the Company's Form 10-K for the year ended December 31, 1993, filed on March 4, 1994.
28 21.7 Mycogen Far East Asia, a California corporation. Incorporated -- by reference from Exhibit 22.7 to the Company's Form 10-K for the year ended December 31, 1994, filed on March 3, 1995. 21.8 Mycogen Crop Protection, Inc., a California corporation. 54 21.9 Mycogen California, Inc., a California corporation 75 * The Company's Notice of Annual Meeting and Proxy Statement -- dated on or about November 15, 1995. 23.1 Consent of Ernst & Young LLP, Independent Auditors. 113 24.1 Power of Attorney. 114 99.1 Purchase Agreement dated February 15, --1995, among -- Registrant, Agrigenetics, Inc. and Delta and Pine Land Company. Incorporated by reference from Exhibit 99.1 to the Company's Form 8-K, filed on April 20, 1995.
* Supplemental Information: Copies of the Registrant's Proxy Statement for the Annual Meeting of Stockholders and copies of the form of proxy to be used at such Annual Meeting will be furnished to the Securities and Exchange Commission prior to the time they are distributed to the stockholders. 29 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MYCOGEN CORPORATION Date: November 3, 1995 By: /s/ JERRY CAULDER ------------------------------- Jerry Caulder Chairman and Chief Executive Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
/s/ JERRY CAULDER Chairman, Chief November 3, 1995 - ---------------------------------------- Executive Officer and Director (Jerry Caulder) (Principal Executive Officer) /s/ THOMAS J. CABLE Director November 3, 1995 - ---------------------------------------- (Thomas J. Cable*) /s/ GEORGE R. HILL Director November 3, 1995 - ---------------------------------------- (George R. Hill*) /s/ KENNETH H. HOPPING Director November 3, 1995 - ---------------------------------------- (Kenneth H. Hopping*) /s/ DAVID H. RAMMLER Director November 3, 1995 - ---------------------------------------- (David H. Rammler*) /s/ A. JOHN SPEZIALE Director November 3, 1995 - ---------------------------------------- (A. John Speziale*) /s/ JAMES A. BAUMKER Vice President and Chief November 3, 1995 - ---------------------------------------- Financial Officer (James A. Baumker) (Principal Financial and Accounting Officer)
*By James A. Baumker under power of attorney. 30 MYCOGEN CORPORATION INDEX TO FINANCIAL STATEMENTS Consolidated Statements of Operations for the years ended August 31, 1995, 1994 and 1993......................................................32 Consolidated Balance Sheets as of August 31, 1995, 1994 and 1993.......................33 Consolidated Statements of Stockholders' Equity for the years ended August 31, 1995, 1994 and 1993......................................................34 Consolidated Statements of Cash Flows for the years ended August 31, 1995, 1994 and 1993......................................................35 Notes to Consolidated Financial Statements.............................................36 Schedule II - Valuation and Qualifying Accounts for the years ended August 31, 1995 and 1994............................................................49 Report of Ernst & Young LLP, Independent Auditors......................................50 Exhibit 27 - Financial Data Schedule for the year ended August 31, 1995................51 Quarterly Financial Data for the year ended August 31, 1995............................52
All other schedules required by this item have been omitted due to full disclosure in the Financial Statements or related footnotes or due to inapplicability of the item. 31 MYCOGEN CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share data)
YEARS ENDED AUGUST 31, ------------------------------------------------- 1995 1994 1993 ----------- ----------- ---------- Net operating revenues: Unrelated parties..................... $ 103,701 $ 102,449 $ 108,039 Related party......................... 2,468 1,934 4,544 Contract and other revenues: Unrelated parties..................... 4,334 4,888 2,345 Related parties....................... 2,715 3,489 3,083 ------------ ----------- ---------- Total revenues...................... 113,218 112,760 118,011 ------------ ----------- ---------- Costs and expenses: Cost of operating revenues............ 70,985 66,809 67,555 Selling and marketing................. 18,502 20,360 16,885 General and administrative............ 14,213 17,675 16,203 Research and development.............. 21,181 18,171 19,645 Amortization of intangible assets..... 3,854 2,172 2,042 Special charges....................... --- 36,378 23,676 ------------ ----------- ---------- Total costs and expenses............ 128,735 161,565 146,006 ------------ ----------- ---------- Operating loss.......................... (15,517) (48,805) (27,995) Interest income and expense, net...... 914 2,328 3,175 Exchange gain (loss).................. 160 215 (471) Minority interest..................... --- 14,632 (726) ------------ ----------- ---------- Net loss................................ (14,443) (31,630) (26,017) Dividends on preferred stock............ (1,503) (1,604) (1,497) ------------ ----------- ---------- Net loss applicable to common shares.... $ (15,946) $ (33,234) $ (27,514) ============ =========== ========== Net loss per common share............... $ (.83) $ (1.81) $ (1.69) ============ =========== ========== Weighted average number of shares....... 19,225 18,377 16,318 ============ =========== ========== See accompanying Notes to Consolidated Financial Statements.
32 MYCOGEN CORPORATION CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except par value data)
AUGUST 31, ASSETS 1995 1994 ------------ ------------ Current assets: Cash and cash equivalents............................................. $ 5,687 $ 8,681 Securities available-for-sale......................................... 11,913 29,206 Accounts and notes receivable, net of allowances...................... 27,402 24,402 Inventories........................................................... 33,633 31,714 Prepaid expenses...................................................... 1,267 1,121 ------------ ------------ Total current assets................................................ 79,902 95,124 Net property, plant and equipment....................................... 49,646 48,537 Net intangible assets................................................... 17,759 18,091 Other assets............................................................ 12,301 3,974 ------------ ------------ Total assets............................................................ $ 159,608 $ 165,726 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable...................................................... $ 6,760 $ 3,746 Accrued compensation and related taxes................................ 3,553 3,355 Deferred revenues..................................................... 5,670 4,681 Other current liabilities............................................. 5,225 5,925 ------------ ------------ Total current liabilities........................................... 21,208 17,707 Long-term liabilities................................................... 3,291 1,207 Minority interest....................................................... 21,406 21,406 Commitments Stockholders' equity: Senior convertible cumulative preferred stock: Series A preferred stock, $.001 par value, 3,940 shares authorized; 3,100 and 2,950 shares issued to a related party and outstanding at August 31, 1995 and 1994, respectively; aggregate liquidation preference, $31,004 and $29,501, respectively........................ --- Common stock, $.001 par value, 40,000,000 shares authorized; 19,400,764 and 19,098,891 shares issued and outstanding at 19 19 August 31, 1995 and 1994 respectively................................. Additional paid in capital............................................. 216,436 213,696 Deficit................................................................ (102,752) (88,309) ------------ ------------ Total stockholders' equity.......................................... 113,703 125,406 ------------ ------------ Total liabilities and stockholders' equity.............................. $ 159,608 $ 165,726 ============ ============
See accompanying Notes to Consolidated Financial Statements. 33 MYCOGEN CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands)
SHARES OF COMMON STOCK ---------------- SERIES A NUMBER ADDITIONAL TOTAL PREFERRED OF PAID IN STOCKHOLDERS' STOCK SHARES AMOUNT CAPITAL DEFICIT EQUITY --------- -------- ------ ---------- ----------- --------------- Balance at August 31, 1992 --- 14,456 $ 14 $135,848 $ (30,662) $105,200 Issuance of common stock under: Employee stock plans................. --- 253 1 1,703 --- 1,704 Formation of partnership............. --- 2,295 2 28,107 --- 28,109 Receipt of stock to satisfy note receivable........................... --- (9) --- (129) --- (129) Compensation related to employee stock plans.......................... --- --- --- 521 --- 521 Preferred stock dividend accrual........ --- --- --- (1,497) --- (1,497) Net loss................................ --- --- --- --- (26,017) (26,017) Cumulative translation adjustment....... --- --- --- (6) --- (6) --------- -------- ------ ---------- ----------- --------------- Balance at August 31, 1993 --- 16,995 17 164,547 (56,679) 107,885 Issuance of common stock under: Employee stock plans................. --- 104 --- 939 --- 939 Additional interest acquired in MPS. --- 2,000 2 20,498 --- 20,500 Compensation related to employee stock plans.......................... --- --- --- 396 --- 396 Preferred stock dividend accrual........ --- --- --- (642) --- (642) Reclassification of preferred stock..... 3 --- --- 28,539 --- 28,539 Cumulative effect of change in accounting for investments in debt and equity securities........... --- --- --- 559 --- 559 Change in unrealized gains and losses on available-for-sale securities........................... --- --- --- (1,174) --- (1,174) Net loss................................ --- --- --- --- (31,630) (31,630) Cumulative translation adjustment....... --- --- --- 34 --- 34 --------- -------- ------ ---------- ----------- --------------- Balance at August 31, 1994 3 19,099 19 213,696 (88,309) 125,406 Issuance of common stock under employee stock plans................ --- 148 --- 436 --- 436 Compensation related to employee stock plans......................... --- --- --- 148 --- 148 Issuance of common stock for business acquisition................ --- 154 --- 1,350 --- 1,350 Change in unrealized gains and losses on available-for-sale securities.......................... --- --- --- 478 --- 478 Net loss............................... --- --- --- --- (14,443) (14,443) Cumulative translation adjustment...... --- --- --- 328 --- 328 --------- -------- ------ ---------- ----------- --------------- Balance at August 31, 1995 3 19,401 $ 19 $216,436 $(102,752) $113,703 ========= ======== ====== ========== =========== ===============
See accompanying Notes to Consolidated Financial Statements. 34 MYCOGEN CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
YEARS ENDED AUGUST 31, ----------------------------------- 1995 1994 1993 ----------- ----------- ----------- OPERATING ACTIVITIES: Net loss.............................. $(14,443) $(31,630) $(26,017) Items which did not use cash: Depreciation........................ 4,851 4,329 3,750 Amortization of intangible assets... 3,854 2,172 2,042 Amortization of prepaid contract manufacturing...................... 284 -- -- Compensation related to employee stock plans........................ 148 396 521 Special charges..................... -- 26,636 23,676 Minority interest................... -- (14,632) 726 Provision for doubtful accounts..... 292 3,179 -- Loss on disposal of assets.......... 693 344 659 Changes in operating assets and liabilities: Accounts and notes receivable....... (3,293) (2,180) (11,103) Inventories......................... (1,834) 6,368 17,805 Prepaid expenses.................... (346) 430 (210) Accounts payable.................... 3,014 (1,366) (13,126) Deferred revenues................... 989 2,298 (1,390) Other liabilities................... (669) (310) (573) ----------- ----------- ----------- Cash used in operating activities....................... (6,460) (3,966) (3,240) ----------- ----------- ----------- INVESTING ACTIVITIES: Proceeds from sales of available-for-sale securities....... 8,972 33,258 25,190 Proceeds from maturities of available-for-sale securities....... 21,049 29,483 59,394 Purchases of available-for-sale securities.......................... (12,250) (34,753) (87,175) Capital expenditures................. (6,566) (4,259) (4,827) Payment from related party in conjunction with the formation of MPS.................... -- -- 5,719 Net cash acquired from (paid for) business combinations............... -- (7,000) 1,711 Prepaid contract manufacturing....... (8,825) (2,079) -- Change in intangibles and other assets.............................. (1,842) (2,578) (1,002) ----------- ----------- ----------- Cash provided by (used in) investing activities............. 538 12,072 (990) ----------- ----------- ----------- FINANCING ACTIVITIES: Proceeds from long-term debt......... 2,500 -- -- Payments on long-term debt........... (248) (10) (201) Redemption of preferred stock........ -- (10,000) -- Proceeds from sale of common stock... 435 939 1,703 ----------- ----------- ----------- Cash provided by (used in) financing activities............. 2,687 (9,071) 1,502 ----------- ----------- ----------- Effect of exchange rate changes on cash and cash equivalents........ 241 96 (6) ----------- ----------- ----------- Decrease in cash and cash equivalents......................... (2,994) (869) (2,734) Cash and cash equivalents at beginning of year................... 8,681 9,550 12,284 ----------- ----------- ----------- Cash and cash equivalents at end of year............................. $ 5,687 $ 8,681 $ 9,550 =========== =========== ===========
See accompanying Notes to Consolidated Financial Statements. 35 MYCOGEN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIGNIFICANT ACCOUNTING POLICIES The Company's significant accounting policies are contained in brakets in the following Notes to Consolidated Financial Statements. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. BASIS OF CONSOLIDATION [The accompanying financial statements include the accounts of Mycogen Corporation and its wholly-owned and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.] CHANGE IN FISCAL YEAR-END AND RECLASSIFICATIONS The Company changed its fiscal year-end from December 31 to August 31 and has restated the results for the three years ended August 31, 1995. Certain amounts in the 1994 and 1993 consolidated financial statements have been reclassified to conform to the 1995 presentation. FORMATION OF MPS The initial formation of MPS in December 1992, which resulted in a 51% ownership by the Company and a 49% ownership by Lubrizol, a related party, involved (i) the exchange of $39.4 million in the Company's Series A preferred stock and 156,981 shares of the Company's common stock for certain assets of Agrigenetics Company; (ii) the exchange of 2,137,609 shares of the Company's common stock for substantially all of the shares of capital stock of Lubrizol Genetics, Inc., which was renamed Mycogen Plant Science, Inc. and (iii) contributions by the Company, Lubrizol, and Mycogen Plant Science, Inc., of the assets of Agrigenetics Company to MPS. On December 31, 1993 the Company exchanged $7.0 million in cash and 2.0 million shares of the Company's common stock for an additional 29.5% ownership of MPS and Lubrizol agreed to eliminate the mandatory redemption provision of the Series A preferred stock. Also, as of December 31, 1993, the partnership was reorganized as a corporation. As of August 31, 1995, MPS is owned 80.54% by the Company and 19.46% by Lubrizol. The consolidated financial statements of the Company include the operations of MPS from December 1, 1992. The Company has agreed to purchase Lubrizol's remaining 19.46% ownership in MPS over time for additional Mycogen common stock or, after November 30, 2000, for cash. Lubrizol's minority interest in MPS is recorded at the minimum agreed upon purchase price. Lubrizol has agreed not to acquire additional shares of the Company's common stock except (i) upon conversion of Series A preferred stock, (ii) in exchange for Lubrizol's remaining interest in MPS, (iii) upon approval by the Company's board of directors or (iv) in an amount so as to enable Lubrizol to maintain ownership of at least 20% of the Company's outstanding common stock. The principal seed products of MPS are corn, soybean, sorghum, sunflower, alfalfa and rape. [The acquisition of MPS was accounted for as a purchase.] The following consolidated, pro forma, unaudited 36 summary of operations data assumes that the exchange for an additional ownership interest in MPS occurred on September 1, 1993 and 1992 and that the formation of MPS occurred on September 1, 1992.
Years ended August 31, --------------------------- (In thousands except for share data) 1994 1993 -------------------------------------- ---------- ---------- Total revenues $ 112,760 $ 119,411 Net loss applicable to common shares $ (18,567) $ (8,350) Net loss per common share $ (.97) $ (.44)
These pro forma results may not be indicative of the results of operations that would have been reported if the transactions had occurred on the date indicated, or which may be reported in the future. These results do not include the nonrecurring special charges of $26.6 million in 1994 and $21.6 million in 1993 related to write-off amounts assigned to acquire MPS in-process technology. SUPPLEMENTAL CASH FLOW INFORMATION In conjunction with an acquisition in 1995, the exchange for an additional ownership interest in MPS in 1994, adjustments to the 1993 purchase price of MPS in 1994 and the formation of MPS in 1993, cash and noncash investing and financing activities were allocated as follows:
Years ended August 31, -------------------------------------- (In thousands) 1995 1994 1993 ---------------------------------------- --------- ---------- ---------- Business acquisitions: Fair value of assets acquired, other than cash $ 1,350 $ 26,188 $ 124,055 Liabilities assumed -- -- (23,383) Acquisition related costs -- -- (1,148) Note payable issued -- -- (100) Minority interest -- (1,688) (33,626) Common stock issued (1,350) (20,500) (28,109) Preferred stock returned (issued) -- 3,000 (39,400) Net cash paid for (acquired from) --------- ---------- ---------- acquisitions $ -- $ 7,000 $ (1,711) ========= ========== ==========
Other cash and noncash investing and financing activities were as follows:
Years ended August 31, ---------------------------------- (In thousands) 1995 1994 1993 ----------------------------------- --------- --------- --------- Dividends on preferred stock $ 1,503 $ 1,604 $ 1,497 ========= ========= ========= Cash payments for interest $ 389 $ 254 $ 217 ========= ========= =========
INDUSTRY SEGMENTS AND FOREIGN OPERATIONS The Company has reorganized its five operating units into two major segments, Seed and Crop Protection. This change is a result of management's intention to develop separate strategies to maximize the assets and technologies in these two business segments. For comparative purposes, the Company has presented segment and disclosures for the years ended August 31, 1995, 1994 and 1993. Seed segment revenues are derived mainly from sales of planting seeds in North America and Europe. The five principal product lines are corn, soybean, sunflower, other and international. Crop Protection 37 segment revenues are derived from customized crop protection services provided by Soilserv in California and Arizona and sales of biopesticide products mainly in North America and Far East Asia. Operating revenues and seed costs are impacted by weather. Weather can influence pest populations, the effectiveness of pesticides and seeds, seed production yields, commodity prices, growers' planting decisions and other factors impacting revenues and costs. Operating revenues are also dependent on a number of other factors, including the degree of market acceptance of products, the strength of competition in the marketplace and U.S. and foreign government policies which can affect crop acreage and farmer income. Acres planted determine quantities of planting seed, crop protection services and biopesticide products purchased by growers. Financial information by segment is as follows:
Years ended August 31, ----------------------------------- (In thousands) 1995 1994 1993 ------------------------------- --------- --------- --------- Operating Revenues Seed $ 65,329 $ 70,329 $ 79,865 Crop Protection 40,840 34,054 32,718 --------- --------- --------- Total $ 106,169 $ 104,383 $ 112,583 ========= ========= ========= Contract and Other Revenues Seed $ 5,606 $ 5,486 $ 3,458 Crop Protection 1,363 2,891 1,970 Corporate 80 -- -- --------- --------- --------- Total $ 7,049 $ 8,377 $ 5,428 ========= ========= ========= Research and Development Expenses Seed $ 14,827 $ 12,156 $ 11,953 Crop Protection 6,354 6,015 7,692 --------- --------- --------- Total $ 21,181 $ 18,171 $ 19,645 ========= ========= ========= Operating Loss Seed $ (11,922) $ (45,052) $ (19,266) Crop Protection (2,336) (859) (6,268) Corporate (1,259) (2,894) (2,461) --------- --------- --------- Total $ (15,517) $ (48,805) $ (27,995) ========= ========= ========= Identifiable Assets Seed $ 87,238 $ 79,439 $ 90,615 Crop Protection 41,994 38,202 33,006 Corporate 30,376 48,085 77,912 --------- --------- --------- Total $ 159,608 $ 165,726 $ 201,533 ========= ========= =========
38
(In thousands) Years ended August 31, ------------------------------- ------------------------------ 1995 1994 1993 -------- -------- -------- Depreciation and Amortization Seed $ 4,199 $ 3,789 $ 2,257 Crop Protection 3,381 1,815 2,625 Corporate 1,125 897 910 -------- -------- -------- Total $ 8,705 $ 6,501 $ 5,792 ======== ======== ======== Capital Expenditures Seed $ 3,263 $ 2,776 $ 2,658 Crop Protection 213 955 1,292 Corporate 3,090 528 877 -------- -------- -------- Total $ 6,566 $ 4,259 $ 4,827 ======== ======== ========
[Operating revenues, net of estimated returns, are recognized when the product is shipped to the customer or the service is provided.] [The assets and liabilities of non-U.S. subsidiaries are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Operating results are translated at weighted average exchange rates in effect during the period. Net unrealized translation adjustments are recorded as a separate component of stockholders' equity. Foreign currency exchange gains and losses are included in the determination of net loss.] Foreign operations and export sales were not significant for the years ended August 31, 1995, 1994 and 1993. CASH, CASH EQUIVALENTS AND SECURITIES AVAILABLE-FOR-SALE The Company invests its excess cash in U.S. Government securities, certificates of deposit and debt instruments of financial institutions and corporations with strong credit ratings. The Company has established guidelines that maintain safety and liquidity and match maturities to anticipated cash requirements. These guidelines are periodically reviewed and modified to take advantage of trends in yields and interest rates. [All debt securities are classified as available-for-sale and are carried at fair value, with unrealized gains and losses reported in a separate component of stockholders' equity. The cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. The amortization, along with realized gains and losses, interest and dividends are included in interest income. The cost of securities sold is based on the specific identification method.] Gross realized gains on sales of available-for-sale securities totaled $10,000 and $162,000 and gross realized losses totaled $110,000 and $15,000 for the years ended August 31, 1995 and 1994, respectively. Available-for-sale securities are summarized as follows:
August 31, 1995 ---------------------------------------------------------------- Gross Gross unrealized unrealized Estimated (In thousands) Cost gains losses fair value ------------------------------ ---------- ------------- -------------- -------------- Securities of the U.S. government and its agencies $ 11,046 $ -- $ (128) $ 10,918 Corporate debt securities 1,004 -- (9) 995 ---------- ------------- -------------- -------------- Total $ 12,050 $ -- $ (137) $ 11,913 ========== ============= ============== ==============
39
August 31, 1994 ---------------------------------------------------------------- Gross Gross unrealized unrealized Estimated (In thousands) Cost gains losses fair value ------------------------------ ---------- ------------- -------------- -------------- Securities of the U.S. government and its agencies $ 23,659 $ 5 $ (581) $ 23,083 Corporate debt securities 6,162 -- (39) 6,123 ---------- ------------- -------------- -------------- Total $ 29,821 $ 5 $ (620) $ 29,206 ========== ============= ============== ==============
There were no available-for-sale securities with original maturities of three months or less that were classified as cash equivalents at August 31, 1995 or 1994. The amortized cost and estimated fair value of available-for-sale securities, by contractual maturity, are as follows:
August 31, 1995 ------------------------- Estimated (In thousands) Cost fair value ---------------------------- ---------- ------------ Due in one year or less $ 3,004 $ 2,987 Due after one year through five years 4,013 3,981 Mortgage-backed securities 5,033 4,945 ---------- ------------ Total $ 12,050 $ 11,913 ========== ============
Based upon management's intention to hold these securities as available for sale at any time for use in operations, all available-for-sale securities are classified as current even though the actual maturity may extend beyond one year. ACCOUNTS AND NOTES RECEIVABLE Accounts and notes receivable at August 31 are comprised of:
(In thousands) 1995 1994 ---------------------------------- -------- -------- Trade accounts receivable $ 27,902 $ 26,854 Notes and other receivables 2,085 1,275 Receivables from related parties -- 188 -------- -------- 29,987 28,317 Allowance for doubtful accounts (2,585) (3,915) -------- -------- $ 27,402 $ 24,402 ======== ========
At August 31, 1995, the significant concentration of the Company's trade receivables were from farmers located in the United States and various foreign countries whose ability to pay is dependent upon the agribusiness economics prevailing in that specific area of the world. As a result, no significant geographic concentration of credit risk exists. INVENTORIES [Seed inventories, which comprise 86% and 79% of total inventories at August 31, 1995 and 1994, respectively, are stated at the lower of average cost or market. All other inventories are stated at the lower of first-in first-out cost, or market.] 40 Inventories at August 31 are comprised of:
(In thousands) 1995 1994 -------------------------------- -------- -------- Raw materials and supplies $ 5,895 $ 6,564 Work in process 3,578 3,908 Finished goods 24,160 21,242 -------- -------- $ 33,633 $ 31,714 ======== ========
Planting seed is produced by independent growers who contract specific acreage for the production of seed for the Company. The compensation of the independent growers is determined based on yield, contracted acreage and commodity prices. The commitment for grower compensation is accrued as seed is delivered to the Company. The Company's growers select market prices throughout the year to establish selling prices for seed crops grown for the Company. The Company follows a policy, common in the industry, of hedging certain of these seed inventory purchase commitments to minimize risk due to market price fluctuations. [Gains and losses on these contracts are recorded as adjustments to inventory cost when the contracts are closed.] At August 31, 1995, the Company had short-term futures contracts totaling $5.3 million for the purchase of commodities (principally soybean and corn) at various dates during 1996. The fair value of these contracts at August 31, 1995 is $5.7 million. Production of hybrid seed involves various environmental risks. The parental inbred lines which are used in production are more sensitive to adverse conditions than are commercial hybrids grown by farmers. Weather is the most significant variable. Unfavorable weather can adversely affect seed supplies and unit costs. To protect against these risks, the Seed segment maintains multiple production locations spread geographically in addition to maintaining certain levels of inventory that are available for sale during the subsequent planting season. While the Company believes that its inventory values are realizable, risks exist that may render portions of the Company's inventory obsolete or excess. The risk factors include weather and poor planting conditions that may delay, prevent or change the planting of certain crops, U.S. and foreign government policies which can affect crop acreage and farmer income and the introduction of hybrids by competitors that may render the Company's hybrids obsolete. PROPERTY, PLANT AND EQUIPMENT [Property, plant and equipment is recorded at cost. Depreciation is provided using the straight-line method over the estimated useful lives, ranging from 15 to 30 years for buildings and improvements and 3 to 15 years for machinery and equipment. Amortization of leasehold improvements is provided using the straight-line method over the shorter of the life of the respective lease or estimated useful life of the asset.] Property, plant and equipment at August 31 is comprised of:
(In thousands) 1995 1994 ------------------------------ ---------- ---------- Land and improvements $ 5,173 $ 5,334 Buildings and improvements 24,385 21,422 Machinery and equipment 33,627 30,632 Leasehold improvements 646 606 Construction in progress 2,519 2,578 ---------- ---------- 66,350 60,572 Accumulated depreciation and amortization (16,704) (12,035) ---------- ---------- $ 49,646 $ 48,537 ========== ==========
41 INTANGIBLE ASSETS Intangible assets are amortized [using the straight-line method over each asset's estimated useful life ranging from three to twenty-five years.] Intangible assets at August 31 are comprised of:
Useful 1995 ---------------------------------------- Life Accumulated (In thousands) in years Cost Amortization Net Value --------------------------------- -------- -------------- ----------- Goodwill 25 $ 10,342 $ (1,638) $ 8,704 Purchased technology 3-15 5,584 (2,832) 2,752 Patents 10 5,909 (649) 5,260 Non-compete agreement 5-7 2,732 (1,689) 1,043 -------- -------------- ----------- $ 24,567 $ (6,808) $ 17,759 ======== ============== =========== Useful 1994 ---------------------------------------- Life Accumulated (In thousands) in years Cost Amortization Net Value --------------------------------- -------- -------------- ----------- Goodwill 25 $ 9,769 $ (1,221) $ 8,548 Purchased technology 15 7,315 (2,334) 4,981 Patents 10 4,101 (342) 3,759 Non-compete agreement 5 2,050 (1,247) 803 -------- -------------- ----------- $ 23,235 $ (5,144) $ 18,091 ======== ============== ===========
Effective in 1995, the Company elected the early adoption of Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." In accordance with the Statement, prior period financial statements have not been restated to reflect the change in accounting principle. An impairment loss of $1.6 million was recognized by the Crop Protection segment during 1995, reducing the carrying amount of a paid- up, royalty-free, non-exclusive license included in purchased technology to its fair value as a result of the discontinuation of a certain product development program. The fair value was determined using discounted cash flow projections for this product. The impairment loss is included in amortization expense in the Statement of Operations. [The carrying value of intangible assets are reviewed upon a change in market conditions or business strategy. If the projected net cash flows from product revenues, royalty or license income at that time are less than the carrying value of the intangible asset, a charge for impairment is recognized to reduce the carrying value of the intangible asset to its fair value.] OTHER ASSETS The Company has an exclusive manufacturing agreement through 2010 for certain of its biopesticide products. Under the terms of the agreement, the Company will pay for the actual cost of manufacturing, excluding depreciation, plus a fee based on the actual number of units produced. Additionally, the Company has paid $10.9 million to the manufacturer to fund the construction of a manufacturing facility. This payment has been classified as an other asset which is being amortized over the life of the agreement. Accumulated amortization at August 31, 1995 and amortization expense in 1995 both totaled $284,000. 42 LINE OF CREDIT The Company has available a $25 million unsecured revolving bank line of credit, of which no amounts were outstanding at August 31, 1995 and 1994. This line, which expires November 30, 1995, provides for short-term borrowings in U.S. dollars at the bank's prime rate (8.75% at August 31, 1995) plus .5% or in Eurodollars at an adjusted Eurodollar rate (5.875% at August 31, 1995) plus 2%. On an annual basis, the Company is required to pay a fee of .1% of the total commitment and a commitment fee of .25% on the unused portion. The credit agreement contains certain covenants which include the maintenance of a minimum consolidated net worth, maintenance of certain financial ratios, certain limitations on the incurrence of indebtedness or liens on the Company's assets and maintenance of a minimum cash, cash equivalent and securities available-for- sale balance of $10 million. LONG-TERM LIABILITIES Long-term liabilities (amounts due after one year) at August 31 are as follows:
(In thousands) 1995 1994 ---------------------------------------- -------- -------- Unsecured note payable to bank, variable interest at bank's daily reference rate (8.75% at August 31, 1995), due in monthly installments through 2001 $ 2,262 $ -- Pension and other liabilities 1,767 2,547 -------- -------- 4,029 2,547 Less current portion included in other (738) (1,340) current liabilities -------- -------- Total long-term liabilities $ 3,291 $ 1,207 ======== ========
The note payable matures $357,000 per year through 2001. The note contains covenants which include certain limitations on the incurrence of indebtedness or liens on the Company's assets and the maintenance of a minimum consolidated net worth, cash flow and profitability. The Company is also required to maintain a minimum cash, cash equivalents and securities available-for-sale balance of $10 million. RETIREMENT PLANS The Company has a tax deferred retirement and savings plan under Section 401(k) of the Internal Revenue Code whereby eligible employees may defer up to 20% of their gross pay through payroll deductions and contribute it to the plan. The Company has the option to match a portion of the savings contributions as prescribed in the plan not to exceed 3% of gross pay. The Company's Board of Directors has authorized matching contributions through December 1995 not to exceed 3% of gross pay. Matching contributions during the years ended August 31, 1995 and 1994 totaled $531,000 and $489,000, respectively. No matching contributions were made during the year ended August 31, 1993. Effective January 1, 1994, MPS' 401(k) plan was combined with the Company's 401(k) plan. During 1993 the Company's matching contributions to the MPS plan totaled $267,000. COMMITMENTS At August 31, 1995, the Company had operating lease commitments on certain premises, machinery and office equipment which expire at various dates through 2010. Minimum future commitments under non-cancelable lease agreements having terms in excess of one year total: 1996, $428,000; 1997, $345,000; 1998, $242,000; 1999, $228,000; 2000, $203,000 and thereafter, $640,000. The Company also leases equipment and other facilities on a month-to-month basis. Rent expense under operating leases totaled $2.0 million, $1.8 million, and $1.4 million for years ended 1995, 1994 and 1993, respectively. 43 The Company maintains an unsecured irrevocable standby letter of credit which secures the Company's workers compensation self insurance retention. At August 31, 1995 the outstanding obligation was $281,000. NET LOSS PER COMMON SHARE [Net loss per common share is determined by deducting dividends on preferred stock from net loss and dividing the net result by the weighted average number of common shares outstanding during the year. Common shares issuable under common stock equivalents and convertible preferred stock are not included in the computation of net loss per common share because their effect was not dilutive.] STOCK INCENTIVE PLANS Directors and key employees have been issued Mycogen stock options under the Company's 1992 and 1983 Stock Option Plans, as amended. Information about the status of the plans is presented below:
Shares Average Price ---------------------------- Balance at August 31, 1992 1,837,729 $ 11.47 Granted 1,254,500 $ 12.04 Exercised (163,397) $ 7.52 Canceled (60,012) $ 13.76 -------------- Balance at August 31, 1993 2,868,820 $ 11.90 Granted 158,500 $ 10.66 Exercised (51,037) $ 9.28 Canceled (175,164) $ 12.95 -------------- Balance at August 31, 1994 2,801,119 $ 11.81 Granted 3,208,103 $ 8.63 Exercised (14,193) $ 7.92 Canceled (2,687,843) $ 12.00 -------------- Balance at August 31, 1995 3,307,186 $ 8.59 ==============
In December 1994 the Company, at the election of the option holder, repriced 2,209,603 outstanding options through cancellation of options with an average exercise price of $12.62 and a regrant of new options at an exercise price of $8.50. The new options vest in equal monthly installments over a new 36-month period measured from December 1994. Of the 3,307,186 outstanding options, 876,710 were exercisable at August 31, 1995. As of August 31, 1995, a total of 4,413,441 shares of common stock were reserved for future issuance under the plans and 1,106,255 shares of common stock were available for future grants. Pursuant to the Company's 1990 Restricted Stock Issuance Plan, officers were awarded a total of 96,500 and 35,000 shares of restricted stock in 1995 and 1993, respectively. As of August 31, 1995, a total of 123,500 shares of common stock were reserved for future issuance under the plan. Compensation expense related to these stock plans was $148,000, $396,000 and $521,000 in 1995, 1994 and 1993, respectively. Unamortized deferred compensation expense with respect to restricted stock issued aggregated $837,000 and $143,000 at August 31, 1995 and 1994, respectively. Pursuant to the Company's 1988 Employee Stock Purchase Plan, employees purchased 42,334 shares at an average price of $7.65 per share, 53,264 shares at an average price of $8.74 per share and 44,220 shares at an average price of $10.75 per share in 1995, 1994 and 1993, respectively. As of August 31, 1995, there were 187,761 shares of common stock reserved for future issuance under the Plan. 44 STOCKHOLDER RIGHTS PLAN In February 1992, the Company adopted a Stockholder Rights Plan, which has been amended since 1992. The Plan provides for the distribution of a preferred stock purchase right (a "Right") as a dividend for each share of the Company's common stock held of record immediately prior to a third party tendering to purchase 25% or more of the Company's common stock. Under certain conditions involving an acquisition by any person or group of 25% or more of the Company's common stock, the Rights permit the holders (other than the 25% holder) to purchase the Company's common stock at a 50% discount upon payment of an exercise price per Right. In addition, in the event of certain business combinations, the Rights permit the purchase of the common stock of an acquirer at a 50% discount. Special provisions permit Lubrizol to maintain its equity interest in the Company and to convert the shares of Series A preferred stock and Lubrizol's remaining interest in MPS into the Company's common stock without triggering the Rights. Under certain conditions, the Rights may be redeemed by the Board of Directors at a price of $.01 per Right. The Rights have no voting privileges and are attached to and automatically trade with the Company's common stock. Unless extended, the Rights will expire on March 6, 2002. SENIOR CONVERTIBLE CUMULATIVE PREFERRED STOCK, SERIES A In connection with the formation of MPS in 1992, the Company issued shares of Series A preferred stock with a par value of $.001 per share to Lubrizol. At August 31, 1995 Lubrizol owned 3,100 shares of Series A preferred stock. The Series A preferred stock has a liquidation preference over the Company's common stock of $10,000 per share plus all accrued but unpaid dividends. Dividends are cumulative and are payable quarterly at the rate of 5% through November 1996, 8.5% from November 1996 through November 2000 and the higher of 10% or prime plus 3% per annum thereafter. The dividends are payable in additional shares of Series A preferred stock through November 1997 and, thereafter, in cash. Each share of preferred stock is convertible into the Company's common stock at the lower of $17.96 per share (or approximately 557 shares) or 25% over the average closing price of the Company's common stock for the 60 days prior to conversion. The Company has reserved up to 1,998,301 shares of common stock, which represents the maximum number of shares that could be issued upon conversion. The Series A preferred stock does not have voting privileges. During 1994 the Company redeemed $10 million of the Series A preferred stock under a mandatory redemption feature. Effective December 31, 1993 all future mandatory redemptions have been eliminated and the preferred stock was reclassified and reported as a component of Stockholders' Equity. The Company is required to maintain certain leverage and liquidity ratios. The changes in the number of shares of preferred stock issued and the aggregate liquidation preference are as follows:
Aggregate Number of Liquidation (In thousands except share data) Shares Preference ----------------------------------- ------------- ----------------- Balance at August 31, 1993 4,089 $ 40,897 Preferred stock dividend accrual 161 1,604 Redemption (1,000) (10,000) Preferred stock returned (300) (3,000) ------------- ----------------- Balance at August 31, 1994 2,950 29,501 Preferred stock dividend accrual 150 1,503 ------------- ----------------- Balance at August 31, 1995 3,100 $ 31,004 ============= =================
45 CONTRACT AND OTHER REVENUES [Research and other contract revenues are recorded as earned based on the percentage of completion basis or on the performance requirements of the contracts. Payments in excess of amounts earned are deferred. Research costs are expensed as incurred.] Costs and expenses related to research contracts totaled $3.0 million, $4.7 million and $3.5 million in 1995, 1994 and 1993, respectively. RELATED PARTY TRANSACTIONS At August 31, 1995, Lubrizol owned 6,134,067 shares, or 31.6%, of the Company's outstanding common stock, as well as shares of preferred stock which, at August 31, 1995 were convertible into 1,726,295 shares of the Company's common stock. In December 1992, MPS entered into a Technology and Development Agreement, as amended and restated, with Lubrizol pursuant to which Lubrizol will provide to MPS a minimum of $4.6 million of funding from September 1995 through December 1998 for research and development projects related to planting seeds that yield plants capable of producing oils with special characteristics. In exchange, MPS has granted to Lubrizol an exclusive, perpetual, worldwide, royalty-free license to such planting seeds developed or acquired by MPS. Lubrizol is free to commercialize such plants and byproducts for any purpose other than as pesticides and human and animal pharmaceuticals, which restriction will remain in place for a period of ten years after Lubrizol ceases to provide at least $1 million of annual funding to MPS. Related party research revenues under these agreements totaled $2.6 million, $3.3 million and $2.8 million in 1995, 1994 and 1993, respectively. MPS is the exclusive supplier of specified planting seed to a division of Lubrizol and manages the production of crops from such planting seed. Related party operating revenues recognized under this arrangement totaled $2.5 million, $1.9 million and $4.5 million in 1995, 1994 and 1993, respectively. SPECIAL CHARGES In connection with the acquisitions of ownership interests in MPS in 1994 and 1993, $26.6 million and $21.6 million, respectively, of the purchase price was allocated to certain technologies not yet completed and, therefore, was written-off as in-process technology as of the respective acquisition dates. In August 1993, the Company restructured certain functional areas. Four separate seed divisions were merged, consolidating a number of overlapping sales territories. Also, biopesticide development and plant science and breeding programs were combined to focus on new, technology-based products. This restructuring resulted in charges totaling $2.1 million during 1993 which principally related to severance and relocation. In December 1993, the Company also decided to consolidate certain manufacturing locations and eliminate certain brand names and hybrids. This resulted in additional restructuring charges during 1994 of $9.8 million for excess and obsolete inventories, plant shut-down and the termination of MPS's pension plan. INCOME TAXES The Company accounts for income taxes under the liability method required by FASB Statement No. 109, "Accounting for Income Taxes." For federal and state income tax purposes, the Company changed its year-end from December 31 to August 31 to conform with the consolidated financial statements. Certain 1994 and 1993 tax amounts have been restated to conform with the 1995 presentation. At August 31, 1995, the Company has a federal tax net operating loss carryforward of approximately $51 million and a California net operating loss carryforward of approximately $13 million. The Company has federal and state research tax credit carryforwards totaling approximately $2.9 million and $.5 million, respectively. The federal tax loss and credit carryforwards will expire in years 1997 through 2011 unless previously utilized. California tax loss and credit carryforwards, if not utilized, will expire in years 1997 through 2000. 46 Foreign taxable income has been eliminated through the use of net operating losses in the countries where the income was generated. The Company incurred a change in ownership, as defined by Internal Revenue Code Section 382, during 1992. Such change of ownership could limit the use in any one year of the full amount of the net operating loss and tax credit carryforwards previously described. However, the Company believes that the limitation will not have a material impact upon the utilization of its carryforwards. The Company's use of its net operating loss and tax credit carryforwards could be further limited in the event of future cumulative changes in stock ownership. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of August 31 are as follows:
(In thousands) 1995 1994 ---------------------------------------- --------- --------- Deferred tax assets: Net operating loss carryforwards $ 18,761 $ 10,933 Research credit carryforwards 3,418 3,408 Tax basis of inventory greater than 2,787 3,026 book Capitalized research expenditures 2,571 4,031 Tax basis of receivables greater than 1,177 1,320 book Other items with tax basis greater 2,382 1,769 than book --------- --------- Total deferred tax assets 31,096 24,487 Less: Valuation allowance (30,499) (23,641) --------- --------- Net deferred tax assets 597 846 Net deferred tax liabilities (597) (846) --------- --------- Net deferred taxes $ -- $ -- ========= =========
Due to the uncertainty surrounding the future realization of the deferred tax assets, a valuation allowance of $30.5 million was recorded at August 31, 1995 against deferred tax assets. For financial reporting purposes, net income (loss) before dividends on preferred stock for the years ended August 31 includes the following components:
(In thousands) 1995 1994 1993 ----------------------- --------- --------- --------- Pretax income (loss): United States $ (17,785) $ (29,474) $ (25,549) Foreign 3,342 (2,156) (468) --------- --------- --------- $ (14,443) $ (31,630) $ (26,017) ========= ========= =========
The reconciliation of income tax attributable to continuing operations computed at the U.S. federal statutory tax rates to income tax expense for the years ended August 31 is:
1995 1994 1993 ---------- ---------- ---------- Tax at U.S. statutory rate 35% 35% 35% Effect of net operating losses (35%) (35%) (35%) ---------- ---------- ---------- 0% 0% 0% ========== ========== ==========
47 SUBSEQUENT EVENT In September 1995, the Company signed a letter of intent for a technology and development collaboration with Pioneer to develop transgenic crops with built-in insect resistance. Under the agreement, Pioneer will provide $30 million to purchase three million shares of the Company's common stock and $21 million in research and development funding over the next five years. Pioneer will receive non-exclusive rights to all Bt crop protection technology and associated technologies owned or developed by the Company during the next 10 years. The Company and Pioneer will be able to market their own products resulting from the collaboration, royalty-free, in North America. Pioneer will pay a royalty to Mycogen for jointly developed products that it markets outside of North America. The Company will have exclusive worldwide rights to license jointly developed technology to third parties. No proprietary seed lines will be shared by the companies. The transaction is subject to completion of definitive agreements. 48 MYCOGEN CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED AUGUST 31, 1995 AND 1994 (IN THOUSANDS)
- --------------------------------------------------------------------------------------------------- Balance at Charged to Charged to Balance at beginning costs and other end of Description of period expenses accounts Deductions period - ---------------------------------------------------------------------------------------------------- Year ended August 31, 1995 - -------------------------- Allowance for doubtful accounts $ 3,915 $ 292 $ -- $ (1,622)/1/ $ 2,585 Inventory allowances $ 2,099 $ 4,602 $ -- $ (2,413)/2/ $ 4,288 Year ended August 31, 1994 - -------------------------- Allowance for doubtful accounts $ 915 $ 3,179 $ -- $ (179)/1/ $ 3,915 Inventory allowances $ 3,108 $14,679 $ -- $(15,688)/2/ $ 2,099
/1/ Amount relates to account receivable written off. /2/ Amount relates to inventory that was written off. 49 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Stockholders Mycogen Corporation We have audited the accompanying consolidated balance sheets of Mycogen Corporation as of August 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended August 31, 1995. Our audit also included the financial statement schedule listed in the Index at Item 14(a). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Mycogen Corporation at August 31, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended August 31, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth herein. Ernst & Young LLP San Diego, California October 17, 1995 50 COPIES OF FORM 10-K Shareowners may reach Mycogen's Investor Relations group by calling (800) 745- 7475. To obtain a copy of Mycogen Corporation's Form 10-K filed with the Securities and Exchange Commission or other company information, please call between the hours of 7:30 a.m. and 4:30 p.m., PST/PDT, or write: Investor Relations Mycogen Corporation 5501 Oberlin Drive San Diego, CA 92121 or send a telefax message to: (619) 453-5494 ANNUAL MEETING The Annual Meeting of Mycogen Corporation will be held at 10 a.m. on December 14, 1995, in the Corn Conference room at the Company's headquarters located at 5501 Oberlin Drive, San Diego, CA. All shareowners are cordially invited to attend. 53 MYCOGEN CORPORATION QUARTERLY FINANCIAL DATA (UNAUDITED) The Company has elected to report quarterly financial data for fiscal year 1995 as a result of the change in fiscal year end. The new fiscal quarters end in November, February, May and August.
(In thousands, except per share data) Quarter ------------------------------------------------------------------------------- First Second Third Fourth 1995: Net operating revenues $ 9,509 $27,661 $55,869 $ 13,130 Contract and other revenues 1,896 1,715 1,971 1,467 Cost of operating expenses 6,245 16,997 36,529 11,214 Operating expenses 12,704 13,589 14,035 17,422 Operating income (loss) (7,544) (1,210) 7,276 (14,039) Non-operating income 529 371 63 111 Dividends on preferred stock 369 373 378 383 Net income (loss) (7,384) (1,212) 6,961 (14,311) Net income (loss) per common share (.39) (.06) .36 (.74)
52 EX-21.8 2 ART. OF INC. (CROP) EXHIBIT 21.8 MYCOGEN CROP PROTECTION, INC., A CALIFORNIA CORPORATION 54 ARTICLES OF INCORPORATION OF MYCOGEN CROP PROTECTION, INC. The undersigned Incorporator hereby executes, acknowledges and files the following ARTICLES OF INCORPORATION for the purpose of forming a corporation (the "Corporation") under the General Corporation Law of the State of California. ARTICLE I --------- The name of the Corporation is Mycogen Crop Protection, Inc. ARTICLE II ---------- The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. ARTICLE III ----------- The name and address in the State of California of the Corporation's initial agent for service of process in accordance with Section 202(c) of the General Corporation Law is: Carlton J. Eibl 5501 Oberlin Drive San Diego, CA 92121 ARTICLE IV ---------- The Corporation is authorized to issue only one class of shares, and the total number of shares which the Corporation is authorized to issue is 1,000,000. ARTICLE V --------- (a) The liability of the directors of the Corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. (b) The Corporation is authorized to indemnify the directors and officers of the Corporation to the fullest extent permissible under California law. 55 (c) The Corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) with respect to actions for breach of duty to the Corporation and its shareholders through bylaw provisions, vote of Stockholders or disinterested directors or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the California Corporations Code, subject only to the applicable limits on such excess indemnification set forth in Section 204 of the California Corporations Code. IN WITNESS WHEREOF, the undersigned Incorporator of the Corporation has executed these Articles of Incorporation on July 5, 1995. /s/ LOREEN P. COLLINS ------------------------------- Loreen P. Collins, Incorporator ACKNOWLEDGMENT -------------- I hereby declare that I am the person who executed the foregoing Articles of Incorporation, which execution is my own act and deed. Executed on July 5, 1995. /s/ LOREEN P. COLLINS --------------------------------- Loreen P. Collins, Incorporator 56 BYLAWS OF MYCOGEN CROP PROTECTION, INC. ARTICLE I - OFFICES ------------------- 1.1 PRINCIPAL EXECUTIVE OFFICE. The principal executive offices of Mycogen -------------------------- Crop Protection, Inc., a California corporation (the "Corporation"), shall be at such place, inside or outside, the State of California as the Board of Directors of the Corporation (the "Board") may determine from time to time. 1.2 OTHER OFFICES. The Corporation may also have offices at such other ------------- places as the Board may from time to time designate, or as the business of the Corporation may require . ARTICLE II - SHAREHOLDERS' MEETINGS ----------------------------------- 2.1 ANNUAL MEETINGS. The annual meeting of the Shareholders of the --------------- Corporation (the "Shareholders", or individually a "Shareholder") for the election of Directors of the Corporation (the "Directors", or individually a "Director") to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting shall be held between thirty (30) and one hundred, twenty (120) days following the end of the fiscal year of the Corporation (the first such meeting to be held after the end of fiscal year 1995 of the Corporation) and at such place as may be determined by the Board. If the annual meeting of the Shareholders is not held as herein prescribed, the election of Directors may is held at any meeting thereafter called pursuant to these Bylaws of the Corporation (the "Bylaws"). 57 2.2 SPECIAL MEETINGS. Special meetings of the Shareholders, for any purpose ---------------- whatsoever, unless otherwise prescribed by statute, may be called at any time by the chairman of the board of the Corporation (the "Chairman"), the president of the Corporation (the "President"), or by the Board, or by one or more Shareholders holding not less than ten percent (10%) of the voting power of the Corporation. 2.3 PLACE. All meetings of the Shareholders shall be at any place within or ----- without the State of California designated either by the Board or by written consent of the holders of a majority of the shares entitled to vote thereat, given either before or after the meeting. In the absence of any such designation, Shareholders' meetings shall be held at the principal executive office of the Corporation. 2.4 NOTICE. Notice of meetings of the Shareholders shall be given in writing ------ to each Shareholder entitled to vote, either personally or by first-class mail (unless the Corporation has five hundred (500) or more Shareholders determined as provided by the California Corporations Code on the record date for the meeting, in which case notice may be sent by third-class mail) or other means of written communication, charges prepaid, addressed to the Shareholder at the Shareholder's address appearing on the books of the Corporation or given by the Shareholder to the Corporation for the purpose of notice. Notice of any such meeting of Shareholders shall be sent to each Shareholder entitled thereto not less than ten (10) (or, if sent by third-class mail, thirty (30)) nor more than sixty (60) days before the meeting. Said notice shall state the place, date and hour of the meeting and, (a) in the case of special meetings, the general nature of the business to be transacted, and no other business may be transacted, or (b) in the case of annual meetings, 58 those matters which the Board, at the time of the mailing of the notice, intends to present for action by the Shareholders, but subject to Section 601(f) of the California Corporations Code, any proper matter may be presented at the meeting for Shareholder action, and (c) in the case of any meeting at which Directors are to be elected, the names of the nominees intended at the time of the mailing of the notice to be presented by management for election. 2.5 ADJOURNED MEETINGS. Any Shareholders' meeting may be adjourned from time ------------------ to time by the vote of the holders of a majority of the voting shares present at the meeting either in person or by proxy. Notice of any adjourned meeting need not be given unless a meeting is adjourned for forty-five (45) days or more from the date set for the original meeting. 2.6 QUORUM. The presence in person or by proxy of the persons entitled to ------ vote a majority of the shares entitled to vote at any meeting constitutes a quorum for the transaction of business. The Shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough Shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. In the absence of a quorum, any meeting of Shareholders may be adjourned from time to time by the vote of a majority of the shares, the holders of which are either present in person or represented by proxy thereat, but no other business may be transacted, except as provided above. 59 2.7 CONSENT TO SHAREHOLDER ACTION. Any action which may be taken at any ----------------------------- meeting of Shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted; provided, however, that (a) unless the consents of all Shareholders entitled to vote have been solicited in writing, notice of any Shareholder approval without a meeting by less than unanimous written consent shall be given as required by the California Corporations Code, and (b) Directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of Directors. Any written consent may be revoked by a writing received by the Secretary of the Corporation (the "Secretary") prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the Secretary. 2.8 WAIVER OF NOTICE. The transactions of any meeting of Shareholders, ---------------- however called and noticed, and whenever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy, signs a written waiver of notice, or a consent to the holding of the meeting, or an approval of the minutes thereof. All such waivers, consents, or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. 2.9 VOTING. The voting at all meetings of Shareholders need not be by ------ ballot, but any qualified Shareholder before the voting begins may demand a stock vote whereupon such 60 stock vote shall be taken by ballot, each of which shall state the name of the Shareholder voting and the number of shares voted by such Shareholder, and if such ballot be cast by a proxy, it shall also state the name of any such proxy. At any meeting of the Shareholders, every Shareholder having the right to vote shall be entitled to vote in person, or by proxy appointed in a writing subscribed by such Shareholder and bearing a date not more than eleven (11) months prior to said meeting, unless the writing states that it is irrevocable and satisfies Section 705(e) of the California Corporations Code, in which event it is irrevocable for the period specified in said writing and said Section 705(e). 2.10 RECORD DATES. In the event the Board fixes a day for the determination ------------ of Shareholders of record entitled to vote as provided in Section 5.1 of Article V of these Bylaws, then, subject to the provisions of the General Corporation Law of the State of California only persons in whose name shares entitled to vote stand on the stock records of the Corporation at the close of business on such day shall be entitled to vote. If no record date is fixed, (a) the record date for determining Shareholders entitled to notice of or to vote at a meeting of Shareholders shall be at the close of business on the business day next preceding the day notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; (b) the record date for determining Shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board is necessary, shall be the day on which the first written consent is given; and (c) the record date for determining Shareholders for any other purpose shall be at the close of business on the day on which 61 the Board adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later. A determination of Shareholders of record entitled to notice of or to vote at a meeting of Shareholders shall apply to any adjournment of the meeting unless the Board fixes a new record date for the adjourned meeting, but the Board shall fix a new record date if the meeting is adjourned for more than forty-five (45) days. 2.11 CUMULATIVE VOTING FOR ELECTION OF DIRECTORS. Provided the candidate's ------------------------------------------- name has been placed in nomination prior to the voting and one or more Shareholders has given notice at the meeting prior to the voting of the Shareholder's intent to cumulate the Shareholder's votes, every Shareholder entitled to vote at any election for Directors shall have the right to cumulate such Shareholder's votes and give one candidate a number of votes equal to the number of Directors to be elected multiplied by the number of votes to which the Shareholder's shares are normally entitled, or distribute the Shareholder's votes on the same principle among as many candidates as the Shareholder shall think fit. The candidates receiving the highest number of votes of the shares entitled to be voted for them up to the number of Directors to be elected by such shares are elected. ARTICLE III - DIRECTORS ----------------------- 3.1 POWERS. Subject to any limitations in the Articles of Incorporation of ------ the Corporation dated July 5, 1995 (the "Articles of Incorporation") or these Bylaws and to any provision of the California Corporations Code requiring Shareholder authorization or approval for a particular action, the business and affairs of the Corporation shall be managed and all corporate powers shall be exercised by, or under the direction of, the 62 Board. The Board may delegate the management of the day-to-day operation of the business of the Corporation to a management company or other person provided that the business and affairs of the Corporation shall be managed and all corporate powers shall be exercised, under the ultimate direction of the Board. 3.2 NUMBER, TENURE AND QUALIFICATIONS. The authorized number of Directors of --------------------------------- this Corporation shall be two (2) until changed by a duly adopted resolution of the Board or the Shareholders. Directors shall hold office until the next annual meeting of Shareholders and until their respective successors are elected. If any such annual meeting is not held, or the Directors are not elected thereat, the Directors may be elected at any special meeting of Shareholders held for that purpose. Directors need not be Shareholders. 3.3 REGULAR MEETINGS. A regular annual meeting of the Board shall be held ---------------- without other notice than this Bylaw immediately after, and at the same place as, the annual meeting of Shareholders. The Board may provide for other regular meetings from time to time by resolution. 3.4 SPECIAL MEETINGS. Special meetings of the Board may be called at any ---------------- time by the Chairman, the President, any Vice President, the Secretary, or both Directors. Written notice of the time and place of all special meetings of the Board shall be delivered personally or by telephone or telegraph to each Director at least forty-eight (48) hours before the meeting, or sent to each Director by first-class mail, postage prepaid, at least four (4) days before the meeting. Such notice need not specify the purpose of the meeting. Notice of any meeting of the Board need not be given to any Director who signs 63 a waiver of notice, whether before or after the meeting, or who attends the meeting without protesting prior thereto, or at its commencement, the lack of notice to such Director. 3.5 PLACE OF MEETINGS. Meetings of the Board may be held at any place within ----------------- or without the State of California, which has been designated in the notice, or if not stated in the notice or there is no notice, the principal executive office of the Corporation or as designated by the resolution duly adopted by the Board. 3.6 PARTICIPATION BY TELEPHONE. Members of the Board may participate in a -------------------------- meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. 3.7 QUORUM. A majority of the Directors, or both Directors, if there are ------ only two Directors, or one Director, if there is only one Director, shall constitute a quorum. In the absence of a quorum, a majority of the Directors present may adjourn any meeting to another time and place. If a meeting is adjourned for more than twenty-four (24) hours, notice of any adjournment to another time or place shall be given prior to the time of the reconvened meeting to the Directors who were not present at the time of adjournment. 3.8 ACTION AT MEETING. Every act or decision done or made by a majority of ----------------- the Directors present at a meeting duly held at which a quorum is present is the act of the Board. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of Directors, if any action taken is approved by at least a majority of the required quorum for such meeting. 64 3.9 WAIVER OF NOTICE. The transactions of any meeting of the Board, however ---------------- called and noticed or wherever held, are as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the Directors not present signs a written waiver of notice, a consent to holding the meeting, or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. 3.10 ACTION WITHOUT MEETING. Any action required or permitted to be taken by ---------------------- the Board may be taken without a meeting, if all members of the Board individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board. Such action by written consent shall have the same force and effect as a unanimous vote of such Directors. 3.11 REMOVAL. The Board may declare vacant the office of a Director who has ------- been declared of unsound mind by an order of court or who has been convicted of a felony. The entire Board or any individual Director may be removed from office without cause by a vote of Shareholders holding a majority of the outstanding shares entitled to vote at an election of Directors; provided, however, that unless the entire Board is removed, no individual Director may be removed when the votes cast against removal, or not consenting in writing to such removal, would be sufficient to elect such Director if voted cumulatively at an election at which the same total number of votes cast were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of Directors authorized at the time of the Director's most recent election were then being elected. In the event an office of a Director is so declared vacant or in 65 case the Board or any one or more Directors be so removed, new Directors may be elected at the same meeting. 3.12 RESIGNATIONS. Any Director may resign effective upon giving written ------------ notice to the Chairman, the President, the Secretary or the Board, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective. 3.13 VACANCIES. Except for a vacancy created by the removal of a Director, --------- all vacancies in the Board, whether caused by resignation, death or otherwise, may be filled by a majority of the remaining Directors, though less than a quorum, or by a sole remaining Director, and each Director so elected shall hold office until his successor is elected at an annual, regular or special meeting of the Shareholders. Vacancies created by the removal of a Director may be filled only by approval of the Shareholders. The Shareholders may elect a Director at any time to fill any vacancy not filled by the Directors. Any such election by written consent requires the consent of a majority of the outstanding shares entitled to vote. 3.14 COMPENSATION. No stated salary shall be paid Directors, as such, for ------------ their services, but, by resolution of the Board, a fixed sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of such Board; provided that nothing herein contained shall be construed to preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. 66 3.15 COMMITTEES. The Board may, by resolution adopted by a majority of the ---------- authorized number of Directors, designate one or more committees, each consisting of two (2) or more Directors, to serve at the pleasure of the Board. The Board may designate one or more Directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of Directors. Any such committee, to the extent provided in the resolution of the Board, shall have all the authority of the Board in the management of the business and affairs of the Corporation, except with respect to (a) the approval of any action requiring Shareholders' approval or approval of the outstanding shares, (b) the filling of vacancies on the Board or any committee, (c) the fixing of compensation of Directors for serving on the Board or a committee, (d) the adoption, amendment or repeal of Bylaws, (e) the amendment or repeal of any resolution of the Board which by its express terms is not so amendable or repealable, (f) a distribution to Shareholders, except at a rate or in a periodic amount or within a price range determined by the Board, and (g) the appointment of other committees of the Board or the members thereof. ARTICLE IV - OFFICERS --------------------- 4.1 NUMBER AND TERM. The officers of the Corporation shall be a President, a --------------- Secretary, an Assistant Secretary and a Chief Financial Officer, all of which shall be chosen by the Board. In addition, the Board may appoint a Chairman of the Board, one or more Vice Presidents and such other officers as may be deemed expedient for the proper conduct of the business of the Corporation, each of whom shall have such authority and 67 perform such duties as the Board may from time to time determine. The officers to be appointed by the Board shall be chosen annually at the regular meeting of the Board held after the annual meeting of Shareholders and shall serve at the pleasure of the Board. If officers are not chosen at such meeting of the Board, they shall be chosen as soon thereafter as shall be convenient. Each officer shall hold office until his successor shall have been duly chosen or until his removal or resignation. 4.2 INABILITY TO ACT. In the case of absence or inability to act of any ---------------- officer of the Corporation and of any person herein authorized to act in his place, the Board may from time to time delegate the powers or duties of such officer to any other officer, or any Director or other person whom it may select. 4.3 REMOVAL AND RESIGNATION. Any officer chosen by the Board may be removed ----------------------- at any time, with or without cause, by the affirmative vote of a majority of all the members of the Board. Any officer chosen by the Board may resign at any time by giving written notice of said resignation to the Corporation. Unless a different time is specified therein, such resignation shall be effective upon its receipt by the Chairman, the President, the Secretary or the Board. 4.4 VACANCIES. A vacancy in any office for any cause may be filled by the --------- Board for the unexpired portion of the term. 4.5 CHAIRMAN OF THE BOARD. The Chairman shall preside at all meetings of the --------------------- Board. 4.6 PRESIDENT. The President shall be the general manager and chief --------- executive officer of the Corporation, subject to the control of the Board, and as such shall preside at all meetings of Shareholders, shall have general supervision of the affairs of the Corporation, 68 shall sign or countersign or authorize another officer to sign all certificates, contracts, and other instruments of the Corporation as authorized by the Board, shall make reports to the Board and Shareholders, and shall perform all such other duties as are incident to such office or are properly required by the Board. 4.7 VICE PRESIDENT. In the absence of the President, or in the event of such -------------- officer's death, disability or refusal to act, the Vice President, or in the event there be more than one Vice President, the Vice Presidents in the order designated at the time of their selection, or in the absence of any such designation, then in the order of their selection, shall perform the duties of President, and when so acting, shall have all the powers and be subject to all restrictions upon the President. Each Vice President shall have such powers and discharge such duties as may be assigned from time to time by the President or by the Board. 4.8 SECRETARY. The Secretary shall see that notices for all meetings are --------- given in accordance with the provisions of these Bylaws and as required by law, shall keep minutes of all meetings, shall have charge of the seal and the corporate books, and shall make such reports and perform such other duties as are incident to such office, or as are properly required by the President or by the Board. The Assistant Secretary or the Assistant Secretaries, in the order of their seniority, shall, in the absence or disability of the Secretary, or in the event of such officer's refusal to act, perform the duties and exercise the powers and discharge such duties as may be assigned from time to time by the President or by the Board. 69 4.9 CHIEF FINANCIAL OFFICER. The Chief Financial Officer may also be ----------------------- designated by the alternate title of "Treasurer." The Chief Financial Officer shall have custody of all moneys and securities of the Corporation and shall keep regular books of account. Such officer shall disburse the funds of the Corporation in payment of the just demands against the Corporation, or as may be ordered by the Board, taking proper vouchers for such disbursements, and shall render to the Board from time to time as may be required of such officer, an account of all transactions as Chief Financial Officer and of the financial condition of the Corporation. Such officer shall perform all duties incident to such office or which are properly required by the President or by the Board. The Assistant Chief Financial Officer or the Assistant Chief Financial Officers, in the order of their seniority, shall, in the absence or disability of the Chief Financial Officer, or in the event of such officer's refusal to act, perform the duties and exercise the powers of the Chief Financial Officer, and shall have such powers and discharge such duties as may be assigned from time to time by the President or by the Board. 4.10 SALARIES. The salaries of the officers shall be fixed from time to time -------- by the Board and no officer shall be prevented from receiving such salary by reason of the fact that such officer is also a Director of the Corporation. 4.11 OFFICERS HOLDING MORE THAN ONE OFFICE. Any two or more offices may be ------------------------------------- held by the same person. 70 ARTICLE V - MISCELLANEOUS ------------------------- 5.1 RECORD DATE AND CLOSING OF STOCK BONDS. The Board may fix a time in the -------------------------------------- future as a record date for the determination of the Shareholders entitled to notice of and to vote at any meeting of Shareholders or entitled to receive payment of any dividend or distribution, or any allotment of rights, or to exercise rights in respect to any other lawful action. The record date so fixed shall not be more than sixty (60) nor less than ten (10) days prior to the date of the meeting or event for the purposes of which it is fixed. When a record date is so fixed, only Shareholders of record at the close of business on that date are entitled to notice of and to vote at the meeting or to receive the dividend, distribution, or allotment of rights, or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after the record date. The Board may close the books of the Corporation against transfers of shares during the whole or any part of a period of not more than sixty (60) days prior to the date of a Shareholders' meeting, the date when the right to any dividend, distribution, or allotment of rights vests, or the effective date of any change, conversion or exchange of shares. 5.2 CERTIFICATES. Certificates of stock shall be issued in numerical order ------------ and each Shareholder shall be entitled to a certificate signed in the name of the Corporation by the Chairman or the President or a Vice President, and the Chief Financial Officer, the Secretary or an Assistant Secretary, certifying to the number of shares owned by such Shareholder. Any or all of the signatures on the certificate may be facsimile. Prior to the due presentment for registration of transfer in the stock transfer book of the Corporation, 71 the registered owner shall be treated as the person exclusively entitled to vote, to receive notifications and otherwise to exercise all the rights and powers of an owner, except as expressly provided otherwise by the laws of the State of California. 5.3 REPRESENTATION OF SHARES IN OTHER CORPORATIONS. Shares of other ---------------------------------------------- corporations standing in the name of this Corporation may be voted or represented and all incidents thereto may be exercised on behalf of the Corporation by the Chairman, the President or any Vice President and the Chief Financial Officer or the Secretary or an Assistant Secretary. 5.4 ANNUAL REPORTS. The Annual Report to Shareholders, described in the -------------- California Corporations Code, is expressly waived and dispensed with. 5.5 AMENDMENTS. Bylaws may be adopted, amended, or repealed by the vote or ---------- the written consent of Shareholders entitled to exercise a majority of the voting power of the Corporation. Subject to the right of Shareholders to adopt, amend, or repeal Bylaws, Bylaws may be adopted, amended, or repealed by the Board, except that a Bylaw amendment thereof changing the authorized number of Directors may be adopted by the Board only if these Bylaws permit an indefinite number of Directors and the Bylaw or amendment thereof adopted by the Board changes the authorized number of Directors within the limits specified in these Bylaws. 5.6 INDEMNIFICATION OF CORPORATE AGENTS. The Corporation shall indemnify ----------------------------------- each of its agents against expenses, judgments, fines, settlements and other amounts, actually and reasonably incurred by such person by reason of such person's having been made or having threatened to be made a party to a proceeding to the fullest extent permissible by the 72 provisions of Section 317 of the California Corporations Code. The indemnification provided by this section shall not be deemed exclusive of any rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of Shareholders or disinterested Directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent such additional rights to indemnification are authorized in the Articles of Incorporation of the Corporation. The rights to indemnity hereunder shall continue as to a person who has ceased to be a Director, officer, employee, or agent and shall inure to the benefit of the heirs, executors and administrators of the person. Expenses incurred by a Director in defending a civil or criminal action, suit or proceeding by reason of the fact that he is or was a Director of the Corporation (or was serving at the Corporation's request as a Director or officer of another corporation) shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such Director to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized by relevant sections of the California Corporations Code. 73 I, Loreen P. Collins, Assistant Secretary of Mycogen Crop Protection, Inc., a California corporation, do hereby certify that the foregoing Bylaws of Mycogen Crop Protection, Inc. are the duly adopted Bylaws of said Corporation as they are in effect on the date hereof. IN WITNESS WHEREOF, I have hereunto subscribed my name this 5th day of July, 1995. /s/ LOREEN P. COLLINS -------------------------------------- Loreen P. Collins, Assistant Secretary 74 EX-21.9 3 ART. OF INC. (MYCOGEN) EXHIBIT 21.9 MYCOGEN CALIFORNIA, INC. A CALIFORNIA CORPORATION 75 ARTICLES OF INCORPORATION OF MYCOGEN CALIFORNIA, INC. The undersigned Incorporator hereby executes, acknowledges and files the following ARTICLES OF INCORPORATION for the purpose of forming a corporation (the "Corporation") under the General Corporation Law of the State of California. ARTICLE I --------- The name of the Corporation is "Mycogen California, Inc." ARTICLE II ---------- The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. ARTICLE III ----------- The name and address in the State of California of the Corporation's initial agent for service of process is: Carlton J. Eibl 5501 Oberlin Drive San Diego, California 92121 ARTICLE IV ---------- (A) Classes of Stock. The Corporation is authorized to issue two classes ---------------- of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which this Corporation is authorized to issue is forty-five million (45,000,000) shares. Forty million (40,000,000) shares shall be Common Stock and five million (5,000,000) shares shall be Preferred Stock. The Common Stock shall have a par value of $.001 per share and the Preferred Stock shall have a par value of $.001 per share. (B) Rights, Preferences and Restrictions of Preferred Stock. The ------------------------------------------------------- Preferred Stock authorized by these Articles of Incorporation may be issued from time to time in series. The rights, preferences, privileges, restrictions granted to and imposed on the Senior Redeemable Convertible Preferred Stock, Series A (the "Series A Preferred Stock"), 76 which series consists of Three Thousand Nine Hundred and Forty (3,940) shares, are set forth below in this Article IV(B). Except as to the Series A Preferred Stock, and except as otherwise provided in these Articles of Incorporation, the Board of Directors of the Corporation (the "Board of Directors") is hereby authorized to fix or alter the rights, preferences, privileges and restrictions granted to or imposed upon such additional series of Preferred Stock, and the number of shares constituting any such series and the designation thereof, or any of them. The Board of Directors is also authorized to increase or decrease the number of shares of any series of Preferred Stock, subsequent to the issue of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. The rights, preferences, privileges, restrictions and other matters relating to the Series A Preferred Stock are as follows: 1. Designation. The Series A Preferred Stock shall be perpetual, but may ----------- be redeemed in accordance with the provisions hereof. Shares of Series A Preferred Stock redeemed, purchased, converted or otherwise acquired by the Corporation or any Wholly-Owned Subsidiary (as defined below) shall be cancelled and shall revert to the status of authorized but unissued Preferred Stock of the Corporation undesignated as to series. 2. Dividends. --------- (a) Holders of shares of Series A Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors or a duly authorized committee thereof, out of funds legally available for the payment of dividends (after taking into account any increase therein resulting from any permitted revaluation of the assets of the Corporation), cumulative preferential dividends at a rate per annum, per share of (i) five percent (5%) of the Liquidation Amount during the period commencing on the Original Issuance Date and terminating on December 1, 1996, and (ii) eight and one-half percent (8.5%) of the Liquidation Amount during the period from December 1, 1996, until December 1, 2000, and (iii) the greater of ten percent (10%) or the Prime Rate plus three percent (3%) of the Liquidation Amount during the period from December 1, 2000 until the date on which all shares of Series A Preferred Stock shall be redeemed in full; provided, that during the period beginning with the date on which any -------- Default exists or occurs, and so long as any Default continues, the dividend rate otherwise applicable to the Series A Preferred Stock pursuant to the foregoing clause (i), (ii) or (iii), as the case may be, shall be increased in an amount equal to an additional four percent (4%) per annum. (b) All dividends payable on the Series A Preferred Stock in accordance with Section 2(a) shall be payable quarterly on the first business day immediately following the final days of March, June, September, and December in each year, beginning with September 30, 1995 (each such date a "Dividend Payment Date"), shall accrue and cumulate, in the case of each share, from the date of issuance of such 77 share, and any accrued dividends on the Series A Preferred Stock that are unpaid in cash or, as provided herein, in P-I-K Shares, shall accrue additional dividends in respect thereof ("Additional Dividends"), compounded quarterly, at the dividend rate then applicable to the Series A Preferred Stock. Dividends payable on the Series A Preferred Stock for any period less than a full quarterly dividend period shall be computed and paid as a pro rata portion of the full quarterly dividend amount then in effect, on the basis of the total number of days in such quarter and the actual number of days elapsed in such quarter to and including the date on which payment is to be made. (c) If at any time Full Cumulative Dividends on the outstanding shares of Series A Preferred Stock to the end of the then current dividend period shall not have been paid in cash or declared and a sum sufficient for the payment thereof set aside for such payment, the amount or the deficiency shall be fully paid, or dividends in such amount declared and a sum sufficient for the payment thereof set aside for such payment, before (i) any sum or sums shall be set aside by the Corporation for, or applied to, the purchase, redemption or other acquisition of any shares of the Corporation's capital stock, (ii) the Corporation will cause or permit any Controlled Affiliate to purchase or otherwise acquire any shares of the Corporation's capital stock or (iii) any dividends shall be declared or paid upon, or any other distribution shall be ordered or made in respect of, any shares of the Corporation's capital stock, other than dividends or distributions required to be paid or made on or in respect of shares of Senior Stock in accordance with the terms thereof, unless such dividend or distribution is payable solely in shares of Junior Stock. Notwithstanding the prior sentence, no failure to pay in cash or set aside a sum in respect of the foregoing dividends shall restrict the Corporation from effecting any Permitted Purchase. (d) The amount of the dividend declared and paid on each share of Series A Preferred Stock shall equal the amount declared and paid on each other share thereof. In any case when Full Cumulative Dividends are not declared and paid on the outstanding shares of Series A Preferred Stock, any dividends declared and paid on the Series A Preferred Stock shall be declared and paid ratably in accordance with the sums which would be payable on the Series A Preferred Stock if all such Full Cumulative Dividends were declared and paid in full. Dividends shall be declared and paid in cash, provided, that, except as -------- ---- otherwise provided upon a Default in Section 4, during the period commencing on the Original Issuance Date and terminating on December 1, 1997, at the option of the Corporation, dividends may be paid in additional shares of Series A Preferred Stock ("P-I-K Shares"). If a dividend is declared and paid in P-I-K Shares, such P-I-K Shares shall be issued to the holder of the Series A Preferred Stock entitled to receive such dividend payment on the relevant Dividend Payment Date, with such P-I-K Shares issued at the rate of $10,000 in Liquidation Amount of such P-I-K Shares for each $10,000 of the dollar amount of such dividend. Dividends paid in cash or in P-I-K Shares shall be paid to the holders of record of shares of the Series A Preferred Stock as they appear on the stock register of the Corporation on the record date established for such dividend, which shall be not more than 30 days nor less than 10 days preceding the 78 relevant Dividend Payment Date, as shall be fixed by the Board of Directors or a duly authorized committee thereof. (e) The Corporation will use its diligent efforts to ensure that dividends declared on the Series A Preferred Stock are treated as "dividends" within the meaning of Section 316(a) of the Code (or any successor provision) and to ensure that distributions made on or in respect of the Series A Preferred Stock shall not be treated as "extraordinary dividends" within the meaning of Section 1059 of the Code (or any successor provision). The Corporation will not claim as an expense reducing gross income any dividends paid on the Series A Preferred Stock or any other shares of its preferred stock in any Federal income tax return, claim for refund, or other statement, report or submission made to the Internal Revenue Service (except to the extent that there is no basis in law to do otherwise). The Corporation will reasonably cooperate with any holder of Series A Preferred Stock (at the expense of such holder) in connection with any litigation, appeal or other proceeding (including any request for a revenue ruling) relating to the characterization of any distribution on or in respect of the Series A Preferred Stock as a dividend or to the eligibility for the dividends received deduction under Section 243(a)(1) of the Code (or any successor provision). To the extent possible, the principles of this Section 2(e) shall also apply with respect to State and local taxes. 3. Liquidation Preference. ---------------------- (a) In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of the Series A Preferred Stock shall be entitled to receive out of the assets of the Corporation available for distribution to shareholders, whether from capital, surplus or earnings, the Liquidation Amount, plus Full Cumulative Dividends thereon to the date of final distribution to the holders of the shares of the Series A Preferred Stock, before any distribution may be made to the holders of shares of Junior Stock. (b) After the payment of Full Cumulative Dividends, the amount distributed upon any liquidation, dissolution or winding up of the Corporation on each share of Series A Preferred Stock shall equal the amount distributed on each other share thereof. If in any such distribution the funds of the Corporation shall be insufficient to pay the holders of the outstanding shares of the Series A Preferred Stock the full amounts to which they shall be entitled, such holders shall share ratably in any distribution of assets in accordance with the sums which would be payable on such distribution if all sums payable thereon were paid in full. (c) The holder of the shares of Series A Preferred Stock shall not be entitled to receive any amounts with respect to any liquidation, dissolution or winding up of the Corporation other than the amounts provided for in this Section 3. Neither a merger nor consolidation of the Corporation into or with another corporation nor a merger or consolidation of any other corporation into or with the Corporation, nor a sale, transfer, mortgage, pledge or lease of all or any part of the assets of the Corporation shall 79 be deemed to be a liquidation, dissolution or winding up of the Corporation for the purposes of this Section 3; provided, that this sentence shall not operate -------- to release or relieve the Corporation of any obligation to redeem or to repurchase shares of Series A Preferred Stock by reason of the occurrence of any such merger, consolidation, sale or other transaction. 4. Dividend Provisions on Default. From and after the occurrence of a ------------------------------ Default and until Full Cumulative Dividends to the date of payment shall have been paid to the holders of shares of Series A Preferred Stock or such Default shall otherwise be cured or waived, (i) no dividends shall be declared or paid upon, or any other distribution shall be ordered or made in respect of, any shares of the capital stock of the Corporation, other than dividends or distributions required to be paid or made on or in respect of Senior Stock in accordance with its terms, nor shall the Corporation purchase, redeem or otherwise acquire, or cause or permit any Controlled Affiliate to purchase or acquire, except for Permitted Purchases, any shares of the capital stock of the Corporation, other than purchases or acquisitions of Senior Stock required to be made in accordance with the terms thereof; and (ii) if such Default is not cured with any applicable grace period or, if a Financial Default, within ninety (90) days of its occurrence, the dividend rate as of the date the Default occurred shall be increased in accordance with Article IV(B), Section 2(a) and, anything foregoing to the contrary notwithstanding, the Corporation may not pay dividends in P-I-K Shares but shall pay all dividends in cash. 80 5. Optional Redemption. Out of cash funds legally available therefor, ------------------- the Corporation may redeem, at its option expressed by resolution of its Board of Directors or a duly authorized committee thereof, from time to time and at any time, any or all shares of the Series A Preferred Stock at the Liquidation Amount, plus, in each case, Full Cumulative Dividends on each share so to be redeemed to the applicable Redemption Date; provided that the Corporation shall -------- not be required, either prior to or contemporaneously with or as a result of such an optional redemption of any shares of Series A Preferred Stock, to satisfy by payment in cash of any amount representing Full Cumulative Dividends on any shares of Series A Preferred Stock other than those that are the subject of such optional redemption. Any redemption pursuant to this Section 5 shall be accomplished in the manner and with the effect as set forth in Section 6. 6. Redemption Procedure. -------------------- (a) Notice of every redemption of Series A Preferred Stock shall be given by mailing the same to every holder of record, any of whose shares are to be redeemed, not less than 10 nor more than 30 days prior to the applicable Redemption Date, at his or her respective address as the same shall appear on the stock register of the Corporation, but no defect in such mailed notice or in the mailing thereof or the failure by any holder to receive any notice of redemption shall affect the validity of the proceedings for the redemption of any share so to be redeemed. The notice shall state that the shares specified will be redeemed by the Corporation at their aggregate Liquidation Amount plus Full Cumulative Dividends thereon to the applicable Redemption Date and at the applicable Redemption Date upon the surrender for cancellation, at the place designated in the notice, of the certificates representing the shares (including any P-I-K Shares constituting all or any portion of Full Cumulative Dividends thereon) so to be redeemed (or, in the event such shares are represented by certificates that are lost, stolen, destroyed or mutilated, delivery of an affidavit to that effect and an indemnification agreement, each in form and substance reasonably acceptable to the Corporation, from the holder of such shares), properly endorsed for transfer or accompanied by proper instruments of assignment and transfer in blank and bearing all necessary transfer tax stamps. (b) In the case of a redemption of less than all the outstanding shares of Series A Preferred Stock, the shares to be redeemed shall be selected pro rata on the basis of the relative number of shares held of record on the applicable Redemption Date by each record holder thereof. (c) If such notice of redemption shall have been duly given as provided above, and if on or before the applicable Redemption Date the funds necessary for such redemption shall have been set aside by the Corporation, separate and apart from its other funds, in trust for the pro rata benefit of the holders of the shares so called for or otherwise subject to redemption, so as to be, and continue to be, available therefor, then, notwithstanding that any certificate for shares so called for or otherwise subject to redemption shall not have been surrendered for cancellation, all shares of the Series A Preferred Stock so called for or otherwise subject to redemption shall no longer be 81 deemed to be outstanding on and after such Redemption Date, and all rights with respect to such shares shall forthwith on such Redemption Date cease and terminate, except only the right of the holders thereof to receive, out of the funds so set aside in trust, the amount payable on redemption thereof, without interest. (d) In the alternative, if such notice of redemption shall have been duly given as provided above, or if the Corporation shall have given to the bank or trust company hereinafter referred to irrevocable authorization to give or complete such notice of redemption, and if prior to the applicable Redemption Date the funds necessary for such redemption shall have been deposited by the Corporation with a bank or trust company in good standing (and shall have identified such bank or trust company in a written notice given to the holders whose shares are to be redeemed), organized under the laws of the United States of America or a State thereof, having a capital surplus and undivided profits aggregating at least $100,000,000 according to its last published statement of condition, in trust for the pro rata benefit of the holders of the shares so called for or otherwise subject to redemption, so as to be, and to continue to be, available therefor, then, notwithstanding that any certificate for shares so called for or otherwise subject to redemption shall not have been surrendered for cancellation, all shares of Series A Preferred Stock so called for or otherwise subject to redemption shall no longer be deemed to be outstanding on and after such Redemption Date, and all rights with respect to such shares shall forthwith cease and terminate at such time, except only the right of the holders thereof to receive, out of the funds so set aside in trust, the amount payable on redemption thereof, without interest. Any interest accrued on any funds so deposited shall be the property of the Corporation and shall be paid to the Corporation from time to time. (e) Any funds so set aside or deposited, as the case may be, and unclaimed at the end of one year from the applicable Redemption Date shall be released or repaid to the Corporation, after which the holders of the shares so called for redemption shall look only to the Corporation for payment thereof, without interest, subject to the applicable law of escheat. (f) If the funds of the Corporation legally available, after taking into account any increase therein resulting from any permitted revaluation of the assets of the Corporation, to effect any mandatory redemption of shares of the Series A Preferred Stock are insufficient to redeem the total number of shares of Series A Preferred Stock required to be redeemed, the Corporation shall (i) use the maximum available amount of such funds and assets to redeem a smaller number of shares of Series A Preferred Stock ratably from each holder thereof whose shares are to be redeemed (based upon the number of shares of Series A Preferred Stock held by each such holder), at the Liquidation Amount per share plus Full Cumulative Dividends thereon to the date such redemption is effected, and thereafter shall remain obligated to redeem the remaining portion of the shares to be redeemed (without being required to deliver a new notice) as promptly as practicable as the funds or assets of the Corporation become legally available (including, without limitation, by reason of permitted revaluations of such assets) to effect such redemptions, and (ii) take any and all action, permitted by applicable law and determined 82 by the Board of Directors to be in the best interests of the Corporation and fair to its shareholders, necessary to increase its legally available funds to an amount sufficient therefor, including without limitation, a recapitalization or a sale of its assets. (g) If fewer than all the shares of Series A Preferred Stock evidenced by any certificate submitted to the Corporation for redemption pursuant to this Section 6 are to be redeemed, the Corporation will issue new certificate(s) for the remainder of the shares of Series A Preferred Stock that were evidenced by the old certificate(s). 7. Conversion. ---------- (a) Each holder of shares of Series A Preferred Stock may (prior to the date such shares are redeemed, or are considered to be redeemed, for payment in full of all amounts due upon such redemption), at such holder's options at any time and from time to time, convert some or all of such holder's shares of Series A Preferred Stock into fully paid and nonassessable shares of Common Stock at the then applicable Conversion Price, with the number of shares of Common Stock so issuable to be equal to the aggregate Liquidation Amount of such shares of Series A Preferred Stock to be so converted, divided by such Conversion Price. (b) Shares of Series A Preferred Stock may be converted by surrendering the certificates representing such shares together with written notice of conversion and a proper assignment of such certificates to the Corporation or in blank. The notice of conversion shall state the name(s) and address(es) in which the certificates representing the Common Stock issuable (and any cash payment instead of fractional shares due) upon such conversion shall be issued, delivered or paid. As promptly as practicable after the Conversion Date, the Corporation shall issue and deliver, as specified in the notice of conversion, certificates for the number of full shares of Common Stock issuable upon such conversion together with any cash instead of fractional shares as provided below. Such conversion shall be deemed to have been effected immediately prior to the close of business on the Conversion Date, and at such time all rights of the converted shares of Series A Preferred Stock shall cease and terminate and the Person(s) in whose name(s) any certificate(s) for Common Stock shall be issuable upon such conversion shall be deemed to have become the holder(s) of the record of the Common Stock represented thereby. At the Corporation's option, not later than the second business day after the Conversion Date, Full Cumulative Dividends with respect to the converted shares of Series A Preferred Stock may be paid in full and in cash to the converting holder; provided, that if such payment is not so made for any reason, including -------- without limitation the Corporation's lack of legally available funds sufficient to make such payment, then shares of Common Stock shall be issued, effective immediately prior to the close of business on the Conversion Date, in satisfaction of such Full Cumulative Dividends, with the number of shares of Common Stock so issuable to be equal to the amount of such Full Cumulative Dividends divided by the then applicable Conversion Price. 83 (c) No fractional shares of Common Stock or scrip representing fractional shares shall be issued upon conversion of any shares of Series A Preferred Stock (or Full Cumulative Dividends thereon). Instead, the Corporation shall pay a cash adjustment in an amount equal to the applicable fraction multiplied by the then applicable Conversion Price. (d) The Corporation shall at all times reserve and keep available and free of preemptive rights out of its authorized but unissued Common Stock, solely for the purpose of effecting the conversion of the outstanding shares, such number of shares of its Common Stock as shall from time to time be sufficient to effect the conversion (at the then applicable Conversion Price) of all outstanding shares of Series A Preferred Stock (including Full Cumulative Dividends with respect thereto), and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Series A Preferred Stock (including Full Cumulative Dividends with respect thereto), the Corporation shall take such corporate action as may be necessary to increase its authorized but unissued Common Stock to such number of shares as shall be sufficient for such purpose. (e) The Corporation shall pay all documentary, stamp, or other similar taxes attributable to the issuance or delivery of Common Stock upon conversion of shares of Series A Preferred Stock (or Full Cumulative Dividends thereon). However, the Corporation shall not be required to pay any taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificate for such shares in a name other than that of the holder of the shares of Series A Preferred Stock (or Full Cumulative Dividends thereon) in respect of which such shares are being issued. 8. Voting Rights. ------------- (a) The holders of shares of Series A Preferred Stock shall not be entitled to vote upon any matter relating to the business or affairs of the Corporation. (b) Notwithstanding the provisions of Section 8(a), without the affirmative approval of the holders of at least a majority of the outstanding shares of Series A Preferred Stock, given either by their vote at an annual meeting or a special meeting called for such purpose or in writing without a meeting, the Corporation shall not effect: (i) any amendment, alteration or repeal (by any means, including any merger or consolidation) of any of the provisions of this Article IV(B) or of the Articles of Incorporation of the Corporation or of any amendment thereto (including, without limitation, any certificate of determination or similar instrument filed in connection with any class or series of capital stock of the Corporation) which would alter or change the absolute or relative powers, preferences or special rights of the shares of Series A Preferred Stock so as to affect them or any of the holders thereof adversely; (ii) the creation of any class or series of capital stock other than Junior Stock (created in accordance with Section 8(c), if applicable); (iii) the issuance of any shares of Series A Preferred Stock in addition to the shares of such stock initially issued on the Original 84 Issuance Date and any P-I-K Shares issued as contemplated herein; (iv) any Restricted Combination; or (v) any Restricted Transaction. (c) Notwithstanding the provisions of Section 8(a), without the affirmative approval of the holders of at least a majority of the outstanding shares of Series A Preferred Stock, given either by their vote at an annual or a special meeting called for such purpose or in writing without a meeting, the Corporation shall not create any Junior Stock if the issuance thereof would cause a Default. 9. Definitions. For the purposes of this Article IV(B): ----------- "Additional Dividends" has the meaning indicated in Section 2(b). -------------------- "Affiliate" means, as to any Person, another Person that directly or --------- indirectly Controls, is Controlled by or is under common Control with, such Person. "Base Price" means Seventeen Dollars and Ninety-Six Cents ($17.96). ---------- "Code" means the Internal Revenue Code of 1986, as amended (or any ---- successor thereto), including the rules and regulations promulgated thereunder from time to time in effect. "Common Stock" means the Common Stock, no par value, of the ------------ Corporation and any other class of stock into which such Common Stock is changed pursuant to any Reclassification or Reorganization. "Control" and its variants means possession, directly or indirectly, ------- of power to direct or cause the direction of the management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise) of a Person. "Controlled Affiliate" means any Affiliate Controlled directly or -------------------- indirectly by the Corporation. "Covenant Default" means (i) a material breach or violation by the ---------------- Corporation of any of the terms or provisions set forth in this Article IV(B) (other than any such breach or violation of Sections 8(b) or 8(c) hereof, or constituting either a Financial Default or a Dividend Default), which breach or violation remains uncured 30 days after written notice thereof is given to the Corporation or (ii) any breach or violation of Sections 8(b) or 8(c) hereof. "Conversion Date" means the date set forth in Section 7 upon which the --------------- certificates representing the shares of Series A Preferred Stock to be converted, the notice of conversion, and the proper assignment have all been received by the Corporation. 85 "Conversion Price" means, the lesser of (i) the Base Price or (ii) One ---------------- Hundred and Twenty-Five percent (125%) of the Market Price, and in either such case shall be subject to adjustment to reflect any share split, combination, Reclassification, Reorganization or similar event which affects the convertibility of the Series A Preferred Stock. For purposes of this paragraph, "Market Price" means the average daily closing price of a share of Common Stock ------------ as reported on the Nasdaq National Market (or, if the Common Stock is listed on the American or New York Stock Exchange, then on such Exchange) during the sixty (60)-day period ending on the Conversion Date. "Default" means a Covenant Default, a Financial Default or a Dividend ------- Default. "Dividend Default" means the failure to declare and pay (either in ---------------- cash or in P-I-K Shares), or set aside a sum sufficient for the payment of, dividends on all outstanding shares of Series A Preferred Stock (including P-I-K Shares) in accordance with Section 2. "Dividend Payment Date" has the meaning indicated in Section 2(b). --------------------- "Exchange Act" means the Securities Exchange Act of 1934, or any ------------ similar Federal statute and the rules and regulations thereunder, all as the same may be in effect at the time. "Financial Default" means (i) any failure by the Corporation or ----------------- Agrigenetics, L.P., a Delaware limited partnership, or any successor thereto ("Agrigenetics") so long as it is a Controlled Affiliate, to pay when due (taking into account all applicable grace periods, agreed extensions and waivers) any amount of principal or interest on indebtedness of the Corporation or Agrigenetics, so long as it is a Controlled Affiliate, which indebtedness is in an aggregate principal amount of at least $10,000,000 ("Material Indebtedness") or (ii) a breach or violation of any material covenant contained in the documents establishing or evidencing any such Material Indebtedness, which breach or violation remains uncured or unwaived more than 30 days after the date of occurrence thereof, (iii) any Material Indebtedness being declared or becoming due and payable prior to its stated maturity or due date, or (iv) the failure by the Corporation to satisfy any or all of the following financial covenants: (1) Minimum Equity. As tabulated below, the Corporation will at -------------- the indicated date have and maintain until the next indicated date a minimum balance with respect to stockholders' equity, as such term is defined under generally accepted accounting principles, except that (a) the value of any intangible assets acquired by the Corporation or any of its Subsidiaries after the Original Issuance 86 Date and (b) the amount attributable to Senior Stock, Parity Stock and Series A Preferred Stock will not be included in the calculation of such balance.
At Year Minimum Ended December 31 Stockholders' Equity ------------------- -------------------- 1995 100 million 1996 100 million 1997 115 Million 1998 115 Million 1999 115 Million
(2) Maximum Leverage. The sum of the total book value at ---------------- December 31st of each year of all outstanding (a) debt for money borrowed (excluding any unused portion of any credit facility) which is created, assumed or guaranteed in any manner, and capitalized leases (as defined under generally accepted accounting principles) of the Corporation and its Subsidiaries, but excluding any net increase in accounts receivable plus inventory minus accounts payable occurring between August 31, 1995 and December 31 of each year (which net calculation cannot be less than zero), (b) Senior Stock and (c) Parity Stock shall not exceed thirty-five percent (35%) of the total book value of Series A Preferred Stock (including P-I-K Shares), Junior Stock and stockholders' equity (calculated consistently as set forth under item 1 above). (3) Minimum Liquidity. As tabulated below, the Corporation will ----------------- at the indicated date have and maintain until the next indicated date an amount in cash plus short-term investments equal to or in excess of the following percentages of the then outstanding amount of Series A Preferred Stock (including P-I-K Shares):
Cash Plus Short-Term Investments as a Percentage of Series A Preferred Stock At October 31st (Including P-I-K Shares) ---------------- ------------------------- 1996 25% 1997 31.2% 1998 37.4% 1999 43.6% 2000 50%
87 "Full Cumulative Dividends" means with reference to any share ------------------------- (including P-I-K Shares) of the Series A Preferred Stock (whether or not in any dividend period or part thereof in respect of which such terminology is used there shall have been funds legally available for the payment of such dividends) that amount which shall be equal to the dollar amounts of dividends at the applicable rate set forth in Section 2(a) (plus Additional Dividends, if any, as contemplated by Section 2(b)) for the period of time elapsed from the date of cumulation of dividends on such share to the date as of which such computation is being made, less the amount of all such dividends paid in cash upon such share. For purposes of this Article IV(B), Full Cumulative Dividends on any share of the Series A Preferred Stock shall be deemed to have been paid in full only when (i) all P-I-K Shares issued in respect thereof shall have been redeemed for payment in full and in cash and (ii) all accrued and unpaid dividends in respect thereof shall have been paid in full and in cash. "Junior Stock" means any class of equity stock of the Corporation ------------ which is neither Series A Preferred Stock nor Parity Stock nor Senior Stock. "Liquidation Amount" means $10,000.00 per share of Series A Preferred ------------------ Stock. "Original Issuance Date" means the date on which the Corporation first ---------------------- issues shares of the Series A Preferred Stock. "Outstanding" means, as used herein with reference to shares of Series ----------- A Preferred Stock, such shares as have been issued but, as of the time of determination thereof, have not yet been redeemed, purchased, converted or otherwise acquired by the Corporation (including P-I-K Shares), other than any of such shares held or beneficially owned at such time by the Corporation or any Controlled Affiliate. "Parity Stock" means any other series or class of preferred stock of ------------ the Corporation which is equal in liquidation priority and preference to the Series A Preferred Stock. "Permitted Purchase" means any purchase or other acquisition for value ------------------ by the Corporation or a Controlled Affiliate of shares of capital stock of the Corporation pursuant to any of the following: (i) the redemption or conversion of shares of Series A Preferred Stock in accordance with this Article IV(B), (ii) the redemption or conversion of any other series of preferred stock (whether Senior Stock, Parity Stock or Junior Stock) so long as such redemption or conversion does not result in a Default, (iii) as may be required to comply with, or to cure violations of, applicable law, or (iv) any program of the Corporation or a Controlled Affiliate to purchase shares of Common Stock from time to time or to facilitate the operation of any employee benefit plan of the Corporation; provided that in connection with any purchases pursuant to the -------- foregoing clause (iv), the aggregate amount thereof shall not exceed five percent (5%) of the then issued and 88 outstanding shares of Common Stock in any consecutive 12-month period. Notwithstanding the foregoing, such term shall not include any acquisition referred to in clauses (ii), (iii) or (iv) of the foregoing sentence at any time while there exists a Default. "Person" means a corporation, an association, a partnership, an ------ organization, a business, a trust, an individual, a government or political subdivision thereof or a governmental agency. "P-I-K Shares" has the meaning indicated in Section 2(d). ------------ "Prime Rate" means the prime interest rate as publicly announced by ---------- Citibank, N.A. in New York. "Reclassification" means that the Common Stock is changed into the ---------------- same or a different number or amount of other shares, other securities, cash or other property. In the event of a Reclassification, the Series A Preferred Stock shall become convertible into the same number or amount of other shares, other securities, cash, or other property which would have been issuable, deliverable, or payable on account of the Common Stock issuable upon the conversion of the shares of the Series A Preferred Stock, assuming such shares had been converted immediately prior to such Reclassification. "Redemption Date" means each of the dates fixed by resolution of the --------------- Board of Directors of the Corporation pursuant to Section 5 and specified in the notice of redemption. "Reorganization" means the merger of the Corporation with or into, or -------------- the consolidation of the Corporation with, any other corporation, or the sale or exchange of substantially all of the assets of the Corporation as an entirety to any other Person. In the event of a Reorganization, the Series A Preferred Stock shall become convertible into the same number or amount of other shares, other securities, cash or other property of the Corporation or other Person surviving or resulting from the Reorganization which would have been issuable, deliverable, or payable on account of the Common Stock issuable upon conversion of the shares of the Series A Preferred Stock, assuming such shares had been converted immediately prior to such Reorganization. "Restricted Combination" means any merger, combination or ---------------------- consolidation of the Corporation with any one or more Persons without regard to the identity of the surviving or resulting entity, and also means any sale, lease or other disposition of all or substantially all the assets or properties of the Corporation or the liquidation or winding up of the Corporation, except such term shall not include a merger or consolidation of the Corporation in which the group of Persons who together hold at least a majority of the outstanding shares of the Common Stock of the Corporation prior to such merger or consolidation will receive (or will retain) in such transactions, voting securities in the surviving or resulting entity that represent at least a majority of the voting power of all voting securities of such surviving or resulting entity. 89 "Restricted Transaction" means any transaction in which the ---------------------- Corporation or any of its Subsidiaries or Affiliates is involved if, either immediately prior to or upon and giving effect to such transaction (and related occurrences), the Corporation is or would be in Default. "Senior Stock" means any other series or class of preferred stock of ------------ the Corporation which is superior, in liquidation priority or preference, to the Series A Preferred Stock. "Subsidiary" means any corporation, of which not less than a majority ---------- of the capital stock ordinarily entitled to elect directors is owned by the Corporation and/or one or more Subsidiaries. "Wholly-Owned Subsidiary" means any subsidiary all the capital stock ----------------------- of which (other than director's qualifying shares, if any) is owned by the Corporation and/or one or more Wholly-Owned Subsidiaries. (C) Common Stock. ------------ 1. Dividend Rights. Subject to the rights of holders of all classes --------------- of stock at the time outstanding having prior rights as to dividends, the holders of the Common Stock shall be entitled to receive, when and as declared by the Board of Directors, out of any assets of the Corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors. 2. Liquidation Rights. Upon the liquidation, dissolution or winding ------------------ up of the Corporation, the assets of the Corporation shall be distributed as provided in Section 3 of Division (B) of this Article IV hereof. 3. Redemption. The Common Stock is not redeemable. ---------- 4. Voting Rights. The holder of each share of Common Stock shall ------------- have the right to one vote, and shall be entitled to notice of any shareholders' meeting in accordance with the Bylaws of this Corporation, and shall be entitled to vote upon such matters and in such manner as may be provided by law. ARTICLE V --------- Except as otherwise provided in these Articles of Incorporation, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of the Corporation. 90 ARTICLE VI ---------- The number of directors of the Corporation shall be fixed from time to time by a bylaw or amendment thereof duly adopted by the Board of Directors or by the shareholders. ARTICLE VII ----------- Elections of directors need not be by written ballot unless a shareholder demands election by ballot at a meeting of shareholders or the Bylaws of the Corporation shall so require. ARTICLE VIII ------------ The election of directors by the shareholders shall not be by cumulative voting. At each election of directors, each shareholder entitled to vote may vote all the shares held by that shareholder for each of the several nominees for director up to the number of directors to be elected. The shareholder may not cast more votes for any single nominee than the number of shares held by that shareholder. This Article VIII shall become effective only when the Corporation becomes a "listed corporation" within the meaning of the California Corporations Code Section 301.5(d). ARTICLE IX ---------- Meetings of shareholders may be held within or without the State of California, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of California at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation. ARTICLE X --------- (A) Liability of Directors. The liability of the directors of the ---------------------- Corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. (B) Indemnification of Directors, Officers and Agents. The ------------------------------------------------- Corporation is authorized to indemnify the directors and officers of this Corporation to the fullest extent permissible under California law. The Corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) through bylaw provisions, agreements with agents, vote of shareholders or disinterested directors or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the California Corporations Code, subject only to applicable limits set forth in Section 204 of the California Corporations Code with respect to actions for breach of duty to the Corporation and its shareholders. 91 (C) Repeal or Modification. Any repeal or modification of the ---------------------- foregoing provisions of this Article X shall be prospective and shall not adversely affect any right of indemnification or liability of a director, officer or agent of the Corporation relating to acts or omissions occurring prior to such repeal or modification. ARTICLE XI ---------- The Corporation reserves the right to amend, alter, change or repeal any provision contained in these Articles of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon shareholders herein are granted subject to this reservation. IN WITNESS WHEREOF, the undersigned Incorporator of the Corporation has executed these Articles of Incorporation on October 31, 1995. Dated: October 31, 1995 /s/ LOREEN P. COLLINS --------------------------- Loreen P. Collins Incorporator ACKNOWLEDGMENT I hereby declare that I am the person who executed the foregoing Articles of Incorporation, which execution is my own act and deed. Executed on October 31, 1995. /s/ LOREEN P. COLLINS -------------------------- Loreen P. Collins Incorporator 92 BYLAWS OF MYCOGEN CALIFORNIA, INC. ARTICLE I - OFFICES ------------------- 1.1 PRINCIPAL EXECUTIVE OFFICE. The principal executive offices of Mycogen -------------------------- California, Inc., a California corporation (the "Corporation"), shall be at such place, inside or outside, the State of California as the Board of Directors of the Corporation (the "Board") may determine from time to time. 1.2 OTHER OFFICES. The Corporation may also have offices at such other places ------------- as the Board may from time to time designate, or as the business of the Corporation may require. ARTICLE II - SHAREHOLDERS' MEETINGS ----------------------------------- 2.1 ANNUAL MEETINGS. The annual meeting of the Shareholders of the Corporation --------------- (the "Shareholders", or individually, a "Shareholder") for the election of Directors of the Corporation (the "Directors", or individually, a "Director") to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting shall be held between thirty (30) and one hundred twenty (120) days following the end of the fiscal year of the Corporation (the first such meeting to be held after the end of fiscal year 1995 of the Corporation) and at such place as may be determined by the Board. If the annual meeting of the Shareholders is not held as herein prescribed, the election of Directors may be held at any meeting thereafter called pursuant to these Bylaws of the Corporation (the "Bylaws"). 93 2.2 SPECIAL MEETINGS. Special meetings of the Shareholders, for any purpose ---------------- whatsoever, unless otherwise prescribed by statute, may be called at any time by the chairman of the Board of the Corporation (the "Chairman"), the president of the Corporation (the "President"), or by the Board, or by one or more Shareholders holding not less than ten percent (10%) of the voting power of the Corporation. 2.3 PLACE. All meetings of the Shareholders shall be at any place within or ----- without the State of California designated either by the Board or by written consent of the holders of a majority of the shares entitled to vote thereat, given either before or after the meeting. In the absence of any such designation, Shareholders' meetings shall be held at the principal executive office of the Corporation. 2.4 NOTICE. Notice of meetings of the Shareholders shall be given in writing ------ to each Shareholder entitled to vote, either personally or by first-class mail (unless the Corporation has five hundred (500) or more Shareholders determined as provided by the California Corporations Code on the record date for the meeting, in which case notice may be sent by third-class mail) or other means of written communication, charges prepaid, addressed to the Shareholder at the Shareholder's address appearing on the books of the Corporation or given by the Shareholder to the Corporation for the purpose of notice. Notice of any such meeting of Shareholders shall be sent to each Shareholder entitled thereto not less than ten (10) (or, if sent by third-class mail, thirty (30)) nor more than sixty (60) days before the meeting. Said notice shall state the place, date and hour of the meeting and, (a) in the case of special meetings, the general nature of the business to be transacted, and no other business may be transacted, or (b) in the case of annual meetings, 94 those matters which the Board, at the time of the mailing of the notice, intends to present for action by the Shareholders, but subject to Section 601(f) of the California Corporations Code, any proper matter may be presented at the meeting for Shareholder action, and (c) in the case of any meeting at which Directors are to be elected, the names of the nominees intended at the time of the mailing of the notice to be presented by management for election. 2.5 ADJOURNED MEETINGS. Any Shareholders' meeting may be adjourned from time ------------------ to time by the vote of the holders of a majority of the voting shares present at the meeting either in person or by proxy. Notice of any adjourned meeting need not be given unless a meeting is adjourned for forty-five (45) days or more from the date set for the original meeting. 2.6 QUORUM. The presence in person or by proxy of the persons entitled to vote ------ a majority of the shares entitled to vote at any meeting constitutes a quorum for the transaction of business. The Shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough Shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. In the absence of a quorum, any meeting of Shareholders may be adjourned from time to time by the vote of a majority of the shares, the holders of which are either present in person or represented by proxy thereat, but no other business may be transacted, except as provided above. 95 2.7 CONSENT TO SHAREHOLDER ACTION. Any action which may be taken at any ----------------------------- meeting of Shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted; provided, however, that (a) unless the consents of all Shareholders entitled to vote have been solicited in writing, notice of any Shareholder approval without a meeting by less than unanimous written consent shall be given as required by the California Corporations Code, and (b) Directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of Directors. Any written consent may be revoked by a writing received by the Secretary of the Corporation (the "Secretary") prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the Secretary. 2.8 WAIVER OF NOTICE. The transactions of any meeting of Shareholders, ---------------- however called and noticed, and wherever held, are as valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy, signs a written waiver of notice, or a consent to the holding of the meeting, or an approval of the minutes thereof. All such waivers, consents, or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. 2.9 VOTING. The voting at all meetings of Shareholders need not be by ballot, ------ but any qualified Shareholder before the voting begins may demand a stock vote whereupon such 96 stock vote shall be taken by ballot, each of which shall state the name of the Shareholder voting and the number of shares voted by such Shareholder, and if such ballot be cast by a proxy, it shall also state the name of any such proxy. At any meeting of the Shareholders, every Shareholder having the right to vote shall be entitled to vote in person, or by proxy appointed in a writing subscribed by such Shareholder and bearing a date not more than eleven (11) months prior to said meeting, unless the writing states that it is irrevocable and satisfies Section 705(e) of the California Corporations Code, in which event it is irrevocable for the period specified in said writing and said Section 705(e). 2.10 RECORD DATES. In the event the Board fixes a day for the determination of ------------ Shareholders of record entitled to vote as provided in Section 5.1 of Article V of these Bylaws, then, subject to the provisions of the General Corporation Law of the State of California only persons in whose name shares entitled to vote stand on the stock records of the Corporation at the close of business on such day shall be entitled to vote. If no record date is fixed, (a) the record date for determining Shareholders entitled to notice of or to vote at a meeting of Shareholders shall be at the close of business on the business day next preceding the day notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; (b) the record date for determining Shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board is necessary, shall be the day on which the first written consent is given; and (c) the record date for determining Shareholders for any other purpose shall be at the close of business on the day on which 97 the Board adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later. A determination of Shareholders of record entitled to notice of or to vote at a meeting of Shareholders shall apply to any adjournment of the meeting unless the Board fixes a new record date for the adjourned meeting, but the Board shall fix a new record date if the meeting is adjourned for more than forty-five (45) days. 2.11 CUMULATIVE VOTING FOR ELECTION OF DIRECTORS. Provided the candidate's ------------------------------------------- name has been placed in nomination prior to the voting and one or more Shareholders has given notice at the meeting prior to the voting of the Shareholder's intent to cumulate the Shareholder's votes, every Shareholder entitled to vote at any election for Directors shall have the right to cumulate such Shareholder's votes and give one candidate a number of votes equal to the number of Directors to be elected multiplied by the number of votes to which the Shareholder's shares are normally entitled, or distribute the Shareholder's votes on the same principle among as many candidates as the Shareholder shall think fit. The candidates receiving the highest number of votes of the shares entitled to be voted for them up to the number of Directors to be elected by such shares are elected. Notwithstanding anything to the contrary contained herein, if the Corporation becomes a "listed corporation" within the meaning of Section 301.5 of the California Corporations Code, the election of Directors by the Shareholders shall not be by cumulative voting and instead, (i) each Shareholder entitled to vote may vote all the shares held by the Shareholder for each of the several nominees for Director up to the number of Directors 98 to be elected; and (ii) each Shareholder may not cast more votes for any single nominee than the number of shares held by that Shareholder. ARTICLE III - DIRECTORS ----------------------- 3.1 POWERS. Subject to any limitations in the Articles of Incorporation of the ------ Corporation filed August 29, 1995 (the "Articles of Incorporation") or these Bylaws and to any provision of the California Corporations Code requiring Shareholder authorization or approval for a particular action, the business and affairs of the Corporation shall be managed and all corporate powers shall be exercised by, or under the direction of, the Board. The Board may delegate the management of the day-to-day operation of the business of the Corporation to a management company or other person provided that the business and affairs of the Corporation shall be managed and all corporate powers shall be exercised, under the ultimate direction of the Board. 3.2 NUMBER, TENURE AND QUALIFICATIONS. The number of Directors which shall --------------------------------- constitute the whole board shall not be less than five (5) nor more than nine (9). The first Board shall consist of six (6) Directors until changed by a duly adopted resolution of the Board or the Shareholders. Directors shall hold office until the next annual meeting of Shareholders and until their respective successors are elected. If any such annual meeting is not held, or the Directors are not elected thereat, the Directors may be elected at any special meeting of Shareholders held for that purpose. Directors need not be Shareholders. 3.3 REGULAR MEETINGS. A regular annual meeting of the Board shall be held ---------------- without other notice than this Bylaw immediately after, and at the same place as, the annual 99 meeting of Shareholders. The Board may provide for other regular meetings from time to time by resolution. 3.4 SPECIAL MEETINGS. Special meetings of the Board may be called at any time ---------------- by the Chairman, the President, the Secretary, or any two Directors. Written notice of the time and place of all special meetings of the Board shall be delivered personally or by telephone or telegraph to each Director at least forty-eight (48) hours before the meeting, or sent to each Director by first- class mail, postage prepaid, at least four (4) days before the meeting. Such notice need not specify the purpose of the meeting. Notice of any meeting of the Board need not be given to any Director who signs a waiver of notice, whether before or after the meeting, or who attends the meeting without protesting prior thereto, or at its commencement, the lack of notice to such Director. 3.5 PLACE OF MEETINGS. Meetings of the Board may be held at any place within ----------------- or without the State of California, which has been designated in the notice, or if not stated in the notice or there is no notice, the principal executive office of the Corporation or as designated by the resolution duly adopted by the Board. 3.6 PARTICIPATION BY TELEPHONE. Members of the Board may participate in a -------------------------- meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. 3.7 QUORUM. A majority of the Directors shall constitute a quorum. In the ------ absence of a quorum, a majority of the Directors present may adjourn any meeting to another time and place. If a meeting is adjourned for more than twenty-four (24) hours, notice of any 100 adjournment to another time or place shall be given prior to the time of the reconvened meeting to the Directors who were not present at the time of adjournment. 3.8 ACTION AT MEETING. Every act or decision done or made by a majority of the ----------------- Directors present at a meeting duly held at which a quorum is present is the act of the Board. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of Directors, if any action taken is approved by at least a majority of the required quorum for such meeting. 3.9 WAIVER OF NOTICE. The transactions of any meeting of the Board, however ---------------- called and noticed or wherever held, are as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the Directors not present signs a written waiver of notice, a consent to holding the meeting, or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. 3.10 ACTION WITHOUT MEETING. Any action required or permitted to be taken by ---------------------- the Board may be taken without a meeting, if all members of the Board individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board. Such action by written consent shall have the same force and effect as a unanimous vote of such Directors. 3.11 REMOVAL. The Board may declare vacant the office of a Director who has ------- been declared of unsound mind by an order of court or who has been convicted of a felony. The entire Board or any individual Director may be removed from office without cause by a vote of Shareholders holding a majority of the outstanding shares entitled to vote at an 101 election of Directors; provided, however, that unless the entire Board is removed, no individual Director may be removed when the votes cast against removal, or not consenting in writing to such removal, would be sufficient to elect such Director if voted cumulatively at an election at which the same total number of votes cast were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of Directors authorized at the time of the Director's most recent election were then being elected. In the event an office of a Director is so declared vacant or in case the Board or any one or more Directors be so removed, new Directors may be elected at the same meeting. Notwithstanding anything to the contrary contained herein, if the Corporation becomes a "listed corporation" pursuant to Section 301.5 of the California Corporations Code, a Director may not be removed if the votes cast against removal of the Director, or not consenting in writing to the removal, would be sufficient to elect the Director if voted cumulatively (without regard to whether shares may otherwise be voted cumulatively) at an election at which the same total number of votes were cast (or, if the action is taken by written consent, all shares entitled to vote were voted) and either the number of Directors elected at the most recent annual meeting of Shareholders, or if greater, the number of Directors for whom removal is being sought, were then being elected. 3.12 RESIGNATIONS. Any Director may resign effective upon giving written ------------ notice to the Chairman, the President, the Secretary or the Board, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective. 102 3.13 VACANCIES. Except for a vacancy created by the removal of a Director, all --------- vacancies in the Board, whether caused by resignation, death or otherwise, may be filled by a majority of the remaining Directors, though less than a quorum, or by a sole remaining Director, and each Director so elected shall hold office until his successor is elected at an annual, regular or special meeting of the Shareholders. Vacancies created by the removal of a Director may be filled only by approval of the Shareholders. The Shareholders may elect a Director at any time to fill any vacancy not filled by the Directors. Any such election by written consent requires the consent of a majority of the outstanding shares entitled to vote. 3.14 COMPENSATION. No stated salary shall be paid Directors, as such, for ------------ their services, but, by resolution of the Board, a fixed sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of such Board; provided that nothing herein contained shall be construed to preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. 3.15 COMMITTEES. The Board may, by resolution adopted by a majority of the ---------- authorized number of Directors, designate one or more committees, each consisting of two (2) or more Directors, to serve at the pleasure of the Board. The Board may designate one or more Directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number 103 of Directors. Any such committee, to the extent provided in the resolution of the Board, shall have all the authority of the Board in the management of the business and affairs of the Corporation, except with respect to (a) the approval of any action requiring Shareholders' approval or approval of the outstanding shares, (b) the filling of vacancies on the Board or any committee, (c) the fixing of compensation of Directors for serving on the Board or a committee, (d) the adoption, amendment or repeal of Bylaws, (e) the amendment or repeal of any resolution of the Board which by its express terms is not so amendable or repealable, (f) a distribution to Shareholders, except at a rate or in a periodic amount or within a price range determined by the Board, and (g) the appointment of other committees of the Board or the members thereof. ARTICLE IV - OFFICERS --------------------- 4.1 NUMBER AND TERM. The officers of the Corporation shall be a President, a --------------- Secretary, an Assistant Secretary and a Chief Financial Officer (which may be a Vice President responsible for finance), all of which shall be chosen by the Board. In addition, the Board may appoint a Chairman of the Board, a Chief Executive Officer, one or more Vice Presidents and such other officers as may be deemed expedient for the proper conduct of the business of the Corporation, each of whom shall have such authority and perform such duties as the Board may from time to time determine. The officers to be appointed by the Board shall be chosen annually at the regular meeting of the Board held after the annual meeting of Shareholders and shall serve at the pleasure of the Board. If officers are not chosen at such meeting of the Board, they shall be chosen as soon 104 thereafter as shall be convenient. Each officer shall hold office until his successor shall have been duly chosen or until his removal or resignation. 4.2 INABILITY TO ACT. In the case of absence or inability to act of any ---------------- officer of the Corporation and of any person herein authorized to act in his place, the Board may from time to time delegate the powers or duties of such officer to any other officer, or any Director or other person whom it may select. 4.3 REMOVAL AND RESIGNATION. Any officer chosen by the Board may be removed at ----------------------- any time, with or without cause, by the affirmative vote of a majority of all the members of the Board. Any officer chosen by the Board may resign at any time by giving written notice of said resignation to the Corporation. Unless a different time is specified therein, such resignation shall be effective upon its receipt by the Chairman, the President, the Secretary or the Board. 4.4 VACANCIES. A vacancy in any office for any cause may be filled by the --------- Board for the unexpired portion of the term. 4.5 CHAIRMAN OF THE BOARD. The Chairman shall preside at all meetings of the --------------------- Board. 4.6 PRESIDENT. The President shall be the chief operating officer, the general --------- manager and chief executive officer (unless a separate Chief Executive Officer is elected by the Board) of the Corporation, subject to the control of the Board, and as such shall preside at all meetings of Shareholders, shall have general supervision of the affairs of the Corporation, shall sign or countersign or authorize another officer to sign all certificates, contracts, and other instruments of the Corporation as authorized by the Board, shall 105 make reports to the Board and Shareholders, and shall perform all such other duties as are incident to such office or are properly required by the Board. 4.7 VICE PRESIDENT. In the absence of the President, or in the event of such -------------- officer's death, disability or refusal to act, the Vice President, or in the event there be more than one Vice President, the Vice Presidents in the order designated at the time of their selection, or in the absence of any such designation, then in the order of their selection, shall perform the duties of President, and when so acting, shall have all the powers and be subject to all restrictions upon the President. Each Vice President shall have such powers and discharge such duties as may be assigned from time to time by the President or by the Board. 4.8 SECRETARY. The Secretary shall see that notices for all meetings are given --------- in accordance with the provisions of these Bylaws and as required by law, shall keep minutes of all meetings, shall have charge of the seal and the corporate books, and shall make such reports and perform such other duties as are incident to such office, or as are properly required by the President or by the Board. The Assistant Secretary or the Assistant Secretaries, in the order of their seniority, shall, in the absence or disability of the Secretary, or in the event of such officer's refusal to act, perform the duties and exercise the powers and discharge such duties as may be assigned from time to time by the President or by the Board. 4.9 CHIEF FINANCIAL OFFICER. The Chief Financial Officer may also be ----------------------- designated by the alternate title of "Vice President-Finance" or "Treasurer." The Chief Financial Officer shall have custody of all moneys and securities of the Corporation and shall keep regular 106 books of account. Such officer shall disburse the funds of the Corporation in payment of the just demands against the Corporation, or as may be ordered by the Board, taking proper vouchers for such disbursements, and shall render to the Board from time to time as may be required of such officer, an account of all transactions as Chief Financial Officer and of the financial condition of the Corporation. Such officer shall perform all duties incident to such office or which are properly required by the President or by the Board. The Assistant Chief Financial Officer or the Assistant Chief Financial Officers, in the order of their seniority, shall, in the absence or disability of the Chief Financial Officer, or in the event of such officer's refusal to act, perform the duties and exercise the powers of the Chief Financial Officer, and shall have such powers and discharge such duties as may be assigned from time to time by the President or by the Board. 4.10 SALARIES. The salaries of the officers shall be fixed from time to time -------- by the Board and no officer shall be prevented from receiving such salary by reason of the fact that such officer is also a Director of the Corporation. 4.11 OFFICERS HOLDING MORE THAN ONE OFFICE. Any two or more offices may be ------------------------------------- held by the same person. 4.12 APPROVAL OF LOANS TO OFFICERS. The Corporation may, upon the approval of ----------------------------- the Board alone, make loans of money or property to, or guarantee the obligations of, any officer of the Corporation or its parent or subsidiary, whether or not a Director, or adopt an employee benefit plan or plans authorizing such loans or guaranties provided that (i) the Board determines that such a loan or guaranty or plan may reasonably be expected to benefit the Corporation, (ii) the Corporation has outstanding shares held of record by one 107 hundred (100) or more persons (determined as provided in Section 605 of the California Corporation Code) on the date of approval by the Board, and (iii) the approval of the Board is by a vote sufficient without counting the vote of any interested Director or Directors. ARTICLE V - MISCELLANEOUS ------------------------- 5.1 RECORD DATE AND CLOSING OF STOCK BONDS. The Board may fix a time in the -------------------------------------- future as a record date for the determination of the Shareholders entitled to notice of and to vote at any meeting of Shareholders or entitled to receive payment of any dividend or distribution, or any allotment of rights, or to exercise rights in respect to any other lawful action. The record date so fixed shall not be more than sixty (60) nor less than ten (10) days prior to the date of the meeting or event for the purposes of which it is fixed. When a record date is so fixed, only Shareholders of record at the close of business on that date are entitled to notice of and to vote at the meeting or to receive the dividend, distribution, or allotment of rights, or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after the record date. The Board may close the books of the Corporation against transfers of shares during the whole or any part of a period of not more than sixty (60) days prior to the date of a Shareholders' meeting, the date when the right to any dividend, distribution, or allotment of rights vests, or the effective date of any change, conversion or exchange of shares. 5.2 CERTIFICATES. Certificates of stock shall be issued in numerical order and ------------ each Shareholder shall be entitled to a certificate signed in the name of the Corporation by the 108 Chairman or the President or a Vice President, and the Chief Financial Officer, the Secretary or an Assistant Secretary, certifying to the number of shares owned by such Shareholder. Any or all of the signatures on the certificate may be facsimile. Prior to the due presentment for registration of transfer in the stock transfer book of the Corporation, the registered owner shall be treated as the person exclusively entitled to vote, to receive notifications and otherwise to exercise all the rights and powers of an owner, except as expressly provided otherwise by the laws of the State of California. 5.3 REPRESENTATION OF SHARES IN OTHER CORPORATIONS. Shares of other ---------------------------------------------- corporations standing in the name of this Corporation may be voted or represented and all incidents thereto may be exercised on behalf of the Corporation by the Chairman, the President or any Vice President and the Chief Financial Officer or the Secretary or an Assistant Secretary. 5.4 ANNUAL REPORTS. If the Corporation has more than one hundred (100) holders -------------- of record of its shares (as determined by California Corporations Code Section 605) then the Annual Report to Shareholders shall be prepared and distributed as described in the California Corporations Code Section 1501, provided, however, if the Corporation has less than one hundred (100) holders of record of its shares then the requirements under California Corporations Code Section 1501shall be expressly waived and dispensed with by the Corporation. 5.5 AMENDMENTS. Bylaws may be adopted, amended, or repealed by the vote or the ---------- written consent of Shareholders entitled to exercise a majority of the voting power of the Corporation. Subject to the right of Shareholders to adopt, amend, or repeal Bylaws, 109 Bylaws may be adopted, amended, or repealed by the Board, except that a Bylaw amendment thereof changing the authorized number of Directors may be adopted by the Board only if these Bylaws permit an indefinite number of Directors and the Bylaw or amendment thereof adopted by the Board changes the authorized number of Directors within the limits specified in these Bylaws. 5.6 INDEMNIFICATION OF CORPORATE AGENTS. The Corporation shall indemnify each ----------------------------------- of its Directors, officers, employees and agents against expenses, judgments, fines, settlements and other amounts, actually and reasonably incurred by such person by reason of such person's having been made or having threatened to be made a party to a proceeding to the fullest extent permissible by the provisions of Section 317 of the California Corporations Code. The indemnification provided by this section shall not be deemed exclusive of any rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of Shareholders or disinterested Directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent such additional rights to indemnification are authorized in the Articles of Incorporation of the Corporation. The rights to indemnity hereunder shall continue as to a person who has ceased to be a Director, officer, employee, or agent and shall inure to the benefit of the heirs, executors and administrators of the person. Expenses incurred by a Director in defending a civil or criminal action, suit or proceeding by reason of the fact that he is or was a Director of the Corporation (or was serving at the Corporation's request as a Director or officer of another corporation) shall be paid by the Corporation in advance of the final disposition of such action, suit or 110 proceeding upon receipt of an undertaking by or on behalf of such Director to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized by relevant sections of the California Corporations Code. I, Carlton J. Eibl, Secretary of Mycogen California, Inc., a California corporation, do hereby certify that the foregoing Bylaws of Mycogen California, Inc. are the duly adopted Bylaws of said Corporation as they are in effect on the date hereof. IN WITNESS WHEREOF, I have hereunto subscribed my name this 29th day of August, 1995. /s/ CARLTON J. EIBL -------------------------------- Carlton J. Eibl, Secretary 111 EX-23.1 4 CONSENT OF E&Y EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS 112 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Forms S-8 No. 33-55508 and S-3 No. 33-58721) and in the related Prospectuses of our report dated October 17, 1995, with respect to the consolidated financial statements of Mycogen Corporation, included in the Annual Report (Form 10-K) for the year ended August 31, 1995. Ernst & Young LLP San Diego, California October 27, 1995 113 EX-24.1 5 POWER OF ATTORNEY EXHIBIT 24.1 POWER OF ATTORNEY 114 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jerry Caulder, Carlton J. Eibl and James A. Baumker and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign this Form 10-K or any and all amendments to this Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Chairman, Chief Executive Officer and /s/ JERRY CAULDER Director October 19, 1995 - ----------------- (Jerry Caulder) /s/ THOMAS J. CABLE Director October 19, 1995 - ------------------- (Thomas J. Cable) /s/ GEORGE R. HILL Director October 19, 1995 - ------------------ (George R. Hill) /s/ KENNETH H. HOPPING Director October 19, 1995 - ---------------------- (Kenneth H. Hopping) /s/ DAVID H. RAMMLER Director October 19, 1995 - -------------------- (David H. Rammler) /s/ A. JOHN SPEZIALE Director October 19, 1995 - -------------------- (A. John Speziale)
115 EX-27 6 FINANCIAL DATA SCHEDULE
5 YEAR AUG-31-1995 AUG-31-1995 5,687 11,913 29,987 2,585 33,633 79,902 66,350 16,704 159,608 21,208 1,905 19 0 0 216,436 159,608 106,169 113,218 70,985 70,985 0 292 0 (14,443) 0 (14,443) 0 0 0 (14,443) (.83) (.83)
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