-----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, C1mfQrxyapHjry6h014Lu5Otk/t9x7ARSLgAgfx7m0l68EQrlnIUwTqcHP/dQI7e 6lNXtUOfsOs8rBYCO0DXFQ== 0001017062-96-000516.txt : 19961115 0001017062-96-000516.hdr.sgml : 19961115 ACCESSION NUMBER: 0001017062-96-000516 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19960831 FILED AS OF DATE: 19961113 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: CA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11643 FILM NUMBER: 96660961 BUSINESS ADDRESS: STREET 1: 5501 OBERLIN DR CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 6194538030 MAIL ADDRESS: STREET 1: 5501 OBERLIN DRIVE CITY: SAN DIEGO STATE: CA ZIP: 92121 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ------ EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For fiscal year ended August 31, 1996. OR ------ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from ______________ to ______________. Commission File Number: 0-15881 MYCOGEN CORPORATION (Exact name of Registrant as specified in its charter) CALIFORNIA 95-3802654 (State or other jurisdiction (I.R.S. Employer or incorporation or Identification No.) organization) 5501 Oberlin Drive, San Diego, California 92121 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (619) 453-8030 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par value Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ---- ---- 1 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ((S) 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by nonaffiliates of the Registrant as of September 30, 1996, was approximately $156,325,079. For the purposes of this calculation, shares owned by officers, directors and 5% stockholders known to the Registrant have been deemed to be owned by affiliates. The number of shares outstanding of the Registrant's Common Stock as of September 30, 1996, was 30,695,850. Documents Incorporated by Reference - ----------------------------------- Portions of the Registrant's Proxy Statement (the "Proxy Statement") for the Annual Meeting of Stockholders scheduled to be held on December 12, 1996, are incorporated by reference in Part III. PART I ITEM 1. BUSINESS Mycogen Corporation, a California corporation (the "Company" or the "Registrant") is a diversified agricultural biotechnology company that develops and markets technology-based products and provides crop protection services to control agricultural pests and improve food and fiber production. The Company has two business segments, both wholly-owned subsidiaries: Agrigenetics, Inc., doing business as Mycogen Seeds ("Mycogen Seeds") and Mycogen Crop Protection, Inc. ("Mycogen Crop Protection"). Mycogen Seeds produces and markets seeds for major agricultural crops and uses biotechnology and traditional and marker- assisted breeding techniques to develop improved crop varieties with genetically enhanced pest-resistance and other value-added characteristics. Mycogen Crop Protection develops, manufactures and markets microbial and fatty acid based biopesticide products and operates Soilserv, Inc. ("Soilserv"), a wholly-owned subsidiary of Mycogen Crop Protection. Detailed financial information regarding Mycogen Seeds and Mycogen Crop Protection can be found in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." Mycogen was originally incorporated in California in December 1982. In November 1986, the Company reincorporated in Delaware. In October 1995, it again reincorporated in California. Mycogen's headquarters are located at 5501 Oberlin Drive, San Diego, California 92121-1718; its telephone number is (619) 453-8030. Unless otherwise indicated by the context, "Mycogen" and the "Company" refer to Mycogen Corporation and its consolidated subsidiaries. RECENT ACQUISITIONS - In February 1996, Mycogen acquired United AgriSeeds, Inc., a Delaware corporation ("UAS"), and a subsidiary of DowElanco. The acquisition of United AgriSeeds strengthened Mycogen's platform for commercializing proprietary, genetically-enhanced seed products. In September 1996, after the end of the Company's fiscal year 1996, Mycogen purchased all of the common stock of Santa Ursula S.A.A.I.C. e I., the third largest seed company in Argentina, which does business as Morgan Seeds ("Morgan Seeds"). The acquisition of Morgan Seeds provides a base from which the Company can develop and commercialize seed products under the Morgan(R) brand in South America. STRATEGIC ALLIANCES - In December 1995, the Company entered into a technology collaboration with Pioneer Hi-Bred International, Inc. ("Pioneer") to develop multiple transgenic crops with pest resistance. 2 In February 1996, the Company, DowElanco and The Lubrizol Corporation ("Lubrizol") completed transactions through which Mycogen acquired DowElanco's seed business, United AgriSeeds, and DowElanco took a 46% equity interest in Mycogen. As part of this alliance, Mycogen and DowElanco entered into a technology agreement to develop and commercialize transgenic traits targeting agricultural inputs, such as insect resistance, and agricultural outputs, such as specialty oils and grain. In October 1996, the Company signed a letter of intent to enter into a strategic alliance with Verneuil Holding, S.A. ("Verneuil"), a major European seed company. Under such letter of intent, Mycogen and Verneuil have agreed to form separate joint ventures to develop and commercialize oil seed crops and seed corn resistant to European corn borer. The agreements call for Mycogen to exchange its existing European Seed business and other assets for an 18.75% interest in Verneuil and to obtain an option to purchase another 16.25% of Verneuil stock owned by DowElanco. Further information regarding the Company's strategic alliances and acquisitions of strategic assets and steps towards developing a global seeds business is contained in the Summary section of Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company also is pursuing opportunities to use its intellectual property technology and expertise to obtain seed germ plasm and other strategic assets. COMPANY TRADEMARKS - The following are trademarks of the Company: Mycogen(TM), Mycogen Corporation(R), CellCap(R), Cocciprobe(TM), CropServ(TM), DeMoss(TM), M(R) and design, Mattch(TM), M-C(TM), M-Pede(R), M-Peril(R), M- Press(TM), M-Trak(R), MVP(R), Parasitix(TM), ParaVet(TM), Safecide(TM), Scythe(TM), SoilServ(R), Thinex(TM), XCP(TM) and XPO(TM) are trademarks of Mycogen Crop Protection. Agrigenetics(R), Allegro(TM), Chieftan(R), Field and Future(TM), Flavor Runner(TM), Fresh Runner(TM), G&A(R) and design, Golden Acres(R), GroAgri(R), Growers(R), Heritage(R), K(R) and design, Keltgen(R), Kow Kandy(R), Lynks(R), M(R) and design, Mycogen(R), NatureGard(TM), ORO(R), Sigco(R), Totally Managed Forages(R), Totally Managed Feedstuffs(R) and TMF(TM) are trademarks of Mycogen Seeds. Morgan(R) is a trademark of Morgan Seeds. BUSINESS STRATEGY The Company's strategy is to continue using biotechnology and other advanced techniques to develop new and improved products for its seed and crop protection businesses, and to leverage its technology through strategic transactions to strengthen and expand those businesses. Mycogen is using its proprietary Bacillus thuringiensis ("Bt") biotoxin gene technology both to develop transgenic crop varieties with built-in insect resistance and to expand its portfolio of biopesticide products. The Company also is using other advanced plant science technology to develop crop varieties with improved oil, nutritional and other agronomic characteristics. Mycogen believes that it has a strong proprietary position for its Bt and plant science technology. INDUSTRY BACKGROUND Agricultural biotechnology is creating products that improve crop production; extend product shelf life; enhance protein, starch and other nutritional properties; improve yield of compounds such as waxes, esters and oils for industrial applications and reduce production costs and risks. Mycogen believes that current and future biological crop protection will manifest itself principally through genetically engineered, pest-resistant 3 crop varieties for large acreage crops such as corn, cotton, soybean, sunflower, canola and alfalfa, and through spray-on biopesticide products for smaller acreage crops such as fruits, vegetables and vines. Seeds that carry built-in pest resistance reduce or eliminate the need for pesticide applications, significantly reducing production input and labor costs. Mycogen believes that farmers will use both pest-resistant crop varieties and spray-on pesticides, including biopesticides, as part of integrated pest management programs to control pests and to avoid or delay the development of pest tolerance to any single pest control mechanism. The Company estimates that U.S. farmers annually purchase approximately $3.5 billion of planting seed, including approximately $1.9 billion of hybrid seed corn, $890 million of soybean seed, $140 million of alfalfa seed, $100 million of cotton seed, $74 million of hybrid sorghum seed and $18 million of hybrid sunflower seed. U.S. farmers annually spend over $6 billion on pesticides to protect their crops, including $600 million on insecticides to protect corn and cotton crops alone. Despite these pesticide expenditures, destructive pests cost U.S. farmers billions of dollars each year in lost yields. Many chemical pesticides have efficacy, environmental or regulatory disadvantages. Virtually all major pests have developed tolerance to one or more classes of chemical insecticides that previously were effective in controlling them. In addition, chemical pesticides often suppress beneficial insect populations. As pest populations develop pesticide tolerance, and as beneficial insect populations are reduced, farmers must apply more chemical pesticides. This raises environmental and food and worker safety concerns and ultimately renders the pesticides obsolete. The Company believes that the use of genetically engineered pest-resistant crop varieties and biopesticides will continue to increase because they offer four major advantages over chemical pesticides: 1) they do not contaminate the environment, soil or ground water; 2) they do not harm beneficial insects that naturally suppress pest populations; 3) they have unique modes of action that make them effective against pests that have developed tolerance to chemical pesticides and 4) they do not leave undesirable residues in food crops. Furthermore, genetically engineered pest-resistant crop varieties do not require application of chemical pesticides, thereby saving farmers fuel and labor costs, reducing trips over the field which decreases the chance of soil compaction and eliminating the need to coordinate timing of pesticide applications. Concerns over the safety of chemical pesticides and their impact on the food supply, environment and agricultural workers have led the EPA to prohibit or restrict the use of many chemical pesticides. This has created opportunities for replacement products, including pest-resistant plants and biopesticides. SEED BUSINESS Mycogen Seeds is the sixth largest producer and marketer of planting seeds in the United States. Hybrid seed corn accounts for the majority of Mycogen Seeds' planting seed sales. Other key seed products include soybean, hybrid sunflower, hybrid sorghum and alfalfa. Most of these seeds are produced under annual contracts with independent growers. The seed is dried and treated at Company- owned production facilities and on a contract basis with third parties and packaged and sold through an extensive seed sales organization. In North America and in certain other regions of the world, the Company markets its seeds under the single brand of "Mycogen(R)". Mycogen uses traditional and marker-assisted plant breeding to obtain pest resistance and other value-added characteristics from native plant sources, and is breeding those characteristics into elite plant parent lines for its seed products. Seed products incorporating pest resistance and other value-added characteristics are being commercialized through Mycogen Seeds. 4 Mycogen's primary near-term seed product development focus is on corn, cotton, soybean, sunflower, canola, sorghum and alfalfa, all of which generate significant seed and/or pesticide sales. In August 1995, the Company received U.S. Environmental Protection Agency (the "EPA") approval to commercialize corn hybrids genetically engineered with a Bt gene that causes the plants to produce a protein that makes them resistant to European corn borer. RESEARCH, PRODUCTION AND MARKETING - Mycogen Seeds owns or leases research and production facilities in California, Georgia, Illinois, Indiana, Iowa, Michigan, Minnesota, Mississippi, Nebraska, Puerto Rico, Texas and Wisconsin. These facilities, along with contract growing arrangements in the U.S. and Canada, give the Company the geographic dispersion required to produce and market crop varieties suitable for virtually all important North American agricultural regions. Mycogen Seeds markets its seed products in North America through a network of more than 100 sales managers and approximately 6,300 farmer/sales representatives and professional agricultural retail outlets. Outside North America, the Company markets seeds primarily through local distributors. In France, Italy and Argentina, Mycogen Seeds also produces and markets its products through wholly-owned subsidiaries. PRODUCT DEVELOPMENT AND APPLIED TECHNOLOGY - The Company's business strategy is to develop differentiated, value-added seed products to meet the needs of the agriculture and food industries. Mycogen believes that by providing seed products such as corn, cotton, soybean, sunflower, canola and alfalfa with pest- resistance and other value-added characteristics, it can expand its market share. The Company also produces specialty vegetable oil from sunflower for AC Humko Corp. ("AC Humko"), a major supplier of specialty oils and food ingredients. In addition to extensive plant breeding programs in corn, soybean, cotton and sunflower to improve yield and other agronomic characteristics, the Company is pursuing numerous plant product development and applied technology opportunities as follows:
PROGRAM COMMERCIAL OPPORTUNITY TARGET CROPS - ------------------------------------------------------------------------------------------------------------------------------------ Pest Resistance Via Plant Yield improvement and displacement Corn, cotton, soybean, Transformation and of certain chemical pesticides sunflower, alfalfa, canola Marker Assisted Breeding and sorghum - ------------------------------------------------------------------------------------------------------------------------------------ Herbicide Tolerance Via Improved efficiency and weed control Corn, cotton and canola Plant Transformation - ------------------------------------------------------------------------------------------------------------------------------------ Nutritional Improvement Nutritional improvement of animal Corn of Animal Feedstuffs feedstuffs and specialized corn for silage production - ------------------------------------------------------------------------------------------------------------------------------------ Specialty Oils Specialty oil and food ingredients Sunflower, corn and canola - ------------------------------------------------------------------------------------------------------------------------------------
PEST RESISTANCE VIA PLANT TRANSFORMATION AND MARKER ASSISTED BREEDING - This program uses advanced plant science and gene technology to transform genetic material from bacteria, plants and other sources into the genomes of target crops. Mycogen's primary current focus is on genes isolated from strains of Bt that cause transformed plants to produce proteins that are toxic to pests. Bt genes that produce proteins toxic to certain insects and non-insect pests, including Lepidoptera (worms and moths) and Coleoptera (beetles), have been isolated, restructured for efficient plant expression and inserted into several crop varieties. The first product of this development effort is hybrid seed corn with Bt-based resistance to European corn borer, a pest that costs farmers in the United States and Europe hundreds of millions of dollars in yield losses each year. Mycogen Seeds introduced these seeds commercially in 1996 and has produced significantly larger quantities available for sale in 1997. 5 Mycogen, in 1995, entered into a 10-year technology collaboration with Pioneer to develop Bt-based pest resistance in corn, soybean, canola, sunflower, sorghum and wheat, which collaboration has allowed Mycogen to accelerate product development programs in such crops. The Bt gene sequences that produce these pest-resistance traits are covered by issued or pending patents. The Company also is developing and marketing products with pest resistance derived from native plant sources. Using marker-assisted breeding technology, Mycogen has identified and tracked separate multigenetic resistance traits for European corn borer. The Company has bred the multigenetic trait for European corn borer into its elite commercial corn parent lines, and resulting resistant corn hybrids have been sold commercially for the past four years. HERBICIDE TOLERANCE VIA PLANT TRANSFORMATION - This program uses advanced plant science and gene technology to insert genetic material into the genomes of target crops to enable them to withstand herbicide treatments used to kill weeds that interfere with production and reduce yield. In April 1996, the California Court of Appeal affirmed Mycogen Seeds' right to exercise options to license Monsanto's Roundup Ready(R) herbicide tolerance technology for corn, cotton and oilseed rape (canola). The Company is in the process of obtaining that technology from Monsanto and negotiating commercial licenses. NUTRITIONAL IMPROVEMENT OF ANIMAL FEEDSTUFFS - This program has developed and launched a new hybrid corn product developed especially for the silage corn market. Silage corn is used directly as an animal feedstuff. Prior to the Company's development of these products, it was necessary for farmers interested in producing corn silage to utilize grain hybrids poorly adapted for this purpose. The newly developed TMF(TM) (for Totally Managed Feedstuffs) corn hybrids are characterized by their tall stature, additional leaf material produced on each stalk and high biomass production per acre. In addition, these varieties produce large ears and have a high relative proportion of grain in the resulting silage. Farmers have reported to the Company that silage produced from these varieties has superior nutritional qualities that contribute to increased milk and beef production. SPECIALTY OILS - Mycogen Seeds has developed sunflower, rape (canola) and corn with genetically enhanced oil properties. In 1996, the Company acquired rights to oilseed technology for those three crops that it had developed jointly with SVO Specialty Products, a subsidiary of Lubrizol. In addition to producing and marketing seeds for these crops, Mycogen has forward-integrated into production of crude high oleic sunflower oil for AC Humko. Also in 1996, Mycogen entered into a collaborative program with DowElanco Canada, Inc., a wholly owned subsidiary of DowElanco, to conduct a joint breeding program and investigate and develop value-added traits in canola. The Company has targeted other specialty oil opportunities that would be of interest to food ingredient suppliers/purchasers. These projects, currently in a research phase, address opportunities for reduced or no saturate vegetable oils, new feedstocks for all natural hard butters where chemical modification (such as hydrogenation) of the fats, can be reduced or eliminated, and fats tailored for use by the confection industry as substitutes for cocoa butter. CROP PROTECTION BUSINESS Biopesticide products embodying Mycogen's core technology are sold to crop protection markets through Mycogen Crop Protection. Mycogen intends to broaden its participation in the crop protection industry by continuing to refine and apply its technology to better meet the needs of the market and by pursuing strategic transactions and acquisitions. BIOPESTICIDE PRODUCTS - The Company currently markets seven environmentally compatible biopesticide products. These products are based on natural agents such as microorganisms and fatty acid compounds that, in general, have specific toxic activity on target pests and are not harmful to mammals, fish, birds and 6 beneficial insects. In addition, because biopesticides have unique modes of action, they often are effective in controlling pests that have developed tolerance to chemical pesticides. The Company's Bt-based biopesticides are derived from strains of Bt that produce proteins that are toxic to specific pests. Mycogen's Bt-based biopesticides utilize the Company's proprietary CellCap(R) technology, which encapsulates Bt toxin proteins inside cells of genetically engineered bacteria. The Company believes that its CellCap(R) encapsulation technology offers two important advantages over conventional Bt products: 1) it prolongs insecticidal activity, resulting in superior crop protection and 2) it yields superior product formulations that facilitate production and application. The Company's fatty acid based biopesticides are derived from generally inexpensive natural sources, such as coconut, palm, sunflower and tall oil and tallow from animal fats. Fatty acid pesticides disrupt or destroy membranes of soft-bodied insects, weeds and microbial plant pathogens. BIOPESTICIDE MARKETING AND COMMERCIAL DEVELOPMENT - Mycogen Crop Protection's marketing and commercial development staff is responsible for commercializing Mycogen's biopesticides worldwide, and for cooperative development and marketing efforts in Japan through collaborations with Kubota Corporation ("Kubota") and Japan Tobacco, Inc. Biopesticide products are sold through established agricultural product distributors in the U.S. and many other countries. Also, the Company has entered into a distribution agreement with Farnam Companies, Inc. to sell its Scythe(R) Herbicide into the U.S. home and garden market. PRODUCT DEVELOPMENT AND APPLIED TECHNOLOGY - The Company has used two distinct technologies to develop its biopesticides: Microbial Biopesticide Technology and Fatty Acid Technology. MICROBIAL BIOPESTICIDE TECHNOLOGY - Mycogen's microbial bioinsecticide products and technology are based on two key components: 1) discovery, selection and enhancement of biotoxins that are active against commercially important pests and 2) the Company's proprietary CellCap(R) encapsulation delivery system. Certain naturally occurring microorganisms produce biotoxins that are toxic to specific pests when ingested. The primary current source of such biotoxins is varietal strains of Bt. Mycogen researchers have found Bt strains with pesticidal activity against a broad range of pests. Several Bt strains discovered by Mycogen and others are active ingredients for commercial pesticide products. Unlike chemical pesticides, Bt biotoxins are active only when consumed by the target pest. Field experience has demonstrated that these products are effective in controlling some pests that have developed tolerance to certain chemical pesticides and extensive toxicology testing has shown that Bt biotoxins are nontoxic to mammals, wildlife and other non-target species, including certain beneficial insects. Biotoxins generally degrade rapidly, leaving little or no residue in food, ground water or soil. While this short duration of activity makes them environmentally compatible, historically it has limited their practical use as commercial pesticides. To prolong biotoxin activity in the field, Mycogen developed and patented the CellCap(R) delivery system, which employs cells that have been killed and stabilized to serve as microcapsules to protect fragile biotoxin crystals that have been produced by and accumulated within the cells. Mycogen has identified Bt strains with pesticidal activity against caterpillars, beetles, weevils, parasitic plant and animal nematodes, protozoan pathogens, grubs, mites, liver flukes and adult houseflies. FATTY ACID TECHNOLOGY - Fatty acids disrupt or destroy cellular membranes of soft-bodied insects, plants and microbial plant pathogens, such as fungi. The pesticidal benefits of fatty acids are based on four key properties: 1) they act rapidly on contact, 2) they have a unique mode of action, 3) they use naturally 7 occurring active ingredients and 4) treated areas require limited worker safety re-entry restrictions. These characteristics make fatty acid pesticides useful in targeted markets. For example, the contact activity of fatty acids has been shown to enhance the efficacy of certain synthetic chemical pesticides. By using tank mixes of fatty acids and other chemicals, growers can reduce treatment costs, lower the synthetic chemical load on the environment and prolong the usefulness of their pest control tools by managing resistance. MICROBIAL BIOPESTICIDE MANUFACTURING - Mycogen's microbial biopesticide products are manufactured through a large-scale fermentation process. After fermentation, the mass-produced microorganisms are killed and harvested for product formulation. These products use virtually the entire fermentation biomass, very little, if any, purification is required. The concentrated microorganisms can be processed in either a liquid or dry product formulation. Product formulations and manufacturing processes for all microbial biopesticides are developed at Mycogen's San Diego research facility. Once the basic process is developed, it is scaled up in the Company's pilot plant. This facility has sufficient capacity to produce quantities of material required for small scale field trials. Once a process is proven at the pilot plant scale it is available for transfer to Mycogen's manufacturing facility for commercial scale-up. To implement a high-yield fermentation process, Mycogen entered into a long-term exclusive manufacturing agreement with Enzyme Bio-Systems, Ltd. ("EB"), a wholly-owned subsidiary of CPC International, Inc. Under the manufacturing agreement, EB added dedicated fermentation capacity and certain equipment at its Beloit, Wisconsin, facility to support the production, recovery, formulation and packaging of Mycogen's microbial products. Capital funding of $11.2 million was provided by Mycogen. Mycogen pays EB the actual costs of manufacturing, plus a fee based on the number of units produced. BIOPESTICIDE PRODUCTS REGISTERED BY THE EPA FOR COMMERCIAL USE
PRODUCT AND BIOTOXIN TARGET PEST MARKET M-C(TM)1 (Bt) Army worm, diamond back moth, Various, including vegetables common cut worm and cotton and cotton leafworm - ------------------------------------------------------------------------------------------------------------------------------------ MVP(R) (Bt) Leaf-eating caterpillar pests Cotton, tree fruits and vines - ------------------------------------------------------------------------------------------------------------------------------------ M-Peril(R) (Bt) European corn borer Corn (solid granules) - ------------------------------------------------------------------------------------------------------------------------------------ Mattch(TM) (Bt) Leaf-eating caterpillar pests Vegetables and nursery crops - ------------------------------------------------------------------------------------------------------------------------------------ M-Pede(R) (Fatty acid) Soft-bodied insects and Fruits, vegetables, grapes and powdery mildew ornamentals ----------------------------------------------------------------------------------------------------------------------------------- Scythe(R) Herbicide Broad spectrum of weeds Horticulture and landscape (fatty acid) management - ------------------------------------------------------------------------------------------------------------------------------------ Thinex(TM) (fatty acid) Blossom thinner Apples, pears and stone fruits - ------------------------------------------------------------------------------------------------------------------------------------
/1/ EPA registration pending. FATTY ACID PRODUCT MANUFACTURING - Mycogen manufactures its fatty acid based biopesticide products under short-term toll manufacturing agreements. MANUFACTURING CAPACITY - The Company believes that its current manufacturers have adequate capacity to meet Mycogen's product needs for the foreseeable future, and that the required raw materials for all of its biopesticides are readily available. Shortages of these raw materials that might materially affect availability or cost are not anticipated. 8 SOILSERV - CROP PROTECTION SERVICES - Soilserv, founded in 1945 and acquired by Mycogen in 1991, provides customized crop protection services to growers of high value crops in California and Arizona. Soilserv monitors fields, recommends and supplies pest control products and applies such products, principally in the Salinas Valley, California, and Yuma, Arizona, regions, and provides notifications and files documents regarding pesticide applications as required by state and local agencies. Soilserv has developed customized spray rigs and other application equipment for specific vegetable crops, and uses a proprietary database system to verify that pesticide recommendations made by its licensed pest control advisors to its grower customers comply with EPA, state and local government regulations. Mycogen is evaluating opportunities to provide crop protection services similar to those offered by Soilserv in other geographic areas where high value crops are grown. PATENTS AND PROPRIETARY TECHNOLOGY As of August 31, 1996, Mycogen held 123 U.S. patents and more than 271 foreign patents not including patents that have been reassigned or abandoned. The Company has filed and is pursuing 115 additional patent applications in the U.S., with corresponding applications pending in other countries. In addition to patents, the Company relies on trade secrets and proprietary information to protect its technology. PLANT SCIENCE PATENTS - As a result of research conducted by Agrigenetics Corporation, a Delaware corporation (now Mycogen Seeds) in the 1980's, the Company has applied for, and in some cases been granted, fundamental patents in key technical areas. Mycogen's patents and patent applications include claims to a number of plant science inventions and discoveries, such as insect- resistant plants utilizing Bt genes, plant transformation systems and the synthesis of Bt genes to optimize expression of pesticidal proteins in plants. In January 1995, Mycogen received a broad U.S. patent covering its method of modifying Bt gene sequences to make them resemble those of the plants into which they are to be inserted. Such modifications improve Bt genes' efficiency in producing pesticidal proteins. In December 1995, the Company received European patents covering Mycogen's method of modifying Bt genes to resemble plant genes and to modified genes and transgenic plant cells developed by using such a method. Several major crop plants, including corn, cotton, canola, potatoes and tomatoes, have been transformed with synthetic Bt genes by Mycogen and other companies, and Bt corn seeds were introduced commercially in 1996. On October 22, 1996, Mycogen received two additional patents relating to synthetic Bt genes technology. The patents include "composition of matter" claims to modified Bt genes, plant cells transformed with such genes and transgenic plants and resulting planting seeds containing the modified genes. BIOPESTICIDE PATENTS - A number of the Company's issued U.S. patents relate to its CellCap(R) encapsulation technology. Mycogen's issued patents and patent applications also include claims to more than 30 specific protein biotoxins and associated genes, certain insecticidal and nematicidal microorganisms, plant colonizing microbial delivery systems and certain bioherbicides and related technology. The Company has a number of issued patents and patent applications covering certain pesticidal uses of fatty acids by themselves and in combination with certain chemical pesticides. The Company has licensed certain rights to its patents and technology in specific fields to corporate partners. Mycogen has exclusive licenses to a number of issued patents and patent applications in the U.S. and other countries, and certain trade secret technology relating to fatty acid pesticides and their use. PROPRIETARY SEED PRODUCTS - Mycogen's seed products are either hybrid seeds resulting from a cross of inbred parent lines or varieties produced from a single parent line. In the case of hybrids, the Company can 9 maintain a proprietary position because hybrid seeds progressively lose their agronomic advantage from generation to generation, and the inbred parent lines from which hybrids are produced generally are not sold to growers. In the case of crops that are not produced as hybrids, the Company sells varieties that breed true from generation to generation. For these crops, the Company relies on Plant Variety Protection certificates granted by the U.S. government pursuant to the Plant Variety Protection Act (the "PVPA"), or similar rights granted by foreign governments. These certificates give the holder certain exclusive rights for a period of time (18 years under the PVPA) to reproduce the covered variety and sell it for planting. Mycogen has filed applications for utility patent protection for certain of its crop varieties and plant materials to obtain broader utility patent protection for unique plants that the Company has developed or bioengineered. UNCERTAINTY OF BIOTECHNOLOGY PATENTS - The status of biotechnology patents is highly uncertain. A substantial number of patent applications have been filed. Some issued and pending patents claim basic aspects of genetic engineering technology related to transformed plants, biopesticides and other areas of agriculture. Mycogen has royalty-bearing nonexclusive licenses relating to the use of certain processes employed in recombinant DNA technology, plant transformation, microbial biopesticide production and other aspects of the Company's business. If the broad claims of existing and future genetic engineering patents are upheld, the holders of such patents may be in a position to require other companies to obtain licenses. There can be no assurance that licenses the Company may need for its processes or products will be available on reasonable terms, if at all. GOVERNMENTAL REGULATION AND PRODUCT REGISTRATION Agricultural biotechnology comes under the jurisdiction of three federal regulatory agencies: the Food and Drug Administration ("FDA"), the EPA and the United States Department of Agriculture ("USDA"). Agency jurisdiction generally is a function of three factors: 1) the particular substances or products involved (for example, grains), 2) the uses and other purposes of such products and 3) the commercial activities involved (for example, research, field testing, production and distribution). FDA review of biotechnology products focuses on their intended uses, and is conducted on a case-by-case basis. Unless a food product or food additive is generally recognized as safe, based on scientific evaluation by qualified experts, under the conditions of its intended use, FDA must approve a petition for the product's intended use before it can be introduced into commerce. FDA's approval generally includes specified conditions under which the product may be used. Field testing, production and marketing of pesticide products are regulated by federal, state, local and foreign governments. The EPA regulates pesticides in the U.S. under the Federal Insecticide, Fungicide and Rodenticide Act, as amended ("FIFRA"). Pesticides also are regulated by the states. Field testing of nonindigenous microbial biopesticides requires approval of both the EPA and the USDA's Animal and Plant Health Inspection Service. The Federal Seed Act defines USDA's regulatory authority over importation and interstate shipment of agricultural and vegetable seeds. In general, seeds may not be imported or shipped interstate if they are deemed by USDA to be "noxious weed" seeds or to contain "noxious weed" seeds above levels prescribed by USDA or individual states. Thus, to the extent that a seed resulting from a biotechnology process is adulterated with a "noxious weed" seed, it would be subject to these regulations. In addition, USDA regulates importation and interstate movement of "plant pests" and plants that may be or contain "plant pests" under the Plant Quarantine Act and the Federal Plant Pest Act. Shipment and field release of a plant that is 10 genetically engineered to contain a "plant pest" is subject to the regulatory oversight of USDA and of individual states. USDA and various states also regulate production and distribution of crop seeds under the Federal Seed Act and state seed acts, which require that commercial seed products meet certain purity and labeling requirements. Similarly, plant inoculants are subject to regulation under various state acts that establish labeling and effectiveness standards. Genetically altered plants that have pesticidal traits, such as the ability to produce pesticidal proteins, are regulated by the EPA under FIFRA with respect to their pesticidal properties. The EPA requires completion of certain tests prior to registration of a pesticidal plant to ensure that such plants pose no risk to human health or the environment. SEASONALITY OF BUSINESS Information regarding the seasonality of Mycogen's business can be found in the Summary section of Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." BACKLOG Mycogen's distribution and marketing practices do not require an extraordinary amount of working capital. The Company maintains inventory to meet customer requirements. Mycogen Crop Protection and Mycogen Seeds do not manufacture biopesticide and seed products against a backlog of firm orders, and instead, inventory levels are geared primarily to projections of future demand. The Company generally is not dependent upon one customer or a group of customers and has no material contracts with the U.S. government or with any state, local or foreign government. RESEARCH AND DEVELOPMENT Mycogen's product development programs involve a significant level of research and development activity. Company sponsored research and development expenses totaled $19.2 million for Mycogen's fiscal year ended August 31, 1996. For the two comparable fiscal years ended August 31, the Company-sponsored research and development expenses were $18.2 million in 1995, and $13.5 million in 1994. COMPETITION The Company faces intense competition. Competition in planting seeds is based primarily on price, crop yields, other crop performance characteristics, including crop resistance to disease and pests, and customer service. Competition in biopesticides is based primarily on efficacy, price, ease of application and safety. COMPETITION IN SEEDS - Mycogen believes that it has three categories of competitors in planting seeds: large, multinational seed companies, smaller regional seed companies and agricultural biotechnology companies engaged in the development of new, genetically engineered crop varieties. The planting seed industry is dominated by large multinational companies located in the U.S. and Europe. These include Pioneer, the world's largest seed company, DeKalb Genetics Corporation ("DeKalb"), Sandoz Holding AG, Ciba-Geigy Corporation, Limagrain and others. These firms generally operate throughout the world and have substantial financial and marketing resources, as well as extensive research, plant breeding and production facilities and expertise. Some of these companies and a number of others have significant 11 plant biotechnology research programs to develop new crop varieties that are genetically enhanced for increase yield, pest- or disease-resistance and other value-added characteristics. COMPETITION IN BIOPESTICIDES - Mycogen believes that it has three categories of competitors in biopesticides: large chemical pesticide companies, established companies with biopesticide product lines and other companies developing new biopesticide products. The pesticide industry is dominated by large chemical companies located in the U.S. and Europe. These firms generally operate throughout the world and have extensive financial and marketing resources as well as extensive product registration experience and highly efficient manufacturing capabilities. Some chemical pesticide companies have added biopesticide products to their product lines. These include Abbott Laboratories, Sandoz A.G. and Ciba-Geigy Corporation, all of which are large multinational firms with substantial financial resources and, in certain cases, large-scale fermentation manufacturing capabilities and extensive experience in formulating biopesticide products. HUMAN RESOURCES As of August 31, 1996, the Company had 887 employees. The Company's management believes that it maintains positive relations with its employees. ITEM 2. PROPERTIES The Company owns its principal executive and administrative facilities located in San Diego, California. In addition, Mycogen owns its principal biopesticide research and development facilities located in San Diego, California, that are used by Mycogen Crop Protection. The Company also owns office, warehouse and formulation facilities located in Salinas, California, as well as several smaller satellite facilities in the Salinas area, that are used by Soilserv. Mycogen's seed production, conditioning and storage facilities are located in the U.S., Argentina, France and Italy. The Company owns and maintains seed research, production, warehouse, distribution or administrative space in the U.S. at the following principal locations which are used primarily by Mycogen Seeds: Marshalltown and Vinton, Iowa; Breckenridge, Hastings and Olivia, Minnesota; Leland, Mississippi; York, Nebraska; Dumas, Texas and Prescott, Wisconsin. Mycogen is currently building executive and administrative facilities for Mycogen Seeds in Eagan, Minnesota, which is scheduled to be completed in November 1996. In addition, Mycogen Seeds leases field plant research and storage facilities in Woodland, California; Griffin, Georgia; Lincoln and Savoy, Illinois; Indianapolis, Indiana; Huxley and Schaller, Iowa; Grand Island, Nebraska; Plainview, Texas and Arlington and DeForest, Wisconsin. Mycogen Seeds also operates facilities for seed research, production, warehouse, distribution or administrative space at the following foreign locations: Buenos Aires, Colon, Laguna Blanca, Sampacho, San Isidro and Venado Tuerto, Argentina; Chatham, Ontario, Canada; Blois, Pau, and Toulouse, France; Ferrara, Italy and Santa Isabel, Puerto Rico. The Company believes that its present facilities are adequate to maintain its businesses. ITEM 3. LEGAL PROCEEDINGS On May 19, 1995, Mycogen's subsidiary, Mycogen Plant Science, Inc. ("MPSI"), filed suit in Federal District Court in San Diego, California, claiming that Monsanto Company's ("Monsanto") use of synthetic Bt genes to develop and sell seeds for insect-resistant plants infringes Mycogen's U.S. patent covering the process used to synthesize Bt genes. Certain claims within that suit were dismissed by the court in 1995, and others still are pending. 12 On October 31, 1995, Plant Genetic Systems NV ("PGS") filed suit in the Central District of North Carolina, claiming that Bt corn seed products developed by Mycogen and Ciba Seeds infringe PGS's U.S. patent covering plants containing truncated Bt genes. On August 13, 1996, PGS amended its lawsuit against Mycogen by adding newly issued patent 5,545,565 relating to the truncated Bt(2) gene sequence. On March 19, 1996, Monsanto filed suit in Federal District Court in Wilmington, Delaware, claiming that Mycogen's and Ciba Seeds' Bt corn products infringe Monsanto's U.S. patent covering a modified Bt DNA sequence used to make plants insect-resistant. On April 30, 1996, DeKalb filed suit in Federal District Court in Rockford, Illinois, claiming that Mycogen's, Ciba Seeds' and Pioneer's Bt seed corn products infringe DeKalb's patents covering Bt insect resistance and glufosinate herbicide tolerance in corn. On May 1, 1996, Mycogen Seeds filed a declaratory judgment action in Federal District Court in San Diego, stating that its Bt seed corn does not infringe DeKalb's patents. That case was transferred to Rockford, Illinois, for consolidation with the DeKalb lawsuits against Mycogen. On April 3, 1996, the California Court of Appeal, Fourth Appellate District, reversed a San Diego County Superior Court ruling in a case brought by MPSI against Monsanto in December 1993, and affirmed that MPSI is entitled to exercise options to license certain herbicide tolerance and insect resistance technology for plants from Monsanto. On May 8, 1996, Mycogen filed suit in Superior Court in San Diego, seeking actual and punitive damages for breach of contract and interference with Mycogen's seed business as a result of Monsanto's refusal to honor a contract to license certain herbicide tolerance and insect resistance technology to Mycogen Seeds. On July 23, 1996, DeKalb filed suit in Rockford, Illinois, against Mycogen and Ciba Seeds for infringement of US Patents 5,538,877 and 5,538,880 relating to insect resistant and herbicide resistant corn. On August 27, 1996, DeKalb amended its July 23rd lawsuit to add newly issued patent 5,550,318. On October 22, 1996, Mycogen filed suit in Federal District Court in Wilmington, Delaware, claiming that insect-resistant seed products developed and marketed by Monsanto, DeKalb and Delta & Pine Land Company ("DP&L") infringe new U.S. patents issued to Mycogen that cover modification of Bt genes for plant expression, introduction of modified Bt genes into plant cells, and to plants and seeds produced from cells transformed with modified Bt genes. The suit seeks an injunction to bar development or sale of Bt seed products as well as damages arising out of sales of those companies' Bt seed products. This litigation is not expected to have a material adverse effect on the Company's business or consolidated financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the security holders of the Company during the fourth quarter of fiscal year 1996. 13 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, 1996 High Low 4th Quarter............. 18 1/2 13 3rd Quarter............. 20 15 2nd Quarter............. 19 1/2 11 3/4 1st Quarter............. 14 1/4 9 1/2 Year ended August 31, 1995 High Low 4th Quarter............. 11 1/4 7 3/4 3rd Quarter............. 10 3/4 8 2nd Quarter............. 12 7 7/8 1st Quarter............. 10 1/2 9 1/4
At September 30, 1996, there were 3,555 holders of record of the Company's common stock. No dividends have been declared or paid on the common stock. The Company has no intention of paying dividends on common stock in the foreseeable future. 14 ITEM 6. SELECTED FINANCIAL DATA FIVE YEAR SELECTED FINANCIAL DATA (In thousands, except per share data)
EIGHT MONTHS ENDED YEAR ENDED YEARS ENDED AUGUST 31,/1/ AUGUST 31, DECEMBER 31, ----------------------------------------------- ----------- ------------ 1996/2/ 1995 1994/2/ 1993/2/ 1992 1991/2/ -------- -------- -------- -------- ----------- ------------ (unaudited) Net Operating Revenues $146,800 $106,169 $104,383 $112,583 $ 23,427 $ 13,218 Total Revenue 155,589 113,218 112,760 118,011 24,630 18,312 Net Loss Applicable to Common Shares (47,636)/3/ (15,946) $(33,234)/3/ (27,514)/3/ (3,030)/4/ (3,305) Net Loss Per Common Share (1.81)/3/ (.83) (1.81)/3/ (1.69)/3/ (.21)/4/ (.27) Cash, Cash Equivalents and Securities Available-for-Sale 68,038 17,600 37,887 66,314 66,456 75,835 Total Assets 227,469 159,608 165,726 201,533 112,714 114,540 Long-Term Liabilities 5,228 3,291 1,207 1,141 1,256 1,041 Redeemable Preferred Stock - - - 40,897 - - Stockholders' Equity 181,194 113,703 125,406 107,885 105,207 107,011
/1/ In May 1995, Mycogen Corporation changed its fiscal year end from December 31 to August 31 and has elected to restate the results for the three ended August 31, 1995 . /2/ The acquisitions of UAS in 1996, Mycogen Seeds in 1993, 1994 and 1996 and Soilserv in 1991 affect the comparability of the Selected Financial Data. /3/ Net loss in 1996, 1994 and 1993 includes special charges of $25.2 million, 36.4 million and $23.7 million, respectively, as discussed in further detail in the Notes to Consolidated Financial Statements. /4/ Net loss in 1992 includes charges of $2.1 million for a patent litigation settlement. 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. The Company's actual results may differ significantly from projections in forward-looking statements as a result of many factors. Varying climatic conditions can shift revenues between quarter. Weather also can affect operating revenues, seed costs, pest populations, the effectiveness of pesticides and seeds, seed production yields, commodity prices and growers' planting decisions. Operating revenues also depend on a number of other factors, including market acceptance of products, competition and U.S. and foreign government policies that affect crop acreage and farm income. Planted acreage is a key factor in determining volumes of seed, crop protection services and biopesticide products purchased by growers. These and other factors may affect Mycogen's ability to increase operating revenues and achieve profitability. The Company also must continue to invest in commercializing existing products and in discovery and development of new products, so the trend in losses from operations may continue. The Company's businesses are highly seasonal. Seed operating revenues are concentrated mainly in the second and third fiscal quarters which end February and May. Crop Protection operating revenues are concentrated mainly in the third and fourth quarters which end in May and August. RESULTS OF OPERATIONS SUMMARY Mycogen develops and markets value-added planting seeds for major agricultural crops and environmentally compatible biopesticide products and provides crop protection services to control pests and improve food and fiber production. The Company is organized into two business units, Seed and Crop Protection. Mycogen's Seed business, doing business as Mycogen Seeds, markets a complete line of planting seeds for major agricultural crops. It ranks fourth in North America hybrid seed corn sales and among the top five in soybean, hybrid sunflower, hybrid sorghum and alfalfa. Using both traditional breeding and advanced biotechnology techniques, the Company is moving rapidly to augment and improve the genetic makeup of major corps to produce seed products that give growers value-added performance characteristics. Mycogen's Cop Protection business, Mycogen Crop Protection, develops, manufactures and markets biopesticide products and provides crop protection services to growers of high value crops in California and Arizona. In December 1982, Mycogen was formed to use genetic engineering to develop environmentally compatible biological alternatives to chemical pesticides. In January 1990, the Company acquired a line of fatty acid based pesticides to complement its line of microbial products. In August 1991, it acquired Soilserv, a provider of crop protection services to growers in California and Arizona, to establish a revenue base and to gain experience in crop protection practices. During this time, Mycogen continued to discover and develop a library of Bt genes sequences that code for production of protein biotoxins with pesticidal activity. In December 1992, Mycogen acquired 51% of the Agrigenetics division of Lubrizol, which now does business as Mycogen Seeds. The acquisition was driven by the opportunity to pool Mycogen's and Lubrizol's 16 respective Bt gene technology and plant science patent estates and technological expertise to develop pest resistant crops. Such crops are developed by inserting synthetic Bt genes into plant cells. Plants regenerated from those transformed cells produce proteins that protect them from damage by certain pests. Once fixed in plant parent lines, this pest-resistance trait is carried in planting seeds that are produced and marketed as value-added products. In December 1993, the Company acquired an additional 29.5% of Mycogen Seeds, and in January 1996, the Company acquired Lubrizol's remaining 19.5% ownership interest in Mycogen Seeds. As a result of the additional acquisition in 1993, the Company expensed, as special charges, certain acquired in-process technologies which totaled $26.6 million for the fiscal year ended August 1994. In August 1993, the Company combined certain biopesticide discovery and plant science research programs to accelerate development of pest-resistant crops and completely restructured Mycogen Seeds. When Mycogen acquired Agrigenetics, Inc., it consisted of four independent seed companies selling products under ten different brand names. In some areas, these independent seed companies competed against each other with the same products. Their businesses were based mainly on marketing seed products developed from publicly available parent lines as lower priced alternatives to premium priced seed products sold by other companies. Volumes and margins had declined each year and inventory was increasing and aging. Mycogen decided to consolidate these separate companies into one, Mycogen Seeds. The Company consolidated administration, production, sales, marketing and general management at the headquarters of the largest of the four companies in Prescott, Wisconsin. Mycogen also decided to eliminate all of the existing brand names and commercialize all seed products under the Mycogen(R) brand, to eliminate overlapping sales territories and to replace older, lower value generic products with new, proprietary, value-added products. These changes resulted in restructuring charges totaling $9.8 million for the fiscal year ended August 1994. This consolidation in 1993 improved efficiency and reduced expenses. The number of separate seed corn products was reduced from 270 to approximately 90, and the number of farmer/dealers, at that time, was reduced from more than 5,000 to approximately 2,600. However, the elimination of familiar brands, heavy turnover in the sales force and repositioning of Mycogen Seeds from a discounter to a marketer of proprietary, value-added products under a new brand created significant disruption in the business, and seed volumes and market share declined in 1995. Additionally, Mycogen Seeds' 1995 sales performance was adversely affected by a reduction in planted acres in many keys territories and crops. All of these negative factors contributed to lower sales in 1995. Mycogen entered into two major strategic alliances during fiscal year 1996: . In December 1995, Mycogen and Pioneer completed a technology sharing agreement which will allow Mycogen to accelerate development of seed products for several pest-resistant crops. Under the agreement, Pioneer purchased three million shares of the Company's common stock for $30 million and has provided $10 million in research and development funding. Pioneer will provide an additional $11 million in funding near the end of 1998. The two companies also agreed to conduct a joint program to develop Bt pest- resistance technology for corn, soybean, sunflower, sorghum, canola and wheat. 17 . In February 1996, Mycogen and DowElanco entered into a strategic alliance to build a global seeds business capable of conventional breeding as well as genetic engineering and to develop seed products with value added performance characteristics and qualities important to down-stream users of grain and vegetable oils. Mycogen received $26.4 million in cash and all of the shares of UAS, DowElanco's seed subsidiary, in exchange for 4,453,334 shares of common stock. As a result of this transaction, DowElanco's purchase of 9,502,348 shares of Mycogen stock from Lubrizol and subsequent purchases in the open market totaling 658,420 shares, DowElanco owns, as of August 31, 1996, approximately 48% of the Company's outstanding common stock. These collaborations provided resources that allowed Mycogen to acquire other strategic assets and accelerate steps toward its objective of developing a global seeds business, as follows: . In January 1996, the Company purchased rights from a subsidiary of Lubrizol for $8.0 million, giving Mycogen freedom to commercialize its technology in certain oil seed crops. . During fiscal 1996, Mycogen spent $8.7 million to upgrade seed production facilities. These upgrades will allow the Company to produce high quality seed products and reduce production costs. . In September 1996, the Company entered into a long-term supply agreement with AC Humko to provide crude high oleic sunflower oil. High oleic oil increases product shelf life, which is an important quality for food processors. In conjunction with this agreement, Mycogen acquired Lubrizol's remaining interest in oil seed technology and related assets for $7.6 million in cash. . In September 1996, Mycogen purchased all of the common stock of Morgan Seeds for $27 million in cash. Morgan Seeds is the third largest seed company in Argentina, and will provide a base from which Mycogen can develop and commercialize seed products under the Morgan(R) brand in South America. . In October 1996, Mycogen signed a letter of intent to enter into a strategic alliance with Verneuil, a major European seed company. Mycogen and Verneuil agreed to form separate joint ventures to develop and commercialize oil seed crops and seed corn resistant to European corn borer. Additionally, Mycogen will exchange its European seeds business and other assets for an 18.75% ownership interest in Verneuil. The alliance would provide a platform for commercializing Mycogen's seed technology in Europe. Mycogen's goals for fiscal 1996 were to reverse the decline in Seed operating revenues by increasing sales of new, proprietary, value-added corn hybrids, and to take advantage of its improved biopesticide cost position of its microbial products. Seed operating revenues, excluding the acquisition of UAS, increased 20% due to an estimated 12% increase in planted U.S. corn acres and higher sales of its new NatureGard(TM) hybrid seed corn with genetically enhanced insect- resistance and Totally Managed Feedstuffs(TM) silage corn. Crop protection operating revenues were up 12% and revenues from microbial based biopesticide products were up 31%. 18 However, Mycogen's initiatives to build a global seeds company had a negative effect on 1996 financial results in the following areas: . Seed quality has become very important as Mycogen transitions from discount-priced generics to premium priced, value-added, proprietary products. Therefore, the Company raised quality standards to enhance performance of its new products. As a result, seed discards were higher than anticipated and the Company experienced shortages in some of its new premium products. The amount of quality discards recorded in 1996 totaled $3.0 million; the demand for these products was high, therefore, revenues and profits were adversely affected by the Company's inability to provide more seed. . Mycogen recorded special charges totaling $25.2 million, related mainly to write-offs of in-process technology and obsolete or redundant facilities as a result of its acquisitions. Charges for amortization of other intangibles acquired also were higher. . Mycogen recorded over $6.7 million in excess and obsolete seed inventory write-downs as a result of replacing older generic products with the new proprietary products. . Mycogen also incurred increased expenses related to bringing the Mycogen Seeds and UAS organizations together and upgrading the Mycogen Seeds' management team to bring experience in managing value-added, proprietary products. Mycogen Seeds spent approximately $5.4 million in unbudgeted operating expenses for items such as recruiting, relocation and severance, publicity, training and other programs supporting this effort. Mycogen will continue to pursue acquisitions and joint ventures to build its seeds business globally. The Company's strategy is focused on establishing and strengthening its presence in the world's largest and most productive growing regions by the year 2000, so that it will have production and distribution in place to broadly commercialize second generation insect-resistant and other value-added products coming out of its R&D pipeline. 19 SEGMENT OPERATING REVENUES AND OPERATING LOSS
Years ended August 31, (In thousands) 1996 1995 1994 ------------- ---------- ---------- Operating Revenues Seed Corn $ 52,855 $ 28,537 $ 32,020 Soybean 16,136 8,794 10,386 Sunflower 6,576 10,376 9,888 Sorghum 8,950 4,042 4,903 Other 5,634 3,506 4,591 International 11,884 10,074 8,541 ------------- ---------- ---------- 102,035 65,329 70,329 ------------- ---------- ---------- Crop Protection Soilserv 36,019 32,887 29,139 Biopesticides 9,867 7,953 4,915 ------------- ---------- ---------- 45,886 40,840 34,054 ------------- ---------- ---------- Intersegment (1,121) - - ------------- ---------- ---------- ------------- ---------- ---------- Total Operating Revenues $ 146,800 $ 106,169 $ 104,383 ============= ========== ========== Operating Income (Loss) Seed (47,818)* (11,922) (45,052)* Crop Protection 316 (2,336) (859) Corporate (2,527) (1,259) (2,894) Intersegment (120) - - ------------- ---------- ---------- Total Operating Loss $ (50,149) $ (15,517) $ (48,805) ============= ========== ==========
*The net operating loss for the Seed segment includes special charges of $25.2 million and $36.4 million in 1996 and 1994, respectively. SEED SEGMENT FISCAL YEAR ENDED AUGUST 1996 COMPARED TO 1995 OPERATING REVENUES: Seed operating revenues for the fiscal year ended August 1996, were $102 million, compared to $65.3 million for fiscal 1995. The acquisition of UAS accounted for $23.6 million of the increase, primarily in corn and soybean seed sales. The remaining increase of $13.1 million or 20% is attributable mainly to higher volumes, as follows: . Higher planted corn acreage in 1996 and increased sales of NatureGard(TM) corn hybrids with Bt or native corn borer resistance and Totally Managed Feedstuffs(TM) silage corn accounted for the majority of a $7.6 million, or 20%, increase in seed corn revenue. 20 . Sorghum volumes increased over 80%, generating $4.6 million in increased revenue. This increase is largely attributable to droughts in Texas, Kansas and North Dakota that damaged winter wheat crops, causing wheat acreage to be replanted with sorghum. . Soybean revenues increased $1.8 million, largely due to a more aggressive sales and marketing focus in 1996 and cooler, wetter weather in certain areas, which caused some farmers to plant soybean instead of corn. . Offsetting these increases were lower domestic sunflower sales of $3.9 million due to lower acreage planted in 1996 as a result of heavy disease pressure in North Dakota and higher wheat and corn prices. . International operating revenues increased $1.8 million, or 18%, mainly due to higher sales of sunflower seed in Argentina and seed corn in Europe. OPERATING LOSS: Seed operating losses for the fiscal year ended August 1996, excluding special charges of $25.2 million, increased $10.7 million compared to fiscal 1995. This deterioration in operating results, excluding UAS, is attributable primarily to a $5.2 million increase in sales and promotional expenses associated with the increase in sales volumes, legal fees of $2.4 million incurred to enforce the Company's patent position and lower gross margins of $1.8 million. Excluding UAS, higher gross margins from higher sales volumes were reduced by higher seed costs and higher product discards and obsolescence ("D&O"). Corn seed costs were $3 per unit higher due to low production yields. D&O increased by $5.8 million due to higher quantities of seed that did not pass quality standards and higher quantities of excess and obsolete seed inventory. The Company currently is a party to seven separate litigations arising out of disputes over patent and license rights for insect resistance and herbicide tolerance technology in plants. The Company will continue to assert and defend its positions in these matters, and therefore, will continue to incur significant legal expenses. SPECIAL CHARGES: Special charges recognized during 1996 totaled $25.2 million. Those charges are mainly comprised of impairment losses and exit costs of $14.4 million related to the disposal and sale of certain corn production plant assets and write-offs of acquired in-process technology totaling $10.3 million, including $7.2 million for oil seed technology rights acquired from Lubrizol and $3.1 million related to the acquisition of UAS. The Company is still evaluating programs related to that oil seed technology and has not yet committed significant funding. The Company expects that it will need to spend approximately $2.5 million over the next three to five years to commercialize the UAS technology. The estimated funding and related efforts are within the normal course of research efforts typically required by UAS's breeding and development programs. 21 FISCAL YEAR ENDED AUGUST 1995 COMPARED TO 1994 OPERATING REVENUES: Seed operating revenues for the fiscal year ended August 1995, were $65.3 million compared to $70.3 million for the fiscal year ended August 1994. The net $5.0 million decrease in revenues was attributable mainly to lower volumes, as follows: . Corn acres planted industry-wide decreased 10% from 1994 to 1995, due to a cool, wet spring which caused growers either to not plant or to shift to other crops. The Company's corn volumes decreased 12%. Although soybean acres industry-wide were estimated to have been flat from 1994 to 1995, the Company's soybean volumes were down 15%. Corn and soybean seed were the products most impacted by the Company's decisions to consolidate marketing under a single brand and reduce the number of hybrids offered and the size of its farmer/dealer network. . Sunflower revenues increased a net 5%, or $.5 million. Higher sales of confection sunflower and high oleic sunflower to a related party more than offset a 13% decline in oil sunflower volume. This decline in oil sunflower was due to disease and government programs which caused growers in certain territories where the Company has a strong market presence to shift plantings from sunflower to wheat and canola. . Sales volumes for other seed products, mainly sorghum and alfalfa, also were lower. Sorghum acreage continued to decline and shift to other crops, such as cotton. The Company believes that, as a result of the relatively mild winter in fiscal 1995, an unusual amount of pasture survived the normal winter kill, which resulted in lower alfalfa sales. . International revenues increased 18%, or $1.5 million, due to higher corn and sunflower sales, mainly in France. OPERATING LOSS: Seed operating loss for the fiscal year ended August 1995, was $11.9 million compared to $8.7 million (excluding special charges of $36.4 million) for the fiscal year ended August, 1994. Gross profit was $4.3 million lower, due mainly to lower sales volumes and higher cost of operating revenues as a percent of sales. Cost of operating revenues was higher, due mainly to obsolescence as a result of repositioning corn inventory from non-proprietary hybrids to new value-added hybrids. Lower sales volumes were also responsible for increased unit fixed costs and costs incurred to dispose of excess and poor quality inventory. Expenses were slightly lower. Higher research and development expenses were partially offset by lower selling, marketing, general and administrative expenses resulting from a company-wide restructuring and lower provisions for doubtful accounts. CROP PROTECTION SEGMENT FISCAL YEAR ENDED AUGUST 1996 COMPARED TO 1995 OPERATING REVENUES: Crop Protection operating revenues increased by $5 million from 1995 to 1996, as follows: . Soilserv operating revenues were $3.1 million higher than last year due to heavy insect pressure in Salinas Valley that increased sales of aerial applications and higher penetration of crop protection markets in Arizona. 22 . Biopesticide operating revenues were up $1.9 million, due to sales of new products, Mattch(TM) bioinsecticide and Scythe(R) bioherbicide, higher international sales of MVP(R) bioinsecticide and higher sales of MVP(R) concentrate to Kubota Corporation ("Kubota"). Lower sales of M-Pede(R) and M-Trak(R) bioinsecticides in North America, attributable to the introduction of new products by competitors, partially offset those increases. OPERATING INCOME: 1996 operating results improved $2.7 million due to improved gross margins of $3.8 million attributable to higher sales volumes coupled with lower biopesticide manufacturing costs. Higher operating expenses reduced operating income by $.8 million. FISCAL YEAR ENDED AUGUST 1995 COMPARED TO 1994 OPERATING REVENUES: Crop Protection operating revenues for the fiscal year ended August 1995, were $40.8 million compared to $34.1 million for fiscal 1994, as follows: . Soilserv operating revenues were up $3.7 million in fiscal 1995 due to the flooding in California's Salinas Valley during the second quarter, resulting in heavy insect and disease pressure that increased the demand for Soilserv's aerial pesticide applications. . Biopesticide operating revenues were up $3.0 million, or 62%, due to the introduction of Scythe(R) herbicide and increases in sales of MVP(R) for control of heliothis in cotton and M-Peril(R) for control of European corn borer in corn. International sales of biopesticides increased due to expanded sales of MVP(R) liquid in Asia and MVP(R) concentrate to Kubota. OPERATING LOSS: Crop Protection operating losses for the fiscal year ended August, 1995, were $2.3 million, compared to $.9 million for fiscal 1994. The increase in operating losses was due mainly to a $1.6 million write-down of crop protection technology resulting from the discontinuation of a certain product development program. Contract and other revenues declined $1.5 million. These decreases were partially offset by higher margins. Soilserv margins improved in total and as a percent of sales due to higher volumes. CORPORATE FISCAL YEAR ENDED AUGUST 1996 COMPARED TO 1995 The increase of $1.3 million in the Corporate operating loss was due to higher compensation and bonuses and expenses related to general research and development activities. FISCAL YEAR ENDED AUGUST 1995 COMPARED TO 1994 The reduction of $1.6 million in the Corporate operating loss from $2.9 million in 1994 to $1.3 million in 1995 was due to lower general and administrative expenses resulting from the consolidation and allocation of Corporate general and administrative resources to the Seed business during the 1993 restructuring of Mycogen Seeds' operations. 23 NON-OPERATING ITEMS INTEREST INCOME AND EXPENSE, NET Interest income and expense, net, increased $1.5 million to $2.4 million in fiscal 1996 due to higher net interest income as a result of more cash available for investment during the year. Interest income and expense, net, decreased $1.4 million to $.9 million in 1995. The decrease was due mainly to less cash available for investment and higher levels of borrowing under the Company's line of credit during 1995. OTHER INCOME Other income of $.7 million was recognized in 1996 upon receipt of a litigation settlement. MINORITY INTEREST Effective December 31, 1993, the Company agreed to purchase the remaining 19.46% ownership interest in Mycogen Seeds from Lubrizol. Lubrizol's minority interest in Mycogen Seeds was recorded at the minimum agreed upon purchase price and Mycogen Seeds operating results have been recognized since that time as if the Company owned 100% of Mycogen Seeds. Therefore, no minority interest was recognized for periods after December 31, 1993. LIQUIDITY AND CAPITAL RESOURCES The Company's cash, cash equivalents and securities available-for-sale increased by $50.4 million to $68 million during the fiscal year ended August 1996. This increase was primarily due to proceeds of $30 million, $26.4 million and $3.5 million from the sale of common stock to Pioneer, DowElanco and employees, respectively, and $10 million in research funding from Pioneer. These proceeds were reduced by cash used to pay off $4.7 million of long-term debt, cash paid to Lubrizol for technology rights of $2 million, cash paid to DowElanco of $1.8 million in connection with the acquisition of UAS and capital expenditures which totaled $13.9 million. The Company has a $25 million bank line of credit facility, which expires November 30, 1996. The credit facility is used to fund portions of the Company's seasonal working capital needs; $23.5 million was unused as of August 31, 1996. The Company is currently renegotiating the terms, including an extension, of its credit facility. In December 1995, the Company signed a definitive agreement for a technology collaboration with Pioneer. Under the agreement, Pioneer purchased three million shares of the Company's common stock for $30 million and provided $10 million in research and development funding. Pioneer will provide an additional $11 million in funding near the end of 1998. In January 1996, Lubrizol converted its entire interest in shares of preferred stock into 1,815,274 shares of Mycogen common stock and sold its 19.46% ownership interest in Mycogen Seeds to the Company for 1,538,008 shares of common stock. The Company also purchased certain rights in oil seed technology from a subsidiary of Lubrizol for $8.0 million. The Company made an initial payment of $2.0 million and will pay $2.5 million and $3.5 million in January 1997 and 1998, respectively. In February 1996, the Company issued common stock to DowElanco in exchange for $26.4 million in cash and all of the shares in UAS. During fiscal 1996, the Company invested $8.7 million to upgrade seed production facilities, and expects to invest another $19.8 million during fiscal 1997 to add additional seed processing capacity. The Company also invested $1.1 million in fiscal 1996 to build a new headquarters for Mycogen Seeds and expects to spend about $3.0 million during the first quarter of fiscal 1997 to complete construction. Other capital expenditures totaled $4.1 million for fiscal 1996, and are expected to total $6.0 million during fiscal 1997. 24 In September 1996, the Company purchased all of the common stock of Morgan Seeds for $27 million in cash and acquired Lubrizol's remaining interest in oil seed technology and certain related assets for $7.6 million in cash. The Company will continue to pursue an aggressive acquisition and joint venture strategy for both the Seed and Crop Protection business units. The Company is involved in various actions related to its patent positions and plans to continue to spend resources as required to enforce its intellectual property rights. The Company's success will depend in part on its ability to obtain U.S. and foreign patent protection for its products. To date, Mycogen has obtained numerous patents and has filed a large number of patent applications in the United States and foreign jurisdictions relating to the Company's technology. There can be no assurance that issued patent claims will be sufficient to protect the Company's technology. The commercial success of the Company also will depend in part on the Company's ability to avoid infringing patents issued to competitors. If licenses are required, there can be no assurance that the Company will be able to obtain such licenses on commercially favorable terms, if at all. Litigation, which can result in substantial cost to the Company, may also be necessary to enforce the Company's intellectual property rights or to determine the scope and validity of third- party proprietary rights. The Company anticipates that its current cash position, revenue from operations and contract and other revenues, and funds from its existing line of credit will be sufficient to finance working capital and capital requirements for the immediate future. However, the Company's capital requirements may vary as a result of competitive and technological developments, the timing of regulatory approval for new products and the terms and conditions of any future strategic transactions. If such requirements change, the Company may need to raise additional capital. However, there can be no assurance that the Company can raise additional capital under favorable terms, if at all. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Index to Consolidated Financial Statements appearing after the signature page of this Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 25 PART III Certain information required by Part III is omitted from this report in that the Company will file the Proxy Statement pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report, and certain information included therein is incorporated herein by reference. Only those sections of the Proxy Statement which specifically address the items set forth herein are incorporated by reference. Such incorporation does not include the Compensation Committee Report or the Performance Graph included in the Proxy Statement. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) Identification of Directors. The information under the caption "Election of Directors," appearing in the Proxy Statement, is incorporated herein by reference. (b) Identification of Executive Officers. The information under the headings "Executive Officers" and "Responsibilities and Business Experience of Executive Officers," appearing in the Proxy Statement, is incorporated herein by reference. (c) Compliance with Section 16(a) of the Exchange Act. Based solely upon a review of Forms 3, 4 and 5 and amendments thereto furnished to the Registrant and upon written representations of all individuals required to file forms pursuant to Section 16(a), the Registrant knows of no such individual that failed to file Forms 3, 4 and 5 on a timely basis during the last fiscal year, except as set forth under the heading "Compliance with Section 16(a) of the Exchange Act" appearing in the Proxy Statement. The information under such heading is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information under the heading "Executive Compensation" appearing in the Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information under the headings "Principal Stockholders" and "Executive Compensation-Security Ownership of Directors and Management as of September 30, 1996," appearing in the Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information under the headings "Election of Directors," "Executive Compensation" and "Certain Relationships and Related Transactions" appearing in the Proxy Statement is incorporated herein by reference. 26 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements and Report of Ernst and Young LLP, Independent Auditors. See Index to Financial Statements at page 32 of this Form 10-K. (b) No reports on Form 8-K have been filed during the last quarter of the period covered by this report. (c) Exhibits:
SEQUENTIALLY NUMBERED DESCRIPTION PAGE 2.1 Agreement and Plan of Merger of Mycogen Corporation, a -- Delaware corporation, and Mycogen California, Inc., a California corporation. Incorporated by reference from Exhibit 3.4 to the Registrant's Form 8-K, filed on November 28, 1995. 3.1 Articles of Incorporation of the Registrant. Incorporated by -- reference from Exhibit 2.1 to the Registrant's Form 8-K, filed on November 28, 1995. 3.2 Bylaws of the Registrant. Incorporated by reference from Exhibit -- 3.2 to the Registrant's Form 8-K, filed on November 28, 1995. 4.1 Reference is made to Exhibits 3.1 and 3.2 above. -- 4.2 Specimen Common Stock Certificate, $0.001 par value. Incorporated by reference from Exhibit 4.1 to the Registrant's Form -- 8-K, filed on November 28, 1995. 4.3 Amended and Restated Rights Agreement by and between Registrant -- and Bank of Boston. Incorporated by reference from Exhibit 4.2 to the Registrant's Form 8-K, filed on November 28, 1995. 4.4 Amendment to the Rights Agreement. Incorporated by reference from Exhibit 4.1 to the Registrant's Form 8-K, filed on March 22, 1996. -- 10.1 Registration Rights Agreement under Stock Purchase Agreement dated March 6, 1989. Incorporated by reference from Exhibit 10.2 to the Registrant's Form 10-K for the year ended September 30, 1989, filed on December 28, 1989. -- 10.2 Limited Partnership Agreement of MJT BH/BT Partnership, L.P., dated March 6, 1989, between Mycosub/BH, Inc. and JT Biotech USA, Inc., with certain confidential portions omitted. Incorporated by reference from Exhibit 10.9 to the Registrant's Form 10-K for the year ended September 30, 1989, filed on December 28, 1989. --
27
10.3 Limited Partnership Agreement of MJT BA Partnership, L.P., dated March 6, 1989, between Mycosub/BA, Inc. and JT Biotech USA Inc., with certain confidential portions omitted. Incorporated by reference from Exhibit 10.15 to the Registrant's Form 10-K for the year ended September 30, 1989, filed on December 28, 1989. -- 10.4 Registrant's 1995 Employee Stock Purchase Plan. Incorporated by reference from Exhibit 10.1 to the Registrant's Registration Statement on Form S-8, Registration No. 333-00901, filed on February 13, 1996. -- 10.5 Employee Stock Purchase Plan Summary and Prospectus. Incorporated by reference from Exhibit 10.2 to the Registrant's Registration Statement on Form S-8, Registration No. 333-00901, filed on February 13, 1996. -- 10.6 Registrant's Restricted Stock Issuance Plan. Incorporated by reference from Exhibit 28.1 to the Registrant's Registration Statement on Form S-8, Registration No. 33-40349, filed on May 3, 1991. -- 10.7 Form of Agreements pertaining to Restricted Stock Issuance Plan. Incorporated by reference from exhibit 28.2 to the Registrant's Registration Statement on form S-8, Registration No. 33-40349, filed on May 3, 1991. -- 10.8 Amendment No. 1 to Registrant's Restricted Stock Issuance Plan. Incorporated by reference from Exhibit 10.2 to the Registrant's Registration Statement on Form S-8, Registration No. 333-00899, filed on February 13, 1996. -- 10.9 Form of Indemnity Agreement between the Registrant and each of its directors. Incorporated by reference from Exhibit 10.1 to the Registrant's Form 8-K, filed on November 28, 1995. -- 10.10 Manufacturing Agreement dated September 15, 1988 between the Registrant and International Bio-Synthetics, Inc. (with certain confidential portions omitted). Incorporated by reference from Exhibit 10.19 to the Registrant's Form 10-K for the year ended September 30, 1988, filed on December 23, 1988. -- 10.11 Registrant's 1992 Stock Option Plan. Incorporated by reference from Exhibit 28.1 to the Registrant's Registration Statement on Form S-8, Registration Statement No. 33-55508, filed on December 9, 1992. -- 10.12 Form of Agreements pertaining to 1992 Stock Option Plan. Incorporated by reference from Exhibits 28.2, 28.3, 28.4 and 28.5 to the Registrant's Registration Statement on Form S-8, Registration No. 33-55508, filed on December 9, 1992. --
28
10.13 Amendment No. 1 to 1992 Stock Option Plan. Incorporated by reference from Exhibit 10.1 to the Registrant's Registration Statement on Form S-8, Registration No. 333-00899, filed on February 13, 1996. -- 10.14 Revolving Credit Note of the Registrant to Harris Trust and Savings Bank ("Harris Bank") dated August 5, 1994. Incorporated by reference from Exhibit 10.34 to the Registrant's Form 10-K for the year ended December 31, 1994, filed on March 3, 1995. -- 10.15 Revolving Credit Agreement between the Registrant and Harris Bank dated August 5, 1994. Incorporated by reference from Exhibit 10.35 to the Registrant's Form 10-K for the year ended December 31, 1994, filed on March 3, 1995. -- 10.16 Guaranty Agreement from the Registrant to Harris Bank dated August 5, 1994. Incorporated by reference from Exhibit 10.36 to the Registrant's Form 10-K for the year ended December 31, 1994, filed on March 3, 1995. -- 10.17 Form of Employment/Severance Agreement between the Registrant and certain executive officers of the Registrant. 55 10.18 Manufacturing Agreement dated December 1, 1993, between the Registrant and EB,with certain confidential portions omitted. Incorporated by reference from Exhibit 10.44 to the Registrant's Form 10-K for the year ended December 31, 1994, filed on March 3, 1995. -- 10.19 Agreement for Exchange of Insect Control Technology and Patent Rights dated July 14, 1993, between the Registrant and Ciba Seeds with certain confidential portions omitted. Incorporated by reference from Exhibit 10.45 to the Registrant's Form 10-K for the year ended December 31, 1994, filed on March 3, 1995. -- 10.20 Collaboration Agreement dated as of December 13, 1995, by and between Mycogen Seeds and Pioneer. Confidential treatment has been requested regarding certain portions of this agreement. 73 10.21 Mycogen Corporation Common Stock Purchase Agreement dated as of December 13, 1995, by and between the Registrant and Pioneer Overseas Corporation, an Iowa corporation ("Pioneer Overseas"). 108 10.22 Registration Rights Agreement dated December 13, 1995, by and between the Registrant and Pioneer Overseas. 121 10.23 Exchange and Purchase Agreement dated as of January 15, 1996, by and among the Registrant, Mycogen Seeds, DowElanco and UAS. Incorporated by reference from Exhibit 2.1 to the Registrant's Form 8-K, filed on February 27, 1996. --
29
21.1 Soilserv, Inc., a California corporation. -- 21.2 Mycogen Plant Science, Inc., a Delaware corporation. -- 21.3 Agrigenetics, Inc., a Delaware corporation, doing business as Mycogen Seeds. -- 21.4 Mycogen Crop Protection, Inc., a California corporation. -- 21.5 United AgriSeeds, Inc., a Delaware corporation. -- 21.6 Santa Ursula, S.A.A.I.C. e I., an Argentina corporation, doing business as Morgan Seeds. -- * The Company's Notice of Annual Meeting and Proxy Statement dated on or about November 3, 1996. -- 23 Consent of Ernst & Young LLP, Independent Auditors. 136 24 Power of Attorney. 138 27 Financial Data Schedule. 52 99 Purchase Agreement dated February 15,1995, by and among the Registrant, Mycogen Seeds and DP&L. Incorporated by reference from Exhibit 99.1 to the Registrant's Form 8-K, filed on April 20, 1995. --
* Supplemental Information: Copies of the Registrant's Proxy Statement for the Annual Meeting of Stockholders and copies of the form of proxy to be used at such Annual Meeting will be furnished to the Securities and Exchange Commission prior to the time they are distributed to the stockholders. 30 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MYCOGEN CORPORATION Date: November 8, 1996 By:/s/ JERRY CAULDER ------------------ Jerry Caulder Chairman and Chief Executive Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
/s/ JERRY CAULDER Chairman, Chief November 8, 1996 - ----------------------------- Executive Officer and Director (Jerry Caulder) (Principal Executive Officer) /s/ THOMAS J. CABLE Director November 8, 1996 - ----------------------------- (Thomas J. Cable*) /s/ PERRY GEHRING Director November 8, 1996 - ----------------------------- (Perry Gehring*) /s/ JOHN. L. HAGAMAN Director November 8, 1996 - ----------------------------- (John L. Hagaman*) /s/ DAVID H. RAMMLER Director November 8, 1996 - ----------------------------- (David H. Rammler*) /s/ WILLIAM C. SCHMIDT Director November 8, 1996 - ----------------------------- (William C. Schmidt*) /s/ A. JOHN SPEZIALE Director November 8, 1996 - ----------------------------- (A. John Speziale*) /s/ G. WILLIAM TOLBERT Director November 8, 1996 - ----------------------------- (G. William Tolbert*) /s/ W. WAYNE WITHERS Director November 8, 1996 - ----------------------------- (W. Wayne Withers*) /s/ JAMES A. BAUMKER Vice President and Chief November 8, 1996 - ----------------------------- Financial Officer (James A. Baumker) (Principal Financial and Accounting Officer) *By James A. Baumker under power of attorney.
31 MYCOGEN CORPORATION INDEX TO FINANCIAL STATEMENTS
Consolidated Statements of Operations for the years ended August 31, 1996, 1995 and 1994...................................................... 33 Consolidated Balance Sheets as of August 31, 1996 and 1995............................ 34 Consolidated Statements of Stockholders' Equity for the years ended August 31, 1996, 1995 and 1994...................................................... 35 Consolidated Statements of Cash Flows for the years ended August 31, 1996, 1995 and 1994...................................................... 36 Notes to Consolidated Financial Statements............................................ 37 Schedule II - Valuation and Qualifying Accounts for the years ended August 31, 1996 and 1995............................................................................ 50 Report of Ernst & Young LLP, Independent Auditors..................................... 51
All other schedules required by this item have been omitted due to full disclosure in the Consolidated Financial Statements or related footnotes or due to inapplicability of the item. 32 MYCOGEN CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share data)
1996 1995 1994 -------- ---------- ---------- Net operating revenues: Unrelated parties..................... $145,401 $ 103,701 $ 102,449 Related party......................... 1,399 2,468 1,934 Contract and other revenues........... Unrelated parties..................... 5,160 4,334 4,888 Related parties....................... 3,629 2,715 3,489 -------- ---------- ---------- Total Revenues....................... 155,589 113,218 112,760 -------- ---------- ---------- Costs and expenses: Cost of operating revenues............ 93,508 66,966 62,712 Selling and marketing................. 37,791 23,544 25,307 General and administrative............ 22,062 13,190 16,825 Research and development.............. 23,645 21,181 18,171 Amortization of intangible assets..... 3,514 3,854 2,172 Special charges....................... 25,218 - 36,378 -------- ---------- ---------- Total costs and expenses............ 205,738 128,735 161,565 -------- ---------- ---------- Operating loss......................... (50,149) (15,517) (48,805) Interest income and expense, net...... 2,435 914 2,328 Exchange gain......................... 2 160 215 Other non-operating income............ 654 - - Minority interest..................... - - 14,632 -------- ---------- ---------- Net loss............................... (47,058) (14,443) (31,630) Dividends on preferred stock........... (578) (1,503) (1,604) -------- ---------- ---------- Net loss applicable to common shares... $(47,636) $ (15,946) $ (33,234) ======== ========== ========== Net loss per common share.............. $ (1.81) $ (.83) $ (1.81) ======== ========== ========== Weighted average number of shares...... 26,275 19,225 18,377 ======== ========== ========== See accompanying Notes to Consolidated Financial Statements.
33 MYCOGEN CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except par value data)
AUGUST 31, ASSETS 1996 1995 ---------- ---------- Current assets: Cash and cash equivalents......................... $ 35,854 $ 5,687 Securities available-for-sale..................... 32,184 11,913 Accounts and notes receivable, net of allowances.. 30,700 27,402 Inventories....................................... 37,177 33,633 Prepaid expenses.................................. 1,880 1,267 ---------- ---------- Total current assets............................. 137,795 79,902 Net property, plant and equipment................... 54,905 49,646 Net intangible assets............................... 22,581 17,759 Other assets........................................ 12,188 12,301 ---------- ---------- Total assets........................................ $ 227,469 $ 159,608 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings............................. $ 1,520 $ - Accounts payable.................................. 8,697 6,760 Accrued compensation and related taxes............ 6,755 3,553 Deferred revenues................................. 12,101 5,670 Other current liabilities......................... 11,974 5,225 ---------- ---------- Total current liabilities........................ 41,047 21,208 Long-term liabilities............................... 5,228 3,291 Minority interest................................... - 21,406 Commitments Stockholders' equity: Common stock, $.001 par value, 40,000,000 shares authorized; 30,678,537 and 19,400,764 shares issued and outstanding at August 31, 1996 and 1995, respectively................................ 31 19 Additional paid-in capital......................... 330,973 216,436 Deficit............................................ (149,810) (102,752) ---------- ---------- Total stockholders' equity....................... 181,194 113,703 ---------- ---------- Total liabilities and stockholders' equity.......... $ 227,469 $ 159,608 ========== ==========
See accompanying Notes to Consolidated Financial Statements 34 MYCOGEN CORPORATION CONSOLIDATED STATEMENTS STOCKHOLDERS' EQUITY (In thousands)
SHARES OF SERIES A COMMON STOCK ADDITIONAL TOTAL PREFERRED NUMBER PAID-IN STOCKHOLDERS' STOCK OF SHARES AMOUNT CAPITAL DEFICIT EQUITY ------------ --------- ------- ----------- ---------- ------------ Balance at August 31, 1993 - 16,995 $ 17 $ 164,547 $ (56,679) $ 107,885 Issuance of common stock for: Employee stock plans................ - 104 - 939 - 939 Business acquisition................ - 2,000 2 20,498 - 20,500 Compensation related to employee stock plans......................... - - - 396 - 396 Preferred stock dividend accrual..... - - - (642) - (642) Reclassificaton of preferred stock... 3 - - 28,539 - 28,539 Cumulative effect of change in accounting for investments in debt and equity securities............... - - - 559 - 559 Change in unrealized gains and losses on securities available-for-sale.... - - - (1,174) - (1,174) Net loss............................. - - - - (31,630) (31,630) Cumulative translation adjustment.... - - - 34 - 34 ------------ --------- ------- ----------- ---------- ------------ Balance at August 31, 994 3 19,099 19 213,696 (88,309) 125,406 Issuance of common stock for employee stock plans................ - 148 - 436 - 436 Compensation related to employee stock plans......................... - - - 148 - 148 Issuance of common stock for business acquisition................ - 154 - 1,350 - 1,350 Change in unrealized gains and losses on securities available-for-sale.... - - - 478 - 478 Net loss............................. - - - - (14,443) (14,443) Cumulative translation adjustment.... - - - 328 - 328 ------------ --------- ------- ----------- ---------- ------------ Balance at August 31, 1995 3 19,401 19 216,436 (102,752) 113,703 Issuance of common stock for: Private offering.................... - 3,000 3 29,997 - 30,000 Employee stock plans................ - 472 1 3,500 - 3,501 Compensation related to employee stock plans......................... - - - 689 - 689 Issuance of common stock for business acquisitions............... - 5,991 6 80,406 - 80,412 Conversion of Preferred Stock........ (3) 1,815 2 (2) - - Change in unrealized gains and losses on securities available-for-sale.... - - - (167) - (167) Net loss............................. - - - - (47,058) (47,058) Cumulative translation adjustment.... - - - 114 - 114 ------------ --------- ------- ----------- ---------- ------------ Balance at August 31, 1996 - 30,679 $ 31 $ 330,973 $ (149,810) $ 181,194 ============ ========= ======= =========== ========== ============ See accompanying Notes to Consolidated Financial Statements
35 MYCOGEN CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
YEARS ENDED AUGUST 31, 1996 1995 1994 ---------- ---------- ---------- Operating activities: Net loss............................................ $ (47,058) $ (14,443) $(31,630) Items which did not use cash: Depreciation....................................... 4,862 4,851 4,329 Amortization of intangible assets.................. 3,514 3,854 2,172 Amortization of prepaid contract manufacturing..... 702 284 - Compensation related to employee stock plans....... 689 148 396 Special charges.................................... 23,218 - 26,636 Minority interest.................................. - - (14,632) Provision for doubtful accounts.................... 1,990 292 3,179 Loss on disposal of assets......................... 361 693 344 Changes in operating assets and liabilities: Accounts and notes receivable...................... 8,432 (3,293) (2,180) Inventories........................................ 14,179 (1,834) 6,368 Prepaid expenses................................... 53 (346) 430 Accounts payable................................... (5,328) 3,014 (1,366) Deferred revenues.................................. (1,815) 989 2,298 Other liabilities.................................. 4,332 (669) (310) ---------- ---------- -------- Cash provided by (used in) operating activities... 8,131 (6,460) (3,966) ---------- ---------- -------- Investing activities: Proceeds from sales of available-for-sale securities 33,675 8,972 33,258 Proceeds from maturities of available-for-sale securities 4,159 21,049 29,483 Purchases of available-for-sale securities......... (58,272) (12,250) (34,753) Capital expenditures............................... (13,889) (6,566) (4,259) Net cash paid for business combinations............ (1,791) - (7,000) Prepaid contract manufacturing..................... (286) (8,825) (2,079) Change in intangibles and other assets............. 1,596 (1,842) (2,578) ---------- --------- -------- Cash provided by (used in) investing activities... (34,808) 538 12,072 ---------- --------- -------- Financing activities: Proceeds from short-term borrowings................ 1,520 - - Proceeds from long-term debt....................... - 2,500 - Payments on long-term debt......................... (4,678) (248) (10) Redemption of preferred stock...................... - - (10,000) Proceeds from sale of common stock................. 59,900 435 939 ---------- --------- -------- Cash provided by (used in) financing activities... 56,742 2,687 (9,071) ---------- --------- -------- Effect of exchange rate changes on cash and cash equivalents....................................... 102 241 96 ---------- --------- -------- Increase (decrease) in cash and cash equivalents..... 30,167 (2,994) (869) Cash and cash equivalents at beginning of year....... 5,687 8,681 9,550 ---------- --------- -------- Cash and cash equivalents at end of year............. $ 35,854 $ 5,687 $ 8,681 ========== ========= ========
See accompanying Notes to Consolidated Financial Statements. 36 MYCOGEN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIGNIFICANT ACCOUNTING POLICIES The Company's significant accounting policies are bracketed in the following Notes to Consolidated Financial Statements. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. BASIS OF CONSOLIDATION [The accompanying financial statements include the accounts of Mycogen Corporation and its wholly-owned and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.] RECLASSIFICATIONS Certain amounts in the 1995 and 1994 consolidated financial statements have been reclassified to conform to the 1996 presentation. ACQUISITION OF UAS AND PURCHASE OF LUBRIZOL'S INTEREST IN MYCOGEN SEEDS In February 1996, the Company issued 4,453,334 shares of common stock to DowElanco in exchange for $26.4 million in cash and all of the shares in DowElanco's seed business, UAS. The principal seed products of UAS are corn and soybean. The acquisition of UAS was accounted for as a purchase and, accordingly, the results of operations of UAS from the date of acquisition are reflected in the consolidated financial statements of the Company. The total purchase price aggregated $34.5 million, of which $3.1 million was allocated to in-process technology and was written-off upon acquisition. On December 31, 1993, the Company exchanged $7.0 million in cash and two million shares of the Company's common stock for an additional 29.5% ownership of Mycogen Seeds, and in January 1996, the Company acquired Lubrizol's remaining 19.46% ownership interest in Mycogen Seeds by issuing 1,538,008 shares of common stock. The purchase price totaled $48.9 million for these two transactions. The following consolidated, pro forma, unaudited summary of operations data assumes that the acquisition of UAS occurred on September 1, 1995 and 1994 and the exchange for an additional ownership interest in Mycogen Seeds occurred on September 1, 1993.
Years ended August 31, ---------------------------------------- (In thousands, except per share data) 1996 1995 1994 - ---------------------------------------- ---------- ---------- ---------- Total revenues $ 172,623 $ 146,873 $ 112,760 Net loss applicable to common shares $ (43,555) $ (13,301) $ (18,567) Net loss per common share $ (1.54) $ (.56) $ (.97)
These pro forma results may not be indicative of the results of operations that would have been reported if the transactions had occurred on the dates indicated, or which may be reported in the future. These results do 37 not include the nonrecurring special charges of $3.1 million recognized in 1996 and $26.6 million recognized in 1994 related to the write-off of acquired in- process technology. SUPPLEMENTAL CASH FLOW INFORMATION In conjunction with the acquisitions of UAS and the remaining ownership in Mycogen Seeds in 1996, an acquisition in 1995, the exchange for an additional ownership interest in Mycogen Seeds in 1994 and adjustments to the 1993 purchase price of Mycogen Seeds in 1994, cash and noncash investing and financing activities were allocated as follows:
Years ended August 31, --------------------------------------- (In thousands) 1996 1995 1994 - ---------------------------------------- ---------- --------- ---------- Business acquisitions: Fair value of assets acquired, other $ 55,957 $ 1,350 $ 26,188 than cash Liabilities assumed (20,886) - Liabilities and acquisition costs (673) - incurred Minority interest purchased from 21,406 - (1,688) Lubrizol Common stock issued (54,013) (1,350) (20,500) Preferred stock returned 3,000 ---------- --------- --------- Net cash paid for acquisitions $ 1,791 $ - $ 7,000 ========== ========= =========
Other cash and noncash investing and financing activities were as follows:
Years ended August 31, --------------------------------------- (In thousands) 1996 1995 1994 - ---------------------------------------- ------------ --------- ---------- Common stock issued upon conversion of convertible preferred stock $ 31,582 $ - $ - Technology rights acquired by incurring directly related liabilities $ 6,000 $ - $ - Dividends on preferred stock $ 578 $ 1,503 $ 1,604 Cash payments for interest $ 263 $ 389 $ 254
INDUSTRY SEGMENTS AND FOREIGN OPERATIONS The Company is organized into two major segments, Seed and Crop Protection. Seed segment revenues are derived mainly from sales of planting seeds in North America and Europe. The six principal product lines are corn, soybean, sunflower, sorghum, other and international. Crop Protection segment revenues are derived from customized crop protection services provided by Soilserv in California and Arizona and sales of biopesticide products mainly in North America and Japan. Operating revenues and seed costs are impacted by weather. Weather can influence pest populations, the effectiveness of pesticides and seeds, seed production yields, commodity prices, growers' planting decisions and other factors impacting revenues and costs. Operating revenues are also dependent on a number of other factors, including the degree of market acceptance of products, the strength of competition in the marketplace and U.S. and foreign government policies which can affect crop acreage and farmer income. Acres planted determine quantities of planting seed, crop protection services and biopesticide products purchased by growers. 38 Financial information by segment is as follows:
Years ended August 31, ---------------------------------------- (In thousands) 1996 1995 1994 - ----------------------------------- ----------- ---------- ---------- Net Operating Revenues Seed $ 102,035 $ 65,329 $ 70,329 Crop Protection 45,886 40,840 34,054 Intersegment Elimination (1,121) - - ----------- ---------- ---------- Total $ 146,800 $ 106,169 $ 104,383 =========== ========== ========== Contract and Other revenues Seed $ 7,639 $ 5,606 $ 5,486 Crop Protection 1,040 1,363 2,891 Corporate 110 80 - ----------- ---------- ---------- Total $ 8,789 $ 7,049 $ 8,377 =========== ========== ========== Research and Development Expenses Seed $ 18,604 $ 14,827 $ 12,156 Crop Protection 4,816 6,354 6,015 Corporate 225 - - ----------- ---------- ---------- Total $ 23,645 $ 21,181 $ 18,171 =========== ========== ========== Operating Income (Loss) Seed $ (47,818) $ (11,922) $ (45,052) Crop Protection 316 (2,336) (859) Corporate (2,527) (1,259) (2,894) Intersegment Elimination (120) - - ----------- ---------- ---------- Total $ (50,149) $ (15,517) $ (48,805) =========== ========== ========== Identifiable Assets Seed $ 108,404 $ 87,238 Crop Protection 40,210 41,994 Corporate 78,976 30,376 Intersegment Elimination (121) - ----------- ---------- Total $ 227,469 $ 159,608 ========== ========== Depreciation and Amortization Seed $ 4,592 $ 4,199 $ 3,789 Crop Protection 2,808 3,381 1,815 Corporate 976 1,125 897 ----------- ---------- ---------- Total $ 8,376 $ 8,705 $ 6,501 ========== ========== ========== Capital Expenditures Seed $ 11,987 $ 3,263 $ 2,776 Crop Protection 597 213 955 Corporate 1,305 3,090 528 ----------- ---------- ---------- Total $ 13,889 $ 6,566 $ 4,259 ========== ========== ==========
39 Operating revenues, net of estimated returns, are recognized when the product is shipped to the customer or the service is provided. The assets and liabilities of non-U.S. subsidiaries are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Operating results are translated at weighted average exchange rates in effect during the period. Net unrealized translation adjustments are recorded as a separate component of stockholders' equity. Foreign currency exchange gains and losses are included in the determination of net loss. Foreign operations and export sales were not significant for the years ended August 31, 1996, 1995 and 1994. CASH, CASH EQUIVALENTS AND SECURITIES AVAILABLE-FOR-SALE The Company invests its excess cash in U.S. government securities, certificates of deposit and debt instruments of financial institutions and corporations with strong credit ratings. The Company has established guidelines that maintain safety and liquidity and match maturities to anticipated cash requirements. These guidelines are periodically reviewed and modified to take advantage of trends in yields and interest rates. [All debt securities are classified as available-for-sale and are carried at fair value, with unrealized gains and losses reported in a separate component of stockholders' equity. The cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. The amortization, along with realized gains and losses, interest and dividends are included in interest income. The cost of securities sold is based on the specific identification method.] Gross realized gains on sales of available-for-sale securities totaled $10,000 and $162,000 for the years ended August 31, 1995 and 1994, respectively and gross realized losses totaled $77,000, $110,000 and $15,000 for the years ended August 31, 1996, 1995, and 1994 respectively. Available-for-sale securities are summarized as follows:
August 31, 1996 ------------------------------------------------------------ Gross Gross unrealized unrealized Estimated (In thousands) Cost gains losses fair value - ---------------------------- --------- ---------- ---------- ------------- Securities of the U.S. government and its agencies $ 18,753 $ - $ (211) $ 18,542 Corporate debt securities 13,734 - (92) 13,642 --------- ---------- ---------- ------------- Total $ 32,487 $ - $ (303) $ 32,184 ========= ========== ========== ============= August 31, 1995 ------------------------------------------------------------ Gross Gross unrealized unrealized Estimated (In thousands) Cost gains losses fair value - ---------------------------- --------- ---------- ---------- ------------- 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 ========= ========== ========== =============
40 Available-for-sale securities with original maturities of three months or less that were classified as cash equivalents totaled $31,328,000 as of August 31, 1996; there were none as of August 31, 1995. The amortized cost and estimated fair value of available-for-sale securities, by contractual maturity, are as follows:
August 31, 1996 ---------------------------- Estimated (In thousands) Cost fair value - ----------------------------- --------- ------------ Due in one year or less $11,034 $10,999 Due after one year through five years 15,990 15,803 Mortgage-backed securities 5,463 5,382 ------- ------- Total $32,487 $32,184 ======= =======
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) 1996 1995 - ---------------------------------- ------- ------- Trade accounts receivable $30,219 $27,902 Notes and other receivables 4,282 2,085 ------- ------- 34,501 29,987 Allowance for doubtful accounts (3,801) (2,585) ------- ------- $30,700 $27,402 ======= =======
At August 31, 1996, the significant concentration of the Company's trade receivables were from farmers located in the united states and various foreign countries whose ability to pay is dependent upon the agribusiness economics prevailing in that specific area of the world. As a result, no significant geographic concentration of credit risk exists. INVENTORIES [Seed inventories, which comprise 86% of total inventories at August 31, 1996 and 1995, are stated at the lower of average cost or market. All other inventories are stated at the lower of first-in first-out cost, or market.] Inventories at August 31 are comprised of:
(In thousands) 1996 1995 - ----------------------------- ------- ------- Raw materials and supplies $ 3,819 $ 5,895 Work in process 10,810 3,578 Finished goods 22,548 24,160 ------- ------- $37,177 $33,633 ======= =======
Planting seed is produced by independent growers who contract specific acreage for the production of seed for the Company. The compensation of the independent growers is determined based on yield, 41 contracted acreage and commodity prices. The commitment for grower compensation is accrued as seed is delivered to the Company. The Company's growers select market prices throughout the year to establish selling prices for seed crops grown for the Company. The Company follows a policy, common in the industry, of hedging certain of these seed inventory purchase commitments to minimize risk due to market price fluctuations. Gains and losses on these contracts are recorded as adjustments to inventory cost when the contracts are closed. At August 31, 1996, the Company had short-term futures contracts totaling $13.7 million for the purchase of commodities (principally soybean and corn) at various dates during 1996. The fair value of these contracts at August 31, 1996, was $14.4 million. at August 31, 1996, the Company had entered into short-term contracts totaling $3.5 million for the sale of commodities (principally corn). At August 31, 1996, the Company had an unrealized loss on these contracts totaling $280,000. Production of hybrid seed involves various environmental risks. The parental inbred lines which are used in production are more sensitive to adverse conditions than are commercial hybrids grown by farmers. Weather is the most significant variable. Unfavorable weather can adversely affect seed supplies and unit costs. To protect against these risks, the seed segment maintains multiple production locations spread geographically in addition to maintaining certain levels of inventory that are available for sale during the subsequent planting season. While the Company believes that its inventory values are realizable, risks exist that may render portions of the Company's inventory obsolete or excess. The risk factors include weather and poor planting conditions that may delay, prevent or change the planting of certain crops, U.S. and foreign government policies which can affect crop acreage and farmer income and the introduction of hybrids by competitors that may render the Company's hybrids obsolete. PROPERTY, PLANT AND EQUIPMENT [Property, plant and equipment is recorded at cost. Depreciation is provided using the straight-line method over the estimated useful lives, ranging from 15 to 30 years for buildings and improvements and 3 to 15 years for machinery and equipment. Amortization of leasehold improvements is provided using the straight-line method over the shorter of the life of the respective lease or estimated useful life of the asset.] Property, plant and equipment at August 31 is comprised of:
(In thousands) 1996 1995 - ------------------------------- -------- -------- Land and improvements $ 4,901 $ 5,173 Buildings and improvements 26,452 24,385 Machinery and equipment 30,171 33,627 Leasehold improvements 424 646 Construction in progress 10,281 2,519 -------- -------- 72,229 66,350 Accumulated depreciation and amortization (17,324) (16,704) -------- -------- $ 54,905 $ 49,646 ======== ========
42 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:
1996 Useful --------------------------------------------- Life Accumulated (in thousands) in years Cost Amortization Net Value - ----------------------------------- --------- --------------- ------------ Goodwill 25 $10,267 $(1,979) $ 8,288 Purchased technology 3-15 8,802 (3,451) 5,351 Patents 10 6,686 (1,126) 5,560 Non-compete agreement 5-7 2,681 (2,173) 508 Customer base 10 2,386 (131) 2,255 Assembled work force 5 726 (107) 619 ------- ------- ------- $31,548 $(8,967) $22,581 ======= ======= =======
1996 Useful --------------------------------------------- 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 ======= ======= =======
[The carrying value of tangible and other long-lived assets are reviewed upon a change in market conditions or business strategy. If the projected net cash flows from product revenues, royalty or license income at that time are less than the carrying value of the asset, a charge for impairment is recognized to reduce the carrying value of the intangible asset to its fair value.] OTHER ASSETS The Company has an exclusive manufacturing agreement through 2010 for certain of its biopesticide products. Under the terms of the agreement, the Company will pay for the actual cost of manufacturing, excluding depreciation, plus a fee based on the actual number of units produced. Additionally, the Company paid $11.2 million to the manufacturer to fund the construction of a manufacturing facility. This payment has been classified as an other asset which is being amortized over the life of the agreement. Accumulated amortization totaled $984,000 and $284,000 at August 31, 1996 and 1995, respectively. LINE OF CREDIT The Company has available a $25 million unsecured revolving bank line of credit, of which $1.5 million was outstanding at August 31, 1996. This line, which expires November 30, 1996, provides for short-term borrowings in U.S. dollars at the bank's prime rate (8.25% at August 31, 1996) plus .5% or in Eurodollars at an adjusted Eurodollar rate (5.875% at August 31, 1996) plus 2%. On an annual basis, the Company is required to pay a fee of .1% of the total commitment and a commitment fee of .25% on the unused portion. The credit agreement contains certain covenants which include the maintenance of a minimum consolidated net worth, maintenance of certain financial ratios, certain limitations on the incurrence of indebtedness or liens on the Company's assets and maintenance of a minimum cash, cash equivalents and securities available- for-sale balance of $10 million. 43 LONG-TERM LIABILITIES Long-term liabilities (amounts due after one year) at August 31 are as follows:
(In thousands) 1996 1995 - ---------------------------------------- --------- -------- Liability for purchased technology $ 6,000 $ -- Pension and other liabilities 2,470 1,767 Unsecured note payable to bank -- 2,262 ---------- --------- 8,470 4,029 Less current portion included in current liabilities (3,242) (738) ---------- --------- Total long-term liabilities $ 5,228 $ 3,291 ========== =========
RETIREMENT PLANS The Company has a tax deferred retirement and savings plan under Section 401(k) of the Internal Revenue Code whereby eligible employees may defer up to 20% of their gross pay through payroll deductions and contribute it to the plan. The Company has the option to match a portion of the savings contributions as prescribed in the plan not to exceed 3% of gross pay. Effective January 1, 1994, Mycogen Seeds' 401(k) plan was combined with the Company's 401(k) plan. Matching contributions to these plans during the years ended August 31, 1996, 1995 and 1994 totaled $521,000, $531,000 and $489,000, respectively. COMMITMENTS At August 31, 1996, the Company had operating lease commitments on certain premises, machinery and office equipment which expire at various dates through 2001. Minimum future commitments under non-cancelable lease agreements having terms in excess of one year total: 1997, $559,000; 1998, $392,000; 1999, $332,000; 2000, $161,000; 2001, $86,000 and thereafter, $11,000. The Company also leases equipment and other facilities on a month-to-month basis. Rent expense under operating leases totaled $2.4 million, $2.0 million, and $1.8 million for the years ended 1996, 1995 and 1994, respectively. NET LOSS PER COMMON SHARE Net loss per common share is determined by deducting dividends on preferred stock from net loss and dividing the net result by the weighted average number of common shares outstanding during the year. Common shares issuable under common stock equivalents and convertible preferred stock are not included in the computation of net loss per common share because their effect was not dilutive. 44 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, 1993 2,868,820) $ 11.90 Granted 158,500) $ 10.66 Exercised (51,037) $ 9.28 Canceled (175,164) $ 12.95 Balance at August 31, 1994 2,801,119) $ 11.81 Granted 3,208,103) $ 8.63 Exercised (14,193) $ 7.92 Canceled (2,687,843) $ 12.00 Balance at August 31, 1995 3,307,186) $ 8.59 Granted 1,266,500 $ 14.50 Exercised (346,122) $ 9.15 Canceled (109,614) $ 9.30 ------------- Balance at August 31, 1996 4,117,950 $ 10.34 =============
In December 1994, the Company, at the election of the option holder, repriced 2,209,603 outstanding options through cancellation of options with an average exercise price of $12.62 and a regrant of new options at an exercise price of $8.50. The new options vest in equal monthly installments over a new 36-month period measured from December 1994. Of the 4,117,950 outstanding options, 1,570,190 were exercisable and vested as of August 31, 1996. As of August 31, 1996, a total of 5,943,819 shares of common stock were reserved for future issuance under the plans and 1,825,869 shares of common stock were available for future grants. Pursuant to the Company's 1990 Restricted Stock Issuance Plan, officers were awarded a total of 96,000 and 96,500 shares of restricted stock in 1996 and 1995, respectively. As of August 31, 1996, a total of 27,500 shares of common stock were reserved for future issuance under the plan. Compensation expense related to these stock plans was $689,000, $148,000 and $396,000 in 1996, 1995 and 1994, respectively. Unamortized deferred compensation expense with respect to restricted stock issued aggregated $1,517,000 and $837,000 at August 31, 1996 and 1995, respectively. Pursuant to the Company's 1995 and 1988 Employee Stock Purchase Plans, employees purchased 32,669 shares at an average price of $9.99 per share, 42,334 shares at an average price of $7.65 per share and 53,264 shares at an average price of $8.74 per share in 1996, 1995 and 1994, respectively. As of August 31, 1996, there were 226,899 shares of common stock reserved for future issuance under the Plan. [FASB Statement No. 123, "Accounting for Stock-Based Compensation" prescribes new requirements for stock-based compensation. The application of this Statement will be effective beginning with the Company's 1997 fiscal year-end. As allowed under Statement No. 123, the Company intends to continue accounting for stock compensation under APB Opinion No. 25, "Accounting for Stock Issued to Employees." Therefore, the Company does not believe adoption of this Statement will have an impact on its consolidated financial statements. In accordance with Statement No. 123, the Company will present pro-forma disclosures of net income and earnings per share as if the Statement had been applied.] 45 STOCKHOLDER RIGHTS PLAN In October 1995, the Company entered into an Amended and Restated Rights Agreement ("the Rights Agreement") which amended and restated the 1992 Stockholder Rights Agreement. The Rights Agreement provides for the distribution of a preferred stock purchase right (a "Right") as a dividend for each share of the Company's common stock held of record immediately prior to a third party tendering to purchase 25% or more of the Company's common stock. Under certain conditions involving an acquisition by any person or group of 25% or more of the Company's common stock, the Rights entitle the holders (other than the 25% holder) to purchase one one-hundredths of a Preferred share upon payment of an exercise price per Right. The exercise price is currently $65.00; however, the purchase price is subject to adjustment under certain conditions. In addition, in the event of certain business combinations, the Rights permit the purchase of the common stock of an acquirer at a 50% discount. Under certain conditions, the Rights may be redeemed by the Company's Board of Directors at a price of $.01 per Right. The Rights have no voting privileges and are attached to and automatically trade with the Company's common stock. Unless extended, the Rights will expire on February 20, 2002. SENIOR CONVERTIBLE CUMULATIVE PREFERRED STOCK, SERIES A In January 1996, Lubrizol converted 3,158 shares of the Company's Series A Senior Convertible Cumulative Preferred Stock, representing their entire interest in preferred stock, into 1,815,274 shares of common stock at a rate of $17.398 per share which was based on a premium of 25% over the average closing price of the Company's common stock for the 60 days prior to the conversion. At August 31, 1996, there were 3,940 shares authorized for issuance of the Company's Series A Preferred Stock, $.001 par value, and no outstanding shares. The changes in the number of shares of preferred stock issued and the aggregate liquidation preference are as follows:
Aggregate Number of Liquidation (In thousands, except share data) Shares Preference - --------------------------------- ------------ ----------- Balance at August 31, 1994 2,950 $ 29,501 Preferred stock dividend accrual 150 1,503 ------------ --------- Balance at August 31, 1995 3,100 31,004 Preferred stock dividend accrual 58 578 Conversion to common stock 3,158 (31,582) ------------ --------- Balance at August 31, 1996 -- $ -- ============ =========
CONTRACT AND OTHER REVENUES [Research and other contract revenues are recorded as earned based on the percentage of completion basis or on the performance requirements of the contracts. Payments in excess of amounts earned are deferred. Research costs are expensed as incurred.] Costs and expenses related to research contracts totaled $4.4 million, $3.0 million and $4.7 million in 1996, 1995 and 1994, respectively. RELATED PARTY TRANSACTIONS In December 1995, the Company entered into an agreement with Pioneer to develop transgenic crops with insect resistance. Under the agreement, Pioneer purchased 3,000,000 shares of the Company's common stock for $30 million and provided $10 million in research and development funding. Pioneer will provide an additional $11 million in funding near the end of 1998. Pioneer will receive non-exclusive rights to all Bt crop protection technology and associated technologies co-developed by the Company and Pioneer during the next 10 years. The COmpany and Pioneer are able to market their own products resulting from the collaboration, royalty-free, in North America. Pioneer will pay a royalty to Mycogen for jointly developed 46 technology that it markets through seed products outside of North America. The Company has exclusive worldwide rights to license jointly developed technology to third parties. No proprietary seed lines will be shared by the companies. Contract revenues recognized under this agreement totaled $2.4 million in 1996. Deferred revenues of $7.6 million are included in the Consolidated Balance Sheet at August 31, 1996. At August 31, 1996, Pioneer owned 3,000,000 shares of common stock of the Company or 9.78% of the Company's outstanding shares of common stock. Lubrizol, a related party through February 1996, provided to Mycogen Seeds funding for research and development projects related to planting seeds that yield plants capable of producing oils with special characteristics. Related party research revenues under these agreements totaled $1.2 million, $2.6 million and $3.3 million in 1996, 1995 and 1994, respectively. Mycogen Seeds was the exclusive supplier of specified planting seed to a division of Lubrizol and managed the production of crops from such planting seed through September 1996. Related party operating revenues recognized under this arrangement through February 1996, totaled $1.4 million, $2.5 million and $1.9 million in 1996, 1995 and 1994, respectively. In January 1996, the Company agreed to acquire certain rights in oil seed technology from Lubrizol for $8.0 million. The Company made an initial payment of $2.0 million and will pay $2.5 million and $3.5 million in January 1997 and 1998, respectively. In February 1996, Lubrizol sold its entire interest in the Company, 9,502,348 shares of common stock or 36.58% of the Company's outstanding shares of common stock, to DowElanco. DowElanco is a joint venture partnership between Dow Chemical and Eli Lilly and Company engaged in the discovery, development, manufacture and distribution of agricultural products used in crop protection and production, and for industrial pest control. As of August 31, 1996, DowElanco owned 14,614,102 shares of the Company's common stock, or 47.64% of the Company's outstanding shares of common stock, and may acquire additional shares of the Company's common stock subject to certain restrictions. SPECIAL CHARGES In connection with the acquisition of UAS and the rights in oil seed technology from Lubrizol in 1996 and the acquisition of an additional ownership interest in Mycogen Seeds in 1994, $10.3 million and $26.6 million, respectively, of the purchase price was allocated to certain technologies not yet completed and, therefore, was written-off as acquired in-process technology as of the respective acquisition dates. The Company's Seed segment recognized impairment losses and exit costs totaling $13.4 million and $1.0 million, respectively, during 1996 as a result of management's decision to dispose of or sell certain corn production plants and related assets that did not meet quality production standards in connection with a plan to upgrade the quality of seed production. The production plants not sold in fiscal 1996 are expected to be sold during fiscal 1997. The fair values of the assets were based on letters of intent from prospective buyers and management estimates. The impairment losses and exit costs are included in special charges in the Consolidated Statement of Operations. The carrying amount of the assets held for sale total $1.1 million, of which $.7 million is included in other current assets and $.4 million is included in other long-term assets in the Consolidated Balance Sheet at August 31, 1996. Exit costs totaling $.7 million are included in other current liabilities at August 31, 1996. During 1995, an impairment loss of $1.6 million was recognized by the Crop Protection segment, reducing the carrying amount of a paid-up, royalty-free, non-exclusive license included in purchased technology to its fair value as a result of the discontinuation of a certain product development program. The fair value was determined using discounted cash flow projections for this product. The impairment loss is included in amortization expense in the Consolidated Statement of Operations. In December 1993, the Company consolidated certain manufacturing locations and eliminated certain brand names and hybrids. This resulted in restructuring charges during 1994 of $9.8 million for excess and 47 obsolete inventories, plant shut-down and the termination of Mycogen Seeds' pension plan which is included in special charges in the consolidated statement of operations. INCOME TAXES [The Company accounts for income taxes under the liability method required by FASB Statement No. 109, "Accounting for Income Taxes."] At August 31, 1996, the Company has a federal tax net operating loss carryforward of approximately $66.8 million and a California net operating loss carryforward of approximately $12.1 million. The Company has federal and state research tax credit carryforwards totaling approximately $2.7 million and $.5 million, respectively. The federal tax loss and credit carryforwards will expire in years 1997 through 2011 unless previously utilized. California tax loss and credit carryforwards, if not utilized, will expire in years 1997 through 2001. The Company also has a capital loss carryforward of $2.6 million which will expire in 1999 if not utilized. At August 31, 1996 and 1995, approximately $3.5 million and $1.5 million, respectively, of the deferred tax assets relate to tax benefits associated with the exercise or disqualifying disposition of stock options. Such benefits are credited to additional paid-in capital when realized. Foreign taxable income has been eliminated through the use of net operating losses in the countries where the income was generated. The Company incurred a change in ownership, as defined by Internal Revenue Code Section 382, during 1996. Such change of ownership could limit the use in any one year of the full amount of the net operating loss and tax credit carryforwards previously described. However, the Company believes that the limitation will not have a material impact upon the utilization of its carryforwards. The Company's use of its net operating loss and tax credit carryforwards could be further limited in the event of future cumulative changes in stock ownership. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of August 31 are as follows:
(In thousands) 1996 1995 - -------------------------------------------- ---------- ---------- Deferred tax assets: Net operating loss carryforwards $ 24,120 $ 18,761 Tax basis of inventory greater than book 4,532 2,787 Reserve for impaired assets 6,150 - Research credit carryforwards 3,247 3,418 Deferred revenue 3,131 - Capitalized research expenditures 3,016 2,571 In-process technology 2,706 - Tax basis of receivables greater than book 1,455 1,177 Capital loss carryforward 1,073 1,073 Other items with tax basis greater than book - 1,309 ---------- ---------- Total deferred tax assets 49,430 31,096 Less: Valuation allowance (46,633) (30,499) ---------- ---------- Net deferred tax assets 2,797 597 Tax depreciation in excess of book (2,473) - Other net deferred tax liabilities (324) (597) ---------- ---------- Net deferred taxes $ - $ - ========== ==========
48 Due to the uncertainty surrounding the future realization of the deferred tax assets, a valuation allowance of $46.6 million was included as a reduction of deferred tax assets August 31, 1996. For financial reporting purposes, net income (loss) before dividends on preferred stock for the years ended August 31 includes the following components:
(In thousands) 1996 1995 1994 - ------------------------ ---------- ---------- ---------- Pretax income (loss): United States $(44,440) $(17,785) $(29,474) Foreign (2,618) 3,342 (2,156) ---------- ---------- ---------- $(47,058) $(14,443) $(31,630) ========== ========== ==========
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:
1996 1995 1994 --------- -------- -------- Tax at U.S. statutory rate 35 % 35 % 35 % Effect of net operating losses (35)% (35)% (35)% --------- -------- -------- 0 % 0 % 0 % ========= ======== ========
SUBSEQUENT EVENTS In September 1996, the Company purchased Morgan Seeds, Argentina's third largest seed company, for $27 million in cash. Morgan Seeds' principal products are corn and sunflower planting seed. The acquisition will be accounted for as a purchase as of the acquisition date. In September 1996, the Company acquired Lubrizol's technology and assets relating to specialty sunflowers, including high oleic sunflowers, as well as technology and assets relating to high oleic and high erucic rapeseed for $7.6 million. In a related transaction, the Company entered into a supply agreement with AC Humko where by the Company will produce crude high oleic sunflower oil exclusively for AC Humko in North America. AC Humko, a subsidiary of Associated British Foods, is a supplier of specialty oils and shortenings, non-dairy creamers and cheese products to the food processor, food service and retail food industries. In October 1996, the Company signed a letter of intent to exchange its ownership interest in its two European subsidiaries, Mycogen S.A. and Mycogen SRL, and other assets for an 18.75% ownership interest in Verneuil. The transaction is subject to the completion of definitive agreements and is expected to be completed by December 1996. 49 MYCOGEN CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED AUGUST 31, 1996 AND 1995 (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, 1996 - -------------------------- Allowance for doubtful accounts $2,585 $1,990 $ -- $ (774)/1/ $3,801 Inventory allowances $4,288 $9,737 $ -- $(4,506)/2/ $9,519 Year ended August 31, 1995 - -------------------------- Allowance for doubtful accounts $3,915 $ 292 $ -- $(1,622)/1/ $2,585 Inventory allowances $2,099 $4,602 $ -- $(2,413)/2/ $4,288
/1/ Amount relates to accounts receivable written off. /2/ Amount relates to inventory written off. 50 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Stockholders Mycogen Corporation We have audited the accompanying consolidated balance sheets of Mycogen Corporation as of August 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended August 31, 1996. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Mycogen Corporation at August 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended August 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Ernst & Young LLP San Diego, California October 11, 1996 51 MYCOGEN CORPORATION EXHIBIT 27 FINANCIAL DATA SCHEDULE FISCAL YEAR END: AUGUST 31, 1996 (In thousands, except per share data)
YEAR ENDED AUGUST 31, 1996 ---------------- Cash and cash items 35,854 Marketable securities 32,184 Notes and accounts receivable-trade 34,501 Allowances for doubtful accounts 3,801 Inventory 37,177 Total Current Assets 137,795 Property, Plant and Equipment 72,229 Accumulated depreciation 17,324 Total Assets 227,469 Total current liabilities 41,047 Bonds, mortgages, and similar debts - Preferred stock-mandatory redemption - Preferred stock-no mandatory redemption - Common Stock 31 Other stockholders' equity 330,973 Total liabilities and stockholders' equity 227,469 Net sales of tangible products 146,800 Total revenues 155,589 Cost of tangible goods sold 93,508 Total costs and expenses applicable to sales and revenues 93,508 Other costs and expenses - Provision for doubtful accounts and notes 1,990 Interest and amortization of debt discount - Income before taxes and other items (47,058) Income tax expense - Income/loss continuing operations (47,058) Discontinued operations - Extraordinary items - Cumulative effect-changes in accounting principles - Net income or loss (47,058) Earnings per share-primary (1.81) Earnings per share-fully diluted (1.81)
52 MYCOGEN CORPORATION QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except per share data) Quarter Ended - ------------------------------------------------------------------------------------ First Second Third Fourth 1996: Net operating revenues $12,049 $ 35,575 $78,015 $ 21,161 Cost of operating revenues 7,824 21,891 53,406 10,387 Gross profit 4,225 13,684 24,609 10,774 Contract and other revenues 1,571 2,580 2,360 2,278 Operating expenses 13,363 41,255 24,129 33,483 Operating income (loss) (7,567) (24,991) 2,840 (20,431) Non-operating income 155 641 681 1,614 Dividends on preferred stock 384 194 -- -- Net income (loss) applicable to commmon shares (7,796) (24,544) 3,521 (18,817) Net income (loss) per common share (.40) (1.00) .11 (.61) 1995: Net operating revenues $ 9,509 $ 27,661 $55,869 $ 13,130 Cost of operating revenues 6,245 15,637 34,052 11,032 Gross profit 3,264 12,024 21,817 2,098 Contract and other revenues 1,896 1,715 1,971 1,467 Operating expenses 12,704 14,949 16,512 17,604 Operating income (loss) (7,544) (1,210) 7,276 (14,039) Non-operating income 529 371 63 111 Dividends on preferred stock 369 373 378 383 Net income (loss) applicable to common shares (7,384) (1,212) 6,961 (14,311) Net income (loss) per common share (.39) (.06) .36 (.74)
The Company's fiscal quarters end in November, February, May and August. 53 COPIES OF FORM 10-K Shareowners may reach Mycogen's Investor Relations group by calling (800) 745- 7475, between the hours of 7:30 a.m. and 4:30 p.m., Pacific time, via e-mail at info@mycogen.com, by telefax at (619) 453-0142, or by writing to Investor Relations, Mycogen Corporation, 5501 Oberlin Drive, San Diego, CA 92121-1718. News releases, product information, Securities and Exchange Commission filings including forms 10-K, 10-Q and 8-K and other company information are also available on Mycogen's Worldwide Web site: http://www.mycogen.com. ANNUAL MEETING The Annual Meeting of Mycogen Corporation will be held at 10 a.m. on December 12, 1996, in the Corn Conference room at the Company's headquarters located at 5501 Oberlin Drive, San Diego, California. All shareowners are cordially invited to attend. 54 EX-10.17 2 FORM OF EMPLOYMENT/SEVERANCE AGREEMENT EXHIBIT 10.17 FORM OF EMPLOYMENT/SEVERANCE AGREEMENT 55 January 1, 1996 Dear ------------- We are pleased to inform you that the Board of Directors (the "Board") of Mycogen Corporation (the "Company") has authorized an employment package for you which will provide certain assurances concerning the terms and conditions of your continued employment with the Company and will allow you to participate in a program of severance benefit payments should your employment terminate. The purpose of this letter agreement (the "Agreement") is to document the terms of your employment package by providing you with a formal employment contract. The Company considers it essential to the continuing operation of the Company and in the best interests of its shareholders to assure the continuous dedication of key management personnel. It is recognized in the context of public ownership that a termination of an employee's employment without cause may be sought and that such circumstances could prove distracting to key executives and detrimental to the ongoing management and administration of the Company. Such distraction is not in the best interest of the shareholders of the Company. Accordingly, the Board has determined to discourage the inevitable distraction to you in the face of potentially disturbing circumstances inherent in any uncertainty regarding your employment status. This Agreement is intended to secure and encourage your ongoing retention by providing separation benefits in the event that your employment is altered as hereinafter described. In order to induce you to remain in the employ of the Company, and in consideration of the your agreement set forth in Sections 10, 11, 12 and 13 of Part Two hereof, the Company agrees to pay the severance payments and benefits set forth in this Employment Agreement, under the circumstances described herein. This Agreement supersedes any written employment agreement between you and the Company prior to the date hereof. Part One of this Agreement sets forth certain definitional provisions to be in effect for purposes of determining your benefit entitlements. Part Two specifies the terms and conditions which will apply to your continued employment with the Company, including the severance payments and benefits to which you will become entitled in the event your employment should be terminated. Part Three provides an additional gross-up bonus to you in the particular circumstance where the payment of or separation benefits generates the imposition of an excise tax by the Internal Revenue Service. Part Four provides for certain additional rights and responsibilities of both yourself and the Company. Part Five concludes this Agreement with a series of general terms and conditions applicable to your employment benefits. PART ONE -- DEFINITIONS DEFINITIONS. For purposes of this Agreement, including in particular the ----------- severance payments and benefits to which you may become entitled under Part Three, the following definitions will be in effect: "CHANGE IN CONTROL" means: 56 (i) a merger or acquisition in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the State of the Company's incorporation; (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company in liquidation or dissolution of the Company or a sale/leaseback of all or substantially all of the Company's assets (with or without a purchase option); (iii) a transfer of all or substantially all of the Company's assets pursuant to a partnership or joint venture agreement or similar arrangement where the Company's resulting interest is or becomes fifty percent (50%) or less; (iv) any reverse merger in which the Company is the surviving entity but in which fifty percent (50%) or more of the Company's outstanding voting stock is transferred to holders different from those who held the stock immediately prior to such merger; (v) on or after the date hereof, a change in ownership of the Company through an action or series of transactions, such that any person is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the securities of the combined voting power of the Company's outstanding securities; (vi) a change in the composition of the Board such that the individuals elected to the Board at the last meeting of the shareholders at which there is not a contested election subsequently cease to comprise a majority of the Board; or (vii) the occurrence of any other event constituting a "change in control" under Code Section 280G or the Treasury regulations promulgated thereunder. "CODE" means the Internal Revenue Code of 1986, as amended from time to time. "EMPLOYEE" means . --------------------------------- 57 "EMPLOYEE BENEFIT PLAN" shall have the meaning given the term under Section 3 of ERISA. "EMPLOYMENT PERIOD" means the period of your employment with the Company governed by the terms and provisions of this Agreement. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as in effect from time to time. "INVOLUNTARY TERMINATION" means the termination of your employment with the Company: (i) involuntarily upon your discharge, dismissal, or the Company's failure to renew this Agreement pursuant to Section 3 of Part Two, whether or not in connection with a Change in Control; or (ii) voluntarily or involuntarily, provided such termination occurs in connection with (a) a change in your position with the Company which materially reduces your level of responsibility or changes your title, (b) a reduction in your level of compensation (including base salary, fringe benefits and any non- discretionary bonuses or other incentive payments earned pursuant to objective standards or criteria) by more than ten percent (10%), or (c) a relocation of your principal place of employment by more than fifty (50) miles or a change in your responsibilities such that you must spend more than twenty percent (20%) of your working days outside of the San Diego, California area, and such change, --- reduction or relocation is effected without your written concurrence. "OPTION" means any option granted to you under the Stock Option Plan which is outstanding at the time of your Involuntary Termination. "STOCK OPTION PLAN" means the Company's 1992 Stock Option Plan (including the predecessor 1983 Stock Option Plan), as amended through the date hereof. "RESTRICTED STOCK ISSUANCE PLAN" means the 1990 Restricted Stock Issuance Plan, as revised on April 18, 1991, and as further amended through the date hereof. "TERMINATION FOR CAUSE" will mean an Involuntary Termination of your employment for one or more alleged acts of fraud, embezzlement, misappropriation of proprietary information or any other verifiable misconduct adversely affecting the business reputation of the Company in a material manner. 58 PART TWO -- TERMS AND CONDITIONS OF EMPLOYMENT The following terms and conditions will govern your employment with the Company throughout the Employment Period and will also, to the extent indicated below, remain in effect following your termination date. 1. EMPLOYMENT AND DUTIES. The Company will continue to employ you as an --------------------- executive officer in the position of . You agree to -------------------------- continue in such employment for the duration of the Employment Period and to perform in good faith and to the best of your ability all services which may be required of you in your executive position and to be available to render such services at all reasonable times and places in accordance with reasonable directives and assignments issued by the Board or your superiors. During your Employment Period, you will devote your full time and effort to the business and affairs of the Company within the scope of your executive office. Your principal place of operations will be at the Company's corporate offices in San Diego, California. You may, however, be required to travel periodically to Company facilities in other geographic locations in connection with your duties. 2. TERM OF AGREEMENT. This Agreement shall be effective as of the date ----------------- hereof. The term of this Agreement shall continue in effect from such date for a period of one (1) year from such date, subject to the provisions of this Part Two, unless sooner terminated by the parties in accordance with the provisions hereof. No termination or expiration of this Agreement shall affect any rights, obligations or liabilities of Employee or the Company that shall have accrued on or prior to the date of termination or expiration. 3. AUTOMATIC EXTENSION. Commencing on the first anniversary of the ------------------- effective date hereof, and on each succeeding anniversary of the date hereof, the term of this Agreement shall automatically be extended for one (1) additional year unless, not later than three (3) months preceding such anniversary date, the Company shall have given written notice pursuant to Section 6 of Part Five that it will not extend the term of this Agreement. The automatic extension of the term of this Employment Agreement pursuant to this Section 3 shall not be a modification of this Agreement in any significant respect within the meaning of Section 280G of the Code and the rules and regulations thereunder. 4. COMPENSATION. ------------ A. For service in the 1996 calendar year, your base salary will be the annual rate of . Your annual rate of base salary --------------------------- will be subject to adjustment each calendar year by the Board. B. Your base salary will be paid at periodic intervals in accordance with the Company's payroll practices for salaried employees. C. You will be entitled to such bonuses (if any) for service rendered during the Employment Period as the Board may determine in its sole discretion based upon the recommendation of the Company's Chief Employee Officer and such additional factors as the Board deems appropriate, including your individual performance and the Company's profitability. 59 D. The Company will deduct and withhold, from the compensation payable to you hereunder, any and all applicable Federal, State and local income and employment withholding taxes and any other amounts required to be deducted or withheld by the Company under applicable statute or regulation. 5. EXPENSE REIMBURSEMENT. You will be entitled to reimbursement from the --------------------- Company for all customary, ordinary and necessary business expenses incurred by you in the performance of your duties hereunder, provided you furnish the Company with vouchers, receipts and other substantiation of such expenses within thirty (30) days after they are incurred. 6. FRINGE BENEFITS. During the Employment Period, you will be eligible to --------------- participate in any group life insurance plan, group medical and/or dental insurance plan, accidental death and dismemberment plan, short-term disability program and other employee benefit plans, including profit sharing plans, cafeteria benefit programs, and stock option plans, which are made available to executives and for which you qualify. 7. VACATION. You will accrue paid vacation benefits during the Employment -------- Period in accordance with the Company policy in effect for executive officers. 8. DEATH OR DISABILITY. ------------------- A. Upon your death or disability during the Employment Period, the employment relationship created pursuant to this Agreement will immediately terminate, and no further compensation will become payable to you pursuant to Part Two, Section 4. In connection with such termination, the Company will only be required to pay you (or your estate) any unpaid compensation earned under Part Two, Section 4 for services rendered through the date of your death or disability, together with a special termination payment equal to the additional amount of base salary you would have earned hereunder had your employment continued for an additional thirty (30) days. B. You will be deemed disabled if you are, in the Company's reasonable opinion, unable by reason of any permanent physical or mental injury or illness to substantially perform the services required of you hereunder either for a period in excess of one hundred eighty (180) days or for a period of one hundred eighty (180) days in the aggregate during any two hundred seventy (270) day period. In such event, you will be deemed disabled as of the end of such one hundred eightieth (180th) day. C. Upon death or disability the terms of The Stock Plan will apply. 9. SEVERANCE BENEFITS. ------------------ A. You will be entitled to receive the severance benefits specified below in the event there should occur an Involuntary Termination of your employment (other than a Termination for Cause) prior to January 1, 1999, whether or not effected in connection with a Change in Control: (i) SEVERANCE BENEFIT. The Company will make a severance payment to ----------------- you, in one lump sum within fifteen (15) days of the date of your Involuntary Termination, in an aggregate amount equal to times the sum of (a) the -------- average annual rate of base salary and 60 (b) the average bonus paid to you by the Company, in each case for service rendered in the two (2) immediately preceding calendar years. If a bonus was paid for only one of those calendar years, then the clause (b) amount will be equal to that bonus. (ii) WELFARE BENEFITS. For a period of months, ---------------- ------------------ Employee (and his dependents, as applicable) shall be provided by the Company with the same life, health and disability plan participation, benefits and other coverages to which he was entitled as an employee immediately before the Involuntary Termination. In the event that under applicable law or the terms of the relevant Employee Benefit Plans such participation, benefits and/or coverage cannot be provided to Employee following his Involuntary Termination, such coverage and/or benefits shall be provided directly by the Company pursuant to this Agreement on a comparable basis. In its sole discretion, the Company may obtain such coverage and benefits for Employee through private insurance acquired at the Company's expense. Amounts paid or payable to or on behalf of Employee pursuant to any "employee welfare benefit plan", as defined in ERISA, providing health and/or disability benefits, that is sponsored by the Company or an affiliate of the Company, shall be credited against amounts due under this Section 9.A.(ii). To the maximum extent permitted by applicable law, the benefits provided under this Section 9.A.(ii) shall be in discharge of any obligations of the company or any rights of Employee under the benefit continuation provisions under Section 4980A of the Code and Part VI of Title I of the Employee Retirement Income Security Act ("COBRA") or any other legislation of similar import. (iii) UNVESTED STOCK. Any unvested shares of the Company's -------------- Common Stock which you hold under the Restricted Stock Issuance Plan at the time of such Involuntary Termination will immediately vest in full. (iv) OPTION ACCELERATION. Each of your Options under the Stock ------------------- Option Plan will (to the extent not then otherwise exercisable) automatically accelerate so that each such Option will become immediately exercisable for the total number of shares purchasable thereunder. Each such accelerated Option, together with all of your other vested Options, will remain exercisable for a period of three (3) years following your Involuntary Termination and may be exercised for any or all of the accelerated shares in accordance with the exercise provisions of the Option agreement evidencing the grant. B. You will be entitled to receive the severance benefits specified below in the event there should occur an Involuntary Termination of your employment (other than a Termination for Cause) at any time after January 1, 1999, whether or not effected in connection with a Change in Control: (i) SEVERANCE BENEFIT. The Company will make a severance payment to ----------------- you, in one lump sum within fifteen (15) days of the date of your Involuntary Termination, in an aggregate amount equal to times the sum of (a) the -------- average annual rate of base salary and (b) the average bonus paid to you by the Company, in each case for service rendered in the two (2) immediately preceding calendar years. If a bonus was paid for only one of those calendar years, then the clause (b) amount will be equal to that bonus. (ii) WELFARE BENEFITS. For a period of months, ----------------- ------------------ Employee (and his dependents, as applicable) shall be provided by the Company with the same life, health and disability plan participation, benefits and coverages to which he was entitled as an 61 employee immediately before the Involuntary Termination. In the event that under applicable law or the terms of the relevant Employee Benefit Plans such participation, benefits and/or coverage cannot be provided to Employee following his Involuntary Termination, such coverage and/or benefits shall be provided directly by the Company pursuant to this Agreement on a comparable basis. In its sole discretion, the Company may obtain such coverage and benefits for Employee through private insurance acquired at the Company's expense. Amounts paid or payable to or on behalf of Employee pursuant to any "employee welfare benefit plan", as defined in ERISA, providing health and/or disability benefits, that is sponsored by the Company or an affiliate of the Company, shall be credited against amounts due under this Section B.A.(ii). To the maximum extent permitted by applicable law, the benefits provided under this Section B.A.(ii) shall be in discharge of any obligations of the company or any rights of Employee under the benefit continuation provisions under COBRA or any other legislation of similar import. (iii) UNVESTED STOCK. Any unvested shares of the Company's -------------- common stock which you hold under the Restricted Stock Issuance Plan at the time of such Involuntary Termination will immediately vest in full. 62 (iv) OPTION ACCELERATION. Each of your Options under the Stock ------------------- Option Plan will (to the extent not then otherwise exercisable) automatically accelerate so that each such Option will become immediately exercisable for the total number of shares purchasable thereunder. Each such accelerated Option, together with all of your other vested Options, will remain exercisable for a period of three (3) years following your Involuntary Termination and may be exercised for any or all of the accelerated shares in accordance with the exercise provisions of the Option agreement evidencing the grant. 10. RESTRICTIVE COVENANT. During the Employment Period: -------------------- (i) You will devote your full working time and effort to the performance of your duties as an executive officer of the Company. (ii) You will not directly or indirectly, whether for your own account or as an employee, consultant or advisor, provide services to any business enterprise other than the Company, unless otherwise authorized by the Company in writing. However, you will have the right to perform such incidental services as are necessary in connection with (a) your private passive investments, (b) your charitable or community activities, and (c) your participation in trade or professional organizations, but only to the extent such incidental services do not interfere with the performance of your services hereunder. 11. NON-SOLICITATION. During any period for which you are receiving ---------------- compensation payments pursuant to Part Two, Section 4 and one (1) year thereafter, you will not directly or indirectly solicit any Company employee to leave the Company's employ for any reason or interfere in any other manner with the employment relationships at the time existing between the Company and its current employees. 12. CONFIDENTIALITY. --------------- A. You hereby acknowledge that the Company may, from time to time during the Employment Period, disclose to you confidential information pertaining to the Company's business and affairs and client base, including (without limitation) customer lists and accounts, other similar items indicating the source of the Company's income and information pertaining to the salaries, duties and performance levels of the Company's employees. You will not, at any time during or after such Employment Period, disclose to any third party or directly or indirectly make use of any such confidential information, including (without limitation) the names, addresses and telephone numbers of the Company's customers, other than in connection with, and in furtherance of, the Company's business and affairs. Nothing contained in this paragraph shall be construed to prevent Employee from disclosing the amount of his salary. 63 B. All documents and data (whether written, printed or otherwise reproduced or recorded) containing or relating to any such proprietary information of the Company which come into your possession during the Employment Period will be returned by you to the Company immediately upon the termination of the Employment Period or upon any earlier request by the Company, and you will not retain any copies, notes or excerpts thereof. Notwithstanding the foregoing, Employee shall be entitled to retain his file or rolodex containing names, addresses and telephone numbers and personal diaries and calendars; provided, however, that Employee shall continue to be bound by the terms of Section 12.A. above to the extent such retained materials constitute confidential information. C. Your obligations under this Section 12 will continue in effect after the termination of your employment with the Company, whatever the reason or reasons for such termination, and the Company will have the right to communicate with any of your future or prospective employers concerning your continuing obligations under this Section 12. 13. OWNERSHIP RIGHTS. ---------------- A. All materials, ideas, discoveries and inventions pertaining to the Company's business or clients, including (without limitation) all patents and copyrights, patent applications, patent renewals and extensions and the names, addresses and telephone numbers of customers, will belong solely to the Company. B. All materials, ideas, discoveries and inventions which you may devise, conceive, develop or reduce to practice (whether individually or jointly with others) during the Employment Period will be the sole property of the Company and are hereby assigned by you to the Company, except for any idea, discovery or invention (i) for which no Company equipment, supplies, facility or trade secret information is used, (ii) which is developed entirely on your own time and (iii) which neither (a) relates at the time of conception or reduction to practice, to the Company's business or any actual or demonstrably-anticipated research or development program of the Company nor (b) results from any work performed by you for the Company. The foregoing exception corresponds to the assignment of inventions precluded by California Labor Code Section 2870, attached as Exhibit A. C. You will, at all times whether during or after the Employment Period, assist the Company, at the Company's sole expense, in obtaining, maintaining, defending and enforcing patents, copyrights and other proprietary rights of the Company. Such assistance will include (without limitation) the execution of documents and assistance and cooperation in legal proceedings. D. You will continue to be bound by all the terms and provisions of your existing Proprietary Information and Invention Agreements with the Company, and nothing in this document will be deemed to modify or affect your duties and obligations under those other agreements. 14. TERMINATION OF EMPLOYMENT. ------------------------- A. The Company (or any successor entity resulting from a Change in Control) may terminate your employment under this Agreement at any time for any reason, with or without cause, by providing you with at least thirty (30) days prior written notice. However, such notice requirement will not apply in the event there is a Termination for Cause under subparagraph D below. 64 B. In the event there is an Involuntary Termination of your employment with the Company (other than Termination for Cause) during the Employment Period, you will become entitled to the benefits specified in Part Two, Section 9 in addition to any unpaid compensation earned by you under Part Two, Section 4 for services rendered prior to such termination. C. Should your employment with the Company terminate by reason of your death or disability during the Employment Period, no severance benefits will be payable to you under Part Two, Section 9, and only the limited death or disability benefits provided under Part Two, Section 8 will be payable, to the extent applicable. D. The Company may at any time, upon written notice, terminate your employment hereunder for any act qualifying as a Termination for Cause. Such termination will be effective immediately upon such notice. E. Upon such Termination for Cause, the Company will only be required to pay you any unpaid compensation earned by you pursuant to Part Two, Section 4 for services rendered through the date of such termination, and no termination or severance benefits will be payable to you under Part Two, Section 9. 65 PART THREE -- INTERNAL REVENUE CODE LIMITATIONS 1. CODE LIMITATIONS. Notwithstanding anything to the contrary in this ---------------- Agreement, if Employee is entitled to benefits hereunder following the occurrence of a Change in Control, in no event shall the present value of benefits payable under this Agreement, taken together with Employee's benefits under the Stock Option Plan and Restricted Stock Issuance Plan and other applicable sources, that, in the opinion of counsel (as identified in Section 3 of this Part Three), are considered "parachute payments" under Section 4999 of the Code, be reduced by the excise tax imposed by Section 4999 of the Code. In the event that such benefits so taken together would exceed the amount which is exempt from the excise tax imposed by Section 4999 of the Code, the Company shall pay to Employee an additional amount (the "Gross-Up Payment") such that the net amount retained by Employee, after deduction for the amount of any excise tax under Section 4999 and any interest charges or penalties in respect of the imposition of such excise tax (but not any federal, state or local income tax) on the present value of such benefits, and any federal, state and local income tax, excise tax and penalties and interest, if applicable, upon the additional payment provided for by this Section 1, shall be equal to the present value of such benefits. For purposes of determining the additional amount to be paid to Employee pursuant to this Section 1, Employee shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the additional payment is to be made and state and local income taxes at the highest marginal rates of taxation in the state and locality of his residence on the date the additional payment is made, net of the maximum reduction in federal income taxes which could be obtained from deduction from such state and local taxes. 2. DEFINITIONS APPLICABLE TO THIS PART THREE. For purposes of this Part ----------------------------------------- Three, the term "parachute payment" shall have the meaning ascribed to it under Section 280G(b)(2) of the Code, and "present value" shall be determined in accordance with Section 280G(d)(4) of the Code. 3. INTERPRETATION. This Part Three shall be interpreted so as to avoid the -------------- imposition of excise taxes on Employee under Section 4999 of the Code, or to minimize such taxes. In applying the provisions of this Part Three if, for any reason, an exemption from the application of the rules of Section 4999 of the Code shall be available under the terms of said Section or under any applicable regulations or rulings thereunder, such exemption shall be fully applied. All payments under this Agreement or otherwise that are, in the opinion of counsel (as identified in this Section 3), parachute payments shall be taken into account in applying the provisions of this Part Three, and no others. In application of the provisions of this Part Three, calculations necessary to be made pursuant to the provisions of this Part Three and interpretation of the Code and applicable regulations for purposes of compliance with this Part Three shall be made by the private law firm serving as executive compensation and tax counsel to the Board immediately prior to the Change in Control, and the determination of such counsel made in good faith shall be binding and conclusive upon both the Company and Employee. All fees and expenses of such law firm pertaining thereto shall be borne by the Company. Payments shall be made pursuant to this Agreement notwithstanding that the status of any payment as a parachute payment has not been finally determined by the Internal Revenue Service or any court of competent jurisdiction, or by arbitration as provided in Section 3 of Part Four. Any Gross-Up Payment, as determined pursuant to Section 1 of this Part Three, shall be paid by the Company to Employee within five (5) days of the receipt of the law firm's determination. If the law firm determines that no excise tax is payable by Employee, it shall furnish Employee with a written opinion that failure to report the excise tax on Employee's applicable federal income tax return would 66 not result in the imposition of a negligence (or similar) penalty. Any determination by the law firm shall be binding upon the Company and Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the law firm hereunder, it is possible that Gross-Up Payments will not have been made in full by the Company, consistent with the calculations required to be made hereunder (with such shortfall as "Underpayment"). In the event that the Company exhausts its remedies pursuant to Section 4 of this Part Three and Employee thereafter is required to make a payment of any excise tax, the law firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Employee. 4. INTERNAL REVENUE SERVICE CLAIMS. Employee shall notify the Company in ------------------------------- writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. Employee shall not pay such claim prior to the expiration of the thirty (30) day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies Employee in writing prior to the expiration of such period that it desires to contest such claim, Employee shall: (a) give the Company any information reasonably requested by the Company relating to such claim (without requiring a waiver of Employee's attorney-client privilege); (b) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company; (c) cooperate with the Company in good faith in order to effectively contest such claim; and (d) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Employee harmless, on an after- tax basis, for any excise tax or income tax (including interest and penalties and respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 4, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Employee agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Employee, on an interest-free basis, and shall indemnify and hold Employee harmless, on an after-tax basis, from any excise tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statue of limitations relating to 67 payment of taxes for the taxable years of Employee with respect to which such contested amount is claimed to be due is limited solely to issues relating to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment shall be payable hereunder and Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. 5. INTERNAL REVENUE SERVICE REFUNDS. If, after the receipt by Employee of -------------------------------- an amount advanced by the Company pursuant to Section 4 of this Part Three, Employee becomes entitled to receive any refund with respect to such claim, Employee shall (subject to the Company's complying with the requirements of Section 4 of this Part Three), promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Employee of any amount advanced by the Company pursuant to Section 4 of this Part Three, a determination is made that Employee shall not be entitled to any refund with respect to such claim and the Company does not notify Employee in writing of its intent to contest such denial or refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. PART FOUR - ADDITIONAL RIGHTS AND RESPONSIBILITIES 1. MITIGATION. Employee shall not be required to mitigate damages or the ---------- amount of any payment provided for under this Agreement by seeking other employment or otherwise. The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish Employee's existing rights which would accrue solely as a result of the passage of time, under any Company Employee Benefit Plan, "Payroll practice" (as defined in ERISA), compensation arrangement, incentive plan, stock option or other stock-related plan. 2. LEGAL COSTS. If any legal action or other proceeding is brought by ----------- Employee for the enforcement of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Agreement, Employee shall be entitled to recover reasonable attorneys fees and other costs incurred in that action or proceeding, in addition to any other relief to which he may be entitled, in the event and to the extent that Employee prevails in such action or other proceeding. Notwithstanding anything hereinabove to the contrary, as between Employee and the Company, the Company shall bear all legal costs and expenses of defending the validity of this Agreement against any third party. The Company shall bear all legal costs and expenses incurred in contesting or disputing the characterization of any amounts paid pursuant to this Agreement as being nondeductible under Section 280G of the Code or subject to imposition of an excise tax under Section 4999 of the Code. 3. FULL SETTLEMENT. The Company's obligations to make the payments provided --------------- for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by an set-off, counterclaim, recoupment, defense or other claim, or other action which the Company may have against Employee or others. PART FIVE -- MISCELLANEOUS PROVISIONS 68 1. SUCCESSORS. This Agreement shall be binding upon and inure to the ---------- benefit of the Company and any successor of the Company, including, without limitation, any corporation or corporations acquiring directly or indirectly all or substantially all of the stock, business or assets of the Company whether by merger, consolidation, division, sale or otherwise (and such successor shall thereafter be deemed "the Company" for the purposes of this Employment Agreement). The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to Employee, to expressly assume and agree to perform this Employment Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Employment Agreement entitling Employee to the benefits hereunder, as though Employee was subject to Involuntary Termination. This Agreement shall be binding upon and inure to the benefit of Employee, his successors, assigns, executors, administrators or beneficiaries. 2. DEATH. Should you die before receipt of all the separation payments to ----- which you may become entitled under Part Two, Section 9, then such payment or payments will be made, on the due date or dates hereunder had you survived, to the executors or administrators of your estate. Should you die before you exercise your outstanding vested options, then each such option may be exercised, within twelve (12) months after your death, by the executors or administrators of your estate or by person to whom the option is transferred pursuant to your will or in accordance with the laws of inheritance. In no event, however, may any such vested option be exercised after the specified expiration date of the option term. 3. INDEMNIFICATION. The indemnification provisions for Officers and --------------- Directors under the Company's Bylaws will (to the maximum extent permitted by law) be extended to you, during the period following your Involuntary Termination, with respect to any and all matters, events or transactions occurring or effected during your Employment Period. 4. MISCELLANEOUS. The provisions of this Agreement will be construed and ------------- interpreted under the laws of the State of California. This Agreement incorporates the entire Agreement between you and the Company relating to the terms of your employment and the subject of severance benefits and supersedes all prior agreements and understandings with respect to such subject matter. This Agreement may only be amended by written instrument signed by you and an authorized officer of the Company. 5. ARBITRATION. Any controversy which may arise between you and the Company ----------- with respect to the construction, interpretation or application of any of the terms, provisions, covenants or conditions of this Agreement or any claim arising from or relating to this Agreement will be submitted to final and binding arbitration in San Diego, California in accordance with the rules of the American Arbitration Association then in effect. 6. NOTICES. Any notice required to be given under this Agreement shall be ------- deemed sufficient, if in writing, and sent by certified mail, return receipt requested, via overnight courier, or hand delivered to the Company at 5501 Oberlin Drive, San Diego, California, 92121, and to Employee at his most recent address reflected in the permanent Company records. 69 Please indicate your acceptance of the foregoing provisions of this Agreement by signing the enclosed copy of this Agreement and returning it to the Company. Very truly yours, MYCOGEN CORPORATION By: ----------------------------- Chairman and Chief Executive Officer ACCEPTED BY AND AGREED TO Signature: -------------------------- Dated: ------------------------------ 70 EXHIBIT A --------- Section 2870. APPLICATION OF PROVISION PROVIDING THAT EMPLOYEE WILL ASSIGN OR OFFER TO ASSIGN RIGHTS IN INVENTION TO EMPLOYER. (a) Any provision in an employment agreement which provides that an employee will assign, or offer to assign, any of his or her rights in an invention to his or her employer will not apply to an invention that the employee developed entirely on his or her own time without using the employer's equipment, supplies, facilities, or trade secret information except for those inventions that either: (1) Relate at the time of conception or reduction to practice of the invention to the employer's business, or actual or demonstrably anticipated research or development of the employer. (2) Result from any work performed by the employee for his employer. (b) To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable. 71 [THIS PAGE INTENTIONALLY LEFT BLANK] 72 EX-10.20 3 COLLABORATION AGREEMENT WITH PIONEER (CONF. TREATMENT) EXHIBIT 10.20 COLLABORATION AGREEMENT Confidential treatment has been requested regarding certain portions of this Agreement. 73 COLLABORATION AGREEMENT This COLLABORATION AGREEMENT (the "Agreement") dated as of December 13, 1995 is made by and between Agrigenetics, Inc., a Delaware corporation doing business as Mycogen Plant Sciences and having offices at 5501 Oberlin Drive, San Diego, California 92121 ("MPS"), and Pioneer Hi-Bred International, Inc., 700 Capital Square, 400 Locust Street, Des Moines, Iowa 50309 ("Pioneer"). WHEREAS, Mycogen Corporation, the parent company of MPS ("Mycogen"), has developed technology relating to genes encoding insecticidal, miticidal and nematocidal proteins of Bacillus thuringiensis ("Bt") and other Bacillus species ---------------------- and owns or controls certain technology and patent rights granted or pending relating to said genes and proteins and the introduction and expression in plants of natural and synthetic genes, full length and truncated, and synthetic gene technology including synthetic genes and methods for making said genes; WHEREAS, Mycogen has exclusively licensed all of its Bt and other Bacillus species technology and patent rights to MPS for use in plants, which includes the right to sublicense, develop, make, have made, use, cultivate, market, distribute and sell plants and planting seed; WHEREAS, MPS also has developed technology relating to genes encoding insecticidal, miticidal and nematocidal proteins of Bt and other Bacillus species and also owns or controls certain technology and patent rights granted or pending relating to said genes and proteins and the introduction and expression in plants of natural, synthetic or modified genes, full length and truncated, and synthetic or modified gene technology, including synthetic or modified genes and methods for making said genes; WHEREAS, MPS has capabilities particular to the development of Bacillus species that may possess useful insecticidal, miticidal and nematocidal traits for plants and Pioneer desires to engage MPS to conduct research and development on genes derived from Bacillus species encoding insecticidal, miticidal and nematocidal proteins; WHEREAS, Pioneer has developed technology and owns or controls certain technology relating to the introduction and expression in plants of genes encoding insecticidal proteins of Bacillus species and to plant breeding and genetic; and WHEREAS, MPS and Pioneer desire to form a collaboration with their respective technology and patent rights related to transforming plants with Bt genes and other genes encoding insecticidal, miticidal and nematocidal proteins from Bacillus species ("BIP") effective against mites, insects and nematodes. The collaboration involves the following four essential components: 74 1. Combine all current and future BIP genes and enabling technology and patent rights of both parties under joint Pioneer/MPS research programs in corn research and research and development programs in soybean, sunflower, sorghum, wheat and canola for genetically engineered insect, mite and nematode resistance traits thru transformation with BIP genes to control certain pests of each crop. 2. Create an environment and structure under the joint Pioneer/MPS research and development programs to allow the MPS and Pioneer scientists, breeders and other technical personnel to work together closely so as to best utilize the technical talent, ingenuity and core competencies of both companies. 3. Provide each of MPS and Pioneer with the commercial rights to the BIP insect, mite and nematode resistance traits developed under the Pioneer/MPS joint research and development programs for each party to breed such traits into their respective crop parent lines and to produce and sell their own hybrids and varieties containing such traits. With the sole exception of the BIP trait, no commercial rights to proprietary germ plasm (in whole or in part) are granted to either party. 4. Provide MPS with the exclusive right to license all BIP insect, mite and nematode resistance traits developed under the Pioneer/MPS joint research and development programs to third parties, subject to certain restrictions on when one or more third party licensees can commercialize crops containing such traits. NOW, THEREFORE, the parties hereby agree as follows. ARTICLE 1 DEFINITIONS ----------- The following terms as used in this Agreement will have the meanings as defined with respect to each such term: Affiliate. The term "Affiliate" means (1) with respect to MPS, any parent - --------- corporation of MPS (including Mycogen), or any partnership, joint venture or subsidiary in which MPS or such parent corporation has a fifty percent or greater ownership interest and (2) with respect to Pioneer, any partnership, joint venture or subsidiary in which Pioneer has a fifty percent or greater ownership interest. BIP Genes. The term "BIP Genes" means both MPS BIP Genes and Pioneer BIP Genes. - --------- BIP Transformation Event. The term "BIP Transformation Event" means (i) each - ------------------------ transgenic plant or transgenic plant tissue that expresses insecticidal, miticidal and nematocidil proteins from a specific transgenic construct consisting of one or more BIP Genes directly transformed into such plant or plant tissue and (ii) all progeny plants from such transformed plant or plant tissue that contain the same BIP transgenic construct. 75 Business Committee. The term "Business Committee" means the committee - ------------------ consisting at all times of two (2) representatives of MPS and two (2) representatives of Pioneer, which is responsible for certain supervisory and administrative functions as set forth under Section 2.3 of this Agreement. Combined Technology and Patent Rights. The term "Combined Technology and Patent - ------------------------------------- Rights" means any and all of (i) the MPS BIP Genes and MPS Enabling Technology; (ii) the Pioneer BIP Genes and Pioneer Enabling Technology, (iii) Joint Enabling Technology, and (iv) any and all patent rights including issued and pending U.S. and foreign patents (including without limitation, any divisionals, continuations, continuations in part, extensions and re-issues thereof) currently owned or in the future acquired by MPS or Pioneer, and rights to U.S. and foreign patents and patent applications currently or in the future licensed or sublicensed to MPS or Pioneer with respect to which either party has the right to grant sublicenses, which patent rights cover, with respect to MPS, MPS BIP Genes, MPS Enabling Technology and Joint Enabling Technology and with respect to Pioneer, Pioneer BIP Genes, Pioneer Enabling Technology and Joint Enabling Technology. Confidential Information. The term "Confidential Information" means any and all - ------------------------ proprietary information (including, without limitation, information related to technical, business and intellectual property matters), know-how, data, trade secrets and biological and other physical materials owned or held by either party to this Agreement which such party maintains as confidential. Corn Research Programs. The term "Corn Research Programs" means the research - ---------------------- programs jointly conducted by MPS and Pioneer as contemplated by Article 5 of this Agreement. Europe. The term "Europe" means Western Europe (as defined below) and all other - ------ European countries (including the former Soviet Republics) located between Western Europe and Russia. Western Europe. The term "Western Europe" means the United Kingdom, Ireland, - -------------- France, Belgium, Netherlands, Denmark, Germany, Luxembourg, France, Spain, Portugal, Italy, Switzerland and Austria. Insect Resistant BIP Crops. The term "Insect Resistant BIP Crops" means any and - -------------------------- all Target Crops (and planting seeds for such crops) containing one or more BIP Transformation Events jointly developed by Pioneer and MPS under the R&D Programs contemplated by this Agreement and covered by an approval or an application for approval from appropriate regulatory authorities for breeding, production and commercialization of crops containing such BIP Transformation Event. Insect, mite and nematode resistance is included under this definition of "Insect Resistant BIP Crops". Joint Enabling Technology. The term "Joint Enabling Technology" means trade - ------------------------- secrets, know-how, technology, and other proprietary information, whether or not patented, which are jointly invented or discovered by (i) MPS or any of its Affiliates and (ii) Pioneer or any of its Affiliates in connection with the collaboration under this Agreement. MPS BIP Genes. The term "MPS BIP Genes" means any and all natural and synthetic - ------------- genes, full length or truncated, chimeric or hybrid, encoding BIP (and genetic materials derived therefrom) responsible for insect, mite and nematode resistance, and any patents covering such genes, having possible applications in developing BIP Transformation Events under this Agreement, now owned 76 by MPS or its Affiliate(s) or available for use by or used by such entities under license or agreement with third parties (which use hereunder is not restricted under such license or agreement) or developed or acquired during the term of this Agreement by MPS or its Affiliate(s). If acquired from a third party then the foregoing BIP genes (and genetic materials derived therefrom) will not be included in the definition of MPS BIP Genes if the agreement with the third party restricts such use, provided that MPS or its Affiliate(s) will use its reasonable efforts in accordance with its good faith business judgment to provide that the agreement with the third party does not include such restrictions. MPS Enabling Technology. The term "MPS Enabling Technology" means trade - ----------------------- secrets, know-how, technology, and other proprietary information, whether or not patented, and all patents, now owned by MPS or available for use by or used by MPS under license or agreement with third parties (which use hereunder is not restricted under such license or agreement), for developing BIP Transformation Events and for making, using and selling Insect Resistant BIP Crops containing one or more BIP Transformation Events, which trade secrets, know-how, technology, other proprietary information and patents are reasonably necessary to develop BIP Transformation Events under the R&D Programs and ultimately to make, use and sell Insect Resistant BIP Crops pursuant to this Agreement. MPS Enabling Technology also includes advances, enhancements, improvements or discoveries that MPS owns or becomes entitled to use during the term of this Agreement, whether or not such are discovered or developed as a result of research undertaken pursuant to this Agreement, that are reasonably necessary to develop BIP Transformation Events under the R&D Programs and to make, use and sell Insect Resistant BIP Crops pursuant to this Agreement. MPS Enabling Technology excludes any trade secrets, know-how, technology, other proprietary information and patents, the application of which as contemplated by this Agreement is restricted under a written agreement between MPS and any independent third party, provided that MPS will exert its reasonable efforts in accordance with its good faith business judgment to provide that such agreement with the third party does not include such restrictions. MPS Enabling Technology includes, without limitation, trade secrets, know-how, technology, and other proprietary information and patents related to selectable markers, promoters, enhancers, matrix attachment regions (MARs), nuclear scaffold attachment regions (SARs), terminators, synthetic gene construction, plant transformation, plant tissue regeneration and plant conversions. The foregoing does not include MPS proprietary germplasm owned or exclusively licensed by MPS. North America. The term "North America" means the United States, Canada, and - ------------- Mexico. Pioneer BIP Genes. The term "Pioneer BIP Genes" means any and all natural and - ----------------- synthetic genes, full length or truncated, chimeric or hybrid, encoding BIP (and genetic materials derived therefrom) responsible for insect, mite and nematode resistance, and any patents covering such genes, having possible applications in developing BIP Transformation Events under this Agreement, now owned by Pioneer or its Affiliate(s) or available for use by or used by such entities under license or agreement with third parties (which use hereunder is not restricted under such license or agreement) or developed or acquired during the term of this Agreement by Pioneer or its Affiliate(s). If acquired from a third party then the foregoing BIP genes (and genetic materials derived therefrom) will not be included in the definition of Pioneer BIP Genes if the agreement with the third party restricts such use, provided that Pioneer or its Affiliate(s) will use its reasonable efforts in accordance with its good faith business judgment to provide that the agreement with the third party does not include such restrictions. 77 Pioneer Enabling Technology. The term "Pioneer Enabling Technology" means trade - --------------------------- secrets, know-how, technology, and other proprietary information, whether or not patented, and all patents, now owned by Pioneer or available for use by or used by Pioneer under license or agreement with third parties (which use hereunder is not restricted under such license or agreement), for developing BIP Transformation Events and for making, using and selling Insect Resistant BIP Crops containing one or more BIP Transformation Events, which trade secrets, know-how, technology, other proprietary information and patents are reasonably necessary to develop BIP Transformation Events under the R&D Programs and ultimately to make, use and sell Insect Resistant BIP Crops pursuant to this Agreement. Pioneer Enabling Technology also includes advances, enhancements, improvements or discoveries that Pioneer owns or becomes entitled to use during the term of this Agreement, whether or not such are discovered or developed as a result of research undertaken pursuant to this Agreement, that are reasonably necessary to develop BIP Transformation Events under the R&D Programs and to make, use and sell Insect Resistant BIP Crops pursuant to this Agreement. Pioneer Enabling Technology excludes any trade secrets, know-how, technology, other proprietary information and patents, the application of which as contemplated by this Agreement is restricted under a written agreement between Pioneer and any independent third party, provided that Pioneer will exert its reasonable efforts in accordance with its good faith business judgment to provide that such agreement with the third party does not include such restrictions. Pioneer Enabling Technology includes, without limitation, trade secrets, know-how, technology, and other proprietary information and patents related to selectable markers, promoters, enhancers, matrix attachment regions (MARs), nuclear scaffold attachment regions (SARs), terminators, synthetic gene construction, plant transformation, plant tissue regeneration and plant conversions. The foregoing does not include Pioneer proprietary germplasm owned or exclusively licensed by Pioneer. R&D Programs. The term "R&D Programs" means any and all of the research and - ------------ development programs jointly conducted by MPS and Pioneer as contemplated by Article 2 of this Agreement to develop BIP Transformation Events in the Target Crops for the purpose of enabling each of MPS and Pioneer to develop and commercialize Insect Resistant BIP Crops pursuant to the licenses granted under Article 4. Research Committee. The term "Research Committee" means the committee - ------------------ consisting at all times of two (2) representatives of MPS and two (2) representatives of Pioneer, which is responsible for certain supervisory and administrative functions as set forth under Section 2.2 of this Agreement. Target Crops. The term "Target Crops" means any and all varieties of soybean, - ------------ sunflower, sorghum, wheat and canola. Pursuant to Section 2.13 of this Agreement, the parties may in the future add additional crops to the list of Target Crops covered by this Agreement. Also, upon the parties granting one another licenses with respect to corn as contemplated by Section 5.4 of this Agreement, corn will be added as a Target Crop. ARTICLE 2 R&D PROGRAMS ------------ 2.1 R&D Programs. MPS and Pioneer will conduct a number of research and ------------ development programs to develop BIP Transformation Events responsible for resistance against target 78 pests selected by the parties in each Target Crop. Each party will utilize its research, development, engineering and other capabilities as set forth under each R&D Program to develop BIP Transformation Events for each Target Crop and will use diligent efforts to successfully complete each R&D Program within the time frame set forth for each such program. Each current and future R&D Program will be administered as set forth under this Article 2 by the Research Committee with respect to technical issues and by the Business Committee with respect to resource and funding issues. The parties will conduct each R&D Program in such a manner so as to create an environment for the MPS and Pioneer scientists, breeders and other technical personnel to work together closely to best utilize the technical talent, ingenuity and core competencies of both companies. 2.2 The Research Committee. The principal function of the Research Committee ---------------------- is to administer the research and development activities of each R&D Program. The Research Committee has the authority and responsibility to: 1. Define and evaluate (i) the technical challenges and chance of success of any potential new R&D Program, (ii) the responsibility of each party under any potential new R&D Program, and (iii) the resources needed to pursue any potential new R&D Program. 2. Recommend to the Business Committee the initiation of new R&D Programs and the responsibilities of each party under such programs. 3. Prior to the formation of any R&D Program and during the course of all R&D Programs, evaluate and review the need for any third party technology rights to complete any R&D Program and the royalties or license fees due to any such third party for such rights. 4. Oversee and assess all technical developments and progress against objectives of each R&D Program. 5. As programs advance, evaluate and assess resources needed to complete each part of any R&D program. 6. Direct all research and implement strategies to address technical challenges. 7. Direct the filing and prosecution of patent applications covering any joint invention and discoveries pursuant to Section 7.2 of this Agreement. 8. Interface with, and make recommendations to, the Business Committee. 9. Provide regular quarterly reports to the Business Committee addressing progress against goals and any significant developments and issues under each R&D Program. 79 10. Designate subcommittees by crop and delegate to such subcommittees any and all authority of the Research Committee related to the R&D Program(s) for each such crop. All subcommittees will have an equal number of representatives from both MPS and Pioneer. Notwithstanding the authority and responsibilities of the Research Committee as enumerated above, the Research Committee has no authority with respect to budgetary matters involving any R&D Program, nor does the Research Committee have the authority to modify or rescind the obligations of the parties for any part of any R&D Program as set forth on the schedule attached to this Agreement describing each R&D Program and the obligations of the parties thereunder. All decisions of the Research Committee will require unanimity, except with respect to issues that involve the manner in which resources or strategies are employed under a particular part of an R&D Program, in which case the party responsible for such part of the program will have the ultimate decision making authority after considering the input from the Research Committee. Each representative of each party on the Research Committee has one vote with respect to all matters decided by such committee. The Research Committee will meet on a quarterly basis at places and times to be scheduled by the parties. In addition to such regular quarterly meetings, either party can convene a special meeting at anytime reasonably convenient to both parties upon 14 days prior written notice setting forth the matters to be discussed and the date of the meeting. Any special meeting so called will be held at the principal offices of the party who did not call the meeting so as to provide the most convenient place to meet. 2.3 The Business Committee. The principal function of the Business Committee ---------------------- is to provide general administration of the relationship between MPS and Pioneer with respect to this Agreement and of the resources needed to complete each R&D Program. The Business Committee has the authority and responsibility to: 1. Based on input and recommendations from the Research Committee, approve initiation of any new R&D Programs and the assignment of responsibilities of each party under such programs. 2. Make all go and no-go decisions at each critical decision point of a program based on input and recommendations of the Research Committee, including, without limitation, rescinding any R&D Program or any part of any program. 3. Make all decisions relative to making significant changes to resources employed under any part of a program. All decisions by the Business Committee will require unanimity. Each representative of each party on the Business Committee has one vote with respect to all matters decided by such committee. 80 The Business Committee will meet on a semi-annual basis at places and times to be scheduled by the parties. In addition to such regular semi-annual meetings, either party can convene a special meeting at any time reasonably convenient to both parties upon 14 days prior written notice setting forth the matters to be discussed and the date for such meeting. Any special meeting so called will be held at the principal offices of the party who did not call the meeting so as to provide the most convenient place to meet. 2.4 Current R&D Programs. The parties agree to conduct the following R&D -------------------- Programs: 1. As the primary trait, soybean resistant to cyst nematodes. As a secondary trait linked to the primary trait, soybeans resistant to certain insect pests; 2. As the primary trait, canola resistant to flea beetle. As a secondary trait linked to the primary trait, canola resistant to certain insect pests; 3. As the primary trait, sunflower resistant to headmoth. As a secondary trait linked to the primary trait, sunflowers resistant to certain insect pests; 4. As a preliminary feasibility study only, sorghum resistant to greenbug; and 5. As a preliminary feasibility study only, wheat resistant to Hessian fly. An outline of each R&D Program and the assignment of responsibilities to each party for certain parts of each R&D Program are set forth on separate schedules for each program, which schedules collectively are attached to this Agreement as Schedule 2.4. 2.5 Initiation of New R&D Programs. Either party at any time prior to the ------------------------------ tenth anniversary of this Agreement can request an evaluation to initiate a new R&D Program, provided that such potential new R&D Program reasonably can be completed on or before the tenth anniversary of this Agreement. The request first is made to the Business Committee, which, if receptive to the request, will direct the Research Committee to define and evaluate all aspects of the proposed program. The Research Committee will present to the Business Committee its recommendation on the proposed program: (i) who does what; (ii) the resources needed; (iii) the probability of success; (iv) the anticipated development schedule; (v) critical decision points and milestones along the development schedule; and (vi) an estimated time frame for completing the program. Based on the recommendation of the Research Committee, the Business Committee will approve or reject the proposed program or resubmit the proposed program to the Research Committee with suggested revisions for re-evaluation. Neither party will be obligated to conduct a new R&D Program that reasonably cannot be completed on or before the tenth anniversary of this Agreement if the parties use the same level of diligent efforts as applied by the parties under then completed and ongoing programs. This Agreement intends to obligate the parties to develop BIP Transformation Event(s) under R&D Programs initiated and substantially completed during the first ten years of this Agreement. However, notwithstanding the foregoing, once the parties agree to 81 commence any R&D Program and a description of the program and the responsibilities of the parties are set forth on Schedule 2.4 of this Agreement, all obligations of the parties under this Agreement to complete successfully such R&D Program remain in full force and effect after the tenth anniversary of this Agreement and continuing thereafter until such time as such R&D Program successfully concludes or the Business Committee decides to terminate the program. If one party wants to pursue the proposed R&D Program but the other party does not, the party who does not want to pursue the program can defer initiation of the proposed R&D Program for 18 months after the Business Committee concludes that the parties cannot agree to initiate the proposed program. Upon expiration of this 18 month "stand-down" period, the party wanting to pursue the R&D Program can reintroduce the proposal. If the other party continues not to want to pursue the program, the party wanting to pursue the program will be free to do so on its own and, as necessary, by funding certain activities needed to be done by the other party. The party who declined participation in the program must perform any and all activities that the participating party technically, or for the purpose of obtaining intellectual property rights, cannot perform, provided that the participating party funds all such activities performed by the non- participating partner. The party who declined participation will have the ability to preserve its commercial rights under this Agreement for any BIP Transformation Events that may come out of that particular R&D Program by (i) reimbursing the participating party for 100% of the costs and expenses of such program plus 25% of such costs within two years of initiation of such program and (ii) committing to participate in any remaining development work as established under the program as originally recommended to the Business Committee by the Research Committee. If the non-participating party does not reimburse the sponsoring party for 100% of the costs and expenses incurred under such program, plus 25%, within the two year period, the non-participating party loses all commercial rights to the BIP Transformation Events developed under that program. In the event that Pioneer is the non-participating party, then (i) Pioneer loses all rights under this Agreement with respect to any BIP Transformation Event(s) developed under such program and (ii) MPS is free to develop and commercialize such BIP Transformation Event(s) (whether alone or with third parties) as it decides in its sole discretion without any limitation whatsoever under Article 4 this Agreement on the activities of MPS (including licensing to any third parties) with respect to such BIP Transformation Event(s). In the event that MPS is the non-participating party, then (i) MPS loses all rights under this Agreement with respect to any BIP Transformation Event(s) developed under such program and (ii) Pioneer is free to develop and commercialize such BIP Transformation Event(s) subject to the limitations on sub-licensing imposed on Pioneer under Article 4 of this Agreement on the activities of Pioneer with respect to such BIP Transformation Event(s). The party who declined participation in the program must perform any and all activities that the participating party technically, or for the purpose of obtaining intellectual property rights, cannot perform, provided that the participating party funds all such activities performed by the non- participating partner. 82 An example of the initiation of a new R&D Program and an example of the consequence of not participating in such program are set forth on Schedule 2.5 of this Agreement. In the event that upon considering the initiation of a new R&D Program, MPS and Pioneer determine that a patent then issued to a third party is necessary to develop BIP Transformation Events under such prospective R&D Program or to permit both MPS and Pioneer to commercialize Insect Resistant BIP Crops using any BIP Transformation Events developed under such prospective R&D Program, neither MPS nor Pioneer will be obligated in any way to commence such prospective R&D Program until a license to such third party patent is obtained for both MPS and Pioneer. Section 2.8 below addresses the circumstance of a third party patent issuing after commencement of any R&D Program. 2.6 Assignment of Responsibilities Under Each R&D Program. The Research ----------------------------------------------------- Committee initially will delineate which party should be responsible for specific parts of any program based on the technical capabilities of the parties. The Research Committee's recommendation based on technical capabilities will be presented to the Business Committee for review and assessment based on resources and costs. The Business Committee may shift responsibilities for specific parts of any R&D Program before approval of the program. Once an R&D Program has been approved by the Business Committee, then each party will be committed to perform its part of the program within the levels of effort originally anticipated by the Research Committee and reviewed and approved by the Business Committee. 2.7 Decisions Under the R&D Programs at Critical Decision Points. As ------------------------------------------------------------ development work under any R&D Program reaches or encounters critical decision points, the Research Committee will make recommendations on the best technical way to proceed or to solve a particular problem. If substantial additional resources are needed (substantially in excess of the expectations when the program was originally designed), then approval of the Business Committee will be needed. All issues first are addressed by the Research Committee based on technical needs and solutions. Based on the recommendations of the Research Committee, the Business Committee endorses the recommendations by approving the resources needed to advance the program. 2.8 Consequences if a Party Fails to Meet Its Responsibilities Under a Program. -------------------------------------------------------------------------- Upon initiation of any R&D Program, a detailed description of the program will be set forth on a schedule and attached to this Agreement as part of Schedule 2.4. Such descriptions, as set forth on Schedule 2.4 (together with (i) the obligation of either party to provide the other party with BIP Transformation Event(s) pursuant to Section 2.10 and (ii) the obligation of Pioneer to provide MPS with lines converted with BIP Transformation Events pursuant to Section 2.11), will delineate the commitment by each party to perform certain parts of any R&D Program. Unless the Business Committee decides to drop or defer an R&D Program or part of an R&D Program, failure to perform any part of any R&D Program (together with (i) the obligation of either party to provide the other party with BIP Transformation Event(s) pursuant to Section 2.10 and (ii) the obligation of Pioneer to provide MPS with lines converted with BIP Transformation Events pursuant to Section 83 2.11) by either party (after notice from the other party and a 90 day cure period) will result in loss of commercial rights by the non-performing party to the BIP Transformation Events intended to be developed by that program. If the parties otherwise agree in writing to a plan to cure any such failure to perform, which plan may require more then the 90 day cure period to implement, then the cure does not necessarily have to occur within 90 days. Failure to perform under this Section 2.8 shall mean a technical failure to perform and not a legal failure to perform -- such as the inability of Pioneer or MPS to obtain additional licenses from third parties as provided for in Section 7.5. In the event that Pioneer is the non-performing party, then (i) Pioneer loses all rights under this Agreement with respect to any BIP Transformation Event(s) developed under such program and (ii) MPS is free to develop and commercialize such BIP Transformation Event(s) (whether alone or with third parties) as it decides in its sole discretion without any limitation whatsoever under Article 4 this Agreement on the activities of MPS (including licensing to any third parties) with respect to such BIP Transformation Event(s). In the event that MPS is the non-performing party, then (i) MPS loses all rights under this Agreement with respect to any BIP Transformation Event(s) developed under such program and (ii) Pioneer is free to develop and commercialize such BIP Transformation Event(s) subject to the limitations on sub-licensing imposed on Pioneer under Article 4 of this Agreement on the activities of Pioneer with respect to such BIP Transformation Event(s). The party who declined participation in the program must perform any and all activities that the participating party technically, or for the purpose of obtaining intellectual property rights, cannot perform, provided that the participating party funds all such activities performed by the non- participating partner. In the event that after the parties begin an R&D Program a patent issues to a third party that is necessary for MPS and Pioneer to develop BIP Transformation Events under such R&D Program or to commercialize Insect Resistant BIP Crops using any BIP Transformation Events developed under such R&D Program, failure by either MPS or Pioneer to obtain rights under such third party patent for both MPS and Pioneer will not be considered a failure to perform any part of the R&D Program by either MPS or Pioneer or, except for the obligation of both MPS and Pioneer under Section 7.5 to use good faith efforts to obtain rights under such third party patent for both MPS and Pioneer, a breach of this Agreement. Notwithstanding the foregoing, each of MPS and Pioneer will remain obligated to perform any and all parts of the R&D Program assigned to such party as set forth on Schedule 2.4 to the extent that the performance of any such part of the R&D Program by either MPS, or as the case may be, Pioneer will not infringe such third party patent. 2.9 Consequences If Substantial Additional Resources Are Needed But One Party ------------------------------------------------------------------------- Does Not Want to Provide Additional Resources. In the event that --------------------------------------------- substantial additional resources (substantially in excess of the resources initially anticipated by the Research Committee) need to be devoted by a party to complete a specific part of an R&D Program, then the Business Committee will be responsible for resolving any inequities that may result from the extra effort. If the Business Committee cannot resolve any such inequities, then the 84 unaffected party will have the right (but not the obligation) to undertake or fund the additional work (or provide the personnel to perform the additional work), provided that the party receiving such funds or assistance must reimburse the sponsoring party for such additional funds or assistance plus 25% in order for the party receiving the funds or assistance to maintain its commercial rights in such R&D Program under this Agreement. The reimbursement plus 25% is due immediately upon completion of the additional work and, if not paid, will make such party a "non- participating party" with respect to that specific R&D Program. In the event that either MPS or Pioneer is the non-participating party, then (i) the non-participating party loses all rights under this Agreement with respect to any BIP Transformation Event(s) developed under such part of the program and (ii) the participating party who continues the program is free to develop and commercialize such BIP Transformation Event(s), subject to the provisions of Article 4 of this Agreement on the activities of the participating party with respect to such BIP Transformation Event(s). The non-participating party in the affected program must perform any and all activities that the participating party technically, or legally cannot perform, provided that the participating party funds all such activities performed by the non-participating party. An example of the consequences of providing or not providing additional resources is set forth on Schedule 2.9. 2.10 Access to BIP Transformation Events. Either party will have the right to ----------------------------------- receive BIP Transformation Events from each R&D Program in such generation of backcrossed inbreds as set forth on Schedule 2.4 for each R&D Program. The party responsible for transforming inbred lines of any Target Crop with BIP genetic constructs under any R&D Program will supply the other party, upon request of such other party, with the BIP Transformation Event(s) in the specified, or later generation, of backcrossed inbreds. The receiving party will be able to utilize such transformed inbreds to conduct conversions of parent line materials with the subject BIP-Transformation Event(s). 2.11 Line Conversions By Pioneer for MPS. With respect to each BIP ----------------------------------- Transformation Event, Pioneer will convert such number of MPS lines as set forth in the R&D Programs and the Corn Research Programs. MPS will supply Pioneer with the lines that MPS desires to have converted. Pioneer will convert such lines on behalf of MPS with the same diligence and within the same time frame that Pioneer uses in converting its own lines. Breeders for MPS will be permitted to participate in and to track all such conversions of MPS lines by Pioneer. MPS will be entitled to all data generated by Pioneer with respect to such conversions. 2.12 Adding Other Proprietary Genetic Traits Under Any R&D Program. Upon mutual ------------------------------------------------------------- agreement of the parties by action of the Business Committee, either party may include a proprietary genetic trait (other than BIP based insect resistance) under any R&D Program, which trait may be coupled or stacked with the BIP based insect resistance trait comprising any BIP Transformation Event. Such proprietary genetic traits (other than BIP based insect 85 resistance) may include, without limitation, genes responsible for disease resistance or for particular oil or nutritional characteristics. In the event that MPS and Pioneer elect to couple or stack any Pioneer proprietary genetic trait (other than a Pioneer BIP Gene) with any BIP Gene in connection with transforming a Target Crop under any R&D Program, so that the resulting transformed events impart to the Target Crop both BIP- based insect resistance and another identifiable agronomic trait, then MPS will not have the right under Section 4.3 to grant sublicenses to any third parties (other than MPS Affiliates) to any such trait coupled or stacked with any BIP Transformation Event without Pioneer's prior written approval and payment to Pioneer from any permitted third party sublicensees of compensation acceptable to Pioneer. 2.13 Adding Other Crops Under This Agreement. Upon the request of either party, --------------------------------------- both parties agree to discuss in good faith adding other crops to the list of Target Crops covered by this Agreement; provided, however, that the grant of any rights by MPS to Pioneer with respect to such other crops to MPS BIP Genes or to MPS Enabling Technology will be subject to any licenses that MPS may grant to third parties with respect to such other crops. Nothing under this Section 2.13 prevents MPS from granting an exclusive license to any crop other than corn and the Target Crops to any third party covering MPS BIP Genes and MPS Enabling Technology. MPS will notify Pioneer if and when MPS begins actively to seek licensing MPS BIP Genes and MPS Enabling Technology in any such other crops. ARTICLE 3 REGISTRATION OF BIP TRANSFORMATION EVENTS ----------------------------------------- 3.1 Registration of BIP Transformation Events in North America. MPS and ---------------------------------------------------------- Pioneer agree to consult with each other as to how they can best use their collective resources to cooperate and generate all data necessary to obtain regulatory approvals in North America. Each of MPS and Pioneer will develop data according to their specific areas of expertise. MPS will provide information, including characterization of the BIP Genes and gene products, toxicology and impacts on non-target species. Pioneer will provide information, including molecular characterizations of BIP Transformation Events, BIP Gene expression in the field, nutritional equivalence and agronomic performance of BIP Transformation Events. MPS will be responsible for preparing all [information and related] data packages necessary to file any and all applications for approval from all regulatory authorities in North America to field test, produce and commercialize Insect Resistant BIP Crops containing one or more BIP Transformation Events. MPS will take the lead on behalf of MPS and Pioneer to interact with all such regulatory authorities and will coordinate all such interactions with Pioneer so that Pioneer representatives can participate in every aspect of the regulatory process. Using the information and related data packages and regulatory submissions prepared by MPS, each of Pioneer and MPS will apply for and obtain their own authorizations to conduct field tests, experimental use permits and full registrations in their own names in North America for each BIP Transformation Event. MPS and Pioneer will share on an equal fifty-fifty basis any and all out of pocket expenses, including without limitation, toxicology studies, consultant fees and expenses, registration 86 fees and travel expenses incurred by MPS and Pioneer in connection with preparing all information and related data packages necessary for the parties to file for regulatory approval of all BIP Transformation Events in North America. MPS and Pioneer will consult on the choice of consultants and contract laboratories. 3.2 Registration of BIP Transformation Events Outside of North America. For ------------------------------------------------------------------ the purpose of obtaining approval from any regulatory authorities in any country outside of North America where either MPS or Pioneer desired to commercialize Insect Resistant BIP Crops, each of MPS and Pioneer will have immediate and unrestricted access to, and the right to reference and use, any and all information, including any data included in any regulatory package prepared by MPS for registration of any BIP Transformation Event in North America. In the event that additional data or information is required for any regulatory approvals outside of North America, each of Pioneer and MPS will be responsible for preparing such additional data or information at their cost for their own use, provided that the parties will consult with each other as to how they can best use their collective resources to coordinate regulatory approvals for both MPS and Pioneer in any country. 3.3 Rights of Reference to Regulatory Packages for Registering Non-Target --------------------------------------------------------------------- Crops. For the purpose of obtaining approval from any regulatory ----- authorities in any country for any transgenic event or crop developed by Pioneer or MPS outside of any R&D Program, each of MPS and Pioneer will have access to, and the right to reference and use, any information, including any data included in any regulatory package prepared by MPS for registration of any BIP Transformation Event in North America. ARTICLE 4 GRANT OF RIGHTS --------------- 4.1 Grant of Research Licenses for Purposes of Conducting the R&D Programs. ---------------------------------------------------------------------- Each party hereby grants to the other party a non-exclusive license to any and all MPS BIP Genes and MPS Enabling Technology and, correspondingly, to any and all Pioneer BIP Genes and Pioneer Enabling Technology solely for the purpose of, and solely to the extent necessary for, enabling each party to conduct its assigned research and development activities under each R&D Program. 4.2 MPS Grant of Commercial License to Pioneer. Subject to the terms and ------------------------------------------ conditions of this Agreement, MPS hereby grants to Pioneer a perpetual, world-wide, non-exclusive license, with no right to grant sublicenses except to Affiliates of Pioneer (without the right of such Affiliates to grant further sublicenses), to any and all MPS BIP Genes, MPS Enabling Technology and Joint Enabling Technology that are part of any and all BIP Transformation Event(s) developed under any and all of the R&D Programs solely to the extent necessary for the use, production and sale by Pioneer of Insect Resistant BIP Crops containing such BIP Transformation Event(s); provided that: (i) the license granted to Pioneer hereunder will be royalty free with respect to the sale by Pioneer and Pioneer Affiliates of Insect Resistant BIP Crops in North America; and 87 (ii) the license granted to Pioneer hereunder will be subject to a prepaid royalty by Pioneer and Pioneer Affiliates to MPS pursuant to Section 4.4 of this Agreement with respect to the sale by Pioneer and Pioneer Affiliates of Insect Resistant BIP Crops outside of North America. The MPS Enabling Technology and Joint Enabling Technology are licensed to Pioneer to be used as only a part of a BIP Transformation Event, and are not licensed for use as a separate component or process other than with a BIP Event. Pioneer and its Affiliates have the right under the license granted by MPS to Pioneer under this Section 4.2 to permit distributors, agents and resellers to distribute and sell Insect Resistant BIP Crops in branded bags of Pioneer or Pioneer Affiliates using such proprietary packaging and displaying such Pioneer or Pioneer Affiliate brand name identification with the same prominence and position as used and displayed by Pioneer or by any Pioneer Affiliate in the ordinary course of its business. Such proprietary packaging displaying the brand name identification of Pioneer or Pioneer Affiliate also may display the name, logo or trademark of any distributor, agent or re-seller that distributes or sells Pioneer planting seed. 4.3 Pioneer Grant of Commercial License to MPS. Subject to the terms and ------------------------------------------ conditions of this Agreement, Pioneer hereby grants to MPS a perpetual, worldwide, royalty free, non-exclusive license, with the right as set forth below to grant sublicenses, to any and all Pioneer BIP Genes, Pioneer Enabling Technology and Joint Enabling Technology that are part of any and all BIP Transformation Event(s) developed under any and all of the R&D Programs solely to the extent necessary for the use, production and sale by MPS and its sublicensees of Insect Resistant BIP Crops containing such BIP Transformation Event(s). The Pioneer Enabling Technology and Joint Enabling Technology are licensed to MPS to be used as only a part of a BIP Transformation Event, and are not licensed for use as a separate component or process other than with a BIP Transformation Event. Pioneer shall provide MPS with access to BIP Transformation Events in the form of F1 seed containing Pioneer proprietary germplasm. MPS shall make four backcrosses using MPS inbreds/varieties as the recurrent parent and then shall use such Pioneer germplasm only as a source of the gene or vector and MPS shall not knowingly make an effort to recover any unassociated part of the genome of the non-recurrent parent of the Pioneer germplasm. MPS may grant sublicenses under this Section 4.3 to (1) Affiliates of MPS (without the right of such Affiliates to grant further sublicenses), (2) SVO Specialty Products, Inc., a Delaware Corporation ("SVO") pursuant to that certain Technology and Development Agreement dated January 1, 1995 between SVO and MPS, as amended December 13, 1995, and (3) only to one third party (without the right of such third party to grant further sublicenses except to Affiliates of such third party) in each of (a) North America, (b) Europe and (c) the rest of the world with respect to each BIP Transformation Event in each Insect Resistant BIP Crop, provided that each such third party will have no right or license to commercialize an Insect Resistant BIP Crop containing such BIP Transformation Event until such time that Pioneer is able to commercialize such Insect Resistant BIP Crop containing such BIP Transformation Event in the same geographic region (North America, Europe or, as the case may be, the rest of the world) as the MPS licensee. MPS may grant additional sublicense to any other third 88 parties (without the right of such third parties to grant further sublicenses except to their respective Affiliates) in each jurisdiction identified above to each BIP Transformation Event in each Insect Resistant BIP Crop provided that such additional third parties will have no right or license to commercialize Insect Resistant BIP Crops containing such BIP Transformation Event until the second calendar year after the calendar year in which Pioneer shall have entered its "RC1" stage (RC1 being a common designation used within Pioneer for the first recognized year of commercial sales), of such Insect Resistant BIP Crop containing such BIP Transformation Event in the jurisdiction (North American, Europe or, as the case may be, the rest of the world) where the third party licensee(s) desire to commercialize such Insect Resistant BIP Crop. An example of the right of MPS to grant sublicenses to third parties under this Section 4.3 is set forth on Schedule 4.3. MPS and its Affiliates have the right under the license granted by Pioneer to MPS under this Section 4.3 to permit distributors, agents and resellers to distribute and sell Insect Resistant BIP Crops in branded bags of MPS or MPS Affiliates using such proprietary packaging and displaying such MPS or MPS Affiliate brand name identification with the same prominence and position as used and displayed by MPS or any MPS Affiliate in the ordinary course of its business. Such proprietary packaging displaying the brand name identification of MPS or MPS Affiliate also may display the name, logo or trademark of any distributor, agent or re-seller that distributes or sells MPS planting seed. For the purposes of this Section 4.3, the terms "distributors", "agents" and "resellers" shall not be deemed to include third party seed companies that distribute seed in their own branded bags. 4.4 Royalty Payment by Pioneer for Sales Outside of North America. In the ------------------------------------------------------------- event that Pioneer or any Pioneer Affiliate desires to produce and sell outside of North America any Insect Resistant BIP Crop containing one or more BIP Transformation Events developed under any R&D Program, which planting seed will be advertised or otherwise promoted by Pioneer or a Pioneer Affiliate as having insect, mite or nematode resistance resulting from such BIP Transformation Event, then as a condition precedent to selling such planting seed in any country outside of North America, Pioneer must pay to MPS a one time, prepaid royalty. Such one-time pre-paid royalty shall be equal to [CERTAIN CONFIDENTIAL INFORMATION HAS BEEN REDACTED FROM THIS LINE OF THIS DOCUMENT SUBMITTED FOR PUBLIC RECORD AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION.] of projected Net Sales over a ten year period of such Insect Resistant BIP Crop by Pioneer and Pioneer Affiliates which planting seed will be advertised or otherwise promoted by Pioneer or a Pioneer Affiliate as having insect, mite or nematode resistance resulting from such BIP Transformation Event in each such country. MPS and Pioneer will retain a mutually acceptable marketing firm to analyze such Net Sales potential for the planting seed described above. With reference to such analysis, the parties will negotiate in good faith a prepaid royalty amount. Such royalty amount will be paid by Pioneer to MPS prior to, and as a condition precedent to, Pioneer or any Pioneer Affiliate commercializing any Insect Resistant BIP Crop that is the subject of such royalty payment to MPS in such country. 89 4.5 License Payments and Royalties to Third Parties. In the event that the ----------------------------------------------- sale by either MPS (and its sublicensees) or by Pioneer of any Insect Resistant BIP Crops having one or more BIP Transformation Events developed under any R&D Program require the payment to any third party of a license or royalty fee for such third party's technology rights that may be part of any such BIP Transformation Event(s) in any Insect Resistant BIP Crops, then the party selling such Insect Resistant BIP Crop(s) will be responsible for the calculation, administration and payment of any such license or royalty fee to the third party technology licensor. 4.6 MPS Will Not Provide its BIP Gene Library to Third Parties for Target --------------------------------------------------------------------- Crops. Except with respect to (i) the grant of licenses by MPS to third ----- parties to BIP Transformation Events developed under R&D Programs as permitted under Section 4.3, and (ii) fulfillment by MPS of any obligation to provide MPS BIP genes to Ciba-Geigy Limited and Ciba-Geigy Corporation (collectively, "Ciba") under that certain Agreement for Exchange of Insect Control Technology and Patent Rights dated as of July 14, 1993 by and among MPS and Ciba (the "MPS/Ciba Agreement), MPS will not provide, until the tenth anniversary of this Agreement, any of its BIP genes, natural or synthetic, full length or truncated, encoding BIP (and genetic material derived therefrom) to any third party for the purpose of enabling such third party to develop BIP based insect resistance in corn or any Target Crops. In the event Pioneer does not participate in an R&D Program or fails to perform its parts of any R&D Program, MPS may grant licenses to third parties for BIP Genes specific to the R&D Program, or parts thereof, in which Pioneer did not participate or in which Pioneer failed to perform. In the event that MPS provides any MPS BIP genes to Ciba under the MPS/Ciba Agreement and Ciba/MPS develop insect resistance traits in corn using such MPS BIP genes, then MPS will forfeit any right under this Agreement to grant a license to third parties (other than to Affiliates of MPS) to commercialize insect resistant corn containing a competing BIP Transformation Event that may be developed by Pioneer and MPS under this Agreement until the second calendar year after the calendar year in which Pioneer shall have entered its "RC1" stage of insect resistant corn containing such competing BIP Transformation Event in each jurisdiction (North America, Europe or, as the case may be, the rest of the world) where the third party licensee(s) desire to commercialize corn containing such competing BIP Transformation Event. 4.7 No Licenses Granted Outside of the R&D Programs and the Commercialization ------------------------------------------------------------------------- of Insect Resistant BIP Crops. Notwithstanding the foregoing and except ----------------------------- for the licenses granted under Section 5.3 of this Agreement, no licenses are granted (i) by MPS to Pioneer with respect to MPS BIP Genes or MPS Enabling Technology or (ii) by Pioneer to MPS with respect to Pioneer BIP Genes or Pioneer Enabling Technology for any use or activities outside of the research and development activities under R&D Programs or for the commercialization of Insect Resistant BIP Crops containing BIP Transformation Events developed under the R&D Programs. No other licenses are intended to be granted under this Agreement by either party to the other with respect to any other technology or intellectual property rights owned by such party. ARTICLE 5 RESEARCH PROGRAMS IN CORN ------------------------- 90 5.1 Research Program in Corn. The MPS/Ciba Agreement restricts until, ------------------------ approximately, the end of 1998 with respect to all countries of the world except Italy and France (and possibly later in the case of Italy and France) the ability of MPS to grant licenses to third parties under certain patent rights owned by MPS for the purpose of engaging in certain commercial activities involving corn transformed with genetic material derived from BIP. Subject to the limitations imposed under the MPS/Ciba Agreement, MPS and Pioneer will conduct three research programs, which are set forth in detail on Schedule 5.1, to investigate and evaluate certain BIP Genes and BIP transformation events utilizing such BIP Genes for resistance in corn plants to (i) corn rootworm (the Diabrotica sp.), (ii) lepidopteran pests, such as European corn borer and cutworm (Ostrinias nebialis and Agrotis ipsilon) and (iii) certain storage grain pests to be identified by the parties (collectively, the "Corn Research Programs"). 5.2 Responsibilities of the Parties. Each party will be responsible for such ------------------------------- parts of the Corn Research Programs as set forth on Schedule 5.1. The Corn Research Programs will be administered by the Research Committee and the Business Committee in the same manner as the administration by such committees of the R&D Programs under Article 2 of this Agreement, provided that both committees will ensure (with advice of legal counsel) that for the applicable restricted period under the MPS/Ciba Agreement the parties will not engage in commercial activities restricted under the MPS/Ciba Agreement in any country where such activities would require a license under MPS patents issued in such country and covered by the MPS/Ciba Agreement, which license to such MPS patents is restricted under the MPS/Ciba Agreement from being granted by MPS to any third party for such commercial activities until after expiration of the applicable restrictive period under the MPS/Ciba Agreement. 5.3 Grant of Research Licenses for Purposes of Conducting the Corn Research ----------------------------------------------------------------------- Programs. Each party hereby grants to the other party a non-exclusive -------- license to any and all MPS BIP Genes and MPS Enabling Technology and, correspondingly, to any and all Pioneer BIP Genes and Pioneer Enabling Technology solely for the purpose of, and solely to the extent necessary for, enabling each party to conduct its assigned research activities under the Corn Research Programs. 5.4 Future Grant of License. At the earliest possible date permitted under the ----------------------- MPS/Ciba Agreement, MPS will grant to Pioneer identical license rights in corn as those granted to Pioneer under Article 4 applicable to Target Crops. Concurrently with such grant of license by MPS to Pioneer, Pioneer will grant identical license rights in corn as those granted to MPS under Article 4 applicable to Target Crops. Upon the grant of the licenses described above from each party to the other party, (i) MPS and Pioneer no longer will be restricted under this Article 5 from pursuing commercial activities with respect to BIP-based insect, mite and nematode resistance traits in corn in countries where MPS patents covered by the MPS/Ciba Agreement have issued and (ii) all provisions of this Agreement will apply to the activities of the parties with respect to any and 91 all BIP transformation events created and being evaluated under the Corn Research Programs. 92 ARTICLE 6 REPRESENTATIONS AND WARRANTIES ------------------------------ Each party to this Agreement, only with respect to itself, hereby represents and warrants to the other party as follows: 6.1 Due Authorization. Each party has all requisite corporate power and ----------------- authority to execute and deliver this Agreement and to consummate the transactions contemplated herein and to perform its obligations hereunder. The execution, delivery and performance of this Agreement, including, without limitation, the grant of the licenses and the right to grant sublicenses hereunder, has been duly and validly authorized by proper corporate action and constitutes a valid and legally binding agreement of such party, without requiring the consent of any third party or governmental authority. 6.2 Good Title to Patents. Each party has good title (either as the owner or --------------------- as a licensee) to patent rights that it owns as of the date of this Agreement comprising part of the Combined Technology and Patent Rights, with the right to grant the licenses granted under Article 2 and Section 5.3. Neither party makes any representation or warranty that the practice or use of any of its technology and patent rights comprising part of the Combined Technology and Patent Rights will not infringe or interfere with property rights belonging to any third party. In this regard, each party represents and warrants that it has to the best of its knowledge provided full disclosure of information related to its patent rights to the other party, and the parties acknowledge that each of them has had the opportunity to conduct a due diligence investigation of the foregoing to its own satisfaction. 6.3 No Conflicting Agreements. Neither party has entered into any ------------------------- understanding or agreement with any third party that will in any way conflict with any right granted, or obligation arising, under this Agreement. ARTICLE 7 PATENT PROSECUTION, DEFENSE AND ENFORCEMENT, ADDITIONAL LICENSES ---------------------------------------------------------------- 7.1 Patent Prosecution and Defense. Each party, at its own expense, will ------------------------------ diligently prosecute in good faith its patents and patent applications comprising its part of the Combined Technology and Patent Rights in all jurisdictions where such patents and patent applications currently are filed and, with respect to future patent applications where such party decides to file future patent applications in order to obtain granted claims in such jurisdictions covering the BIP Transformation Events under such patents and patent applications and the development and commercialization of Insect Resistant BIP Crops. Each party also will use diligent efforts to maintain all licenses to the technology and patent rights sublicensed by such party to the other party under this Agreement. In the event that any of the patents or patent applications comprising the Combined Technology and Patent Rights become the subject of an interference or opposition or the validity of which is challenged under any proceeding in the patent office or before any interference, opposition or other administrative board in any particular jurisdiction, each 93 party will diligently defend in good faith its own such patent(s) or patent application(s) in order to obtain or maintain claims in such jurisdictions covering the BIP Transformation Events under such patent(s) or patent application(s) and the development and commercialization of Insect Resistant BIP Crops. 7.2 Joint Inventions and Discoveries. Pioneer and MPS will jointly own all -------------------------------- joint inventions and discoveries, including, without limitation, Joint Enabling Technology, jointly invented or discovered by the parties during the course of this Agreement. The Research Committee will be responsible for establishing a process for identifying joint inventions or discoveries for informing the inventors that no publication of such invention or discovery shall be made without advance written approval from the Committee and for prosecuting patent applications in any and all jurisdictions related thereto. The Business Committee will decide upon the jurisdictions in which each such application will be filed. The cost and expense of filing and prosecuting any such patent applications and of maintaining issued patents will be shared on an equal fifty-fifty basis by MPS and Pioneer. In the event that one party desires to file and prosecute a patent application covering Joint Enabling Technology in a particular country and the other party does not, the party desiring to file such patent application may do so at its own expense. If the declining party desires to maintain joint ownership of the Joint Enabling Technology in such country covered by such patent application, then the declining party must reimburse the filing party for 100% of all cost and expenses of preparing, filing and prosecuting such patent application plus 25% thereof on or prior to the second anniversary of the filing of such patent application. If the declining party does not reimburse such costs and expenses, plus 25% thereof, on or before such second anniversary date, then the declining party hereby forfeits any and all rights to such Joint Enabling Technology covered by such patent application except to the extent necessary to commercialize Insect Resistant BIP Crops pursuant to the licenses granted under Article 4. Notwithstanding the foregoing, in the event that either MPS or Pioneer determines in good faith that any such joint invention or discovery, including, without limitation, any Joint Enabling Technology, should be held as a trade secret, then neither party will file or prosecute any patents with respect to such invention or discovery. 7.3 Periodic Updates. At least once every six months, the parties will review ---------------- the status and foreseeable significant developments of all patents and patent applications comprising the Combined Technology and Patent Rights with respect to obtaining or maintaining claims covering BIP Transformation Events and the development and commercialization of Insect Resistant BIP Crops. Concurrently with such review, the parties will evaluate and discuss the issuance of patents and any foreseeable significant developments of patent applications held by third parties that might impact the ability of Pioneer and MPS to develop and commercialize Insect Resistant BIP Crops. 7.4 Patent Enforcement. In the event that a third party is misappropriating ------------------ technology or infringing any patent(s) comprising the Combined Technology and Patent Rights by developing, breeding, transforming, registering, producing, distributing, advertising, marketing or selling or transgenic crop containing BIP, then the parties will consult with one 94 another regarding enforcement of such technology or patent rights. In this respect, the parties will consider the nature and extent of the misappropriation or infringement, the strength of such technology or patent rights with respect thereto, the enforcement of narrower and more specific technology or patent rights prior to the enforcement of broader and more basic technology or patent rights comprising the Combined Technology and Patent Rights, and the existence of facts or circumstances that would weigh against enforcement of such rights. If the parties agree that the technology or patent rights comprising the Combined Technology and Patent Rights should be sufficient to stop the infringing activity or collect damages or compel the misappropriating or infringing party to seek a license from either party, then the parties will consider whether they want to act in concert in an enforcement action. If either party does not want to engage in a joint enforcement action, then either party will be free to enforce or, to the extent not otherwise prohibited under Article 2 of this Agreement, license its own technology and patents with respect to such infringing third party. If the parties decide to act in concert in an enforcement action, then the parties will agree upon (i) retention of legal counsel; (ii) who controls the action; (iii) sharing of legal and other expenses; (iv) settlement authority and (v) sharing of damages or other award. 7.5 Additional Licenses. In the event that additional licenses from third ------------------- parties become necessary to use the BIP Transformation Events to develop and commercialize Insect Resistant BIP Crops as contemplated by this Agreement, then the parties will consult as to the best way to obtain such licenses for the benefit of both MPS and Pioneer and jointly negotiate for such licenses. In the event that the parties, acting jointly, are unable to obtain such licenses for the benefit of both MPS and Pioneer, each party will be free to obtain a license for its own benefit (and not for the benefit of the other party) for the development and commercialization of Insect Resistant BIP Crops using the BIP Transformation Events. ARTICLE 8 FUNDING BY PIONEER ------------------ In addition to Pioneer's commitment to perform its parts of each R&D Program as set forth under Article 2 and its parts of each Corn Research Program as set forth under Article 5, Pioneer will pay to MPS a lump sum equal to $10 million contemporaneously with the execution and delivery of this Agreement by the parties, and an additional lump sum of $11 million due upon the expiration of the restriction on the ability of MPS to grant Pioneer a commercial license for corn under the MPS/Ciba Agreement as described under Article 5. The payments are for the research and development of BIP Transformation Events derived from Bacillus species encoding insecticidal, miticidal and nematocidal proteins to be performed in the future by MPS under the R&D Programs as initially set forth on Schedule 2.4 and under the Corn Research Programs as set forth on Schedule 5.1. ARTICLE 9 CONFIDENTIALITY --------------- For a period of five (5) years from the termination of this Agreement, each party will keep confidential any and all Confidential Information (not otherwise excluded from the confidentiality and non-use obligation of this Article 9 as set forth below) received from the other party in 95 connection with the performance of this Agreement and will not disclose it to third parties or use it for any purpose other than pursuant to this Agreement, without the prior written consent of the disclosing party. The confidentiality and non-use obligation of this Article 9 will not apply to information and other items listed under the definition of Confidential Information: (a) which is public knowledge at the time of disclosure, or which after disclosure becomes public knowledge in any way except through the wrongful act of the party so disclosing it; (b) which the receiving party is able to prove was in its possession at the time of disclosure by the disclosing party and which had not been obtained from the latter, either directly or indirectly; (c) whose disclosure is compelled by administrative or judicial order; or (d) which either party received from a third party having the legal right to disclose such information. The provisions of this Article 9 will survive any termination of this Agreement. In the event that MPS determines that Confidential Information received from Pioneer or any Pioneer Affiliate needs to be disclosed to regulatory authorities for the sale or use of Insect Resistant BIP Crops or to a third party in connection with the grant of a license to any BIP Transformation Event to such third party pursuant to Section 4.3, then disclosure may be made to such third party only upon Pioneer's prior written consent, which may not be unreasonably withheld, and only if such third party agrees to be bound by terms of confidentiality equivalent to those specified with this Article 9. 96 ARTICLE 10 TERM AND TERMINATION -------------------- Unless earlier terminated by the written agreement of both Pioneer and MPS, this Agreement will become effective on the date first written above and will expire when both Pioneer and MPS cease selling Insect Resistant BIP Crops containing BIP Transformation Events. ARTICLE 11 INDEMNIFICATION --------------- 11.1 Indemnification. Except with respect to claims for patent infringement, --------------- each party ("party A") agrees to protect and indemnify the other party ("party B") and its Affiliates (collectively "Indemnitees") and hold the Indemnitees harmless from and against any and all costs, expenses, causes of action and damages, including reasonable attorneys* fees (collectively, "Indemnified Claims"), including, without limitation, those brought or asserted by any party or governmental authority relating to environmental, health or safety matters for personal injury or property damage, which arise from or in connection with any activity involving Insect Resistant BIP Crops containing BIP Transformation Events by such party ("party A") or its Affiliates or the growing, use, purchase or consumption of any plants or products of any kind utilizing or derived from Insect Resistant BIP Crops containing BIP Transformation Events sold by such party ("party A") or its Affiliates, except to the extent caused by the negligence or misconduct of the Indemnitee, or from the breach of any of the Representations and Warranties set out in Article 6. 11.2 Notice. Promptly after receipt by an Indemnitee of notice of the ------ commencement of any action or the presentation or other assertion of any Indemnified Claim that could result in an indemnification claim pursuant hereto, the Indemnitee will give prompt notice thereof to the indemnifying party and the indemnifying party will be entitled to assume the defense thereof. If the indemnifying party elects to assume the defense of any Indemnified Claim, such election will be deemed to be the consent of the indemnifying party to having the subject matter of such action be an Indemnified Claim for purposes of Section 11.1, subject to the exception noted therein. The indemnified party may, at all times, with counsel of its own choice and at its own expense, participate in the defense of any Indemnified Claim. A failure or delay by the Indemnitee to give notice of an Indemnified Claim will not release or limit the indemnifying party's obligations hereunder except to the extent that the indemnifying party has been prejudiced by such failure or delay. 11.3 Settlements. Whether or not the indemnifying party elects to assume the ----------- defense of any Indemnified Claim, it will not be liable for any compromise or settlement of any such action or claim effected without its consent, which will not be unreasonably withheld. The parties agree to cooperate to the fullest extent possible in connection with any claim for which indemnification is or may be sought under this Agreement. 97 ARTICLE 12 MISCELLANEOUS ------------- 12.1 Severability. In the event that one or more provisions of this ------------ Agreement should be, or become, illegal, invalid or unenforceable, then the parties will substitute legal, valid and enforceable provisions for such illegal, invalid ones. The substituted provisions will be drafted so that in their economic effect they so closely resemble the illegal, invalid or unenforceable provisions that it can be reasonably assumed that the parties would have contracted on the basis of those new provisions. In the event that such provisions cannot be drafted, the illegality, invalidity or unenforceability of one or more of the provisions of this Agreement will not affect the validity or enforceability of this Agreement as a whole, unless the affected provisions are of such essential importance to this Agreement that it can be reasonably assumed that the parties would not have entered into this Agreement without such provisions. 12.2 No Implied Waivers. Failure of either party to this Agreement to insist ------------------ upon strict observance of or compliance with all its terms and conditions in one or more instances will not be deemed to be a waiver of its rights to insist upon such observance or compliance in the future. 12.3 Modifications and Amendments. No alteration, amendment, or supplement to ---------------------------- this Agreement will be of any force or effect unless in writing and signed by the party bound thereby. 12.4 Entire Agreement. This Agreement constitutes the entire understanding ---------------- between the parties and neither party will be obligated by any condition or representation other than those expressly stated herein or as may be subsequently agreed to by the parties hereto in writing. 12.5 No Agency or Partnership. Nothing in this Agreement will be deemed to ------------------------ constitute a partnership, agency, employer-employee or joint venture relationship between the parties. All activities by the parties hereunder, including but not limited to the duties described herein, will be performed by them as independent contractors. Neither party will incur any obligation or make any commitments for or on behalf of the other party. 12.6 No Assignments. This Agreement will inure to the benefit of and be -------------- binding upon the parties hereto, their respective Affiliates as permitted hereunder and their respective successors and assigns. Other than to successors of either party, no party will assign this Agreement or any rights or obligations hereunder (other than to (i) the respective Affiliates of each party as permitted under Article 4 and (ii) with respect to the grant of licenses by MPS to third parties as set forth under Section 4.3) without the prior written consent of the other party. 12.7 Force Majeure. No liability will result from the delay in performance or ------------- nonperformance, in whole or in part, if it has been made impracticable by compliance in good faith with any applicable government or judicial regulation or order whether or not it later proves to be invalid, or by the occurrence of a contingency the nonoccurrence of which was a basic assumption on which this Agreement was made, including, but not limited to, acts of God, 98 fire, flood, accident, riot, sabotage, war, insurrection, earthquake, strike, labor trouble or shortage, or embargo. Upon the occurrence of such delay, the delayed party shall promptly notify the other and the period of performance shall be extended to compensate for said delay. 12.8 Headings. The headings of the Articles and Sections of this Agreement are -------- for convenience only and will not change the substantive provisions of this Agreement. 12.9 Notices. Any notices permitted or required by this Agreement will be ------- deemed to be effective upon receipt when sent by telex, telecopier or postage prepaid certified mail if sent: (a) In the case of Pioneer to: Pioneer Hi-Bred International, Inc. 700 Capital Square 400 Locust Street Des Moines, IA 50309 Attention: Dr. Richard McConnell Fax: 515/248-4844 with a copy sent to Daniel Cornelison, Esq. (b) In the case of MPS to: Mycogen Plant Sciences 5501 Oberlin Drive San Diego, California 92121 Attention: President Fax: 619/453-0142 with a copy sent to the General Counsel or at such other address as each such party may designate in writing. IN WITNESS WHEREOF, the parties hereby execute and deliver this Agreement as of the date first written above. AGRIGENETICS, INC. PIONEER HI-BRED INTERNATIONAL, INC. d/b/a MYCOGEN PLANT SCIENCES By: /s/ Jerry Caulder By: /s/ Chuck Johnson ----------------- ------------------------------ Title: President Title: President & Chief Executive Officer -------------- ----------------------------------- 99 SCHEDULE 2.4: PIONEER / MYCOGEN BIP CROP PROGRAMS 2.4.1 SOYBEAN PROGRAMS [THIS SCHEDULE, WHICH CONTAINS CONFIDENTIAL INFORMATION, HAS BEEN DELETED FROM THE COLLABORATION AGREEMENT SUBMITTED FOR PUBLIC RECORD. THE CONFIDENTIAL INFORMATION HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] 100 [THIS PAGE INTENTIONALLY LEFT BLANK.] 101 SCHEDULE 2.5 ------------ Example - initiation of a New R & D Program; Consequence for Non-Participation - ------------------------------------------------------------------------------ Example - In the year 2000, Pioneer desires to initiate a new R&D Program for a particular pest of tropical corn. Since corn is a Target Crop covered by the Agreement, Pioneer can request the initiation of a new R&D Program for the desired target pest in tropical corn ("Tropical Corn Pest Program"). Pioneer presents a preliminary proposal for such a program to the Business Committee. The Business Committee directs the Research Committee to define and evaluate all aspects of the proposed program, including (i) who does what; (ii) the resources needed; (iii) the probability of success; (iv) the anticipated development schedule; (v) critical decision points and milestones along the development schedule; and (vi) (an estimated time frame for completing the program. The evaluation by the Research Committee is based on the best utilization of each party's technical capabilities and expertise and not on the budgetary burden that may fall on either party. Based on the evaluation of the Research Committee, MPS decides that it does not have the resources at that time to support its parts of the proposed Tropical Corn Pest Program. Unless Pioneer and MPS can agree through the Business Committee on how to reallocate the responsibilities or otherwise help MPS, MPS can defer initiation of the program as configured by the Research Committee for 18 months. In this example, MPS defers initiation of the program for 18 months after the Business committee concludes that the parties cannot agree to initiate the proposed program. Eighteen months later, Pioneer reintroduces to the Business Committee the proposed Tropical Corn Pest Program. At that time, with some modifications, MPS is prepared to perform its parts of the program. The Research Committee completes detailed description of the Tropical Corn Pest Program, which is attached to this Agreement as part of Schedule 2.4, thus obligating each part to perform its parts of the program pursuant to this Agreement. Suppose, however, that after such 18 month "stand down" period, MPS still is not prepared to participate in the proposed Tropical Corn Pest Program. In such event, Pioneer can elect to fund 100% of the program, in which case MPS will be obligated to perform any and all activities that Pioneer technically, or for the purpose of obtaining intellectual property rights, cannot perform, provided that Pioneer funds all such activities performed by MPS. Alternatively, Pioneer can decide to perform all parts of the program on its own. Regardless of whether Pioneer decides to perform all parts of the Tropical Corn Pest Program or whether MPS performs its parts with funding from Pioneer, the progress of the program (including, without limitation the cost of the program) is monitored by the Research Committee and the Business Committee in the same detail as any other R&D Program. At any time within the first two years of the Tropical Corn Pest Program, MPS can elect to participate in the program and receive all rights as set forth under this Agreement with respect to any BIP Transformation Events developed under such program. MPS can elect to participate in the 102 Program by (i) reimbursing Pioneer for 100% of the costs and expenses incurred by Pioneer in performing and or funding all parts of the program plus 25% and (ii) committing to conducting all remaining parts of the Tropical Corn Pest Program originally assigned to MPS by the Research Committee when the program originally was structured. If MPS does not elect to participate in the Tropical Corn Pest Program within such two year period, then MPS has no rights under Article 4 of this Agreement to any BIP Transformation Events developed under such program. If such two year period expires without MPS electing to participate in the Tropical Corn Pest Program, then MPS ceases to have any right through the Research Committee or the Business Committee to monitor or otherwise be appraised of the progress of such program. In such event, Pioneer is free to develop and commercialize the BIP Transformation Event(s) targeted under the Tropical Corn Pest Program, subject to the limitations imposed on Pioneer under Article 4 of this Agreement on the activities of Pioneer with respect to BIP Transformation Events. If the case had been that Pioneer was the party electing not to participate, then Pioneer would cease to have any rights under Article 4 to any BIP Transformation Event(s) developed under such program. In such event, MPS would be free to develop and commercialize such BIP Transformation Events(s), alone and with third parties, as MPS decides in its sole discretion without any limitation whatsoever under Article 4 on the activities of MPS (including licensing to any third parties) with respect to such BIP Transformation Event(s). The same consequence would result if Pioneer failed to perform conversion of MPS parent lines with the subject BIP Transformation Event(s) pursuant to Section 2.11. In the event that upon considering the initiation of a this new R&D Program, MPS and Pioneer determine that a patent then issued to a third party is necessary to develop BIP Transformation Events under such prospective R&D Program or to permit both MPS and Pioneer to commercialize Insect Resistant BIP Crops using any BIP Transformation Events developed under such prospective R&D Program, neither MPS nor Pioneer will be obligated in any way to commence such prospective R&D Program until a license to such third party patent is obtained for both MPS and Pioneer. 103 SCHEDULE 2.9 ------------ Example - Substantial Additional Resources Needed Under an R&D Program; - ----------------------------------------------------------------------- Consequences for Non-Participation - ---------------------------------- Example - A particular R&D Program suffers a set back at the stage of transforming a particular BIP genetic construct into the Target Crop of interest. The Research Committee determines that the best viable solution is to increase the transformation effort by 500%. Under the program, Pioneer is responsible for transformation work. Pioneer is skeptical of the probability of success of increasing the transformation effort and declines to do the work. The Business Committee is not successful in reaching a compromise. MPS elects to fund the work. Pioneer then is obligated to do the work with MPS funding. After $1 million of additional transformation effort, success is achieved. Immediately upon completion of such additional transformation work, Pioneer must reimburse MPS the $1 million of costs incurred plus 25% (an additional $250,000) in order for Pioneer to maintain its rights under Article 4 to any BIP Transformation Events developed under that program. 104 SCHEDULE 4.3 ------------ Example - MPS Right to Grant Sublicenses to Third Parties - --------------------------------------------------------- Example - Under two separate R&D Programs, the parties successfully develop two BIP Transformation Events - one responsible for resistant to flea beetle in canola (the "Flea Beetle Event") and one responsible for resistant to cyst nematodes in soybeans (the "Nematode Event"). With respect to these two BIP Transformation Events, MPS has the right to grant the following licenses to third parties (in addition to licenses to MPS Affiliates): 1. Flea Beetle Event: MPS can grant a license to party A in North America, ----------------- party B in Europe, and party C in the rest of world and give each such party the Flea Beetle Event sufficiently far in advance so that each such party can commercialize transgenic canola containing the Flea Beetle Event in each jurisdiction (North America, Europe and the rest of the world) at the same time as Pioneer. All other licenses granted in each jurisdiction to other third parties must prohibit such parties from commercializing transgenic canola containing the Flea Beetle Event until 24 months after the calendar year in which Pioneer reaches its RC1 stage of transgenic canola containing the Flea Beetle Event. MPS can provide the Flea Beetle Event to such other third parties in advance of such 24 month lead-time to enable any such other third party to convert its parent lines, receive governmental registrations and produce commercial hybrids to be ready for sale immediately upon expiration of such 24 month lead-time. In addition, after the 24 month lead time, MPS will be allowed to distribute the transgenic canola containing the Flea Beetle Event through third party seed companies that are also distributors of Mycogen branded bagged seed products. 2. Nematode Event: MPS has the same licensing rights as described above, -------------- except that MPS can first license party X in North America (instead of party A), party Y in Europe (instead of party B), and party Z in the rest of the world (instead of party C) so that each of X, Y, and Z can commercialize transgenic soybeans containing the Nematode event in their respective jurisdictions at the same time as Pioneer. Different parties can receive the Nematode Event than the parties that receive the Flea Beetle Event. 105 [THIS PAGE INTENTIONALLY LEFT BLANK.] 106 SCHEDULE 5.1: PIONEER / MYCOGEN BIP RESEARCH PROGRAMS IN CORN ** TO BE PERFORMED ON MAINLAND USA ** [THIS SCHEDULE, WHICH CONTAINS CONFIDENTIAL INFORMATION, HAS BEEN DELETED FROM THE COLLABORATION AGREEMENT SUBMITTED FOR PUBLIC RECORD. THE CONFIDENTIAL INFORMATION HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] 107 EX-10.21 4 COMMON STOCK PURCHASE AGREEMENT WITH PIONEER EXHIBIT 10.21 MYCOGEN CORPORATION COMMON STOCK PURCHASE AGREEMENT 108 MYCOGEN CORPORATION COMMON STOCK PURCHASE AGREEMENT This COMMON STOCK PURCHASE AGREEMENT ("Agreement") is made as of December 13, 1995 by and between Mycogen Corporation (the "Company"), a California corporation, and Pioneer Overseas Corporation, an Iowa corporation (the "Purchaser"). IN CONSIDERATION of the mutual covenants contained in this Agreement, the Company and the Purchaser agree as follows: SECTION 1. AGREEMENT TO SELL AND PURCHASE THE COMMON STOCK. At the Closing (as defined in Section 2), the Company shall sell to the Purchaser, and the Purchaser shall purchase from the Company, upon the terms and conditions hereinafter set forth, Three Million (3,000,000) shares (the "Shares") of the Company's Common Stock (the "Common Stock") for a purchase price per share of Ten Dollars ($10.00), which results in an aggregate purchase price for the Shares of Thirty Million Dollars ($30,000,000). SECTION 2. DELIVERY OF THE COMMON STOCK AT THE CLOSING. The completion of the purchase and sale of the Shares (the "Closing") shall occur at the principal offices of the Company at 5501 Oberlin Drive, San Diego, California 92121 (telephone number 619/453-8030; facsimile number 619/453-5494) at 10:00 a.m. on December 13, 1995 (the "Closing Date"), or such later date as the Company and the Purchaser may agree, subject to the satisfaction (or waiver) of the conditions hereinafter set forth. At the Closing, the Purchaser shall make payment of the full purchase price for the Shares by wire transfer of same-day funds as directed by the Company in writing. At the Closing, the Company shall deliver to the Purchaser one or more stock certificates registered in the name of the Purchaser representing the Shares. SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to the Purchaser as of the Closing Date as follows: 3.1. ORGANIZATION. The Company is a corporation duly organized and validly existing and in good standing under the laws of the State of California. The Company has all requisite corporate power and authority to own, lease and operate its properties and assets, and to carry on its business as presently conducted and as proposed to be conducted and to execute and deliver this Agreement and to consummate the transaction contemplated herein. The Company is qualified to do business as a foreign corporation in each jurisdiction in which the failure to so qualify would have a material adverse effect on the condition (financial or otherwise), assets, business or results of operations of the Company and its Subsidiaries (as hereinafter defined) taken as a whole (a "Material Adverse Effect"). 3.2. SUBSIDIARIES. All of the Company's subsidiaries (the "Subsidiaries") are listed on Exhibit 21 to the Company's Annual Report on Form 10-K for the Year Ended August 31, 1995 (the "Form 10-K"). Each of the Company's Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation, has full 109 corporate power and authority to own and lease its properties, and to carry on its business as presently conducted, is duly qualified, registered or licensed as a foreign corporation to do business and is in good standing in each jurisdiction in which the ownership or leasing of its properties or the character of its present operations make such qualification, registration or licensing necessary, except where the failure so to qualify or be in good standing would not have a Material Adverse Effect. 3.3. NO BREACH. The execution and delivery of this Agreement by the Company does not, and the issuance of the Shares of the Company will not, (i) violate or conflict with the Certificate or Articles of Incorporation or Bylaws of the Company, (ii) constitute a breach or default (or an event that with notice or lapse of time or both would become a breach or default) of, or give rise to any lien, third-party right of termination, cancellation, modification or acceleration under, any agreement, understanding or undertaking to which the Company is a party, except where such breach, default, lien, third-party right, cancellation, modification or acceleration would not have a Material Adverse Effect, or (iii) subject to obtaining the approvals and making the filings described in Section 3.6 hereof, constitute a violation of any statute, law, ordinance, rule, regulation, judgment, decree, order or writ of any judicial, arbitral, public, or governmental authority having jurisdiction over the Company or any of its Subsidiaries or any of their respective properties or assets except as would not have a Material Adverse Effect. 3.4. ISSUANCE AND DELIVERY OF THE SHARES. The Shares, when issued in compliance with the provisions of this Agreement, will be validly issued, fully paid and nonassessable. The issuance and delivery of the Shares is not subject to preemptive or any other similar rights of the stockholders of the Company or any liens or encumbrances. 3.5. SEC DOCUMENTS; FINANCIAL STATEMENTS. The Company has filed in a timely manner all documents that the Company was required to file with the Securities and Exchange Commission (the "SEC") under Sections 13, 14(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), during the twelve (12) months preceding the date of this Agreement. As of their respective filing dates, all documents filed by the Company with the SEC (the "SEC Documents") complied in all material respects with the requirements of the Exchange Act or the Securities Act of 1933, as amended (the "Securities Act"), as applicable. None of the SEC Documents, including the financial statements or schedules included or incorporated therein, as of their respective dates contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Documents (the "Financial Statements") comply as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto. The Financial Statements have been prepared in accordance with generally accepted accounting principles consistently applied and fairly present the consolidated financial position of the company and any Subsidiaries at the dates thereof and the consolidated results of their operations and consolidated cash flows for the periods then ended (subject, in the case of unaudited statements, to normal, recurring adjustments). As of the Closing 110 Date, the Company is in compliance in all material respects with the requirements of the Exchange Act and the Securities Act. 3.6. GOVERNMENTAL CONSENTS. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state, or local governmental authority on the part of the Company is required in connection with the execution and delivery of the Agreement, or the consummation of the transactions contemplated by this Agreement except for (a) the expiration or early termination of the waiting period under the Hart-Scott- Rodino Antitrust Improvements Act of 1976, (b) compliance with the securities and blue sky laws in the states in which Shares are offered and/or sold, which compliance will be effected in accordance with such laws, and (c) the filing of The NASDAQ National Market Notification Form with The NASDAQ National Market and Form 10-C with the SEC. 3.7. NO MATERIAL ADVERSE CHANGE. Except as otherwise disclosed herein or in the Company's most recent filed Form 10-K (a copy of which has been provided to the Purchaser), since August 31, 1995, there have not been any changes in the assets, liabilities, financial condition, business prospects or operations of the Company from that reflected in the Financial Statements except changes in the ordinary course of business and changes which would not have, either individually or in the aggregate, a Material Adverse Effect or have a material adverse effect on the ability of the Company to perform its obligations under this Agreement. 3.8. AUTHORIZED CAPITAL STOCK. The authorized capital stock of the Company consists of 40,000,000 shares of Common Stock $.001 par value, and 5,000,000 shares of serial preferred stock, $.001 par value, of which 19,481,106 shares of Common Stock and 3,100 shares of Series A Preferred Stock are outstanding prior to the issuance of the Shares. Except as described in the Company's Form 10-K, there are no outstanding options, warrants, puts, calls, commitments, convertible or exchangeable securities or similar rights requiring or providing for the issuance of new or additional equity interests in the Company. All such outstanding shares are duly authorized, validly issues and fully paid and nonassessable. There are no preemptive or other similar rights available to the existing holders of the capital stock of the Company. There are no voting trusts or other agreements or understandings to which the Company is a party with respect to the voting of capital stock of the Company. 3.9. LITIGATION. There are no actions, suits, proceedings or investigations pending or, to the best of the Company's knowledge, threatened against the Company or any of its properties before or by any court or arbitrator or any governmental body, agency or official in which there is a reasonable likelihood (in the judgment of the Company) of an adverse decision that (a) could have a Material Adverse Effect or (b) could impair the ability of the Company to perform in any material respect its obligations under this Agreement. 3.10. COMPLIANCE WITH LAW. The Company holds all licenses, franchises, certificates, consents, permits and authorizations from all governmental authorities necessary for the lawful conduct of its business, except where the failure to hold any of the foregoing would not have a Material Adverse Effect. To the Company's knowledge, the Company has not violated, and is not 111 in violation of, any such licenses, franchises, certificates, consents, permits or authorizations or any applicable statutes, laws, ordinances, rules and regulations (including, without limitation, any of the foregoing related to occupational safety, storage, disposal, discharge into the environment of hazardous wastes, environmental protection, conservation, unfair competition, labor practices or corrupt practices) of any governmental authorities, except where such violations do not, and insofar as reasonably can be foreseen, will not have a Material Adverse Effect, and the Company has not received any notice from a governmental or regulatory authority within three years of the date hereof of any such violation. 3.11. USE OF PROCEEDS. The Company will apply the net proceeds from the sale of the Shares to redeem shares of its Series A Preferred Stock and for general corporate purposes. 3.12. BROKERS AND FINDERS. Neither the Company, nor any officer, director or employee of the company has employed any broker or finder or incurred any liability for any brokerage fees, commissions or finder's fees in connection with the transactions contemplated herein. SECTION 4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER. The Purchaser represents and warrants to the Company as follows: 4.1. ACCREDITED INVESTOR. The Purchaser is an "accredited investor" within the meaning of Rule 501(a) of the Securities Act. 4.2. INVESTMENT REPRESENTATIONS. The Purchaser is aware that the Shares have not been registered under the Securities Act or any applicable state securities laws, and agrees that the Shares will not be offered or sold in the absence of registration under the Securities Act and any applicable state securities laws or an exemption from the registration requirements of the Securities Act and any applicable state securities laws. The Purchaser will not transfer the Shares in violation of the provisions of any applicable federal or state securities laws. In this connection, the Purchaser represents that it is familiar with SEC Rule 144 promulgated pursuant to the Securities Act ("Rule 144"), as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act. The Purchaser understands that the offering and sale of the Shares is intended to be exempt from registration under the Securities Act, by virtue of Section 4(2) and/or Section 4(6) of the Securities Act and the provisions of Regulation D promulgated thereunder, based, in part, upon the representations, warranties and agreements contained in this Agreement and the Company may rely on such representations, warranties and agreements in connection therewith. The Purchaser is acquiring the Shares for its own account and for investment, and not with a view to the distribution thereof or with any present intention of distributing or selling any of the Shares except in compliance with the Securities Act. The Purchaser represents that by reason of its business and financial experience, and the business and financial experience of those persons, if any, retained by it to advise it with respect to its investment in the Shares, such Purchaser together with such advisors have knowledge, sophistication and experience in business and financial matters 112 as to be capable of evaluating the merits and risk of the prospective investment. The Purchaser's financial condition and investments are such that it is in a financial position to hold the Shares for an indefinite period of time and to bear the economic risk of, and withstand a complete loss of, its investment in the Shares. 4.3. AUTHORITY. The Purchaser has full right, power, authority and capacity to enter into this Agreement and to consummate the transactions contemplated hereby. Upon the execution and delivery of this Agreement by the Purchaser and by the Company, this Agreement shall constitute a valid and binding obligation of the Purchaser, enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 4.4. PURCHASER REVIEW. The Purchaser has carefully examined the SEC Documents. The Purchaser acknowledges that the Company has made available to the Purchaser all documents and information that it has requested relating to the Company and has provided answers to all of its questions concerning the Company and the Shares. In evaluating the suitability of the acquisition of the Shares hereunder, the Purchaser has not relied upon any representations or other information (whether oral or written) other than as set forth in the SEC Documents or as contained herein. SECTION 5. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Notwith- standing any investigation made by any party to this Agreement, all covenants, agreements, representations and warranties made by the Company and the Purchaser herein shall survive the execution of this Agreement, the delivery to the Purchaser of the Shares being purchased and the payment therefor. 113 SECTION 6. RESTRICTIONS ON TRANSFERABILITY OF SHARES, COMPLIANCE WITH SECURITIES ACT. 6.1. RESTRICTIONS ON TRANSFERABILITY. The Shares shall not be transferable in the absence of an effective registration statement under the Securities Act or an exemption therefrom or in the absence of compliance with any term of this Agreement. In the absence of an effective registration statement under the Securities Act, neither the Shares nor any interest therein shall be sold, transferred, assigned or otherwise disposed of, unless the Company shall have previously received an opinion of counsel knowledgeable in federal securities law, in form and substance reasonably satisfactory to the Company and accompanied by such supporting documents as the Company may reasonably request, to the effect that registration under the Securities Act is not required in connection with such disposition. The Company shall be entitled to give stop transfer instructions to its transfer agent with respect to the Shares in order to enforce the foregoing restrictions. 6.2. RESTRICTIVE LEGEND. The certificate or certificates representing the Shares shall bear the following legend restricting transfer: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, PROVIDED THAT AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM AND SUBSTANCE IS FURNISHED TO THE COMPANY THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT IS AVAILABLE." The certificate shall also include any legend required by any applicable state securities law. SECTION 7. CONDITIONS TO OBLIGATIONS OF PURCHASER. The obligations of the Purchaser to purchase the Shares set forth on the signature page hereof at the Closing is subject to the fulfillment on or prior to the Closing Date of the following conditions, any or all of which may be waived at the option of the Purchaser: 7.1. REPRESENTATIONS AND WARRANTIES CORRECT. The representations and warranties made by the Company in Section 3 hereof shall be true and correct in all material respects when made, and shall be true and correct in all material respects on the Closing Date with the same force and effect as if they had been made on and as of said date. 114 7.2. COVENANTS. All covenants, agreements and conditions contained in this Agreement to be performed by the Company on or prior to the Closing Date shall have been performed or complied with in all material respects. 7.3. NO PROHIBITION. There shall not then be in effect any order enjoining or restraining the transactions contemplated by this Agreement or any law, rule or regulation prohibiting or restricting such transactions, or requiring any consent or approval of any person which shall not have been obtained (except as otherwise provided in this Agreement). 7.4. COMPLIANCE CERTIFICATE. The Company shall have delivered to the Purchaser a certificate executed on behalf of the Company by its Chief Operating Officer and dated the Closing Date, certifying to the fulfillment of the conditions specified in Sections 7.1 and 7.2. 7.5. COMPLIANCE WITH SECURITIES LAWS. The offering, issuance and sale of the Shares under this Agreement shall have complied with all applicable requirements of federal securities laws and the Purchaser shall have received evidence, if any, of such compliance in form and substance satisfactory to the Purchaser. 7.6. REGISTRATION RIGHTS AGREEMENT. The Company shall have executed and delivered to the Purchaser the Registration Rights Agreement substantially in the form attached hereto as Exhibit "A" (the "Registration Rights Agreement"). 7.7. COLLABORATION AGREEMENT. The Company shall have executed and deliver to the Purchaser the Collaboration Agreement substantially in the form attached hereto as Exhibit "B" (the "Collaboration Agreement"). 7.8. PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings contemplated by this Agreement shall be satisfactory to the Purchaser and such Purchaser's counsel, and the Purchaser and such Purchaser's counsel shall have received all such counterpart originals or certified or other copies of such documents as the Purchaser or such Purchaser's counsel may reasonably request. SECTION 8. CONDITIONS TO OBLIGATIONS OF COMPANY. The Company's obligation to issue and sell the Shares to the Purchaser at the Closing is subject to the fulfillment on or prior to the Closing Date of the following conditions, any or all of which may be waived at the option of the Company: 8.1. REPRESENTATIONS AND WARRANTIES CORRECT. The representations and warranties made by the Purchaser in Section 4 hereof shall be true and correct in all material respects when made, and shall be true and correct in all material respects on the Closing Date with the same force and effect as if they had been made on and as of said date. 115 8.2. COVENANTS. All covenants, agreements and conditions contained in this Agreement to be performed by the Purchaser on or prior to the Closing Date shall have been performed or complied with in all material respects. 8.3. NO PROHIBITION. There shall not then be in effect any order enjoining or restraining the transactions contemplated by this Agreement, or any law, rule or regulation prohibiting or restricting such transactions, or requiring any consent or approval of any person which shall not have been obtained (except as otherwise provided in this Agreement). 8.4. COMPLIANCE CERTIFICATE. The Purchaser shall have delivered to the Company a certificate executed on behalf of the Purchaser by an authorized officer thereof and dated the Closing Date, certifying to the fulfillment of the conditions specified in Sections 8.1 and 8.2. 8.5. COLLABORATION AGREEMENT. The Purchaser shall have executed and delivered to the Company the Collaboration Agreement. 8.6. PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings contemplated by this Agreement shall be satisfactory to the Company and Company's counsel, and the Company and Company's counsel shall have received all such counterpart originals or certified or other copies of such documents as the Company or Company's counsel may reasonably request. SECTION 9. NOTICES. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed given when sent both by facsimile (unless the addressee has not provided a valid facsimile number for such purpose) and either first class mail, postage prepaid, or next- day delivery service: (a) if to Company, to Mycogen Corporation, 5501 Oberlin Drive, San Diego, California 92121, Attention: Carlton J. Eibl, President and Chief Operating Officer, facsimile number 619/453-0142 with a copy to Page, Polin, Busch & Boatwright, 350 West Ash Street, Suite 900, San Diego, California 92101- 3436, Attention: Steven G. Rowles, Esq., facsimile number 619/231-1996, or to such other person at such other place as the Company shall designate to the Purchaser in writing; (b) if to the Purchaser, to Pioneer Hi-Bred International, Inc., 700 Capital Square, 400 Locust Street, Des Moines, Iowa 50309, Attention: Daniel Cornelison, facsimile number 515/248-4844, or at such other facsimile number and address as may have been furnished to the Company in writing; or (c) if to transferee or transferees of the Purchaser, at such facsimile number and address as shall have been furnished by such transferee or transferees to the Company in writing. SECTION 10. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof. No 116 statement, representation, warranty, covenant or agreement of any kind not expressly set forth in this Agreement shall affect, or be used to interpret, change or restrict, the express terms and provisions of this Agreement. SECTION 11. AMENDMENTS. This Agreement may not be modified or amended except pursuant to an instrument in writing signed by the Company and by the Purchaser. SECTION 12. HEADINGS. The headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement. SECTION 13. SEVERABILITY. In case any provision contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. SECTION 14. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California (without regard to conflict of law principles) and the United States of America. SECTION 15. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other party. SECTION 16. EXPENSES. Each of the parties shall pay its own fees and expenses (including the fees of any attorneys, accountants, appraisers or others engaged by such party) in connection with this Agreement and the transaction contemplated hereby whether or not the transactions contemplated hereby are consummated. SECTION 17. PUBLICITY. Purchaser shall not issue any press releases or otherwise make any public statement with respect to the transactions contemplated by this Agreement without the prior written consent of the Company, except as may be required by applicable law or regulation. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 117 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives the day and year first above written. MYCOGEN CORPORATION, a California corporation By: /s/ Carlton J. Eibl ------------------------------------- Carlton J. Eibl President and Chief Operating Officer PIONEER HI-BRED INTERNATIONAL, INC., an Iowa corporation By: /s/ Chuck Johnson ------------------------------------- Chuck Johnson President and Chief Operating Officer [SIGNATURE PAGE TO COMMON STOCK PURCHASE AGREEMENT] 118 EXHIBIT "A" REGISTRATION RIGHTS AGREEMENT 119 EXHIBIT "B" COLLABORATION AGREEMENT 120 EX-10.22 5 REGISTRATION RIGHTS AGREEMENT WITH PIONEER EXHIBIT 10.22 REGISTRATION RIGHTS AGREEMENT 121 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT, dated December 13, 1995 by and between MYCOGEN CORPORATION, a California corporation (the "Company") and PIONEER OVERSEAS CORPORATION, an Iowa corporation ("Pioneer"). This Agreement is made in connection with that certain Common Stock Purchase Agreement dated December 13, 1995 between the Company and Pioneer relating to the acquisition by Pioneer of 3,000,000 shares of the Company's Common Stock (such shares of the Company's common stock are referred to as the "Common Shares") (such Agreement is referred to as the "Stock Purchase Agreement"). The parties hereby agree as follows: 1. DEFINITIONS. For purposes of this Agreement: (a) The term "Closing" shall mean the initial sale of the Common Shares. (b) The term "Commission" shall mean the Securities and Exchange Commission or other federal agency at the time administering the Securities Act. (c) The term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any similar successor federal statute and the rules and regulations thereunder, all as the same shall be in effect from time to time. (d) The term "Form S-3" means such form under the Securities Act as in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the Commission which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the Commission. (e) The term "Holder" means each of Pioneer, any controlled affiliate of Pioneer that at any time holds any Registrable Securities and any other third party to which Pioneer or any controlled affiliate(s) of Pioneer (or both) have transferred Registrable Securities having a fair market value of at least Five Million Dollars ($5,000,000) at the time of such transfer and in compliance with Section 12.2 hereof. (f) The term "Majority Holders" means the Holders of a majority of shares of Common Shares included in a registration. (g) The term "register", "registered", and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document. 122 (h) The term "Registrable Securities" means: (i) the shares of the Common Shares issued pursuant to the Stock Purchase Agreement, and (ii) any other shares of the Company's Common Stock issued in respect of such shares as a result of stock splits, stock dividends, reclassifications, recapitalizations or similar events; provided, however, that shares of the Company's Common Stock -------- ------- that are Registrable Securities shall cease to be Registrable upon any sale pursuant to a registration statement or Rule 144 (other than Rule 144(k)) under the Securities Act. (i) The term "Rule 144" shall mean Rule 144 as promulgated by the Commission under the Securities Act, as such rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission. (j) The term "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar successor federal statute and the rules and regulations thereunder, all as the same shall be in effect from time to time. 2. DEMAND REGISTRATION. 2.1. REQUEST FOR REGISTRATION. At any time after the first anniversary of the Closing and from time to time thereafter, any Holder may make a written request for registration all or any part of its Registrable Securities (provided that if the Company is then entitled to use Form S-3 or any successor form thereto to register shares of its Common Stock, then such requested registration shall be on Form S-3 or any successor form thereto) under the Securities Act and, subject to Section 5.4, the securities or blue sky laws of any jurisdictions designated by any Holder having Registrable Securities included in such registration (a "Demand Registration"). The Company shall, subject to Section 2.3 hereof, use reasonably diligent efforts to effect up to two (2) Demand Registrations for Registrable Securities. Each Demand Registration shall specify the number of Registrable Securities proposed to be sold, which shall include at least such number of shares, when combined with shares to be registered by other persons pursuant to demand registration rights, to yield an anticipated aggregate offering price, net of underwriting discounts and commissions, of Ten Million Dollars ($10,000,000), and shall also specify the intended method of disposition thereof. Upon a request for a Demand Registration, the Company shall promptly take such steps as are necessary or appropriate to prepare for the registration under the Securities Act of the Registrable Securities to be registered and the qualification thereof under applicable blue sky or other state securities laws, including the preparation of an appropriate registration statement and filing the same with the Commission as soon as practicable following the applicable initiating written request for registration. If, in the good faith judgment of the Board of Directors of the Company, a Demand Registration would be seriously detrimental to the Company and the Board of Directors of the Company concludes, as a result, that it is essential to defer the filing or effectiveness of such registration statement at such time, and the Company furnishes the Holders a certificate signed by the President of the Company to that effect, then the Company shall have the right to defer such filing for a period during which such disclosure would be seriously detrimental, provided that the Company may not defer the filing for a period of more than one hundred twenty (120) days after receipt of the request for registration from any Holder, and provided further that the Company may not defer the filing of a registration statement for a Demand Registration more than once during any twelve (12) month period. The registration statement filed pursuant to the request of any Holder pursuant to this Section 2.1 may 123 include other securities of the Company with respect to which registration rights have been granted, and may include securities of the Company being sold for the account of the Company. 2.2. EFFECTIVE REGISTRATION AND EXPENSES. A registration shall not constitute a Demand Registration until it has become effective and unless each Holder making the Demand Registration has registered and sold at least ninety percent (90%) of the Registrable Securities it requests to be included in such registration. In any registration initiated as a Demand Registration, the Company shall pay all Registration Expenses in connection therewith, whether or not such Demand Registration becomes effective, unless such Demand Registration fails to become effective because the request of registration is withdrawn by any Holder that proposes to include Registrable Securities in such registration for any reason other than those set forth in Section 6 hereof or as a result of any other fault of any such Holder. 2.3. SELECTION OF UNDERWRITERS. If any Demand Registration is in the form of an underwritten offering, the Company shall select and obtain the investment banker or investment bankers (which shall be a nationally recognized prominent investment banking firm) and manager or managers that will administer the offering (the "Approved Underwriter"); provided, that, the Approved Underwriter shall be reasonably acceptable to the Majority Holders. If the Approved Underwriter advises the Holder(s) participating in the Demand Registration in writing that marketing factors require limitation on the number of shares to be underwritten, the number of shares to be included in the underwriting or registration shall be allocated pro rata among the participating Holders. 3. PIGGY-BACK REGISTRATION. If, at any time after the date hereof, the Company proposes to file a registration statement under the Securities Act with respect to an offering by the Company any class of security either for its own account or for the account or accounts of its security holders (other than a registration statement on Form S-4 or S-8 or any successor or similar forms thereto), then the Company shall give prompt written notice of such proposed filing to each Holder, which notice shall describe in detail the proposed registration and distribution (including those jurisdictions where registration under the securities or blue sky laws is intended) and offer such Holders the opportunity to register such number, as the case may be, of Registrable Securities as such Holders may request. Upon written request received by the Company from any Holder within ten (10) days after receipt of such notice by the Company to such Holder, the Company shall (subject to the provisions of this Section 3) use reasonably diligent efforts to cause to be registered under the Securities Act all of the Registrable Securities requested to be registered by such Holders in such written notice to the Company. The Company is required to include the Registrable Securities requested by the Holder(s) in an unlimited number of piggy-back registrations pursuant to this Section 3. Subject to Section 8, the Company shall request that the managing underwriter or underwriters of a proposed underwritten offering (the "Company Underwriter") permit such Holders to participate in the registration for such offering to include such Registrable Securities in such offering. Notwithstanding the foregoing, if, in the opinion of the Company Underwriter, the total amount or kind of securities which such Holders, the Company and any other persons or entities intend to include in such offering (the "Total Securities") is sufficiently large to have a material adverse effect on the distribution of the Total Securities: (i) in the case of an underwritten offering on behalf of the Company, then the amount or kind of securities to be offered for the account of such Holders and such other persons or entities shall be reduced pro rata to the extent necessary to reduce the Total Securities (other than securities the Company proposes to sell in such primary offering) to the amount recommended by the Company Underwriter; and (ii) in the case of an underwritten secondary offering in respect of a registration made on demand of holders of 124 the Company's securities, then the amount or kind of securities to be offered for the account of such Holders and such other persons or entities with the exception of the Company shall be reduced pro rata to the extent necessary to reduce the Total Securities (other than the securities included therein held by the holders other than Holder(s) for whom such registration is a demand registration) to the amount recommended by the Company Underwriter. The Company shall bear all Registration Expenses in connection with any registration pursuant to this Section 3. 4. HOLDBACK AGREEMENTS. 4.1. RESTRICTIONS ON PUBLIC SALE BY PIONEER AND OTHER HOLDERS. Each Holder hereby agrees not to effect any public sale or distribution of the issue being registered or a similar security of the Company, or any securities convertible into or exchangeable or exercisable for such securities, including a sale pursuant to Rule 144 under the Securities Act, during the ten (10) business days prior to, and during the ninety (90) day period beginning on, the effective date of a registration statement of the Company (except as part of such registration), if and to the extent requested by the Company in the case of a non-underwritten public offering or if and to the extent requested by the Company Underwriter in the case of an underwritten public offering; provided, -------- that each executive officer of the Company, each Director of the company and a majority in interest of (based on the number of shares of Common Stock or other securities convertible into or exchangeable or exercisable for shares of Common Stock of the company held by) holders (other than the Holders) of five percent (5%) or more of the then outstanding shares of Common Stock of the Company (after giving effect to the conversion, exercise or exchange of such shares into Common Stock of the Company; a "5% Holder") shall have agreed to equivalent (or more stringent) market stand-off arrangements. In order to ensure compliance with this Section 4.1, the Company hereby agrees to notify each Holder as to the status and proposed effective date of any registration statement of the Company that is filed with the Company. 4.2. RESTRICTIONS ON PUBLIC SALE BY THE COMPANY. The Company agrees not to effect any public sale or distribution of any of its securities, or any securities convertible into or exchangeable or exercisable for such securities (except pursuant to registrations on Forms S-4 or S-8 or any successor or similar forms thereto) during the ten (10) business days prior to, and during the ninety (90) day period beginning on, the effective date of any registration statement in which any Holder is participating or the commencement of a public distribution of the Registrable Securities pursuant to such registration statement. The Company agrees to use diligent efforts to cause each executive officer of the Company, each director of the Company and each 5% Holder to enter into a similar agreement with the Company. 5. REGISTRATION PROCEDURES. Whenever registration of Registrable Securities has been requested pursuant to Section 2 of this Agreement, the Company shall use diligent efforts to effect such registration and sale of such Registrable Securities in accordance with the intended method of distribution thereof as promptly as practicable, and in connection with any such request, the Company shall, as promptly as practicable: 5.1. prepare and file with the Commission a registration statement and use diligent efforts to cause such registration statement to become effective and to remain effective for at least one hundred twenty (120) days (or such shorter period as is required to dispose of all Registrable Securities covered by such registration statement); provided, however, that before filing a -------- ------- registration statement 125 or prospectus or any amendments or supplements thereto, the Company shall provide counsel selected by the Majority Holders ("Special Counsel") with an opportunity to participate in the preparation of such registration statement and each prospectus included therein (and each amendment or supplement thereto) to be filed with the Commission, which documents shall be subject to the review of Special Counsel; 5.2. prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period which will terminate when all Registrable Securities covered by such registration statement have been sold (but in any event no longer than one hundred twenty (120) days), and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period; 5.3. as soon as reasonably possible, furnish to each participating Holder and the underwriters prior to filing a registration statement, copies of such registration statement as proposed to be filed, and thereafter such number of copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits thereto), the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as they may reasonably request in order to facilitate the disposition of the Registrable Securities; 5.4. use diligent efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as any participating Holder requests and do any and all other acts and things that may be reasonably necessary or advisable to enable such Holder to consummate the disposition in such jurisdictions of the Registrable Securities owned by such Holder; provided that the Company shall not be required to (i) qualify generally -------- to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 5.4, (ii) subject itself to taxation (other than taxes connected with such registration transaction which shall be paid by the Holders with respect to the Registrable Securities) in any such jurisdiction, (iii) consent to general service of process in any such jurisdiction or (iv) take any action other than filing appropriate blue sky registration or blue sky qualification documentation and paying related filing fees; 5.5. notify each participating Holder at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such registration statement contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made, and the Company shall promptly prepare a supplement or amendment to such prospectus and furnish to each participating Holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, after delivery to the purchasers of such Registrable Securities, such prospectus shall not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made; 5.6. enter into and perform customary agreements (including an underwriting agreement in customary form with the managing underwriter, if any, selected as provided in Section 2 and containing such representation and warranties by the Company and such other terms and provisions as are customarily contained in agreements of that type, including, but not limited to, 126 indemnities to the effect and to the extent provided in Section 7) and take such other actions as are reasonably required in order to expedite or facilitate the disposition of such Registrable Securities; 5.7. use reasonable efforts to obtain an appropriate opinion from counsel for the Company and a cold comfort letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by opinions of counsel and cold comfort letters typically given to underwriters in an underwritten public offering, which shall be addressed to the underwriters, if any, and to the participating Holders; provided, however, that failure to provide such opinion or letter shall not give rise to any action, at law or in equity, for damages or injunctive or other relief, but rather shall only entitle each participating Holder to withdraw their Registrable Securities from such registration statement; 5.8. advise the Holder(s) promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission or any state authority or agency suspending the effectiveness of such registration statement or the initiation or threatening of any proceeding for such purpose and promptly use all reasonable efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued; 5.9. cause the Registrable Shares covered by such registration statement to be registered with, or approved by, such other public, governmental or regulatory authorities as may be necessary in the reasonable judgment of counsel for the Company to facilitate the disposition of such Registrable Shares in accordance with the plan of distribution set forth in such registration statement; 5.10. otherwise use its diligent efforts in connection with each registered offering of Registrable Shares hereunder to comply with all applicable rules and regulations of the Commission, as the same may hereafter be amended, including section 11(a) of the Securities Act and Rule 158 thereunder; 5.11. cause all such Registrable Shares to be listed on each securities exchange or market trading system on which similar securities issued by the Company are then listed; 5.12. provide a transfer agent and registrar for all such Registrable Shares not later than the effective date of such registration statement; 5.13. at reasonable times and upon reasonable notice, and as necessary to permit a reasonable investigation with respect to the Company and its business in connection with the preparation and filing of such registration statement, make available for inspection by the Holder(s) , by any managing underwriter or other underwriters participating in any disposition of Registrable Shares, and by any attorney, accountant or other agent, representative or advisor retained by the Holder(s) or any such underwriters, all pertinent financial and other records and corporate documents of the Company; and cause all of the Company's officers, directors and employees and its independent accountants to furnish all information reasonably requested by, and to discuss pertinent aspects of the Company's business with, the Holder(s) and any such underwriter, accountant, agent, representative or advisor in connection with such registration statement; 5.14. if any registration statement refers to the Holder(s) by name or otherwise as the holder of any securities of the Company, and if the Holder(s) reasonably believes it is or may be 127 deemed to be a control person in relation to, or an Affiliate of, the Company, then the Holder(s) shall have the right to require (i) insertion in such registration statement of language, in form and substance reasonably satisfactory to the Holder(s), to the effect that the ownership by the Holder(s) of such securities is not to be construed as and is not intended to be a recommendation by the Holder(s) of the investment quality of, or the relative merits and risks attendant to the purchase of, the Company's securities covered thereby, and that such ownership does not imply that the Holder(s) will assist in meeting any future financial or operating requirements of the Company, or (ii) in the case where the reference to the Holder(s) by name or otherwise is not required by the Securities Act or any similar federal or state statute then in effect, the deletion of the reference to the Holder(s); and 5.15. cooperate in all reasonable respects in the marketing efforts of the underwriters and the Holder(s), including, without limitation, by making available, as requested by the underwriters and the Holder(s), the senior executive officers of the Company for attendance at, and active participation with the underwriters in, conference calls or informational or so-called "roadshow" meetings with prospective purchasers of the Registrable Securities being offered, including meeting with groups of such purchasers or with individual purchasers, providing information and answering questions by the Company at such meetings, and traveling to locations in the United States and abroad as reasonably selected by the underwriters. The Company may require each participating Holder to furnish to the Company such information regarding the distribution of such securities as the Company may from time to time legally require. 128 6. REGISTRATION EXPENSES. The Company shall pay all expenses (other than from underwriting discounts and commissions) arising from or incident to the Company's performance of, or compliance with, this Agreement, including without limitation, (i) Commission and National Association of Securities Dealers, Inc. or other exchange registration and filing fees, (ii) all fees and expenses incurred in complying with securities or blue sky laws (including reasonable fees and disbursements of counsel in connection with blue sky qualifications of the Registrable Securities), (iii) all printing, messenger and delivery expenses, (iv) the fees and disbursements of counsel to the Company and of its independent public accountants and any other accounting and legal fees and expenses incurred by the Company, and (v) all registration, filing and qualification fees, regardless of whether such registration statement is declared effective; provided, however, that if a registration of the Registrable -------- ------- Securities is withdrawn at the request of the Majority Holders (other than as contemplated in Section 5.7 or as a result of (i) material adverse information concerning the business or financial condition of the Company which is made known to the participating Holders after the date on which such registration was requested, (ii) a reduction of 15% in the number of Registrable Securities included in such registration, based on the opinion of the managing underwriter that the inclusion of all Registrable Securities requested to be included would materially and adversely affect the offering, (iii) a material breach by the Company of its obligations under this Agreement, or (iv) a decline of more than 15% of the market price per share for the Registrable Securities from that in effect on the date on which such registration was requested), the participating Holders shall pay the Registration Expenses of such registration pro rata in accordance with the number of shares (including the Registrable Securities) included in such registration. In the context of a Demand Registration, in the event the participating Holders comply with the requirements of this Section 6 and Section 10 of this Agreement, the provisions of Section 10 with respect to the use (or nonuse) of such Demand Registration shall apply. The participating Holders shall pay the fees and disbursements of their own counsel (including the Special Counsel) and other advisors in connection with any registration of Registrable Securities. All of the expenses payable by the Company as set forth in this Section 6 are herein called "Registration Expenses". 7. INDEMNIFICATION; CONTRIBUTION. 7.1. INDEMNIFICATION BY THE COMPANY. The Company shall indemnify, to the full extent permitted by law, each Holder, officers, directors and agents of such Holder and each person who controls such Holder (within the meaning of the Securities Act or the Exchange Act), and any investment advisor thereof from and against any and all losses, claims, damages, liabilities and expenses (including, without limitation, reasonable costs of investigation and attorneys fees) arising out of or based upon any untrue, or alleged untrue, statement of a material fact contained in any registration statement, prospectus or preliminary prospectus or notification or offering circular (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are caused by or contained in any information furnished in writing to the Company by any Holder expressly for use therein. The Company shall also indemnify any underwriters of the Registrable Securities, their officers and directors and each person who controls such underwriters (within the meaning of the Securities Act and the Exchange Act) to the same extent as provided above with respect to the indemnification of the Holders. 129 7.2. INDEMNIFICATION BY THE HOLDERS. In connection with any registration statement in which any Holder is participating pursuant to Section 2 or 3 hereof, each such participating Holder severally agrees to furnish to the Company in writing such information with respect to such Holder as the Company may reasonably request for use in connection with any such registration statement or prospectus and severally shall indemnify, to the extent permitted by law, the Company, each other participating Holder, their respective officers, directors and agents, any underwriter retained by the Company or such other Holders and each person who controls the Company, any such other Holder or such underwriter (with the meaning of the Securities Act and the Exchange Act) to the same extent as the foregoing indemnity from the Company to the Holders, but only with respect to any such information furnished in writing by such indemnifying Holder. 7.3. CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person entitled to indemnification hereunder (the "Indemnified Party") agrees to give prompt written notice to the indemnifying party (the "Indemnifying Party") after the receipt by the Indemnified Party of any written notice of the commencement of any action, suit, proceeding or investigation or threat thereof made in writing for which the Indemnified Party intends to claim indemnification or contribution pursuant to this Agreement provided that the failure so to notify the -------- Indemnifying Party shall not relieve it of any liability that it may have to the Indemnified Party hereunder. In case notice of commencement of any such action shall be given to the Indemnifying Party as above provided, the Indemnifying Party shall be entitled to participate in and, to the extent it may wish, jointly with any other Indemnifying Party similarly notified, to assume the defense of such action at its own expense, with counsel chosen by it and satisfactory to such Indemnified Party. The Indemnified Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel (other than reasonable costs of investigation) shall be paid by the Indemnified Party unless (a) the Indemnifying Party agrees to pay the same, (b) the Indemnifying Party fails to assume the defense of such action with counsel reasonably satisfactory to the Indemnified Party, (c) the named parties to any such action (including any impleaded parties) have been advised by such counsel that either (i) representation of such Indemnified Party and the Indemnifying Party by the same counsel would be inappropriate under applicable standards of professional conduct or (ii) there may be one or more legal defenses available to it which are different from or additional to those available to the Indemnifying Party (in which case the Indemnifying Party shall not have the right to assume the defense of such action on behalf of such Indemnified Party). No Indemnifying Party shall be liable for any settlement entered into without its written consent, which shall not be unreasonably withheld or delayed. 7.4. CONTRIBUTION. If the indemnification provided for in this Section 7 from the Indemnifying Party is unavailable to an Indemnified Party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative faults of the Indemnifying Party and Indemnified Party in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative faults of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge, access to 130 information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in Sections 7.1, 7.2 and 7.3, any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 7.4 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person. 8. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Holder may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell its Registrable Securities on the basis provided in any underwriting arrangements entered into in accordance with this Agreement and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents, in customary form and otherwise reasonably required under the terms of such underwriting arrangements. 9. RULE 144. The Company covenants that it shall file any reports required to be filed by it under the Exchange Act and the rules and regulations adopted by the Commission thereunder; and that it shall take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 under the Securities Act. The Company shall, upon the request of any Holder, deliver to such Holder a written statement as to whether it has complied with such requirements. The covenant contained in this Section 9 shall survive termination of registration rights contained herein pursuant to Section 11 below for a period of two (2) years. 10. RIGHT TO WITHDRAW. Any Holder may withdraw any of its Registrable Securities from registration of any Registrable Securities at any time by written notice to the Company, provided that in the event any such withdrawals with respect to a Demand Registration would result in the registration of an insufficient number of Common Shares to yield an anticipated aggregate offering price, net of underwriting discounts and commissions, of at least $10,000,000, then the Company shall not be obligated to register such Common Shares and (other than withdrawals from such registration for any of the reasons set forth in Section 6) one Demand Registration shall be deemed to have been used for purposes of Section 2.1 herein unless the participating Holders collectively reimburse (within thirty (30) days after the termination of such registration) the Company for all Registration Expenses incurred by the Company prior to the termination of such registrations. 11. TERM OF REGISTRATION RIGHTS. The registration rights granted to any Holder hereunder shall terminate on the date on which such Holder would be entitled to resell all of the Registrable Securities then held by it within three months pursuant to Rule 144. 131 12. MISCELLANEOUS. 12.1. NO INCONSISTENT AGREEMENTS. The Company covenants that it will not undertake obligations with respect to the registration of its securities that are inconsistent with the registration rights contained in this Agreement. 12.2. ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to register Registerable Securities pursuant to this Agreement may be assigned (but only with all related obligations) by a Holder to a transferee or assignee of such security who, after such assignment or transfer, holds at least 500,000 shares of Registerable Securities (subject to appropriate adjustment for stock splits, stock dividends, combinations and other recapitalizations), provided that: (i) the Company is, within a reasonable time after such transfer, furnished with written notice of the same and the address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; (ii) such transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement, including, without limitation, the provisions of Section 4.1 above; and (iii) such assignment shall be effective only if immediately following such transfer or assignment the further disposition of the securities by the transferee or assignee is restricted under the Securities Act. 12.3. REMEDIES. Pioneer and each other Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, shall be entitled to specific performance of their rights under this Agreement. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a reach by it of the provisions of this Agreement and hereby agrees to waive in any action for specific performance the defense that a remedy at law would be adequate. 12.4. AMENDMENTS AND WAIVERS. Except as otherwise provided herein, the provisions of this Agreement may not be amended, modified or supplemented, and waiver of consents to departures from the provisions hereof may not be given other than by written instrument signed by the Company and each person who, at such time, is a Holder. 12.5. NOTICES. All notices and other communications provided for or permitted hereunder shall be made by hand delivery or registered first-class mail: (i) if to the Company at Mycogen Corporation, 5501 Oberlin Drive, San Diego, California 92121, Attention: Carlton J. Eibl, and (ii) if to Pioneer at 700 Capital Square, 400 Locust Street, De Moines, Iowa 50309 Attention: Daniel Cornelison and (iii) if to any other Holder, at such Holder's address delivered to the Company in accordance with the foregoing. All such notices and communications shall be deemed to have been duly given when delivered by hand, if personally delivered or five (5) business days after being deposited in the mail, postage prepaid, if mailed. 12.6. SUCCESSORS AND ASSIGNS. Except as otherwise provided for herein, this Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties. 132 12.7. COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 12.8. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts made and to be performed wholly within that State. 12.9. SEVERABILITY. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of Pioneer and each other Holder shall be enforceable to the fullest extent permitted by law. 12.10. ENTIRE AGREEMENT. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK] 133 IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written. MYCOGEN CORPORATION, a Delaware corporation By: /s/ CARLTON J. EIBL ------------------------------- Carlton J. Eibl President and Chief Operating Officer PIONEER HI-BRED INTERNATIONAL, INC., an Iowa corporation By: /s/ CHUCK JOHNSON ----------------------- Chuck Johnson Chief Operating Officer [SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT] 134 [THIS PAGE INTENTIONALLY LEFT BLANK] 135 EX-23 6 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS 136 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Forms S-8 and S-3) and in the related Prospectuses of our report dated October 11, 1996, with respect to the consolidated financial statements of Mycogen Corporation, included in the Annual Report (Form 10-K) for the year ended August 31, 1996. /s/ Ernst & Young ERNST & YOUNG LLP San Diego, California November 11, 1996 137 EX-24 7 POWER OF ATTORNEY EXHIBIT 24 POWER OF ATTORNEY 138 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 17, 1996 - ------------------------ Jerry Caulder /s/ Thomas J. Cable Director October 17, 1996 - ------------------------ Thomas J. Cable /s/ Perry J. Gehring Director October 17, 1996 - ------------------------ Perry J. Gehring /s/ John L. Hagaman Director October 17, 1996 - ------------------------ John L. Hagaman /s/ David H. Rammler Director October 17, 1996 - ------------------------ David H. Rammler /s/ William C. Schmidt Director October 17, 1996 - ------------------------ William C. Schmidt /s/ A. John Speziale Director October 17, 1996 - ------------------------ A. John Speziale /s/ G. William Tolbert Director October 17, 1996 - ------------------------ G. William Tolbert /s/ W. Wayne Withers Director October 17, 1996 - ------------------------ W. Wayne Withers
139 EX-27 8 FINANCIAL DATA SCHEDULE -- ARTICLE 5
5 1,000 YEAR AUG-31-1996 SEP-01-1996 AUG-31-1995 35,854 32,184 34,501 3,801 37,177 137,795 72,229 17,324 227,469 41,047 0 0 0 31 330,973 227,469 146,800 155,589 93,508 93,508 0 1,990 0 (47,058) 0 (47,058) 0 0 0 (47,058) (1.81) (1.81)
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