-----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, RifMA0paPOAQC+chxqOvCbKHq1XBUX5i1d+JQ/6yxapNnWX4mrDaJIs9UPtoE5v/ nKVB/i51JjvRfEUJuM7lfA== 0000902277-02-000017.txt : 20021125 0000902277-02-000017.hdr.sgml : 20021125 20021125170912 ACCESSION NUMBER: 0000902277-02-000017 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020831 FILED AS OF DATE: 20021125 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELTA & PINE LAND CO CENTRAL INDEX KEY: 0000902277 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE PRODUCTION - CROPS [0100] IRS NUMBER: 621040440 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-14136 FILM NUMBER: 02839687 BUSINESS ADDRESS: STREET 1: ONE COTTON ROW CITY: SCOTT STATE: MS ZIP: 38772 BUSINESS PHONE: 6017423351 MAIL ADDRESS: STREET 1: ONE COTTON ROW CITY: SCOTT STATE: MS ZIP: 38772 10-K 1 form10k083102.txt 08/31/02 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended August 31, - -------- 2002 or Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 - -------- Commission File Number: 000-21788 DELTA AND PINE LAND COMPANY (Exact name of registrant as specified in its charter) Delaware 62-1040440 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) One Cotton Row, Scott, Mississippi 38772 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (662) 742-4000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Common Stock, $0.10 par value New York Stock Exchange, Inc. Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes X No ----- ----- The aggregate market value of Common Stock held by non-affiliates of the Registrant, based upon the closing sale price of the Common Stock on October 31, 2002 as reported on the New York Stock Exchange, was approximately $637,857,000. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of October 31, 2002, Registrant had 38,148,505 outstanding shares of Common Stock. DOCUMENTS TO BE INCORPORATED BY REFERENCE Registrant incorporates by reference portions of the Delta and Pine Land Company Proxy Statement for the annual meeting of stockholders to be held on January 22, 2003. (Items 10, 11, 12 and 13 of Part III). PART I ITEM 1. BUSINESS Domestic Delta and Pine Land Company, a Delaware corporation, and subsidiaries ("D&PL") is primarily engaged in the breeding, production, conditioning and marketing of proprietary varieties of cotton planting seed in the United States and other cotton producing nations. We also breed, produce, condition and distribute soybean planting seed in the United States. Since 1915, we have bred, produced and/or marketed upland picker varieties of cotton planting seed for cotton varieties that are grown primarily east of Texas and in Arizona. We have used our extensive classical plant breeding programs to develop a gene pool necessary for producing cotton varieties with improved agronomic traits important to farmers (such as crop yield) and to textile manufacturers (such as enhanced fiber characteristics). In 1980, we added soybean seed to our product line. In 1996, we commenced commercial sales in the United States of cotton planting seed containing 1 Bollgard(R) gene technology licensed from Monsanto which expresses a protein toxic to certain lepidopteran pests. Since 1997, we have marketed in the U.S. cotton planting seed that contains a gene that provides tolerance to glyphosate-based herbicides ("Roundup Ready(R) Cotton"). In 1997, we commenced commercial sales in the U.S. of soybean planting seed that contains a gene that provides tolerance to glyphosate-based herbicides ("Roundup Ready Soybeans"). In 1998, we commenced sales of cottonseed of varieties containing both the Bollgard and Roundup Ready genes. International During the 1980's, as a component of our long-term growth strategy, we began to market our products, primarily cottonseed, internationally. Over a period of years, we have strengthened and expanded our international staff in order to support our expanding international business. In foreign countries, cotton acreage is often planted with farmer-saved seed which has not been delinted or treated and is of low overall quality. We believe that we have an attractive opportunity to penetrate foreign markets because of our widely adaptable, superior cotton varieties, technological know-how in producing and conditioning high-quality seed and our brand name recognition. Furthermore, Monsanto's Bollgard and Roundup Ready gene technologies (that we either have licensed or have options to license) are effective in many countries and could bring value to farmers. We sell our products in foreign countries through (i) export sales to distributors, (ii) direct in-country operations through either joint ventures or wholly-owned subsidiaries and to a lesser degree (iii) licensees. The method varies and evolves, depending on our assessment of the potential size and profitability of the market, governmental policies, currency and credit risks, sophistication of the target country's agricultural economy, and costs (as compared to risks) of commencing physical operations in a particular country. In 2002, the majority of international sales came from direct in-country operations (primarily Argentina, Australia, Brazil, China, South Africa and Turkey). See Note 12 of the Notes to Consolidated Financial Statements in Item 8 for further details about business segments. ____________________ 1 On March 31, 2000, Monsanto Company consummated a merger with Pharmacia & Upjohn Inc. and changed its name to Pharmacia Corporation. On February 9, 2000, Monsanto Company formed a new subsidiary corporation, Monsanto Ag Company, which, on March 31, 2000, changed its name to Monsanto Company. On August 31, 2002, Pharmacia distributed to its shareholders its remaining interest in the new Monsanto Company. In this document, with respect to events occurring on or before March 31, 2000, the term "Monsanto" refers to the entity then designated Monsanto Company and renamed Pharmacia Corporation (NYSE: PHA) on that date. With respect to events occurring after March 31, 2000, this entity is referred to as "Pharmacia", and the entity formed as Monsanto Ag Company and renamed Monsanto Company (NYSE: MON) on that date is referred to as "Monsanto". Joint Ventures In March 1995, D&PL and Monsanto formed D&M International, LLC to introduce cotton planting seed in international markets combining our acid delinting technology and elite germplasm (cottonseed varieties) with Monsanto's Bollgard and Roundup Ready gene technologies. In November 1995, D&M International, LLC formed a subsidiary, D&PL China Pte Ltd. ("D&PL China"). D&PL China is 80% owned by D&M International, LLC and 20% owned by a Singaporean entity. In November 1996, D&PL China formed Hebei Ji Dai Cottonseed Technology Company Ltd. ("Ji Dai") with parties in Hebei Province, one of the major cotton producing regions in the People's Republic of China. Ji Dai is 67% owned by D&PL China and 33% owned by Chinese parties. In June 1997, Ji Dai commenced construction of a cottonseed conditioning and storage facility in Shijiazhuang, Hebei, China, pursuant to the terms of the joint venture agreement. The new facility was completed in December 1997 and seed processing and sales of seed of a D&PL cotton variety containing Monsanto's Bollgard technology commenced in 1998. In December 1997, D&M International, LLC formed a joint venture with Ciagro S.R.L. ("Ciagro"), a distributor of agricultural inputs in the Argentine cotton region, for the production and sale of genetically improved cottonseed. CDM Mandiyu S.R.L. ("CDM") is owned 60% by D&M International, LLC, and 40% by Ciagro. In September 1998, CDM began construction of a cottonseed conditioning and storage facility in Avia Terai, Chaco, Argentina. Construction was completed in June 1999. CDM has been licensed to sell our cotton varieties containing Monsanto's Bollgard gene technology. Sales of such varieties commenced in 1999. CDM has also been licensed to sell Roundup Ready cottonseed varieties, which received government approval in 2001. Roundup Ready cottonseed has been available for sale in Argentina since October 2002. In July 1998, D&PL China and the Anhui Provincial Seed Corporation formed a joint venture, Anhui An Dai Cotton Seed Technology Company, Ltd. ("An Dai") which is located in Hefei City, Anhui, China. An Dai is 49% owned by D&PL China. Under the terms of the joint venture agreement, An Dai produces, conditions and sells our acid delinted varieties of cottonseed, which contain Monsanto's Bollgard gene. Commercial sales of our cotton varieties containing the Bollgard gene technology began in 2000. In January 2002, An Dai began construction of a cottonseed conditioning and storage facility in Hefei City, Anhui, China. Construction is expected to be completed in April 2003, when the plant will be operational. In November 1998, D&M International, LLC and Maeda Administracao e Participacoes Ltda, an affiliate of Agropem - Agro Pecuria Maeda S.A., formed a joint venture in Minas Gerais, Brazil. The joint venture, MDM Maeda Deltapine Monsanto Algodao Ltda. ("MDM"), produces, conditions and sells our acid-delinted varieties of cotton planting seed. In 2000, we began selling our conventional cotton varieties. MDM will introduce transgenic cottonseed varieties containing both Bollgard and Roundup Ready gene technologies in the Brazilian market as soon as government approvals are obtained, which Monsanto has announced may not occur until 2005. MDM is 51% owned by D&M International, LLC and 49% owned by Maeda Administracao e Participacoes Ltda. In October 2001, we announced that we had signed Letters of Intent with two parties in China to form two new joint ventures there, one each in Hubei and Henan provinces. These two new potential markets contain approximately 4.5 million acres of cotton planted in 2001 which is almost 2.5 times the size of the combined Hebei and Anhui markets. A joint venture agreement was negotiated and agreed to with the parties in Henan province and the agreement was submitted to the Chinese government authorities for approval. However, in April 2002, China announced rules prohibiting new foreign investment in seed companies that intend to sell genetically modified seed which will restrict the ability of non-Chinese companies, including us, from investing in such joint ventures. We have, however, signed a distribution agreement with a party in the Henan province and will be distributing seed there in fiscal 2003 from our joint venture in Hebei province, Ji Dai. We expect to continue to expand our business in China through our existing joint ventures, Ji Dai and An Dai. In May 2002, we acquired the 50% interest in D&M International, LLC that we did not own from Pharmacia. Pharmacia activated a cross purchase provision in the operating agreement for D&M International, LLC, and we elected to have D&M International, LLC redeem Pharmacia's 50% interest in D&M International, LLC. As a result of the redemption of Pharmacia's interest, we now own all of D&M International, LLC. In May 2002, we established DeltaMax Cotton, LLC, a limited liability company jointly owned with Verdia, Inc. ("Verdia"; formerly known as MaxyAg, Inc.), a wholly-owned subsidiary of Maxygen, Inc. DeltaMax Cotton, LLC was formed to create, develop and commercialize value-enhancing traits for the cottonseed market that will complement and/or compete with traits available today. Commercialization of new traits developed by this venture is not expected until after 2007. DeltaMax Cotton, LLC will contract research and development activities to Verdia, third parties and D&PL when appropriate, and license its products to D&PL and potentially to others. D&PL and Verdia each own 50% of DeltaMax Cotton, LLC. Subsidiaries D&PL South Africa, Inc. ("D&PL South Africa"), our wholly-owned subsidiary, through a South African branch, commercializes cottonseed varieties containing Monsanto's Bollgard and Roundup Ready technologies in South Africa. In addition, D&PL South Africa conducts winter nursery activities, produces cottonseed varieties for export to other countries and processes foundation seed grown in that country. We also maintain a winter nursery and foundation seed operation in Canas, Costa Rica and have completed construction of a delinting plant there to process foundation seed for export to the United States. Multiple winter nursery locations are used to manage seed production risks. The use of Southern Hemisphere winter nurseries and seed production programs such as these can accelerate the introduction of new varieties because we can raise at least two crops per year by taking advantage of the Southern Hemisphere growing season. Deltapine Australia Pty. Ltd., our wholly-owned Australian subsidiary, breeds, produces, conditions and markets cotton planting seed in Australia. Certain varieties developed in Australia are well adapted to other major cotton producing countries and Australian-developed varieties are exported to those areas. We sell seed of both conventional and transgenic varieties in Australia. Through our Australian operations, we are identifying smaller potential export markets throughout Southeast Asia for our products. The adaptability of our germplasm must be evaluated in the target markets before such sales can be made. Turk DeltaPine, Inc. ("Turk DeltaPine"), our wholly-owned subsidiary, through a Turkish branch, produces, conditions and markets cotton planting seed in Turkey. In addition, Turk DeltaPine produces conventional cottonseed varieties for sale in Turkey and Europe. Employees As of October 31, 2002, we employed a total of 555 full time employees worldwide excluding approximately 80 employees of joint ventures. Due to the nature of the business, we utilize seasonal employees in our delinting plants and our research and foundation seed programs. The maximum number of seasonal employees approximates 175 and typically occurs in October and November of each year. We consider our employee relations to be good. Biotechnology Insect Resistance for Cotton Collaborative biotechnology licensing agreements, which were executed with Monsanto in 1992 and subsequently revised in 1993, 1996 and December 1999, provide for the commercialization of Monsanto's Bollgard ("Bacillus thuringiensis" or "Bt") gene technology in our varieties in the United States. The selected Bt gene is from a bacterium found naturally in soil and produces proteins toxic to certain lepidopteran larvae, the principal cotton pests in many cotton growing areas. Monsanto created a transgenic cotton plant by inserting Bt genes into cotton plant tissue. The resulting transgenic plant tissue is lethal to certain lepidopteran larvae that consume it. The gene and related technology were patented or licensed from others by Monsanto and were licensed to us for use under the trade name Bollgard. In our primary markets, the cost of insecticides is a major expenditure for many cotton growers. The insect resistant capabilities of transgenic cotton containing the Bollgard gene may reduce the amount of insecticide required to be applied by cotton growers using planting seed containing the Bollgard gene. In October 1995, the United States Environmental Protection Agency ("EPA") completed its initial registration of the Bollgard gene technology, thus clearing the way for commercial sales of seed containing the Bollgard gene. In 1996, we sold commercially for the first time two Deltapine varieties, which contained the Bollgard gene, in accordance with the terms of the Bollgard Gene License and Seed Services Agreement (the "Bollgard Agreement") between D&PL and Monsanto. This initial EPA registration had been set to expire on January 1, 2001 but was updated to expire January 1, 2002. In September 2001, the EPA renewed the registration for an additional five years, at which time the EPA will, among other things, reevaluate the effectiveness of the insect resistance management plan and decide whether to convert the registration to a non-expiring (and/or unconditional) registration. Pursuant to the terms of the Bollgard Agreement, farmers must buy a limited use sublicense for the technology from D&M Partners, a partnership of D&PL (90%) and Monsanto (10%), in order to purchase seed containing the Bollgard gene technology. D&M Partners contracts the billing and collection activities for Bollgard and Roundup Ready licensing fees to Monsanto. The distributor/dealers who coordinate the farmer licensing process receive a portion of the technology sublicensing fee, presently approximately 15%. After the dealers and distributors are compensated, D&M Partners pays Monsanto a royalty equal to 71% of the net sublicense fee (technology sublicensing fees less distributor/dealer payments) and we retain the remainder of 29% for our services. The expiration date of the Bollgard Agreement is determined by the last to expire of the patent rights licensed under that agreement. On that basis (unless we terminate sooner, as is permitted after October 11, 2008), the expiration date of the Bollgard Agreement will be September 28, 2016. Pursuant to the Bollgard Agreement, Monsanto must defend and indemnify us against claims of patent infringement, including all damages awarded or amounts paid in settlements. Monsanto must also indemnify us against a) costs of inventory and b) lost profits on inventory which becomes unsaleable because of patent infringement claims. Monsanto must defend any claims of failure of performance of a Bollgard gene. Monsanto and D&PL share the cost of any product performance claims in proportion to each party's share of the royalty. The indemnity from Monsanto only covers performance claims involving failure of performance of the Bollgard gene and not claims arising from other causes. Pharmacia remains liable for Monsanto's performance under these defense and indemnity agreements. In December 2000, D&PL and Monsanto executed the Bollgard II Gene License and Seed Services Agreement (the "Bollgard II Agreement") for Monsanto's subsequent insect resistance product. The Bollgard II Agreement contains essentially the same terms as the Bollgard Agreement. D&PL will begin commercialization of Bollgard II once Monsanto obtains U.S. government regulatory approval. In May 2002, we signed a product development agreement with Syngenta Seed AG ("Syngenta") whereby Syngenta will pay us for development work, including introgression, testing and evaluation, of Syngenta's insect resistance technology in our elite cotton germplasm. If appropriate testing indicates that Syngenta technology combined with our germplasm is competitive and if a commercialization agreement is reached, our elite varieties containing Syngenta's technology could potentially be available for introduction to growers as early as 2004, subject to Syngenta obtaining U.S. government regulatory approval and other factors. Herbicide Tolerance for Cotton In February 1996, D&PL and Monsanto executed the Roundup Ready Gene License and Seed Services Agreement (the "Roundup Ready Agreement"), which provides for the commercialization of Roundup Ready cottonseed. Pursuant to the collaborative biotechnology licensing agreements executed in 1996 and amended in July 1996 and December 1999, we have also developed transgenic cotton varieties that are tolerant to Roundup(R), a glyphosate-based herbicide sold by Monsanto. In 1996, such Roundup Ready plants were approved by the Food and Drug Administration, the USDA, and the EPA. The Roundup Ready Agreement grants a license to D&PL and certain of our affiliates the right in the United States to sell cottonseed of our varieties that contain Monsanto's Roundup Ready gene. The Roundup Ready gene makes cotton plants tolerant to contact with Roundup herbicide applications made during a finite early season growth period. Similar to the Bollgard Agreement, farmers must execute limited use sublicenses in order to purchase seed containing the Roundup Ready gene. The distributors/dealers who coordinate the farmer licensing process receive a portion of the technology sublicensing fee. Our portion of the Roundup Ready technology fee varies depending on the technology fee per acre established by Monsanto. In 2001 and 2002, D&M Partners paid Monsanto approximately 70% of the Roundup Ready technology fees and we retained the remaining 30%. The expiration date of the Roundup Ready Agreement is determined by the last to expire of the patent rights licensed under that agreement. On that basis (unless we terminate sooner, as is permitted after October 11, 2008), the expiration date of the Roundup Ready Agreement will be May 27, 2014. Pursuant to the Roundup Ready Agreement, Monsanto must defend and indemnify us against claims of patent infringement, including all damages awarded or amounts paid in settlements. Monsanto will also indemnify us against the cost of inventory that becomes unsaleable because of patent infringement claims, but Monsanto is not required to indemnify us against lost profits on such unsaleable seed. In contrast with the Bollgard Agreement, where the cost of gene performance claims will be shared in proportion to the division of sublicense revenue, Monsanto must defend and must bear the full cost of any claims of failure of performance of the Roundup Ready Gene. Pharmacia remains liable for Monsanto's performance under these defense and indemnity agreements. In both agreements, generally, we are responsible for varietal/seed performance issues, and Monsanto is responsible for failure of the genes. Herbicide Tolerance for Soybeans In February 1997, D&PL and Monsanto executed a Roundup Ready Soybean License Agreement which provided for commercialization of Roundup Ready soybean seed. Effective September 1, 2001, D&PL and Monsanto executed a new Roundup Ready Soybean License and Seed Services Agreement (the "Roundup Ready Soybean Agreement") for 2001 and future years. The Roundup Ready Soybean Agreement grants a non-exclusive license to D&PL to produce and to sell in the United States soybean seed containing Monsanto's Roundup Ready gene. The Roundup Ready gene makes soybean plants tolerant to contact with Roundup herbicide applications when used in accordance with product instructions. Similar to the Bollgard Agreement and the Roundup Ready Agreement for cotton, farmers must execute limited use sublicenses in order to purchase soybean seed containing the Roundup Ready gene. The royalty charged to the seed partners, including D&PL, is set annually by Monsanto. We receive a portion of the royalty for our services under the Roundup Ready Soybean Agreement and may receive additional incentives based on a separate licensee incentive agreement. We have the right to terminate the Roundup Ready Soybean Agreement at our option upon 90 days notice to Monsanto; Monsanto may terminate the agreement only for cause. Unless terminated sooner, the Roundup Ready Soybean Agreement will expire December 31, 2012. Since 1987, we have conducted research to develop soybean plants that are tolerant to certain DuPont STS(R) herbicides. Such plants enable farmers to apply these herbicides for weed control without significantly affecting the agronomics of the soybean plants. Since soybean seed containing the STS herbicide-tolerant trait is not genetically engineered, sale of this seed does not require government approval, although the herbicide to which they express tolerance must be EPA approved. Transformation, Enabling and Other Technologies In March 1998, D&PL and the United States of America, as represented by the Secretary of Agriculture (USDA) were granted United States Patent No. 5,723,765, entitled "Control Of Plant Gene Expression". Subsequently, two other patents (United States Patent Nos. 5,925,808 and 5,977,441) were granted under the same title. The patents for the Technology Protection System resulted from a concept developed by research scientists employed by both D&PL and the U.S. Department of Agriculture's Agricultural Research Service ("USDA-ARS"). The patents broadly cover all species of plants and seed, both transgenic and conventional, for a system designed to allow control of progeny seed viability without harming the crop. One application of the technology could be to control unauthorized planting of seed of proprietary varieties (sometimes called "brown bagging") by making such a practice non-economic since unauthorized saved seed will not germinate, and, therefore, would be useless for planting. Another application of the technology would be to prevent the unlikely possibility of transfer of transgenes, through pollen, to closely related species of plants. These patents have the prospect of opening significant worldwide seed markets to the sale of transgenic technology in varietal crops in which crop seed currently is saved and used in subsequent seasons as planting seed. D&PL and the USDA executed a commercialization agreement on July 6, 2001 for this technology giving us the exclusive right to market this technology. Once developed, we intend licensing of this technology to be widely available to other seed companies. In July 1999, United States Patent No. 5,929,300, entitled "Pollen Based Transformation System Using Solid Media," was issued to the United States of America as represented by the Secretary of Agriculture (USDA). This patent covers transformation of plants. The patent for the Pollen Transformation System resulted from a research program conducted pursuant to a Cooperative Research and Development Agreement between D&PL and the USDA-ARS in Lubbock, Texas. D&PL and the USDA executed on December 18, 2000 a commercialization agreement, providing us exclusive rights to market this technology to third parties, subject to certain rights reserved to the USDA. This transformation method uses techniques and plant parts that are not covered by currently issued plant transformation U.S. patents held by others. It is a method which should be more efficient and effective than many other plant transformation techniques currently available. This patent and the marketing rights apply to all plant species on which this method of transformation is effective. The technologies described above resulted from basic research and will require further development in order to be used in commercial seed. We estimate that it will be several years before either of these technologies could be available commercially. In addition, we have rights to other transformation, enabling and other technologies that are useful to our research and commercial efforts and, in some cases, may be sublicensed to others. Other We have licensing, research and development, confidentiality and material transfer agreements with providers of technology that we are evaluating for potential commercial applications and/or introduction. We also contract with third parties to perform research on our behalf for enabling and other technologies that we believe have potential commercial applications in varietal crops around the world. Commercial Seed The following table presents the number of commercial cottonseed and soybean seed varieties we sold in the years ended August 31,: 2001 2002 --------------- --------------- Cotton Conventional 24 24 Bollgard 6 6 Roundup Ready 16 16 Bollgard/Roundup Ready 16 16 --------------- -------------- 62 62 =============== ============== Soybeans Conventional 2 2 Roundup Ready 10 10 STS 2 2 --------------- -------------- 14 14 =============== ============== In addition to the above, in 2002, we had 59 experimental cotton varieties and 11 experimental soybean varieties in late stage development prior to commercialization. In 2001, we had 52 experimental cotton varieties and 11 experimental soybean varieties in late stage development prior to commercialization. Seed of all commercial plant species is either varietal or hybrid. Our cotton and soybean seed are varietals. Varietal plants can be reproduced from seed produced by a parent plant, with the offspring exhibiting only minor genetic variations. The Plant Variety Protection Act of 1970, as amended in 1994, in essence prohibits, with limited exceptions, purchasers of varieties protected under the amended Act from selling seed harvested from these varieties without permission of the plant variety protection certificate owner. Some foreign countries provide similar legal protection for breeders of crop varieties. Although cotton is varietal and, therefore, can be grown from seed of parent plants saved by the growers, most farmers in our primary domestic markets purchase seed from commercial sources each season because cottonseed requires delinting prior to seed treatment with chemicals and in order to be sown by modern planting equipment. Delinting and conditioning may be done either by a seed company on its proprietary seed or by independent delinters for farmers. Modern cotton farmers in upland picker areas generally recognize the greater assurance of genetic purity, quality and convenience that professionally grown and conditioned seed offers compared to seed they might save. Additionally, U.S. patent laws make unlawful any unauthorized planting of seed containing patented technology, such as Bollgard and Roundup Ready, saved from prior crops. We farm approximately 2,000 acres in the U.S., primarily for research purposes and for production of cotton and soybean foundation seed. We have annual agreements with various growers to produce seed for cotton and soybeans. The growers plant parent seed purchased from us and follow quality assurance procedures required for seed production. If the grower adheres to our established quality assurance standards throughout the growing season and if the seed meets our standards upon harvest, we may be obligated to purchase specified minimum quantities of seed, usually in our first and second fiscal quarters, at prices equal to the commodity market price of the seed plus a grower premium. We then condition the seed for sale. The majority of our sales are made from early in the second fiscal quarter through the beginning of the fourth fiscal quarter. Varying climatic conditions can change the quarter in which seed is delivered, thereby shifting sales and our earnings between quarters. Thus, seed production, distribution and sales are seasonal and interim results will not necessarily be indicative of our results for a fiscal year. Revenues from domestic seed sales are recognized when seed is shipped. Revenues from Bollgard and Roundup Ready licensing fees are recognized when the seed is shipped. Domestically, the licensing fees charged to farmers for Bollgard and Roundup Ready cottonseed are based on pre-established planting rates for eight geographic regions and consider the estimated number of seed contained in each bag which may vary by variety, location grown, and other factors. International export revenues are recognized upon the later of when seed is shipped or the date letters of credit are confirmed. Generally, international export sales are not subject to return. Generally, all other international revenues from the sale of planting seed, less estimated reserves for returns, are recognized when the seed is shipped. Domestically, we promote our cotton and soybean seed directly to farmers and sell our seed through distributors and dealers. All of our domestic seed products (including those containing Bollgard and Roundup Ready technologies) are subject to return and credit risk, the effects of which vary from year to year. The annual level of returns and, ultimately, net sales are influenced by various factors, principally commodity prices and weather conditions occurring in the spring planting season during our third and fourth quarters. We provide for estimated returns as sales occur. To the extent actual returns differ from estimates, adjustments to our operating results are recorded when such differences become known, typically in our fourth quarter. All significant returns occur and are accounted for by fiscal year end. Outlook From time to time, we may make forward-looking statements relating to such matters as anticipated financial performance, existing products, technical developments, new products, research and development activities and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, we note that a variety of factors could cause our actual results and experience to differ materially from the anticipated results or other expectations expressed in our forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of our business include those noted elsewhere in this Item and in "Risks and Uncertainties" in Item 7. Availability of Information on Our Website Additional information (including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) and 15(d) of the Exchange Act) is available at our website at www.deltaandpine.com under Investor Relations, as soon as reasonably practicable after we electronically file such material with the Securities and Exchange Commission. ITEM 2. PROPERTIES We maintain facilities primarily used for research, delinting, conditioning, storage and distribution. Our world headquarters is located in Scott, Mississippi. This location is used for corporate offices, quality assurance, research and development, sales and marketing, seed production, and cottonseed delinting, conditioning and storage. Our other owned cottonseed delinting, conditioning and storage facilities in the United States are in: Eloy, Arizona; Hollandale, Mississippi; and Aiken, Texas. We own a soybean processing plant in Harrisburg, Arkansas. We also own cottonseed delinting facilities in Narromine, New South Wales, Australia; Groblersdal, South Africa; Canas, Costa Rica; Shijiazhuang, Hebei, China (through a Chinese joint venture); Hefei City, Anhui, China (through a Chinese joint venture) and Avia Terai, Chaco, Argentina (through an Argentine joint venture). We also own facilities in Tunica, Mississippi and Chandler, Arizona that are not currently in use. Our plant breeders conduct research at eight company-owned facilities in the United States. We also own a research facility in Australia and lease research facilities in Brazil and Greece. In connection with our foundation seed program, we lease land in the United States, Argentina, Australia, Brazil, China, Costa Rica, South Africa and Turkey. All owned properties are free of encumbrances. We lease other various warehouse space. We believe that all of our facilities, including our conditioning, storage and research facilities, are well maintained and generally adequate to meet our needs for the foreseeable future. (See "Liquidity and Capital Resources" in Item 7). PRINCIPAL COMPANY LOCATIONS, AFFILIATES AND SUBSIDIARIES: World Headquarters Scott, Mississippi, USA Research Centers Operations Facilities Scott, Mississippi, USA Scott, Mississippi, USA Winterville, Mississippi, USA Hollandale, Mississippi, USA Maricopa, Arizona, USA Eloy, Arizona, USA Tifton, Georgia, USA Harrisburg, Arkansas, USA Hartsville, South Carolina, USA Aiken, Texas, USA Hale Center, Texas, USA Lubbock, Texas, USA Haskell, Texas, USA Avia Terai, Chaco, Argentina Lubbock, Texas, USA Narromine, New South Wales, Australia Narrabri, New South Wales, Australia Canas, Costa Rica Capinopolis, Minas Gerais, Brazil Hefei City, Anhui, Canas, Costa Rica People's Republic of China Larissa, Greece Shijiazhuang, Hebei, People's Republic of China Groblersdal, South Africa Foreign Offices Narrabri, New South Wales, Australia Uberlandia, Minas Gerais, Brazil Canas, Costa Rica Thessaloniki, Greece Mexicali, Mexico Mexico City, Mexico Wassenaar, The Netherlands Beijing, People's Republic of China Groblersdal, South Africa Seville, Spain Adana, Turkey Izmir, Turkey ITEM 3. LEGAL PROCEEDINGS Product Claims D&PL and Monsanto are named as defendants in one lawsuit filed in the State of Texas. The lawsuit was filed in Hockley County, Texas, on April 14, 1999. This lawsuit was removed to the United States District Court, Lubbock Division, but subsequently remanded back to the state court. This case was tried to a jury in August of 2002, and an adverse verdict was returned against D&PL and Monsanto. There are presently post-trial motions pending and D&PL intends to appeal the jury's decision. In this case the Plaintiff alleges that certain cottonseed acquired from the Paymaster division of D&PL did not perform as the farmer had anticipated and as allegedly represented to him. D&PL and Monsanto were named as defendants in a lawsuit filed in the 106th Judicial District Court of Gaines County, Texas, on April 27, 2000. In this case the plaintiff alleges, among other things, that certain cottonseed acquired from D&PL that contained the Roundup Ready gene did not perform as the farmer had anticipated. D&PL and Monsanto are investigating the claims to determine the cause or causes of the alleged problem. Pursuant to the terms of the Roundup Ready Agreement, D&PL has tendered the defense of this claim to Monsanto and requested indemnity. Pursuant to the Roundup Ready Agreement, Monsanto is contractually obligated to defend and indemnify D&PL against all claims arising out of the failure of the Roundup glyphosate tolerance gene and Monsanto has agreed to do so. D&PL will not have a right of indemnification from Monsanto, however, for any claim involving defective varietal characteristics separate from or in addition to the herbicide tolerance gene and such claims are contained in this litigation. D&PL and Monsanto and various retail seed suppliers were named as defendants in six pending lawsuits in the State of South Carolina. One lawsuit was filed November 15, 1999, in the Beaufort Division of the United States District Court, District of South Carolina; two of the other cases were filed on November 15, 1999, in the Court of Common Pleas of Hampton County, South Carolina. The two 1999 state court lawsuits were removed to the United States District Court for the District of South Carolina but were subsequently remanded back to the state court in which they were filed. The remaining three lawsuits were filed July 29, 2002, in the Court of Common Pleas of Hampton County, South Carolina. The 2002 state court filing of one of those cases (the "Axson case") was removed to United States District Court for the District of South Carolina, Beaufort Division, where it is presently pending. In each of these cases the plaintiff alleges, among other things, that certain seed acquired from D&PL which contained the Roundup Ready gene and/or the Bollgard gene did not perform as the farmer had anticipated. These lawsuits also include varietal claims aimed solely at D&PL. One of the 1999 cases filed in Hampton County as well as the 1999 case filed in the United States District Court seek class action treatment for all purchasers of certain D&PL varieties which contain the Monsanto technology. D&PL and Monsanto are continuing to investigate the claims to determine the cause or causes of the alleged problem. Pursuant to the terms of the Roundup Ready Agreement and the Bollgard Agreement between D&PL and Monsanto, D&PL has a right to be contractually indemnified against all claims arising out of the failure of Monsanto's gene technology. D&PL will not have a right to indemnification, however, from Monsanto for any claim involving varietal characteristics separate from or in addition to the failure of the Monsanto technology and such claims are contained in each of these lawsuits. D&PL was named as a defendant in four lawsuits filed in the State of Mississippi. One lawsuit was filed in the Circuit Court of Lowndes County, Mississippi on July 11, 2001. That suit alleges that certain cottonseed sold by D&PL did not germinate properly or at the rate stated on the label causing the farmer to incur losses during the 1998 growing season. The second suit was filed in the Circuit Court of Webster County on August 10, 2001. That suit alleges that the seed purchased by plaintiff failed to perform as represented and seeks damages for crop losses incurred during the 1999 growing season. The third lawsuit was filed in the Circuit Court of Holmes County on March 14, 2002. The suit has now been amended to include fifty-seven individual Plaintiffs who allege that certain cottonseed sold by D&PL was improperly mixed or blended and failed to perform as advertised. The fourth lawsuit was filed in the Circuit Court of Noxubee County on August 12, 2002, and involves a third-party complaint filed by a local seed distributor who was sued by a local farmer in a complaint which alleges that certain seed sold by the complaining distributor failed to comply with federal and state seed law requirements. D&PL is presently investigating all of these claims to determine the cause or causes of the alleged problems. None of the Mississippi lawsuits allege that the Monsanto gene technology failed, and accordingly, it does not appear that D&PL has a claim for indemnity or defense under the terms of any gene licensing agreement with Monsanto. On June 7, 2001, D&PL was named as a defendant in a lawsuit filed in the Circuit Court of Crockett County, Tennessee. This case was subsequently removed to the United Sates District Court for the Western District of Tennessee, Eastern Division. This lawsuit alleges that a specific cotton variety did not perform as promised and that the plaintiff farmers suffered lower than expected yields as a result of the allegedly defective variety and/or lower than expected tolerance to Roundup glyphosate. Pursuant to the terms of the Roundup Ready Agreement, D&PL has tendered the defense of this claim to Monsanto and requested indemnity. Pursuant to the terms of the Roundup Ready Agreement, Monsanto is contractually obligated to defend and indemnify D&PL against all claims arising out of the failure of the Roundup glyphosate tolerance gene. D&PL will have no right of indemnification from Monsanto, however, for the claims in this litigation involving varietal characteristics separate from or in addition to the herbicide tolerance gene and such claims are contained in this litigation. D&PL and Monsanto were named as defendants in two companion cases filed in the State of Georgia. One was filed in the United States District Court for the Middle District of Georgia, Albany Division, on April 5, 2002; and the other case was filed in the Superior Court of Fulton County, Georgia, on April 29, 2002. The case filed in Fulton County was removed to the United States District Court on May 28, 2002. Both suits allege that seed purchased by Plaintiffs from D&PL, and technology purchased from Monsanto, failed to perform as represented and seek damages for crop losses during the 1998 growing season; the lawsuit further alleges that certain cotton varieties sold by D&PL suffered from a disease or malady known as "bronze wilt." Pursuant to the terms of the Roundup Ready Agreement, D&PL has tendered the defense of these claims to Monsanto and requested indemnity. Pursuant to the terms of the Roundup Ready Agreement, Monsanto is contractually obligated to defend and indemnify D&PL against all claims arising out of the failure of the Roundup glyphosate tolerance gene. D&PL will have no right of indemnification from Monsanto, however, for any claim involving varietal characteristics separate from or in addition to the herbicide tolerance gene and such claims are contained in this litigation. D&PL was named as a defendant, along with a local seed distributor in a lawsuit filed in the Superior Court of Colquitt County, Georgia on October 5, 2001. This lawsuit was removed to the United States District Court for the Middle District of Georgia. The lawsuit alleges that certain cottonseed varieties sold by D&PL suffered from a disease or malady known as bronze wilt. Although this lawsuit involves a cotton variety which contains the Roundup Ready gene, no claim against Monsanto was alleged, nor is there an allegation that Monsanto technology caused or contributed to Plaintiff's claims. Thus, it does not presently appear that Monsanto is contractually obligated to defend or indemnify D&PL in this case. D&PL is presently investigating this claim to determine the causes of the alleged problems. D&PL was named as a co-defendant in a case which was originally filed against Monsanto on December 14, 1998, in the Superior Court of Lee County, Georgia. By order of the Court, D&PL was added as an additional defendant in May 2002. This lawsuit alleges a certain cottonseed sold by D&PL containing the Bt gene failed to perform as advertised and promoted. Pursuant to the terms of the Bollgard Agreement, D&PL has tendered the defense of this claim to Monsanto and requested indemnity. Pursuant to the terms of the Bollgard Agreement, Monsanto is contractually obligated to defend and indemnify D&PL against all claims arising out of the failure of the Bollgard gene to perform. D&PL will have no right of indemnification from Monsanto for any claim involving varietal characteristics separate from or in addition to the Bollgard technology and such claims are contained in this litigation. All litigation (25 cases) included in Item 3 of D&PL's Annual Report on Form 10-K filed for the year ended August 31, 2001 in the states of Alabama, North Carolina and Louisiana has been concluded. Additionally, the following cases have been resolved in Texas - the three lawsuits filed in Lamb County, Texas during April 1999, and the case filed in the Judicial District Court of Dawson County, Texas. These cases were resolved, both individually and collectively, without a material financial impact on D&PL. Other Matters In July 2002, Syngenta Biotechnology, Inc. ("SBI") brought suit in the U.S. District Court in Delaware alleging that D&PL's making, using, selling and offering to sell cotton planting seed containing Monsanto's Bt genes, being sold under the trade name Bollgard, infringes U.S. Patent 6,051,757 entitled "Regeneration Of Plants Containing Genetically Engineered T-DNA". The suit seeks a preliminary and permanent injunction against D&PL and Monsanto against further acts of alleged infringement, contributory infringement and inducement of infringement of SBI's patent and recovery of damages for unspecified amount including treble damages on account of the defendants' alleged willful infringement. D&PL has demanded that Pharmacia Corporation and Monsanto each agree to defend D&PL in this suit and to indemnify D&PL against damages, if any, which may be awarded. Monsanto has assumed the defense of D&PL and has filed an answer generally denying infringement and other claims made in the litigation. D&PL is assisting Monsanto to the extent reasonably necessary for the conduct of the litigation. In May 2002, Pharmacia filed a suit in state court in Missouri against D&PL International Technology Corp. ("DITC"), D&PL's subsidiary, seeking a declaratory judgment that it was entitled to invoke the cross purchase provision in the Operating Agreement for D&M International, LLC, a limited liability company jointly owned by Pharmacia and DITC. In the alternative, Pharmacia sought a declaratory judgment that DITC was deemed to have consented to Pharmacia's transfer of the Operating Agreement to Monsanto and its issuance and transfer of shares of Monsanto's stock. DITC moved to dismiss on June 6, 2002, because the case was moot and did not present a justiciable controversy, in that DITC had already invoked its rights under the cross purchase provision and had caused Pharmacia's interest in D&M International, LLC to be redeemed. Instead of answering DITC's motion, on or about June 13, 2002, Pharmacia filed an amended petition, dropping all of its prior claims, and seeking a declaratory judgment that DITC has no contractual rights to enjoin Pharmacia from selling its shares of Monsanto or to seek damages for Pharmacia's prior initial public offering of Monsanto's shares to the public. DITC moved to dismiss the suit, since it had never threatened to enjoin the spin-off, and, in the alternative, moved for a more definite statement. On October 12, 2002, the Court denied DITC's motion to dismiss but granted DITC's motion for a more definite statement. Pharmacia filed a Second Amended Petition on October 30, 2002, and DITC filed a motion to dismiss the Second Amended Petition on November 19, 2002. On May 15, 2000, several farmers and a seller of farm supplies filed suit in the United States District Court for the Northern District of Alabama, against Monsanto, D&PL, and D&M International, LLC (then jointly owned by Monsanto and D&PL) under federal antitrust laws and requested class certification. Plaintiffs claim that defendants have: (1) unlawfully attempted to monopolize the U.S. cottonseed and herbicide market in violation of ss. 2 of the Sherman Act; (2) monopolized the U.S. cottonseed and herbicide market in violation of ss. 2 of the Sherman Act; (3) conspired to unreasonably restrain trade in the U.S. cottonseed and herbicide market in violation of ss. 1 of the Sherman Act; and (4) engaged in unlawful tying of cottonseed and herbicide in violation of ss. 3 of the Clayton Act. Plaintiffs demand unspecified antitrust damages, including treble and compensatory damages, plus costs of litigation, including attorneys' fees. In July 2000, D&PL answered the complaint and in October 2000, moved for dismissal of the action on the ground that plaintiffs had failed to allege any conduct or action by D&PL that violates the federal antitrust laws. On December 6, 2001, the United States District Judge, acting on the recommendation of the Magistrate Judge, granted Monsanto's and D&PL's motions to dismiss the complaint without prejudice. The plaintiffs were granted 30 days from the District Court's Order to file an Amended Complaint. On January 7, 2002, plaintiffs filed an Amended Complaint against Monsanto and D&PL; however, plaintiffs did not assert in their Amended Complaint any claims against D&M International, LLC. Both D&PL and Monsanto moved to dismiss the complaint. The Court granted this motion in part and denied it in part on May 30, 2002. D&PL filed an answer. On November 1, 2002, the Court granted Monsanto's and D&PL's motion to bifurcate discovery. Discovery is now in process but it is limited to discovery on class certification issues to be followed by discovery on the merits. On November 14, 2002, the Court granted plaintiff's motion for voluntary dismissal of the claims brought on behalf of direct purchasers. The Court also dismissed Counts 1 and 2 of the Amended Complaint, which alleged unlawful monopolization in the cottonseed and herbicide markets. The remaining claim (brought only on behalf of the indirect purchasers) relates to allegations about unlawful tying of cottonseed and herbicide. The plaintiffs have until March 15, 2003, to file a class certification motion. In December 1999, Mycogen Plant Science, Inc. ("Mycogen") filed a suit in the Federal Court of Australia alleging that Monsanto Australia Ltd., Monsanto's wholly-owned Australian subsidiary, and Deltapine Australia Pty. Ltd., D&PL's wholly-owned Australian subsidiary, have been infringing two of Mycogen's Australian patents by making, selling, and licensing cotton planting seed expressing insect resistance. The suit seeks injunction against continued sale of seed containing Monsanto's Ingard(R) gene and recovery of an unspecified amount of damages. The litigation is currently in discovery and pretrial proceedings. Consistent with its commitments, Monsanto has agreed to defend D&PL in this suit and to indemnify D&PL against damages, if any are awarded. Monsanto is providing separate defense counsel for D&PL. D&PL is assisting Monsanto to the extent reasonably necessary. A corporation owned by the son of D&PL's former Guatemalan distributor sued in 1989 asserting that D&PL violated an agreement with it by granting to another entity an exclusive license in certain areas of Central America and southern Mexico. The suit seeks damages of 5,292,459 Guatemalan quetzales (approximately $715,265 at October 31, 2002) and an injunction preventing D&PL from distributing seed through any other licensee in that region. The Guatemalan court, where this action is proceeding, has twice declined to approve the injunction sought. D&PL continues to make available seed for sale in Guatemala. D&PL vs. Monsanto Company and Pharmacia Corp. On December 20, 1999, Monsanto withdrew its pre-merger notification filed pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR Act") effectively terminating Monsanto's efforts to gain government approval of the merger of Monsanto with D&PL under the May 8, 1998, Merger Agreement. On December 30, 1999, D&PL filed suit (the "December 30 Suit") in the First Judicial District of Bolivar County, Mississippi, seeking among other things, the payment of the $81 million termination fee due pursuant to the merger agreement, compensatory damages and punitive damages. On January 2, 2000, D&PL and Monsanto reached an agreement whereby D&PL would withdraw the December 30 Suit, and Monsanto would immediately pay the $81 million. On January 3, 2000, Monsanto paid to D&PL a termination fee of $81 million as required by the merger agreement. On January 18, 2000, D&PL filed a suit (the "January 18 Suit") reinstating essentially all of the allegations contained in the December 30 Suit. The January 18 Suit by D&PL against Monsanto seeks in excess of $1 billion in compensatory and $1 billion in punitive damages for breach of contract under the merger agreement between the parties. D&PL alleges that Monsanto failed to make its best efforts, commercially reasonable efforts, and/or reasonable best efforts to obtain antitrust approval from the U.S. Department of Justice, as required under the terms of the merger agreement. D&PL also seeks damages for breach of the January 2, 2000 agreement pursuant to which the parties were to negotiate for two weeks to resolve the dispute over failure of the merger to close. The parties litigated for several months over the appropriate forum to hear the case. A Delaware Court of Chancery ruling rejected Monsanto's attempt to maintain the action in Delaware and returned the parties to the Circuit Court for the First Judicial District of Bolivar County, Mississippi. Monsanto filed a motion for summary judgment on the breach of contract claims alleging that D&PL suffered no cognizable damages as a result of the failed merger. On December 18, 2000, D&PL amended its complaint to include a claim for tortious interference with prospective business relations on the grounds that Monsanto's unreasonable delay prevented the consummation of the merger and kept D&PL from being in a position to enter into transactions and relationships with others in the industry. In light of the merger of Monsanto into Pharmacia & Upjohn, Inc., after the filing of the original complaint, D&PL named both Pharmacia Corp. (the renamed existing defendant) and Monsanto Company (a newly spun-off subsidiary) as defendants in the amended complaint. D&PL filed two motions to compel additional discovery from Monsanto. Pharmacia and Monsanto filed a motion for summary judgment and a motion to dismiss the added claim of tortious interference contained in the amended complaint. Pharmacia and Monsanto alleged that they were entitled to 1) dismissal of the action on the grounds that D&PL's amended complaint did not satisfy any of the elements of a tortious interference claim and, thus, did not state a viable claim; and 2) summary judgment because D&PL has not suffered any injury as a result of Monsanto's actions. On November 15, 2001, the Circuit Court denied the defendants' motion for summary judgment on the breach of contract claims, holding that the case presents issues for trial by jury. The Court also denied defendants' motion to dismiss or for summary judgment on D&PL's claim for tortious interference with business relationships. The Court also granted substantially all of the discovery sought by D&PL in its motion to compel. The parties are in discovery and are commencing depositions. The judge in the case has ruled that all discovery, depositions, and pre-trial motions must be completed by September 2003 with a trial date set for January 2004. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5.MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our stock trades on the New York Stock Exchange (the "NYSE") under the trading symbol DLP. The range of closing prices for these shares for the last two fiscal years, as reported by the NYSE, was as follows: Common Stock Data 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr - ----------------- ----------- ----------- ------------ ----------- FYE August 31, 2001 Market Price Range - Low $21.75 $20.00 $22.15 $18.65 - High 26.88 25.55 26.80 25.09 FYE August 31, 2002 Market Price Range - Low $16.23 $18.94 $17.49 $17.49 - High 21.22 22.63 21.47 20.13
Annual dividends of $0.15 and $0.20 per share were paid in 2001 and 2002, respectively. The Board of Directors anticipates that quarterly dividends of $0.05 per share will continue to be paid in the future; however, the Board of Directors reviews this policy quarterly. Aggregate dividends paid on common shares in 2002 were $7.7 million and should approximate $7.6 million in 2003. Aggregate dividends paid on preferred shares in 2002 were $0.2 million and should approximate $0.2 million in 2003. On October 31, 2002, there were approximately 6,000 shareholders of our 38,148,505 outstanding common shares. Equity Compensation Plan Information Number of securities to be issued upon Weighted average Number of securities exercise of exercise price remaining available for outstanding options, of outstanding options, future issuance under equity Plan category warrants and rights warrants and rights compensation plan ------------- ------------------- ------------------- ----------------- Equity compensation plans approved by security holders 4,037,819 $ 18.49 1,281,394 Equity compensation plans not approved by security holders - - -
ITEM 6. SELECTED FINANCIAL DATA FINANCIAL HIGHLIGHTS (In thousands, except per share amounts) - --------------------------------------------------------------------------------------------------------------------- As of and for the Year Ended August 31, - --------------------------------------------------------------------------------------------------------------------- 1998 1999 2000 2001 2002 ----------- ------------ ----------- ----------- ------------ Operating Results: Net sales and licensing fees $ 192,339 $ 260,465 $ 301,181 $ 305,806 $ 257,807 Special charges and unusual items(1) (22,662) (29,884) 71,233 (6,301) - Net income 1,879 7,573 79,326 32,307 30,339 Balance Sheet Summary: Current assets $ 174,502 $ 217,543 $ 313,701 $ 337,737 $ 308,468 Current liabilities 116,136 174,947 215,315 208,041 174,124 Working capital 58,366 42,596 98,386 129,696 134,344 Total assets 251,791 295,758 390,134 411,521 383,142 Long-term debt 47,070 17,000 2,482 2,836 1,176 Stockholders' equity 80,651 89,404 159,628 188,408 202,207 Per Share Data: Net income - Diluted $ 0.04 $ 0.18 $ 1.98 $ 0.81 $ 0.76 Book value 2.12 2.33 4.15 4.90 5.27 Cash dividends per common share 0.12 0.12 0.12 0.15 0.20 Weighted average number of shares used in net income per share calculation - Diluted 40,839 40,973 40,159 40,111 39,781 - ------------------------------------------------------------------------------------------------------------------------
(1) In 1998, we reported (a) a $17.5 million special charge for inventory write-offs due to a reduction in cotton acreage in 1998, the realignment of our product line to seed with new technologies and the recall of certain products and (b) $5.1 million in costs associated with our evaluation of various strategic alternatives including the Monsanto merger. In 1999, we reported (a) special charges for inventory write-offs of $15.2 million resulting from our decision to purchase additional seed in 1999 to ensure that ample seed of both transgenic and conventional varieties were available and due to lower than expected soybean sales, (b) special charges of approximately $9.0 million related to the now failed acquisition by Monsanto, (c) nonrecurring charges for severance pay and relocation expenses of $2.0 million related to a reorganization of the sales and marketing and technical services divisions and (d) the loss on the disposal of fixed assets and other special charges of $3.7 million. In 2000, we reported the $81 million merger termination fee, net of related expenses as an unusual income item. In 2001, we reported (a) a $3.0 million special charge for the closing of a delinting plant and a write down of other long-lived assets to be disposed of and (b) a $3.3 million charge for severance pay related to the plant closing and reductions in operations and corporate staffs. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The decrease in planted cotton acreage in the U.S. during 2002 adversely impacted our results for the fiscal year ended August 31, 2002. In a report dated June 28, 2002, the United States Department of Agriculture reported planted cotton acreage in the U.S. was expected to total 14.4 million acres. This represented an 8% drop from the previous year's estimate of 15.6 million acres. However, our estimate of actual planted cotton acreage in 2002 ranges from 13.5 to 14.0 million acres. The combined effect of low cotton commodity prices and relatively higher soybean and corn prices, along with the late enactment of the Farm Security and Rural Investment Act of 2002 (the "2002 Farm Bill") on May 13, 2002, resulted in many growers not planting cotton for the 2002 crop year. The late passage of the 2002 Farm Bill coupled with lower cotton prices were especially felt in areas where stripper cotton varieties are grown. Because the revenue potential per acre for stripper cotton varieties is significantly lower than the potential for picker cotton varieties, farmers in the stripper areas used cost cutting measures, including reduced seeding rates per acre and planting conventional seed and/or farmer-saved seed. Our earnings for fiscal 2002 were also negatively impacted by crop destruct program claims, which were significantly higher than in the prior year due to wet and unusually cool conditions that existed in the Mid-South early in the growing season. Under the crop destruct program, if a farmer plants transgenic seed and his crop is destroyed within sixty days of planting, then Monsanto, after field inspection, will forgive or waive the technology fee on the affected acreage. In addition, seed production problems early in the year related to certain Roundup Ready cottonseed varieties reduced seed availability which also affected our 2002 earnings, since we were unable to fill the demand for certain varieties. On a positive note, we were able to increase our gross margin percentage during fiscal 2002 compared to fiscal 2001, principally due to price increases for certain of our cotton planting seed. The price increases, coupled with the factors noted above, contributed to a reduction in unit sales and market share. These price increases were partially offset by higher costs for fuzzy cotton seed, our raw material. Results from our international operations were negatively affected by lower planted acreage in key cotton producing countries where we operate. We have also felt the impact of farmers planting saved seed and/or counterfeit seed in China and Argentina. Soybean sales for the year exceeded both 2001 sales and 2002 expectations, due primarily to improved product performance in 2001, more competitive pricing and marketing programs in 2002 and a 5% increase in soybean acreage in our primary marketing area. Strategic Transactions and Events In May 2002, we signed a product development agreement with Syngenta whereby Syngenta will pay us for development work, including introgression, testing and evaluation, of Syngenta's insect resistance technology in our elite cotton germplasm. If appropriate testing indicates that Syngenta technology combined with our germplasm is competitive and if a commercialization agreement is reached, our elite varieties containing Syngenta's technology could potentially be available for introduction to growers as early as 2004, subject to Syngenta obtaining U.S. government regulatory approval and other factors. In May 2002, we established DeltaMax Cotton, LLC, a limited liability company jointly owned with Verdia, a wholly-owned subsidiary of Maxygen, Inc. DeltaMax Cotton, LLC was formed to create, develop and commercialize value-enhancing traits for the cottonseed market that will complement and/or compete with traits available today. D&PL and Verdia each own 50% of DeltaMax Cotton, LLC and we expect to invest in the aggregate up to $20 million over the next five to eight years to fund our portion of DeltaMax Cotton, LLC, which includes estimated expenses of $2.5 million in 2003, and $0.3 million in 2002. In May 2002, we acquired the 50% interest in D&M International, LLC we did not own from Pharmacia for approximately $4.8 million. Pharmacia activated a cross-purchase provision in the operating agreement for D&M International, LLC, and we elected to have D&M International, LLC redeem Pharmacia's 50% interest in D&M International, LLC, rather than having D&M International, LLC redeem our interest. In June 2002, we announced that Murray Robinson would retire as President and Chief Executive Officer effective August 31, 2002, and that W.T. Jagodinski, who was named Executive Vice President effective June 1, 2002, would succeed Robinson as President and Chief Executive Officer, effective September 1, 2002. In addition, Rick Greene, D&PL Vice President of Business Development, was named Vice President-Finance, Treasurer and Assistant Secretary, effective June 1, 2002. Effective September 1, 2002, W. T. Jagodinski became a member of the D&PL Board of Directors. His term will last until D&PL's 2003 Annual Meeting when shareholders will vote upon his re-election. His addition to the Board brings the total number of directors to seven. Other Matters We completed the plant closing and reorganization of the corporate staff announced in August 2001, which resulted in us taking a $6.3 million charge in the prior year. Essentially all severance payments were made by the end of the prior fiscal year. The changes were made to reduce plant capacity, production costs, and corporate overhead by eliminating positions and realigning our soybean breeding efforts. With respect to our suit against Pharmacia and Monsanto Company, the parties remain in discovery. The judge in the case has ruled that all discovery, depositions, and pre-trial motions must be completed by September 2003 with a trial date set for January 2004. Our earnings for the 2002 fiscal year were impacted by legal expenses of $0.08 per share during the year, as the discovery and other pre-trial activities have intensified. As discussed in Item 3 and the footnotes to the financial statements, we collected in fiscal 2000 (after we filed a lawsuit) the $81 million termination fee and recorded it net of related expenses as an unusual item. Outlook Future growth in sales and earnings will be dependent on (a) cotton acreage in the U.S. and around the world, (b) our ability to continue to profitably expand our international operations, (c) the successful development and launch of new technologies obtained from third parties with fee sharing arrangements that are more beneficial to us than current fee sharing arrangements and (d) our ability to successfully develop and launch technologies that we will own or have more control over (such as those being developed by DeltaMax Cotton, LLC). Due to our market position in the U.S., U.S. cotton acreage has a significant effect on our sales and earnings. Although we expect the 2002 Farm Bill to stabilize (and potentially increase) U.S. cotton acreage, other factors such as weather and commodity prices at or near the time farmers plant will have a significant effect on farmer planting decisions and, ultimately, our operating results. As we have previously announced, we expect to provide 2003 earnings guidance later this year. Even though we believe the 2002 Farm Bill will have a positive effect on acreage, it is too early to predict with confidence the level of cotton acreage, since the Farm Bill is only one of the many elements a farmer considers when making planting decisions. Internationally, we continue to expand our global reach and we seek to improve the operating results of our existing ex-U.S. operations. In 2002, planted cotton acreage declined in many key international markets where we operate due to low fiber prices. In fiscal 2002, we acquired the 50% interest in D&M International, LLC from Pharmacia. This strategic step will make it easier for us to introduce new technologies from third parties when they become available and gain regulatory approval in the countries where the joint ventures, partially owned by D&M International, LLC, operate. We will continue to develop new businesses in markets such as India, Pakistan and portions of Africa. During the fourth quarter of fiscal 2001, we announced that we had signed Letters of Intent with two parties in China to form two new joint ventures there, one each in Hubei and Henan provinces. However, in April 2002, China announced rules prohibiting new foreign investment in seed companies that intend to sell genetically modified seed which will restrict the ability of non-Chinese companies, including us, from investing in such joint ventures. We have, however, signed a distribution agreement with a party in the Henan province and will be distributing seed there in fiscal 2003 from our joint venture in Hebei province, Ji Dai. We expect to continue to expand our business in China through our existing joint ventures, Ji Dai and An Dai. We continue to review and evaluate alternative sources and types of technology that could bring valuable products to farmers. As agreements are reached with those parties, announcements will be made. We believe we are uniquely positioned to rapidly introduce new technologies to both U.S. and ex-U.S. cotton farmers due to the strength and breadth of our breeding programs and germplasm base, and our technical services capabilities, know-how, brand recognition and market position. Share Repurchase Program/Dividend Policy Our Board of Directors has previously approved a common stock repurchase plan of up to $50 million. We expect to continue purchasing shares in the open market subject to market price and other considerations. Currently, the quarterly dividend is $0.05 per share. The Board reviews the dividend policy quarterly. Assuming the dividend rate is maintained through 2003, the aggregate payments will be $7.6 million to the holders of the 38.1 million common shares outstanding and $0.2 million to the holder of the 1.1 million preferred shares outstanding. See "Risks and Uncertainties" located in this Item 7. Net Sales and Licensing Fees In 2002, our consolidated net sales and licensing fees decreased 15.7% to $257.8 million from 2001 sales of $305.8 million. This decrease was mainly attributable to (a) a reduction in planted cotton acreage in the U.S. that reduced domestic sales to $225.4 million in 2002 from $261.9 million in 2001, (b) a reduction in international sales to $32.4 million in 2002 from $43.9 million in 2001, (c) a loss in market share caused primarily by a price increase and the inability to fill demand for certain Roundup Ready picker cotton varieties, and (d) higher marketing program costs. The effects of these decreases were partially offset by an increase in soybean seed sales and licensing fees, which increased approximately 10% in 2002 from 2001. Sales of transgenic cotton seed comprised approximately 93% of total domestic cotton seed sales, up from approximately 91% in 2001. In 2001, our consolidated net sales and licensing fees increased 1.5% to $305.8 million from 2000 sales of $301.2 million. This increase was primarily the result of (a) a continued market penetration of our stacked gene products in the domestic segment, (b) price increases in the domestic cotton segment, (c) increased export sales to Mexico, Greece, and Brazil and (d) increased sales by our joint ventures in China and Brazil. The effects of these increases were partially offset by lower than expected sales of soybeans. In 2001, domestic transgenic cottonseed sales comprised approximately 91% of total domestic unit sales of cottonseed, compared to approximately 89% in 2000. International sales increased to $43.9 million in 2001 from $31.0 million in 2000 due to sales increases in Mexico, Greece, China, and Brazil. In 2001, soybean sales and licensing fees decreased 34% from 2000. Gross Profit Our consolidated gross profit decreased to $92.5 million in 2002 compared to $105.6 million in 2001. Consolidated gross profit as a percentage of consolidated net sales and licensing fees increased to 36% in 2002 from 35% in 2001. This was primarily attributable to price increases for certain of our cotton seed, partially offset by higher costs of fuzzy seed. Our consolidated gross profit increased to $105.6 million in 2001 compared to $99.4 million in 2000. This increase is primarily attributable to continued penetration of transgenic cottonseed varieties in the U.S., a price increase in the U.S. market, and increased sales in our international segment as discussed above, the positive effects of which were partly offset by lower soybean margins. Operating Expenses Operating expenses decreased to $42.7 million in 2002 from $47.6 million in 2001. The decrease was mainly attributable to cost savings realized from the plant closing and staff reductions announced in 2001, as well as reduced health insurance claims and a reduction in the discretionary bonus pool. Operating expenses before special charges increased to $47.6 million in 2001 from $46.0 million in 2000. This increase is primarily due to higher general and administrative and research costs which were partially offset by continued cost savings generated from our 1999 reorganization of the sales and marketing staff and the related synergies of our advertising and promotional efforts. Research and Development Expenses Research and development expenses decreased 9.0% to $18.1 million in 2002 from $19.9 million in 2001. The restructuring of third-party research contracts, as well as cost savings realized from the reorganization announced in 2001 contributed to the decrease experienced in 2002. Research and development expenses increased 6.6% to $19.9 million in 2001 from $18.7 million in 2000. The increase was primarily attributable to additional breeding programs in Georgia and Texas, advanced breeding programs, evaluation of new technologies, and additional international seed testing. Selling Expenses Selling expenses decreased 17.8% to $10.6 million in 2002 from $12.9 million in 2001. The reorganization announced in 2001 produced cost savings in the selling function, as did a reduction in our advertising expenditures. Selling expenses decreased 9.3% to $12.9 million in 2001 from $14.2 million in 2000. This decrease was primarily attributable to our previous reorganization of the sales and marketing staff and the related synergies of combining our advertising and promotional efforts. General and Administrative Expenses General and administrative expenses decreased 5.3% to $14.0 million in 2002 from $14.8 million in 2001. This decrease was mainly attributable to a reduction in health insurance claims and a decrease in the discretionary bonus pool, offset by higher legal costs primarily related to structuring and negotiating agreements to access and license new technologies. General and administrative expenses increased 12.9% to $14.8 million in 2001 from $13.1 million in 2000. The increase primarily consisted of an increase in property, casualty and health insurance costs. Special Charges and Unusual Item In 2001, in connection with the closing of our Chandler, Arizona delinting facility and the reduction in our domestic operations and corporate staffs, we recorded a $6.3 million charge associated with these actions. Of the $6.3 million, $3.0 million was related to the write down of fixed assets and $3.3 million to severance pay and related benefits. No special charges were recorded in 2002. In fiscal 2000, we reported, as an unusual income item, the $81 million merger termination fee, net of related expenses, which was paid by Monsanto to us pursuant to the terms of the May 8, 1998, merger agreement. Interest Income/Expense Net interest income decreased to $1.2 million in 2002, compared to net interest income of $3.5 million in 2001. In 2002, interest income was $2.3 million and interest expense was $1.1 million. Lower interest rates earned on our cash resulted in lower interest earnings during 2002. International interest expense increased primarily due to an increase in interest rates incurred on debt at our joint venture in Argentina. Net interest income was $3.5 and $0.9 million in 2001 and 2000, respectively. In 2001, interest income was $4.5 million and interest expense was $1.0 million. In 2000, interest income was $2.6 million and interest expense was $1.7 million. The interest income was primarily earned on cash generated from operating activities and the $81 million merger termination fee collected from Monsanto in early 2000. Net Income and Earnings Per Share Net income after special charges and unusual items applicable to common shares was $30.1, $32.1 million and $79.2 million in 2002, 2001 and 2000, respectively. Net income per share (diluted) after special charges and unusual items was $0.76, $0.81 and $1.98 in 2002, 2001 and 2000, respectively. Net income per share (diluted) before legal, special charges and unusual items was $0.84, $0.95 and $0.90 in 2002, 2001 and 2000, respectively. Legal expenses related to our suit against Pharmacia and Monsanto totaled $0.08 per diluted share in 2002 and $0.04 per diluted share in 2001. The cost of the 2001 reorganization was $0.10 per share. The number of shares used in diluted earnings per share calculations was 39.8 million, 40.1 million, and 40.2 million in 2002, 2001 and 2000, respectively. APPLICATION OF CRITICAL ACCOUNTING POLICIES Overview Management's discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing in Item 8 of this Annual Report on Form 10-K. The preparation of these financial statements 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. We have identified below the accounting policies that involve those estimates and assumptions that we believe are critical to an understanding of our financial statements. Our management has discussed the development and selection of each critical accounting estimate with the Audit Committee of our Board of Directors, and the Audit Committee has reviewed the related disclosures below. Since application of these accounting policies involves the exercise of judgment and use of estimates, actual results could differ from those estimates. Revenue Recognition As discussed elsewhere in this document, all of our domestic seed products (including those containing Bollgard and Roundup Ready technologies) are subject to return and credit risk, the effects of which vary from year to year. The annual level of returns and, ultimately, net sales are influenced by various factors, principally commodity prices and weather conditions occurring in the spring planting season during our third and fourth quarters. We provide for estimated returns as sales occur. To the extent actual returns differ from estimates, adjustments to our operating results are recorded when such differences become known, typically in our fourth quarter. All significant returns occur or are accounted for by fiscal year end. Therefore, the application of this estimate primarily affects our quarterly information. We also offer various sales incentive programs for seed and participate in such programs related to the Bollgard and Roundup Ready technology fees offered by Monsanto. Generally, under these programs, if a farmer plants his seed and the crop is lost (usually due to weather by a certain date) a portion of the price of the seed and the technology fees is forgiven or rebated to the farmer. The amount of the refund and the impact to D&PL depends on whether the farmer can replant the crop that was destroyed. We record estimates monthly to account for these events, the majority of which occur during the second and third quarters. Essentially all material claims under these programs have occurred or are accounted for by fiscal year end. Provision for Damaged, Obsolete and Excess Inventory Each year, we record a provision related to inventory based on our estimate of seed that will not pass our quality assurance ("QA") standards at year end, or is deemed excess based on our desired seed stock level for a particular variety ("dump seed"). Seed can fail QA standards based on physical defects (i.e., cut seed, moisture content, discoloration, etc.), germination rates, or transgenic qualities. The amount recorded as inventory provision in a given year is calculated based on the total quantity of inventory that has not passed QA standards at any fiscal period end, any seed that is expected to deteriorate before it can be sold and seed deemed to be excess and is valued at the average cost of inventory. In establishing the provision we consider the scrap value of the seed to be disposed. An initial estimate of the needed provision is made at the beginning of each year and recorded ratably over the course of the year. Adjustments are made monthly, as necessary. See Note 2 of the Notes to Consolidated Financial Statements in Item 8 for further details about inventory reserves. Deferred Income Taxes Deferred income taxes are estimated based upon temporary differences between the income and losses that we report in our financial statements and our taxable income and losses as determined under applicable tax laws. We estimate the value of deferred income taxes based upon existing tax rates and laws, and our expectations of future earnings. We estimate our composite statutory income tax rate to be approximately 38%. We are required to evaluate the likelihood of our ability to generate sufficient future taxable income that will enable us to realize the value of our deferred tax assets. If, in our judgment, we determine that we will not realize deferred tax assets, then valuation allowances are recorded. As of August 31, 2002, we had recorded deferred tax assets of approximately $8.1 million. We estimate that our deferred tax assets will be realized, therefore we have not recorded any valuation allowances as of August 31, 2002. We use management judgment and estimates when estimating deferred taxes. If our judgments and estimates prove to be inadequate, or if certain tax rates and laws should change, our financial results could be materially adversely impacted in future periods. LIQUIDITY AND CAPITAL RESOURCES In the United States, we purchase seed from contract growers in our first and second fiscal quarters. Seed conditioning, treating and packaging commence late in the first fiscal quarter and continue through the third fiscal quarter. Seasonal cash needs normally begin to increase in the first fiscal quarter and cash needs peak in the third fiscal quarter. Cash is generated and loan repayments, if necessary, normally begin in the middle of the third fiscal quarter and are typically completed by the first fiscal quarter of the following year. In some cases, we offer customers financial incentives to make early payments. To the extent we attract early payments from customers, bank borrowings, if any, are reduced. In the U. S., we record revenue and accounts receivable for licensing fees on Bollgard and Roundup Ready seed sales upon shipment, usually in our second and third quarters. Receivables from seed sales are generally due from May to July. In September, the licensing fees are due at which time we receive payment. We then pay Monsanto its royalty, which is recorded as a component of cost of sales, for the Bollgard and Roundup Ready licensing fees. As a result of the timing of these events, licensing fees receivable and royalties payable peak at fiscal year end. The seasonal nature of our business significantly impacts cash flow and working capital requirements. Historically, we have maintained credit facilities, and used early payments by customers and cash from operations to fund working capital needs. In the past, we have borrowed on a short-term basis to meet seasonal working capital needs. However, in 2002, we used cash generated from operations and other available cash to meet working capital needs. We continue to evaluate potential uses of our cash for purposes other than for working capital needs. One potential such use is the acquisition or funding of alternative technologies (such as DeltaMax Cotton, LLC) that could be used to enhance our product portfolio and ultimately our long-term earnings potential. Another potential use is the repurchase in the open market of our shares pursuant to our previously announced share repurchase program. For the twelve months ended August 31, 2002, we repurchased 539,200 shares at a cost of approximately $9.96 million. Once the evaluation of certain transactions that are currently being considered is brought to conclusion, we may consider other potential uses of the remaining cash, including repurchasing shares more aggressively depending on market considerations and other factors. In April 1998, we entered into a syndicated credit facility with three lenders, which provided for aggregate borrowings of $110 million. This agreement provided a base commitment of $55 million and a seasonal commitment of $55 million. The base commitment was a long-term loan that could be borrowed upon at any time and was due April 1, 2001. The seasonal commitment was a working capital loan that could be drawn upon from September 1 through June 30 of each fiscal year. Each commitment offered variable and fixed interest rate options and required D&PL to pay facility or commitment fees and to comply with certain financial covenants. This agreement expired on April 1, 2001. D&PL and the lenders are negotiating a replacement facility that will provide for aggregate borrowings sufficient to meet working capital needs that will contain terms and conditions similar to the 1998 facility. Capital expenditures were $8.3 million, $7.5 million, and $7.1 million in fiscal 2002, 2001 and 2000, respectively. We anticipate that capital expenditures will approximate $8.0 to $10.0 million in 2003. The Board of Directors anticipates that quarterly dividends of $0.05 per share will continue to be paid in the future; however, the Board of Directors reviews this policy quarterly. Aggregate preferred and common dividends paid in 2002 were $7.9 million and should approximate $7.8 million in 2003. Cash provided from operations, cash on hand, early payments from customers and borrowings under a loan agreement, if necessary, should be sufficient to meet the Company's 2003 working capital needs. In February 2000, the Board of Directors authorized a program for the repurchase of up to $50 million of our common stock. The shares repurchased under this program are to be used to provide for option exercises, conversion of our Series M Convertible Non-Voting Preferred shares and for other general corporate purposes. At August 31, 2002, we had repurchased 992,900 shares at an aggregate purchase price of approximately $17.7 million under this program. We purchased 539,200 shares at an aggregate purchase price of $9.96 million under this plan during the year ended August 31, 2002. Between September 1, 2002 and October 31, 2002, we repurchased 61,400 shares at an aggregate purchase price of $1.1 million. RISKS AND UNCERTAINTIES From time to time, we may publish forward-looking statements relating to such matters as anticipated financial performance, existing products, technical developments, new products, new technologies, research and development activities, and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, we note that a variety of factors could cause our actual results and experience to differ materially from the anticipated results or other expectations expressed in our forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of our business include those noted elsewhere in this filing and the following: Demand for our seed will be affected by government programs and policies and by weather. Demand for seed is also influenced by commodity prices and the demand for a crop's end-uses such as textiles, animal feed, cottonseed oil, food and raw materials for industrial use. These factors, along with weather, influence the cost and availability of seed for subsequent seasons. Weather impacts crop yields, commodity prices and the planting decisions that farmers make regarding both original planting commitments and, when necessary, replanting levels. The planting seed market is highly competitive, and our products face competition from a number of seed companies, diversified chemical companies, agricultural biotechnology companies, governmental agencies and academic and scientific institutions. A number of chemical and biotechnology companies have seed production and/or distribution capabilities to ensure market access for new seed products and new technologies that may compete with the Bollgard and Roundup Ready gene technologies. Our seed products and technologies contained therein may encounter substantial competition from technological advances by others or products from new market entrants. Many of our competitors are, or are affiliated with, large diversified companies that have substantially greater resources than we. The production, distribution or sale of crop seed in or to foreign markets may be subject to special risks, including fluctuations in foreign currency, exchange rate controls, expropriation, nationalization and other agricultural, economic, tax and regulatory policies of foreign governments. Particular policies which may affect our domestic and international operations include the use of and the acceptance of products that were produced from plants that have been genetically modified, the testing, quarantine and other restrictions relating to the import and export of plants and seed products and the availability (or lack thereof) of proprietary protection for plant products. In addition, United States government policies, particularly those affecting foreign trade and investment, may impact our international operations. The publicity related to genetically modified organisms ("GMOs") or products made from plants that contain GMOs may have an effect on our sales in the future. In 2002, approximately 93% of our cottonseed that was sold in the United States contained either or both of Monsanto's Bollgard and Roundup Ready gene technologies, and 89% of our soybean seed sales contained the Roundup Ready gene technology. Although many farmers have rapidly adopted these technologies, the concern of some customers and governmental entities over finished products that contain GMOs could impact demand for crops (and ultimately seed) raised from seed containing such traits. Due to the varying levels of agricultural and social development of the international markets in which we operate and because of factors within the particular international markets we target, international profitability and growth may be less stable and predictable than domestic profitability and growth. Furthermore, recent action taken by the U.S. government, including that taken by the U.S. military in the aftermath of the tragic events of September 11, 2001, and conflicts between major cotton producing nations may serve to further complicate our ability to execute our long range ex-U.S. business plans because those plans include future expansion into Uzbekistan, Pakistan and India. Overall profitability will depend on the factors noted above as well as weather conditions, government policies in all countries where we sell products and operate, worldwide commodity prices, our ability to successfully open new international markets, our ability to successfully continue the development of the High Plains market, the technology partners' ability to obtain timely government approval (and maintain such approval) for existing and for additional biotechnology products on which they and D&PL are working, our technology partners' ability to successfully defend challenges to proprietary technologies licensed to us and our ability to produce sufficient commercial quantities of high quality planting seed of these products. Any delay in or inability to successfully complete these projects may affect future profitability. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS Statement of Financial Accounting Standards ("SFAS") No. 145, "Accounting for Costs Associated with Exit or Disposal Activities," addresses financial accounting and reporting for costs associated with exit or disposal activities. This statement is effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. Therefore, we must adopt this statement no later than January 1, 2003. We have not determined the impact, if any, that this statement will have on our consolidated financial position or results of operations. SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," addresses the financial accounting and reporting for the impairment or disposal of long-lived assets. This statement is effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years. Therefore, we adopted this statement September 1, 2002. The adoption of this statement did not have a material impact on our consolidated financial position or results of operations. SFAS No. 143, "Accounting for Asset Retirement Obligations," addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement is effective for fiscal years beginning after June 15, 2002. Therefore, we adopted this statement September 1, 2002. The adoption of this statement did not have a material impact on our consolidated financial position or results of operations. SFAS No. 142, "Goodwill and Other Intangible Assets," addresses the financial accounting and reporting for acquired goodwill and other intangible assets. We adopted SFAS 142 effective September 1, 2001, at which time all goodwill amortization ceased (fiscal 2002 goodwill amortization would have been approximately $160,000). During the second quarter of fiscal 2002, recorded goodwill attributable to the domestic segment was tested for impairment by comparing the fair value to its carrying value. Based on our initial impairment test, management has determined that none of the goodwill recorded was impaired. SFAS No. 141, "Business Combinations," requires all business combinations initiated after June 1, 2001 to be accounted for under the purchase method. SFAS No. 141 also sets forth guidelines for applying the purchase method of accounting in the determination of intangible assets, including goodwill acquired in a business combination, and expands financial disclosures concerning business combinations consummated after June 1, 2001. The impact of this statement did not have an effect on our consolidated financial position or results of operations. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We have exposure relative to fluctuations in the price of soybean raw material inventory, foreign currency fluctuations and interest rate changes. From time to time we enter into various agreements that are considered derivatives to reduce our commodity price risk. During the year ended August 31, 2002, derivative instruments have not been used to manage foreign currency or interest rate risks, except in a specific instance in which one of our foreign subsidiaries entered into foreign currency forward exchange contracts to mitigate our risk associated with currency fluctuations in foreign currency denominated debt. We do not enter into speculative hedges or purchase or hold any derivative financial instruments for trading purposes. A discussion of our accounting policies related to derivative financial instruments is included in Note 1 of the Notes to Consolidated Financial Statements in Item 8. Further information on our exposure to market risk is included in Note 14 of the Notes to Consolidated Financial Statements in Item 8. The fair value of derivative commodity instruments outstanding as of August 31, 2002, was $300,000. A 10% adverse change in the underlying commodity prices upon which these contracts are based would result in a $300,000 loss in future earnings, arising from these contracts (not counting the gain on the underlying commodities). Our earnings are also affected by fluctuations in the value of the U.S. dollar compared to foreign currencies as a result of transactions in foreign markets. We conduct non-U.S. operations through subsidiaries and joint ventures in, primarily, Argentina, Australia, Brazil, China, South Africa and Turkey. At August 31, 2002, the result of a uniform 10% strengthening in the value of the dollar relative to the currencies in which our transactions are denominated would not cause a material impact on earnings. We utilize fixed and variable-rate debt to maintain liquidity and fund our business operations, with the terms and amounts based on business requirements, market conditions and other factors. At August 31, 2002, a 100 basis point change in interest rates (with all other variables held constant) on the portion of our debt with variable interest rates would not result in a material change to our interest expense or cash flow. For the year ended August 31, 2002, a 10% adverse change in the interest rate that we earned on our excess cash that we invested would not have resulted in a material change to our interest expense or cash flow. PART II ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX Financial Statements Page(s) The following consolidated financial statements of Delta and Pine Land Company and subsidiaries are submitted in response to Part II, Item 8: Independent Auditors' Report...........................................................................26 Report of Independent Public Accountants...............................................................27 Management's Report....................................................................................28 Consolidated Statements of Income - for each of the three years in the period ended August 31, 2002.......................................................................29 Consolidated Balance Sheets - August 31, 2001 and 2002.................................................30 Consolidated Statements of Cash Flows - for each of the three years in the period ended August 31, 2002........................................................................31 Consolidated Statements of Stockholders' Equity - for each of the three years in the period ended August 31, 2002.................................................................32 Notes to Consolidated Financial Statements.............................................................33
32 Independent Auditors' Report The Board of Directors of Delta and Pine Land Company: We have audited the accompanying consolidated balance sheet of Delta and Pine Land Company and subsidiaries as of August 31, 2002, and the related statements of income, changes in stockholders' equity and comprehensive income, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The consolidated financial statements of Delta and Pine Land Company as of and for the years ended August 31, 2000 and 2001 were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements in their report dated October 26, 2001. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 2002 financial statements referred to above present fairly, in all material respects, the financial position of Delta and Pine Land Company as of August 31, 2002, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Memphis, Tennessee October 25, 2002 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE BOARD OF DIRECTORS AND THE SHAREHOLDERS OF DELTA AND PINE LAND COMPANY: We have audited the accompanying consolidated balance sheets of DELTA AND PINE LAND COMPANY (a Delaware corporation) and subsidiaries as of August 31, 2000 and 2001, and the related consolidated statements of income, cash flows and stockholders' equity for each of the three years in the period ended August 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 financial position of Delta and Pine Land Company and subsidiaries as of August 31, 2000 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended August 31, 2001, in conformity with accounting principles generally accepted in the United States. Arthur Andersen LLP Memphis, Tennessee, October 26, 2001. This is a copy of the audit report previously issued by Arthur Andersen LLP in connection with Delta and Pine Land Company's filing on Form 10-K for the year ended August 31, 2001. This audit report has not been reissued by Arthur Andersen LLP in connection with this filing on Form 10-K. See Exhibit 23.02 for further discussion. MANAGEMENT'S REPORT: D&PL is responsible for preparing the financial statements and related information appearing in this report. Management believes that the financial statements present fairly D&PL's financial position, its results of operations and its cash flows in conformity with accounting principles generally accepted in the United States. In preparing its financial statements, D&PL is required to include amounts based on estimates and judgments that it believes are reasonable under the circumstances. D&PL maintains accounting and other systems designed to provide reasonable assurance that financial records are reliable for purposes of preparing financial statements and that assets are properly accounted for and safeguarded. Compliance with these systems and controls is reviewed by executive management and the accounting staff. Limitations exist in any internal control system, recognizing that the system's cost should not exceed the benefits derived. The Board of Directors pursues its responsibility for D&PL's financial statements through its Audit Committee, which is composed solely of directors who are not Company officers or employees. The Audit Committee meets at least annually with the independent auditors and management. The independent auditors have direct access to the Audit Committee, with and without the presence of management representatives. DELTA AND PINE LAND COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED AUGUST 31, (In thousands, except per share amounts) 2000 2001 2002 ------------- ------------- ------------ NET SALES AND LICENSING FEES $ 301,181 $ 305,806 $ 257,807 COST OF SALES (201,814) (200,236) (165,258) ------------- ------------- ------------ GROSS PROFIT 99,367 105,570 92,549 ------------- ------------- ------------ OPERATING EXPENSES: Research and development 18,685 19,924 18,122 Selling 14,198 12,878 10,591 General and administrative 13,104 14,797 14,006 ------------- ------------- ------------ 45,987 47,599 42,719 SPECIAL CHARGES AND UNUSUAL INCOME ITEM 71,233 (6,301) - ------------- ------------- ------------ OPERATING INCOME 124,613 51,670 49,830 INTEREST INCOME, NET 852 3,455 1,247 OTHER INCOME (EXPENSE) 67 (4,255) (6,468) EQUITY IN NET LOSS OF AFFILIATE - - (305) MINORITY INTEREST IN LOSS/(EARNINGS) OF SUBSIDIARIES 909 (390) 2,729 ------------- ------------- ------------ INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 126,441 50,480 47,033 PROVISION FOR INCOME TAXES (44,150) (18,173) (16,694) ------------- ------------- ------------ INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR START-UP COSTS 82,291 32,307 30,339 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR START-UP COSTS, NET OF TAX (2,965) - - ------------- ------------- ------------ NET INCOME 79,326 32,307 30,339 DIVIDENDS ON PREFERRED STOCK (128) (160) (213) ------------- ------------- ------------ NET INCOME APPLICABLE TO COMMON SHARES $ 79,198 $ 32,147 $ 30,126 ============= ============= ============ BASIC EARNINGS PER SHARE $ 2.06 $ 0.84 $ 0.79 ============= ============= ============ WEIGHTED AVERAGE NUMBER OF SHARES USED IN PER SHARE CALCULATIONS - BASIC 38,496 38,473 38,362 ============= ============= ============ DILUTED EARNINGS PER SHARE $ 1.98 $ 0.81 $ 0.76 ============= ============= ============ WEIGHTED AVERAGE NUMBER OF SHARES USED IN PER SHARE CALCULATIONS - DILUTED 40,159 40,111 39,781 ============= ============= ============
The accompanying notes are an integral part of these consolidated statements. DELTA AND PINE LAND COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF AUGUST 31, (In thousands, except share and per share amounts) 2001 2002 --------------- -------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 114,003 $ 109,091 Receivables, net 176,177 145,876 Inventories 36,745 40,021 Prepaid expenses 2,138 2,266 Deferred income taxes 8,674 11,214 -------------- -------------- Total current assets 337,737 308,468 PROPERTY, PLANT AND EQUIPMENT, NET 62,839 63,401 EXCESS OF COST OVER NET ASSETS OF BUSINESSES ACQUIRED, net of accumulated amortization of $772 and $737 4,148 4,187 INTANGIBLES, net of accumulated amortization of $1,118 and $1,337 4,383 4,032 INVESTMENT IN AFFILIATE - 695 OTHER ASSETS 2,414 2,359 -------------- -------------- TOTAL ASSETS $ 411,521 $ 383,142 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES : Notes payable $ 1,629 $ 1,763 Accounts payable 15,279 16,447 Accrued expenses 175,085 143,533 Income taxes payable 16,048 12,381 -------------- -------------- Total current liabilities 208,041 174,124 -------------- -------------- LONG-TERM DEBT 2,836 1,176 -------------- -------------- DEFERRED INCOME TAXES 4,706 3,121 -------------- -------------- COMMITMENTS AND CONTINGENCIES (Notes 9 and 16) MINORITY INTEREST IN SUBSIDIARIES 7,530 2,514 -------------- -------------- STOCKHOLDERS' EQUITY: Preferred stock, par value $0.10 per share; 2,000,000 shares authorized: Series A Junior Participating Preferred, par value $0.10 per share; 456,989 shares authorized; 107 107 no shares issued or outstanding; Series M Convertible Non-Voting Preferred, par value $0.l0 per share; 1,066,667 shares authorized, issued and outstanding Common stock, par value $0.10 per share; 100,000,000 shares authorized; 39,111,233 and 39,311,571 shares issued; 38,543,267 and 38,204,405 shares outstanding 3,911 3,931 Capital in excess of par value 48,406 51,563 Retained earnings 149,923 172,381 Accumulated other comprehensive loss (4,063) (5,939) Treasury stock, at cost; 567,966 and 1,107,166 shares (9,876) (19,836) -------------- ------------- TOTAL STOCKHOLDERS' EQUITY 188,408 202,207 -------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 411,521 $ 383,142 ============== ============= The accompanying notes are an integral part of these consolidated balance sheets. DELTA AND PINE LAND COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED AUGUST 31, (in thousands) 2000 2001 2002 ---------- ----------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 79,326 $ 32,307 $ 30,339 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,114 7,435 6,815 Noncash items associated with special charges and disposition of assets 203 2,348 910 Equity in net loss of affiliate - - 305 Minority interest in (loss) earnings of subsidiaries (909) 390 (2,729) Change in deferred income taxes 4,647 (1,523) (3,061) Changes in assets and liabilities: Receivables (33,379) 5,128 31,198 Inventories 12,449 (1,257) (4,048) Prepaid expenses (758) 93 (21) Accounts payable 3,451 (8,162) 1,616 Accrued expenses 21,646 10,383 (34,443) Income taxes 18,763 (8,669) (2,956) Intangibles and other assets 1,438 89 (115) ---------- ----------- ---------- Net cash provided by operating activities 113,991 38,562 23,810 ---------- ----------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (7,144) (7,466) (8,384) Sale of investments and property 171 243 411 Investment in affiliate - - (1,000) Purchase of minority interest in subsidiary - - (4,838) ---------- ----------- ---------- Net cash used in investing activities (6,973) (7,223) (13,811) ---------- ----------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments of short-term debt (9,487) (1,838) (3,173) Payments of long-term debt (33,000) (19,269) (73) Dividends paid (4,744) (5,936) (7,881) Proceeds from long-term debt 18,482 19,623 978 Proceeds from short-term debt 7,668 1,467 3,044 Minority interest portion of investment in subsidiaries 250 - - Minority interest in dividends paid by subsidiaries (241) (594) (446) Payments to acquire treasury stock (7,703) - (9,960) Proceeds from exercise of stock options 2,273 2,871 2,527 ---------- ----------- ---------- Net cash used in financing activities (26,502) (3,676) (14,984) ---------- ----------- ---------- EFFECTS OF FOREIGN CURRENCY EXCHANGE RATES (601) (1,127) 73 ---------- ----------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 79,915 26,536 (4,912) CASH AND CASH EQUIVALENTS, beginning of year 7,552 87,467 114,003 ---------- ----------- ---------- CASH AND CASH EQUIVALENTS, end of year $ 87,467 $ 114,003 $ 109,091 ========== =========== ========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the year for: Interest, net of capitalized interest $ 1,100 $ 500 $ 900 Income taxes $ 18,200 $ 27,600 $ 21,100 Noncash financing activities: Tax benefit of stock option exercises $ 1,700 $ 500 $ 700
The accompanying notes are an integral part of these consolidated statements. DELTA AND PINE LAND COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED AUGUST 31, 2000, 2001 AND 2002 (In thousands, except per share data) Accumulated Capital in Other Total Preferred Common Excess of Retained Comprehensive Treasury Stockholders' Stock Stock Par Value Earnings Income/(Loss) Stock Equity ------------ ------------- ------------ ------------- -------------- ------------- ------------ Balance at August 31, 1999 $ 107 $ 3,866 $ 41,179 $ 48,970 $ (2,545) $ (2,173) $ 89,404 Net income - - - 79,326 - - 79,326 Foreign currency translation adjustment - - - - (601) - (601) ------------ Total comprehensive income 78,725 Exercise of stock options and tax benefit of stock option exercises - 29 3,917 - - - 3,946 Cash dividends, $0.12 per share - - - (4,744) - - (4,744) Purchase of common stock - - - - - (7,703) (7,703) ------------ ------------- ------------ ------------- -------------- ------------- ------------ Balance at August 31, 2000 107 3,895 45,096 123,552 (3,146) (9,876) 159,628 Net income - - - 32,307 - - 32,307 Foreign currency translation adjustment - - - - (1,127) - (1,127) Unrealized gain on hedging instruments - - - - 210 - 210 ------------ Total comprehensive income 31,390 Exercise of stock options and tax benefit of stock option exercises - 16 3,310 - - - 3,326 Cash dividends, $0.15 per share - - - (5,936) - - (5,936) ------------ ------------- ------------ ------------- -------------- ------------- ------------ Balance at August 31, 2001 107 3,911 48,406 149,923 (4,063) (9,876) 188,408 Net income - - - 30,339 - - 30,339 Minimum pension liability adjustment, net of tax of $1.08 million - - - - (1,787) - (1,787) Foreign currency translation adjustment - - - - (183) - (183) Unrealized gain on hedging instruments - - - - 94 - 94 ----------- Total comprehensive income 28,463 Exercise of stock options and tax benefit of stock option exercises - 20 3,157 - - - 3,177 Cash dividends, $0.20 per share - - - (7,881) - - (7,881) Purchase of common stock - - - - - (9,960) (9,960) ------------ ------------- ------------ ------------- -------------- ------------- ------------ Balance at August 31, 2002 $ 107 $ 3,931 $ 51,563 $ 172,381 $ (5,939) $ (19,836) $ 202,207 ============ ============= ============ ============= ============== ============= ============
The accompanying notes are an integral part of these consolidated statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations Delta and Pine Land Company and subsidiaries (the "Company" or "D&PL") breed, produce, condition and market cotton and soybean planting seed. In connection with its seed operations, D&PL farms approximately 2,000 acres largely for the production of cotton and soybean foundation seed. D&PL has annual agreements with various growers to produce seed for cotton and soybeans. The growers plant seed purchased from D&PL and follow quality assurance procedures required for seed production. If the grower adheres to established Company quality assurance standards throughout the growing season and if the seed meets Company quality standards upon harvest, D&PL may be obligated to purchase specified minimum quantities of seed at prices equal to the commodity market price of the seed, plus a grower premium. D&PL then conditions the seed for sale as planting seed. Basis of Presentation The accompanying financial statements include the accounts of Delta and Pine Land Company and its subsidiaries. Significant inter-company accounts and transactions have been eliminated in consolidation. D&PL's investment in 50%-owned affiliate DeltaMax Cotton, LLC is accounted for using the equity method. Special Charges/Unusual Items 2001 In August 2001, D&PL announced a series of actions to enhance D&PL's ability to execute its long-term growth plans and improve performance and profitability. D&PL closed its Chandler, Arizona facility and reduced its operations and corporate staffs. D&PL recorded a $6.3 million charge; $3.0 million for fixed asset write downs and $3.3 million for severance and related benefits in its fourth quarter. This charge is included in "SPECIAL CHARGES AND UNUSUAL INCOME ITEM" in the accompanying Consolidated Statements of Income. 2000 1 On May 8, 1998, D&PL entered into a merger agreement with Monsanto, pursuant to which D&PL would be merged with and into Monsanto. On December 20, 1999, Monsanto withdrew its pre-merger notification filed pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR Act") effectively terminating Monsanto's efforts to gain government approval of the merger. On December 30, 1999, D&PL filed suit (the "December 30 Suit") in the Circuit Court for the First Judicial District of Bolivar County, Mississippi, seeking among other things, the payment of the $81 million termination fee due pursuant to the merger agreement, and compensatory damages and punitive damages for Monsanto's breach of contract. On January 2, 2000, D&PL and Monsanto reached an agreement whereby D&PL would withdraw the December 30 Suit, and Monsanto would immediately pay the $81 million. On January 3, 2000, Monsanto paid to D&PL a termination fee of $81 million, as required by the merger agreement, which is separately presented as "SPECIAL CHARGES AND UNUSUAL INCOME ITEM" net of related expenses in the accompanying Consolidated Statements of Income. ______________________ 1 On March 31, 2000, Monsanto Company consummated a merger with Pharmacia & Upjohn Inc. and changed its name to Pharmacia Corporation. On February 9, 2000, Monsanto Company formed a new subsidiary corporation, Monsanto Ag Company, which, on March 31, 2000, changed its name to Monsanto Company. On August 31, 2002, Pharmacia distributed to its shareholders its remaining interest in the new Monsanto Company. In this document, with respect to events occurring on or before March 31, 2000, the term "Monsanto" refers to the entity then designated Monsanto Company and renamed Pharmacia Corporation (NYSE: PHA) on that date. With respect to events occurring after March 31, 2000, this entity is referred to as "Pharmacia", and the entity formed as Monsanto Ag Company and renamed Monsanto Company (NYSE: MON) on that date is referred to as "Monsanto". At August 31, 2002, essentially all amounts related to the fixed asset write downs for the 2001 reorganization have been utilized. At August 31, 2001 essentially all amounts related to severance pay for the 2001 reorganization had been paid. At August 31, 2001, all reserves established in 2000, 1999 and prior years for the above matters had been fully utilized. Cash Equivalents Cash equivalents include overnight repurchase agreements and other short-term investments having an original maturity of less than three months. Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation and amortization are provided for financial reporting purposes using the straight-line method over the estimated useful lives of the assets. Accelerated methods are used for income tax purposes. The estimated useful lives of the various classes of property, in years, are as follows: Land improvements 5-20 Buildings and improvements 10-35 Machinery and equipment 3-15 Germplasm 10-15 Breeder and foundation seed 40 The germplasm, breeder and foundation seed were purchased as part of acquisitions and include amounts for specifically identified varieties and for breeding stocks. The amounts associated with specific varieties are amortized over the expected commercial life of those varieties. Breeding stocks are amortized over 40 years, since they can be revitalized from time to time and remain viable indefinitely after such revitalization. Intangible Assets and Deferred Charges Identifiable intangible assets consist of trademarks, patents and other intangible assets and are being amortized using the straight-line method over 5 to 40 years. Excess of cost over net assets of businesses acquired was amortized using the straight-line method over 40 years, until September 1, 2001, when amortization was discontinued as discussed further under Recently Issued Financial Accounting Standards below. Foreign Currency Translation Financial statements of foreign operations where the local currency is the functional currency are translated using exchange rates in effect at period end for assets and liabilities and average exchange rates during the period for results of operations. Financial statements of foreign entities in highly-inflationary economies are translated as though the functional currency is the United States currency. Translation adjustments are reported as a separate component of stockholders' equity. Gains and losses from foreign currency transactions are included in earnings. Fair Value of Financial Instruments The fair value of D&PL's financial instruments at August 31, 2002 approximates their carrying value. Income Taxes D&PL uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws. Revenue Recognition Revenues from domestic seed sales are recognized when seed is shipped. Revenues from Bollgard and Roundup Ready licensing fees are recognized when the seed is shipped. Domestically, the licensing fees charged to farmers for Bollgard and Roundup Ready cottonseed are based on pre-established planting rates for each of eight geographic regions and consider the estimated number of seed contained in each bag which may vary by variety, location grown, and other factors. International export revenues are recognized upon the later of when seed is shipped or the date letters of credit are confirmed. Generally, international export sales are not subject to return. Generally, all other international revenues from the sale of planting seed, less estimated reserves for returns, are recognized when the seed is shipped. All of D&PL's domestic seed products (including those containing Bollgard and Roundup Ready technologies) are subject to return and credit risk, the effects of which vary from year to year. The annual level of returns and, ultimately, net sales are influenced by various factors, principally commodity prices and weather conditions occurring in the spring planting season during D&PL's third and fourth quarters. D&PL provides for estimated returns as sales occur. To the extent actual returns differ from estimates, adjustments to D&PL's operating results are recorded when such differences become known, typically in D&PL's fourth quarter. All significant returns occur or are accounted for by fiscal year end. Research and Development All research and development costs incurred to breed and produce experimental seed are expensed. Costs incurred to produce sufficient quantities of planting seed needed for commercialization are carried as inventory until such seed is sold. Cotton lint and other by-products of seed production are also carried as inventory until sold. Accounting for Stock-Based Compensation Effective in fiscal 1996, D&PL adopted the disclosure provisions of Statement of Financial Accounting Standard ("SFAS") No. 123, "Accounting for Stock-Based Compensation." In accordance with the provisions of SFAS No. 123, D&PL applies Accounting Principles Board Opinion 25 and related interpretations in accounting for its employee stock option plans. See Note 17 for a summary of the pro forma effects on reported net income and earnings per share for fiscal 2000, 2001 and 2002 based on the fair value of options and shares granted as prescribed by SFAS No. 123. Derivative Financial Instruments D&PL uses various derivative financial instruments to mitigate its risk to variability in cash flows related to soybean purchases and to effectively fix the cost of a significant portion of its soybean raw material inventory. The terms of the hedging derivatives used by D&PL are negotiated to approximate the terms of the forecasted transaction; therefore, D&PL expects the instruments used in hedging transactions to be highly effective in offsetting changes in cash flows of the hedged items. Realized and unrealized hedging gains and losses are recorded as a component of other comprehensive income and are reclassified into earnings in the period in which the forecasted transaction affects earnings (i.e., is sold or disposed) which generally occurs during D&PL's second and third fiscal quarters. Quantities hedged that do not exceed the forecasted transactions are accounted for as cash flow hedges in the manner discussed above. However, to the extent that the quantities hedged exceed the forecasted transactions due to intra-season changes to the sales forecast where it is probable that the originally forecasted transaction will no longer occur, D&PL accounts for gains and losses on these derivative instruments as discontinued cash flow hedges, whereby they are immediately recorded as a component of net income. D&PL does not enter into any derivative instruments that extend beyond the close of the following fiscal year. Impairment of Assets D&PL assesses recoverability and impairment of intangible assets and other long-lived assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. D&PL determines if the unamortized balance can be recovered through projected future operating cash flows. If the sum of the expected future cash flows is less than the carrying amount of the asset, an impairment loss is recognized in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". Otherwise, an impairment loss is not recognized, and D&PL continues to amortize its intangible assets and other assets based on the remaining estimated useful life. Use of Estimates The preparation of D&PL's consolidated financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses and the disclosure of contingent liabilities. Management makes its best estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available to management. Areas where the nature of the estimate makes it reasonably possible that actual results could materially differ from amounts estimated include: damaged, obsolete and excess inventory, income tax liabilities, allowances for sales returns and marketing programs and contingent liabilities. Recently Issued Financial Accounting Standards Statement of Financial Accounting Standards ("SFAS") No. 145, "Accounting for Costs Associated with Exit or Disposal Activities," addresses financial accounting and reporting for costs associated with exit or disposal activities. This statement is effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. Therefore, D&PL must adopt this statement no later than January 1, 2003. Management has not determined the impact, if any, that this statement will have on its consolidated financial position or results of operations. SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," addresses the financial accounting and reporting for the impairment or disposal of long-lived assets. This statement is effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years. Therefore, D&PL adopted this statement September 1, 2002. The adoption of this statement did not have a material impact on D&PL's consolidated financial position or results of operations. SFAS No. 143, "Accounting for Asset Retirement Obligations," addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement is effective for fiscal years beginning after June 15, 2002. Therefore, D&PL adopted this statement September 1, 2002. The adoption of this statement did not have a material impact on D&PL's consolidated financial position or results of operations. SFAS No. 142, "Goodwill and Other Intangible Assets," addresses the financial accounting and reporting for acquired goodwill and other intangible assets. Effective September 1, 2001, D&PL adopted SFAS 142 at which time all goodwill amortization ceased (fiscal 2002 goodwill amortization would have been approximately $160,000). During the second quarter of fiscal 2002, recorded goodwill attributable to the domestic segment was tested for impairment by comparing its implied fair value to its carrying value. Based on management's initial impairment test, management determined that none of the goodwill recorded was impaired. Impairment adjustments recognized after adoption, if any, generally are required to be recognized as operating expenses. Excess of cost over net assets of business acquired at August 31, 2001 and August 31, 2002 was $4,148,000 and $4,187,000, respectively. SFAS No. 141, "Business Combinations," sets forth guidelines for applying the purchase method of accounting in the determination of intangible assets, including goodwill acquired in a business combination, and expands financial disclosures concerning business combinations consummated after June 1, 2001. The application of SFAS 141 did not affect D&PL's previously reported amounts for goodwill or other intangible assets. 2. INVENTORIES Inventories at August 31, consisted of the following: 2001 2002 ----------------------- ---------------------- Finished goods $ 31,835,000 $ 26,263,000 Raw materials 12,515,000 20,961,000 Growing crops 2,218,000 878,000 Supplies 1,162,000 1,141,000 ----------------------- ---------------------- 47,730,000 49,243,000 Less reserves (10,985,000) (9,222,000) ----------------------- ---------------------- $ 36,745,000 $ 40,021,000 ======================= ====================== Finished goods and raw material inventory is valued at the lower of average cost or market. Growing crops and supplies are recorded at cost. Inventory reserves relate to estimated excess and obsolete inventory. 3. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at August 31, consisted of the following: 2001 2002 ----------------------- -------------------- Land and improvements $ 4,284,000 $ 5,038,000 Buildings and improvements 38,777,000 37,117,000 Machinery and equipment 48,279,000 52,565,000 Germplasm 7,500,000 7,500,000 Breeder and foundation seed 2,000,000 2,000,000 Construction in progress 1,529,000 4,478,000 ----------------------- -------------------- 102,369,000 108,698,000 Less accumulated depreciation (39,530,000) (45,297,000) ----------------------- -------------------- $ 62,839,000 $ 63,401,000 ======================= ==================== 4. INTANGIBLES In connection with adopting SFAS 142, D&PL reassessed the useful lives and the classification of its identifiable intangible assets and determined that they continue to be appropriate. The components of identifiable intangible assets follow (in thousands): August 31, 2001 August 31, 2002 -------------------------------- ------------------------------ Gross Gross Carrying Accumulated Carrying Accumulated Amount Amortization Amount Amortization -------------- ----------------- ------------- ---------------- Trademarks $ 3,182 $ (642) $ 3,182 $ (721) Commercialization agreements 400 (6) 400 (37) Patents 284 (65) 295 (74) Other 1,635 (405) 1,492 (505) -------------- ----------------- ------------- ---------------- $ 5,501 $ (1,118) $ 5,369 $ (1,337) ============== ================= ============= ================
Amortization expense for identifiable intangible assets during the year ended August 31, 2002 was approximately $280,000. Identifiable intangible asset amortization expense is estimated to be $250,000 in each of the fiscal years from fiscal 2003 through fiscal 2007. Pro forma results of operations for the years ended August 31, 2000 and 2001 had we applied the nonamortization provisions of SFAS 142 in those periods would not have been materially different than reported results for those periods. 5. INVESTMENT IN AFFILIATE D&PL's investment in affiliate consists of a 50% interest in DeltaMax Cotton, LLC ("DeltaMax"), a limited liability company jointly owned with Verdia, Inc. (formerly known as MaxyAg, Inc.), a wholly-owned subsidiary of Maxygen, Inc. Established on May 22, 2002, the DeltaMax joint venture was formed to create, develop and commercialize herbicide tolerant and insect resistant traits for the cotton seed market. D&PL has licensed from DeltaMax the developed traits for commercialization in both the U.S. and other cotton-producing countries in the world. As of August 31, 2002, D&PL's equity in the net loss of DeltaMax was $305,000. 6. NOTES PAYABLE AND LONG-TERM DEBT D&PL had a syndicated credit facility with three financial institutions which provided for aggregate unsecured borrowings of $110 million comprised of a base commitment of $55 million and a seasonal commitment of $55 million. The base commitment was a long-term loan that could be borrowed upon at any time and was due April 1, 2001. The seasonal commitment was a working capital loan that could be drawn upon from September 1 through June 30 of each fiscal year and expired April 1, 2001. Each commitment offered variable and fixed interest rate options and required D&PL to pay facility or commitment fees and to comply with certain financial covenants. The interest rate charged for each loan was based on LIBOR plus 35 to 55 basis points depending on the achievement of certain financial ratios. The average interest rate was 7.26% and 5.34% during 2000 and 2001, respectively. The financial covenants required D&PL to: (a) maintain a ratio of total liabilities to tangible net worth at August 31, of less than or equal to 2.25 to 1 (4.0 to 1.0 at D&PL's fiscal quarter ends) (b) maintain a fixed charge coverage ratio at the end of each quarter greater than or equal to 2.0 to 1.0 and (c) maintain at all times tangible net worth of not less than the sum of (i) $40 million, plus (ii) 50% of net income (but not losses) determined as of the last day of each fiscal year, commencing with August 31, 1998. This agreement expired April 1, 2001. At August 31, 2000, 2001 and 2002, D&PL was in compliance with these covenants. D&PL and the lenders are currently negotiating a replacement facility that will provide for aggregate borrowings sufficient to meet working capital needs that will contain terms and conditions similar to the 1998 facility. 7. ACCRUED EXPENSES Accrued expenses at August 31, consisted of the following: 2001 2002 ------------------ ------------------ Bollgard and Roundup Ready royalties and related expenses due to Monsanto $ 133,956,000 $ 112,178,000 Sales allowances 16,383,000 10,447,000 Payroll 4,162,000 2,310,000 Other accrued expenses 20,584,000 18,598,000 ------------------ ------------------ $ 175,085,000 $ 143,533,000 ================== ================== 8. INCOME TAXES The provisions for income taxes for the years ended August 31, consisted of the following: 2000 2001 2002 --------------- ----------------- ----------------- Current- Federal $43,452,000 $ 16,972,000 $ 18,380,000 State 1,647,000 2,064,000 2,047,000 Deferred (949,000) (863,000) (3,733,000) --------------- ----------------- ----------------- $44,150,000 $ 18,173,000 $ 16,694,000 =============== ================= =================
The differences between the statutory federal income tax rate and the effective rate are as follows: 2000 2001 2002 ----------- ----------- ------------ Statutory rate 35.0% 35.0% 35.0% Increases (decreases) in tax resulting from: State taxes, net of federal tax benefit 0.7 2.4 2.2 Research and development tax credits (0.4) (1.0) (1.1) Foreign activities and non-deductible costs (1.1) (1.7) (1.4) Other 0.6 1.3 0.8 ----------- ----------- ------------ Effective rate 34.8% 36.0% 35.5% =========== =========== ============
Deferred income taxes at August 31, consisted of the following: 2001 2002 ---------------- ---------------- Deferred tax assets: Inventory $ 4,098,000 $ 5,660,000 Litigation costs 1,635,000 1,946,000 Pension 460,000 1,447,000 Other 3,358,000 2,988,000 ---------------- ---------------- $ 9,551,000 $ 12,041,000 ================ ================ Deferred tax liabilities: Property $ (5,034,000) $ (1,225,000) Other (549,000) (2,723,000) ---------------- ---------------- (5,583,000) (3,948,000) ---------------- ---------------- Net deferred income taxes $ 3,968,000 $ 8,093,000 ================ ================ The Company has provided for income taxes on the undistributed earnings of foreign subsidiaries as if they had been distributed in cases where the earnings are not planned to be permanently reinvested outside the United States. 9. LEASES D&PL leases a portion of the real estate and machinery and equipment used in its operations. Substantially all rent expense is recorded as cost of sales. D&PL has no capital leases. Future minimum rental payments after 2002 under operating leases with initial or remaining noncancellable terms in excess of one year are as follows: 2003 $ 364,000 2004 $ 79,000 2005 $ 29,000 2006 $ 29,000 2007 $ 8,000 Rent and lease expense including land rent approximated $3,354,000, $2,993,000 and $2,704,000 in 2000, 2001 and 2002, respectively. 10. EMPLOYEE BENEFIT PLANS Defined Benefit Plan Substantially all full-time employees are covered by a noncontributory defined benefit plan (the "Plan"). Benefits are paid to employees, or their beneficiaries, upon retirement, death or disability based on their final average compensation over the highest consecutive five years. Plan assets consist primarily of U.S. government securities and common stock and are managed by an independent portfolio manager. D&PL's funding policy is to make contributions to the Plan that are at least equal to the minimum amounts required to be funded in accordance with the provisions of ERISA. Effective January 1992, D&PL adopted a Supplemental Executive Retirement Plan (the "SERP"), which will pay supplemental pension benefits to certain employees whose benefits from the Plan were decreased as a result of certain changes made to the Plan. The benefits from the SERP will be paid in addition to any benefits the participants may receive under the Plan and will be paid from Company assets, not Plan assets. D&PL has adopted SFAS No. 132, "Employers' Disclosures About Pensions and Other Postretirement Benefits." The measurement of Plan and SERP assets and obligations was performed as of June 30. The following table provides a reconciliation of the changes in the Plan's and SERP's benefit obligations and fair value of assets over the two-year period ended August 31, 2002, and a statement of the funded status as of August 31, 2001 and 2002. Plan SERP ------------------------------------ ----------------------------------- 2001 2002 2001 2002 --------------- ---------------- --------------- ----------------- CHANGE IN BENEFIT OBLIGATIONS Benefit obligation at beginning of year $ 11,223,000 $ 11,905,000 $ 642,000 $ 547,000 Service cost 634,000 646,000 7,000 7,000 Interest cost 815,000 841,000 46,000 37,000 Actuarial (gain) loss (90,000) 678,000 (94,000) 28,000 Benefits paid (677,000) (677,000) (54,000) (49,000) --------------- ---------------- --------------- ----------------- Benefit obligation at end of year $ 11,905,000 $ 13,393,000 $ 547,000 $ 570,000 =============== ================ =============== ================= CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year $ 12,123,000 $ 10,231,000 $ 642,000 $ 540,000 Actual return on plan assets (1,144,000) (2,317,000) (47,000) (110,000) Company contributions 600,000 Benefits paid (677,000) (677,000) (54,000) (49,000) Expenses (71,000) (76,000) (1,000) (1,000) --------------- ---------------- --------------- ---------------- Fair value of plan assets at end of year $ 10,231,000 $ 7,761,000 $ 540,000 $ 380,000 =============== ================ =============== ================= Funded status $ (1,674,000) $ (5,632,000) $ (7,000) $ (190,000) Contribution after measurement date - 1,000,000 - - Unrecognized transition obligation 65,000 - - - Unrecognized prior service cost 47,000 43,000 - - Unrecognized net loss 102,000 4,062,000 9,000 185,000 -------------- --------------- -------------- ---------------- Accrued pension cost $ (1,460,000) $ (527,000) $ 2,000 $ (5,000) ============== =============== ============== ================
Plan SERP ----------------------------------- ----------------------------------- 2001 2002 2001 2002 ---------------- ---------------- ---------------- --------------- AMOUNTS REFLECTED IN THE BALANCE SHEET AT AUGUST 31: Accrued benefit liability $ (1,460,000) $ (527,000) $ 2,000 $ (5,000) Minimum pension liability - (2,725,000) - (185,000) Accumulated other comprehensive loss - 2,682,000 - 185,000 Intangible asset - 43,000 - - ---------------- ---------------- ---------------- --------------- Net amount reflected $ (1,460,000) $ (527,000) $ 2,000 $ (5,000) ================ ================ ================ ===============
Periodic Pension Expense: Plan SERP --------------------------------------------- ---------------------------------------------- 2000 2001 2002 2000 2001 2002 -------------- ------------- --------------- -------------- --------------- ------------- Service cost $ 571,000 $ 634,000 $ 646,000 $ 6,000 $ 7,000 $ 7,000 Interest cost on projected benefit obligation 754,000 815,000 841,000 46,000 46,000 37,000 Expected return on assets (974,000) (1,055,000) (889,000) (55,000) (55,000) (47,000) Amortization of transitional obligation 120,000 119,000 65,000 - - - Net unrecognized (gain)/loss and amortization (58,000) (79,000) 4,000 (38,000) - 10,000 -------------- ------------- -------------- -------------- --------------- ------------- Net periodic pension expense/(income) $ 413,000 $ 434,000 $ 667,000 $ (41,000) $ (2,000) $ 7,000 ============== ============= ============== ============== =============== ============= Company contributions $ - $ - $ 1,600,000 $ - $ - $ - ============== ============= ============== ============== =============== =============
The actuarial present value of the projected benefit obligation of the Plan and the SERP was determined using a discount rate of 7.25% in 2001 and 7.00% in 2002, with assumed salary increases of 4% in 2001 and 2002 to age 65. The expected long-term rate of return on assets was 9% in 2001 and 2002. Prior service cost is amortized over 15 years. Defined Contribution Plan D&PL sponsors a defined contribution plan under Section 401(k) of the Internal Revenue Code which covers substantially all full-time employees of D&PL. D&PL, at its option, may elect to make matching contributions to the Plan. No matching contributions were made in 2000, 2001 or 2002. 11. MAJOR CUSTOMERS In fiscal 2000, 2001 and 2002 seed sales to each of three customers and the related licensing fees ultimately billed to farmers for sales made by these customers for transgenic products comprised more than 10% of total sales and licensing fees. The table below presents the approximate amount of annual sales including technology fees to each of the customers. These amounts were reported in D&PL's domestic segment. Customer 2000 2001 2002 --------------- ------------------ ------------------- ------------------- A $34,246,000 $31,833,000 $29,034,000 B 51,938,000 54,937,000 46,752,000 C 69,951,000 72,358,000 56,532,000 12. BUSINESS SEGMENT INFORMATION D&PL is in a single line of business and operates in two business segments, domestic and international. D&PL's reportable segments offer similar products; however, the business units are managed separately due to the geographic dispersion of their operations. D&PL breeds, produces, conditions, and markets proprietary varieties of cotton and soybean planting seed in the United States. The international segment offers cottonseed in several foreign countries through both export sales and in-country operations. D&PL develops its proprietary seed products through research and development efforts in the United States and certain foreign countries. D&PL's chief operating decision maker utilizes revenue information in assessing performance and making overall operating decisions and resource allocations. Profit and loss information is reported by segment to the chief operating decision maker and D&PL's Board of Directors. The accounting policies of the segments are substantially the same as those described in the summary of significant accounting policies. Information about D&PL's segments for the years ended August 31, is as follows (in thousands): 2000 2001 2002 ------------- ------------- ------------- Net sales and licensing fees Domestic $ 270,205 $ 261,883 $ 225,402 International 30,976 43,923 32,405 ------------- ------------- ------------- $ 301,181 $ 305,806 $ 257,807 ============= ============= ============= Operating income Domestic $ 120,305 $ 43,429 $ 44,554 International 4,308 8,241 5,276 --------------- -------------- -------------- $ 124,613 $ 51,670 $ 49,830 =============== ============== ============== Capital expenditures Domestic $ 6,805 $ 6,594 $ 5,922 International 339 872 2,462 --------------- -------------- -------------- $ 7,144 $ 7,466 $ 8,384 =============== ============== ==============
Information about the financial position of D&PL's segments as of August 31, is as follows (in thousands): 2001 2002 --------------- --------------- Long-term assets Domestic $ 60,215 $ 60,004 International 13,569 14,670 --------------- --------------- $ 73,784 $ 74,674 =============== =============== Total assets Domestic $ 382,879 $ 368,345 International 28,642 14,797 --------------- --------------- $ 411,521 $ 383,142 =============== =============== 13. RELATED PARTY TRANSACTIONS The chairman of the Board of Directors of D&PL is also a director and officer for Stephens Group, Inc. and Stephens, Inc., a full service investment bank. Stephens Group, Inc and Stephens Inc. are stockholders of D&PL. During 2002, D&PL paid consulting fees to Stephens, Inc. of approximately $306,000. During 2000, 2001 and 2002, a partner of two law firms (he changed firms) that represented D&PL was also a stockholder and D&PL's corporate secretary. D&PL paid legal fees to those firms of approximately $943,000, $833,000, and $628,000 in 2000, 2001 and 2002, respectively. During 2000, 2001 and 2002 the Institute of Molecular Agrobiology ("IMA"), which is owned by the National University of Singapore and the National Science and Technology Board of Singapore, conducted contract research upon D&PL's instruction related to the development of certain technologies for varietal crops such as cotton and soybeans. D&PL paid approximately $296,000, $406,000 and $249,000 in 2000, 2001 and 2002, respectively, for such research projects. Dr. Chua, a member of the Board of Directors of D&PL, was the Chairman of the Management Board of Directors of IMA until September 2000 and Deputy Chairman from that time until September 2001 and was also Chairman of the Board of an affiliate of IMA, IMAGEN, until August 2001. IMAGEN, together with Singapore Bio-Innovations Pte. Ltd., STIC Investments Pte. Ltd., and OCBC Wearnes and Walden Investments Pte. Ltd., own 20% of the stock of D&PL China Pte. Ltd. 14. DERIVATIVE FINANCIAL INSTRUMENTS As of August 31, 2001 and August 31, 2002, net unrealized gains of $210,000 and $304,000 related to soybean hedging activities were recorded as a component of other comprehensive income, respectively. Net unrealized losses of $631,000 and $222,000 arose during the twelve months ended August 31, 2001 and August 31, 2002, respectively. Reclassification adjustments from other comprehensive income for net losses realized to net income of $841,000 and $316,000 were made during the years ended August 31, 2001 and August 31, 2002, respectively. The net unrealized gains of $304,000 that remain in other comprehensive income as of August 31, 2002 will be recognized in earnings within the next twelve months; however, the actual amount that will be charged to earnings may vary as a result of changes in market conditions. There were no foreign currency forward exchange contracts outstanding as of August 31, 2002. For the years ended August 31, 2001 and August 31, 2002, D&PL recorded no gains or losses in earnings as a result of hedge ineffectiveness or discontinuance of cash flow hedges. 15. ACQUISITION OF D&M INTERNATIONAL, LLC On May 28, 2002, D&PL acquired the 50% interest in D&M International, LLC it did not own from Pharmacia for cash of approximately $4.8 million. D&PL and Monsanto formed D&M International, LLC in 1995 to introduce cotton planting seed in international markets combining D&PL's acid delinting technology and elite germplasm and Monsanto's Bollgard and Roundup Ready gene technologies. In April 2002, Pharmacia activated a cross purchase provision in the operating agreement for D&M International, LLC and D&PL notified Pharmacia that it elected to have D&M International, LLC redeem Pharmacia's 50% interest in the company. As a result of the redemption of Pharmacia's interest, D&PL now owns all of D&M International, LLC. The acquisition of the 50% interest in D&M International, LLC has been accounted for as a purchase and the results of operations and earnings (losses) previously allocated to the minority owner have been included from the date of acquisition. A preliminary allocation of the purchase price resulted in no goodwill. To complete the allocation of the purchase price, the fair values of the international joint ventures that comprise the primary assets of D&M International, LLC will have to be determined. Pro forma results of operations for the years ended August 31, 2000, 2001 and 2002 had the acquisition occurred at the beginning of those periods would not have been materially different than reported results for those periods. 16. COMMITMENTS AND CONTINGENCIES Product Liability Claims D&PL is named as a defendant in various lawsuits that allege, among other things, that certain of D&PL's products (including Monsanto's technology) did not perform as the farmer had anticipated or expected. In many of these suits, Monsanto and, in some cases, the distribution/dealer who sold the seed were also named. In all cases where the seed sold contained either or both of Monsanto's Bollgard and Roundup Ready gene technologies, D&PL tendered the defense of these cases to Monsanto and requested indemnity. Pursuant to the terms of the Bollgard Gene License and Seed Services Agreement dated February 2, 1996 as amended December 8, 1999 (the "Bollgard Agreement") and the Roundup Ready Gene License and Seed Services Agreement dated February 2, 1996 and as amended July 26, 1996 and December 8, 1999 (the "Roundup Ready Agreement") D&PL has a right to be contractually indemnified by Monsanto against all claims arising out of the failure of Monsanto's gene technology. Pharmacia remains liable for Monsanto's performance under these indemnity agreements. Some of the product liability lawsuits contain varietal claims which are aimed solely at D&PL. D&PL does not have a right to indemnification, however, from Monsanto for any claims involving varietal characteristics separate from or in addition to the failure of the Monsanto technology. D&PL believes that the resolution of these matters will not have a material impact on the consolidated financial statements. D&PL intends to vigorously defend itself in these matters. Other Matters In July 2002, Syngenta Biotechnology, Inc. ("SBI") brought suit in the U.S. District Court in Delaware alleging that D&PL's making, using, selling and offering to sell cotton planting seed containing Monsanto's Bt genes, being sold under the trade name Bollgard, infringes U.S. Patent 6,051,757 entitled "Regeneration Of Plants Containing Genetically Engineered T-DNA". The suit seeks a preliminary and permanent injunction against D&PL and Monsanto against further acts of alleged infringement, contributory infringement and inducement of infringement of SBI's patent and recovery of damages for an unspecified amount including treble damages on account of the defendants' alleged willful infringement. D&PL has demanded that Pharmacia and Monsanto each agree to defend D&PL in this suit and to indemnify D&PL against damages, if any, which may be awarded. Monsanto has assumed the defense of D&PL and has filed an answer generally denying infringement and other claims made in the litigation. D&PL is assisting Monsanto to the extent reasonably necessary for the conduct of the litigation. Due to the recent nature of this suit, management has not determined the effect this litigation will have on D&PL. In May 2002, Pharmacia Corporation filed a suit in state court in Missouri against D&PL International Technology Corp. ("DITC"), D&PL's subsidiary, seeking a declaratory judgment that it was entitled to invoke the cross purchase provision in the Operating Agreement for D&M International, LLC, a limited liability company jointly owned by Pharmacia and DITC. In the alternative, Pharmacia sought a declaratory judgment that DITC was deemed to have consented to Pharmacia's transfer of the Operating Agreement to Monsanto and its issuance and transfer of shares of Monsanto's stock. DITC moved to dismiss on June 6, 2002, because the case was moot and did not present a justiciable controversy, in that DITC had already invoked its rights under the cross purchase provision and had caused Pharmacia's interest in D&M International, LLC to be redeemed. Instead of answering DITC's motion, on or about June 13, 2002, Pharmacia filed an amended petition, dropping all of its prior claims, and seeking a declaratory judgment that DITC has no contractual rights to enjoin Pharmacia from selling its shares of Monsanto or to seek damages for Pharmacia's prior initial public offering of Monsanto's shares to the public. DITC moved to dismiss the suit, since it had never threatened to enjoin the spin-off, and, in the alternative, moved for a more definite statement. On October 12, 2002, the Court denied DITC's motion to dismiss but granted DITC's motion for a more definite statement. Pharmacia filed a Second Amended Petition on October 30, 2002, and DITC filed a motion to dismiss the Second Amended Petition on November 19, 2002. Given the relief sought, D&PL does not believe that this litigation will have a material effect on D&PL. On May 15, 2000, several farmers and a seller of farm supplies filed suit in the United States District Court for the Northern District of Alabama, against Monsanto, D&PL, and D&M International, LLC (then a limited liability company jointly owned by Monsanto and D&PL) under federal antitrust laws and requested class certification. Plaintiffs claim that defendants have: (1) unlawfully attempted to monopolize the U.S. cottonseed and herbicide market in violation of ss. 2 of the Sherman Act; (2) monopolized the U.S. cottonseed and herbicide market in violation of ss. 2 of the Sherman Act; (3) conspired to unreasonably restrain trade in the U.S. cottonseed and herbicide market in violation of ss. 1 of the Sherman Act; and (4) engaged in unlawful tying of cottonseed and herbicide in violation of ss. 3 of the Clayton Act. Plaintiffs demand unspecified antitrust damages, including treble and compensatory damages, plus costs of litigation, including attorneys' fees. In July 2000, D&PL answered the complaint and in October 2000, moved for dismissal of the action on the ground that plaintiffs had failed to allege any conduct or action by D&PL that violates the federal antitrust laws. On December 6, 2001, the United States District Judge, acting on the recommendation of the Magistrate Judge, granted Monsanto's and D&PL's motions to dismiss the complaint without prejudice. The plaintiffs were granted 30 days from the District Court's Order to file an Amended Complaint. On January 7, 2002, plaintiffs filed an Amended Complaint against Monsanto and D&PL; however, plaintiffs did not assert in their Amended Complaint any claims against D&M International, LLC. Both D&PL and Monsanto moved to dismiss the complaint. The Court granted this motion in part and denied it in part on May 30, 2002. D&PL filed an answer. On November 1, 2002, the Court granted Monsanto's and D&PL's motion to bifurcate discovery. Discovery is now in process but it is limited to discovery on class certification issues to be followed by discovery on the merits. On November 14, 2002, the Court granted plaintiff's motion for voluntary dismissal of the claims brought on behalf of direct purchasers. The Court also dismissed Counts 1 and 2 of the Amended Complaint, which alleged unlawful monopolization in the cottonseed and herbicide markets. The remaining claim (brought only on behalf of the indirect purchasers) relates to allegations about unlawful tying of cottonseed and herbicide. The plaintiffs have until March 15, 2003, to file a class certification motion. In December 1999, Mycogen Plant Science, Inc. ("Mycogen") filed a suit in the Federal Court of Australia alleging that Monsanto Australia Ltd., Monsanto's wholly-owned Australian subsidiary, and Deltapine Australia Pty. Ltd., D&PL's wholly-owned Australian subsidiary, have been infringing two of Mycogen's Australian patents by making, selling, and licensing cotton planting seed expressing insect resistance. The suit seeks injunction against continued sale of seed containing Monsanto's Ingard(R) gene and recovery of an unspecified amount of damages. The litigation is currently in discovery and pretrial proceedings. Consistent with its commitments, Monsanto has agreed to defend D&PL in this suit and to indemnify D&PL against damages, if any are awarded. Monsanto is providing separate defense counsel for D&PL. D&PL is assisting Monsanto to the extent reasonably necessary. A corporation owned by the son of D&PL's former Guatemalan distributor sued in 1989 asserting that D&PL violated an agreement with it by granting to another entity an exclusive license in certain areas of Central America and southern Mexico. The suit seeks damages of 5,292,459 Guatemalan quetzales (approximately $715,265 at October 31, 2002 exchange rates) and an injunction preventing D&PL from distributing seed through any other licensee in that region. The Guatemalan court, where this action is proceeding, has twice declined to approve the injunction sought. D&PL continues to make available seed for sale in Guatemala. 17. STOCKHOLDERS' EQUITY Preferred Stock The Board of Directors of D&PL is authorized, subject to certain limitations prescribed by law, without further stockholder approval, to issue up to an aggregate of 2,000,000 shares of Preferred Stock, in one or more series, and to determine or alter the designations, preferences, rights and any qualifications, limitations or restrictions on the shares of each such series thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption (including sinking fund provisions), redemption price or prices, liquidation preferences and the number of shares constituting any series or designations of such series. In August 1996, the Board of Directors adopted a Stockholder Rights Plan ("Rights Plan") and declared a dividend of one preferred stock purchase right ("right") for each outstanding share of D&PL's Common Stock. Similar rights have been, and generally will be, issued in respect of Common Stock subsequently issued. Each right becomes exercisable, upon the occurrence of certain events, for one one-hundredth of a share of Series A Junior Participating Preferred Stock, $0.10 par value, at a purchase price of $175 per one one-hundredth of a Preferred Share, subject to adjustment. In the event that D&PL is acquired in a merger or other business combination transaction not approved by the Board of Directors, each holder of a right shall have the right to receive that number of shares of common stock of the surviving company which would have a market value of two times the exercise price of the right. The Board of Directors previously approved the Monsanto merger and modified the Rights Plan to deactivate it for such merger. Upon the merger termination, the Board rescinded that deactivation. Under the Rights Plan, 456,989 shares of Series A Junior Participating Preferred Stock have been reserved. The rights currently are not exercisable and will be exercisable only if a person or group acquires beneficial ownership of 15% or more of D&PL's outstanding shares of Common Stock. The rights, which expire on August 30, 2006, are redeemable in whole, but not in part, at D&PL's option at any time for a price of $0.01 per right. D&PL issued 1,066,667 shares (after effect of stock splits) of Series M Convertible Non-Voting Preferred Stock, as consideration for the purchase in 1996 of Hartz Cotton, Inc. from Monsanto. The holders of Series M Preferred Stock are entitled to receive dividends at the same rate per share as is paid from time to time on each share of the Common Stock of D&PL, and no more, when and as declared by the Board of Directors. In the event of any liquidation, dissolution or winding up of D&PL, either voluntary or involuntary, the holders of Series M Preferred Stock shall be entitled to receive, prior to and in preference to any distribution to holders of Common Stock or any other class of security of D&PL, $13.936 per share of Series M Preferred Stock. The Series M Preferred Stock is convertible beginning upon the seventh anniversary of the date on which the Series M Preferred Stock was issued or the occurrence of other specified events, whichever occurs first. Stock Option Plans The 1993 Stock Option Plan authorized options to purchase up to 2,560,000 shares (after effect of all stock splits) of Common Stock at an option price not less than the market price on the date of grant. The 1995 Long-Term Incentive Plan, as amended and restated in March 2000, (the "LTIP") allows for the awarding of stock options to officers, key employees and directors. The amended and restated 1995 plan eliminates the ability of the Board of Directors to award stock appreciation rights, restricted shares of common stock and performance unit credits. Under the LTIP, 5,120,000 shares (after effect of stock splits) of Common Stock of D&PL were available for grant. Shares subject to options and awards which expire unexercised are available for new option grants and awards. New members of the Board of Directors receive automatic grants of 62,222 shares upon being named to the Board and each director is given an additional annual grant of 2,666 shares for each of the second through sixth years each director serves as such (which grants began in 1998). At the March 30, 2000 Annual Meeting, the Board of Directors agreed to grant options to each Director for 80,000 shares of D&PL Common Stock. Such options are exercisable ratably over five years commencing after one year from the date of grant. Additional information regarding options granted and outstanding is summarized below: Stock Options Number of Shares Price Range -------------- -------------------------- Outstanding at August 31, 1999 3,142,957 $ 4.67 $ 49.31 Granted 1,785,443 16.91 19.81 Exercised (281,160) 4.67 26.82 Lapsed or canceled (209,620) 10.69 48.56 -------------- ------------ ---------- Outstanding at August 31, 2000 4,437,620 4.67 49.31 Granted 84,218 23.68 25.19 Exercised (165,508) 4.67 22.36 Lapsed or canceled (300,370) 15.71 49.31 -------------- ------------ ---------- Outstanding at August 31, 2001 4,055,960 4.67 49.31 Granted 682,496 17.85 20.47 Exercised (200,338) 4.67 19.62 Lapsed or canceled (500,299) 16.91 49.31 -------------- ------------ ---------- Outstanding at August 31, 2002 4,037,819 $ 4.67 $ 47.31 ============== ============ ========== D&PL applies Accounting Principles Board Opinion 25 in accounting for its employee stock option plans. Therefore, no compensation cost for stock options is deducted in determining net income. SFAS No. 123, if elected, would require the estimated fair value of options granted in fiscal 1996 and thereafter to be amortized to expense over the options' vesting period. Had the compensation cost been calculated in this manner, D&PL's pro forma net income and net earnings per share would have been as follows: August 31, (Dollars in thousands, except per share data) 2000 2001 2002 - --------------------------------------------------------- --------------- ------------------- ---------------- Pro forma compensation cost, net of tax $ 4,568 $ 5,743 $ 4,714 Net income applicable to common shares, as reported 79,198 32,147 30,126 Pro forma net income 74,630 26,404 25,412 Basic earnings per share, as reported 2.06 0.84 0.79 Pro forma basic earnings per share 1.94 0.69 0.66 Diluted earnings per share, as reported 1.98 0.81 0.76 Pro forma diluted earnings per share 1.86 0.66 0.64
The weighted average fair values of options granted in fiscal 2000, 2001 and 2002 were $9.61, $10.41 and $6.49 per share, respectively. The fair value for these options was estimated at the date of grant, using a Black-Scholes Option Pricing Model with the following assumptions: 2000 2001 2002 --------------------- --------------- ---------------- Expected dividend yield 3% 3% 3% Expected option lives 5 years 5 years 5 years Expected volatility 51.88% 39.09% 33.52% Risk-free interest rates 5.96% 5.86% 5.54%
The following table summarizes certain information about outstanding and exercisable stock options at August 31, 2002: Options Outstanding Options Exercisable ------------------------------------------------ -------------------------------------- Weighted Average Remaining Weighted Weighted Contractual Life Average Average Exercise Price Range in Years Exercise Exercise Number Price Number Price - --------------------- -------------- ------------------- ------------- -------------- ------------- $ 4.67 to 16.50 871,313 2.37 $ 8.28 871,313 $ 8.28 $ 16.91 to 28.90 3,067,846 6.98 20.79 1,510,590 22.17 $ 32.80 to 39.19 81,660 6.24 35.90 51,662 35.98 $ 41.69 to 49.31 17,000 5.53 42.35 13,600 42.35 -------------- -------------- -------------- -------------- 4,037,819 2,447,165
Treasury Stock In February 2000, the Board of Directors authorized a program for the repurchase of up to $50 million of D&PL's common stock. The shares repurchased under this program are to be used to provide for option exercises, conversion of D&PL's Series M Convertible Non-Voting Preferred shares and for other general corporate purposes. At August 31, 2002, D&PL had repurchased 992,900 shares at an aggregate purchase price of approximately $17,663,000 under this program. D&PL purchased 539,200 shares at an aggregate purchase price of $9,960,000 under this plan in the year ended August 31, 2002. Between September 1, 2002 and October 25, 2002, D&PL repurchased 61,400 shares at an aggregate purchase price of $1.1 million. Earnings Per Share Dilutive common share equivalents consist of both D&PL's Series M Convertible Non-Voting Preferred Shares and outstanding stock options under D&PL's 1993 Stock Option Plan and the 1995 Long-Term Incentive Plan. Approximately 781,000, 748,000 and 2,259,000 outstanding stock options were not included in the computation of diluted earnings per share for the years ended August 31, 2000, 2001 and 2002, respectively, because the effect of their exercise was not dilutive based on the average market price of D&PL's common stock for each respective reporting period. For the Twelve Months Ended August 31, - -------------------------------------- 2000 2001 2002 ----------------- ---------------- --------------- Basic Earnings per Share: Net income per share before cumulative effect of accounting change $ 2.14 $ 0.84 $ 0.79 Cumulative effect of accounting change (0.08) - - ----------------- ---------------- --------------- Net income $ 2.06 $ 0.84 $ 0.79 ================= ================ =============== Diluted Earnings per Share: Net income per share before cumulative effect of accounting change $ 2.05 $ 0.81 $ 0.76 Cumulative effect of accounting change (0.07) - - ----------------- ---------------- --------------- Net income $ 1.98 $ 0.81 $ 0.76 ================= ================ =============== Number of shares used in basic earnings per share calculations 38,496 38,473 38,362 ================= ================ =============== Number of shares used in diluted earnings per share calculations 40,159 40,111 39,781 ================= ================ ===============
The table below reconciles the basic and diluted per share computations for income before the cumulative effect of a change in accounting principle: For the Twelve Months Ended August 31, - -------------------------------------- 2000 2001 2002 ---------------- ---------------- --------------- Income: Income before cumulative effect of accounting change $ 82,291 $ 32,307 $ 30,339 Less: Preferred stock dividends (128) (160) (213) ---------------- ---------------- --------------- Basic EPS: Income available to common stockholders 82,163 32,147 30,126 Effect of Dilutive Securities: Convertible Preferred Stock Dividends 128 160 213 ---------------- ---------------- --------------- Diluted EPS: Income available to common stockholders plus assumed conversions $ 82,291 $ 32,307 $ 30,339 ================ ================ =============== Shares: Basic EPS shares 38,496 38,473 38,362 Effect of Dilutive Securities: Options to purchase common stock 596 571 352 Convertible preferred stock 1,067 1,067 1,067 ---------------- ---------------- --------------- Diluted EPS shares 40,159 40,111 39,781 ================ ================ =============== Per Share Amounts: Basic $ 2.14 $ 0.84 $ 0.79 ================ ================ =============== Diluted $ 2.05 $ 0.81 $ 0.76 ================ ================ ===============
18. UNAUDITED QUARTERLY FINANCIAL DATA All of D&PL's domestic seed products are subject to return and credit risks, the effects of which vary from year to year. The annual level of returns and, ultimately, net sales and net income are influenced by various factors, principally weather conditions occurring in the spring planting season (spanning D&PL's third and fourth fiscal quarters). D&PL provides for estimated returns as sales are made. To the extent actual returns differ from estimates, adjustments to D&PL's operating results are recorded when such differences become known, typically in D&PL's fourth quarter. All significant returns occur or are accounted for by fiscal year end. Generally, international sales are not subject to return. A substantial portion of Company sales is concentrated in the second and third fiscal quarters. As a result, D&PL generally expects to incur losses in the first and fourth quarters. Management believes that such seasonality is common throughout the seed industry. Summarized unaudited quarterly financial data is as follows: (In thousands, except per share data) - ------------------------------------------------------------------------------------------------------------------------------ Fiscal 2000: Three months ended November 30 February 29 May 31 August 31 - ------------------------------------------------------------------------------------------------------------------------------ Net sales and licensing fees $ 4,549 $ 104,203 $ 177,365 $ 15,064 Gross profit 301 31,041 65,190 2,835 Net income (loss) applicable to common shares(2) (9,540) 58,595 34,856 (4,713) Net income (loss) per share-basic(1)(2) (0.25) 1.52 0.91 (0.12) Weighted average number of shares used in quarterly per share calculations -basic 38,662 38,664 38,319 38,363 Net income (loss) per share-diluted(1)(2) (0.25) 1.46 0.88 (0.12) Weighted average number of shares used in quarterly per share calculations-diluted 38,662 40,110 39,845 38,363 - ------------------------------------------------------------------------------------------------------------------------------ Fiscal 2001: Three months ended November 30 February 28 May 31 August 31 - ------------------------------------------------------------------------------------------------------------------------------ Net sales and licensing fees $ 9,694 $ 150,154 $ 139,331 $ 6,627 Gross profit 2,295 51,782 48,596 2,897 Net income (loss) applicable to common shares(3) (4,958) 23,843 22,885 (9,623) Net income (loss) per share-basic(1)(3) (0.13) 0.62 0.59 (0.25) Weighted average number of shares used in quarterly per share calculations -basic 38,386 38,425 38,963 38,543 Net income (loss) per share- diluted(1)(3) (0.13) 0.59 0.56 (0.25) Weighted average number of shares used in quarterly per share calculations- diluted 38,386 40,101 40,667 38,543 - ------------------------------------------------------------------------------------------------------------------------------ Fiscal 2002: Three months ended November 30 February 28 May 31 August 31 - ------------------------------------------------------------------------------------------------------------------------------ Net sales and licensing fees $ 8,253 $ 111,867 $ 135,386 $ 2,301 Gross profit 2,804 40,122 49,050 573 Net income (loss) applicable to common shares (4,538) 17,721 25,012 (8,069) Net income (loss) per share-basic(1) (0.12) 0.46 0.65 (0.21) Weighted average number of shares used in quarterly per share calculations -basic 38,385 38,454 38,343 38,267 Net income (loss) per share- diluted(1) (0.12) 0.44 0.63 (0.21) Weighted average number of shares used in quarterly per share calculations- diluted 38,385 39,991 39,769 38,267 (1) The sum of the quarterly net income (loss) per share amounts may not equal the annual amount reported since per share amounts are computed independently for each quarter, whereas annual earnings per share are based on the annual weighted average shares deemed outstanding during the year. (2) The second quarter includes the effect of recording the $81.0 million merger termination fee paid by Monsanto, net of related expenses. (3) The fourth quarter includes the effect of recording a $6.3 million charge for the closing of a delinting plant and severance related to the reduction in operations and corporate staffs.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Effective May 15, 2002, at the recommendation of the Audit Committee, the Board of Directors of Delta and Pine Land Company ("Delta and Pine Land") engaged KPMG LLP ("KPMG") as Delta and Pine Land's independent auditors. During the two most recent fiscal years and through May 14, 2002, Delta and Pine Land did not consult KPMG with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the consolidated financial statements of Delta and Pine Land, or any other matters or reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K. KPMG replaced the firm of Arthur Andersen LLP ("Arthur Andersen"), who was dismissed by Delta and Pine Land's Board of Directors at the recommendation of the Audit Committee. In light of the uncertainties involving Arthur Andersen, Delta and Pine Land's Board of Directors and Audit Committee determined that it was in the best interests of Delta and Pine Land to appoint a different independent auditing firm. Arthur Andersen issued an unqualified opinion on the consolidated financial statements of Delta and Pine Land as of and for the years ended August 31, 2001 and 2000. To the knowledge of management, during the fiscal years ended August 31, 2001 and 2000, and in the subsequent period through the date of dismissal, there were no disagreements with Arthur Andersen on any matters of accounting principles or practices, financial statement disclosure, or auditing scope and procedures which, if not resolved to the satisfaction of Arthur Andersen, would have caused it to make reference to the matter in connection with their report on the financial statements. Additionally, during such periods there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K. Delta and Pine Land requested, and Arthur Andersen furnished, a letter addressed to the Securities and Exchange Commission stating that Arthur Andersen agrees with the statements made by Delta and Pine Land herein. A copy of that letter from Arthur Andersen to the Securities and Exchange Commission is filed as Exhibit 16 to this Annual Report on Form 10-K. For additional information, see Exhibit 23.02 hereto. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ITEM 11. EXECUTIVE COMPENSATION ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information with respect to these items is set forth in D&PL's Proxy Statement for the Annual Meeting of Stockholders to be held on January 22, 2003 to be filed with the Commission pursuant to Regulation 14(a) no later than December 30, 2002 and is incorporated herein by reference. PART IV ITEM 14. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures. D&PL's chief executive officer and chief financial officer have evaluated the effectiveness of the design and operation of D&PL's disclosure controls and procedures (as defined in Exchange Act Rule 13a-14(c)) as of a date within 90 days of the filing date of this annual report. Based on that evaluation, the chief executive officer and chief financial officer have concluded that D&PL's disclosure controls and procedures are effective to ensure that material information relating to D&PL and D&PL's consolidated subsidiaries is made known to such officers by others within these entities, particularly during the period this annual report was prepared, in order to allow timely decisions regarding required disclosure. (b) Changes in Internal Controls. There have not been any significant changes in D&PL's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 1. Financial Statements - the following consolidated financial statements of Delta and Pine Land Company and subsidiaries are submitted in response to Part II, Item 8: Report of Independent Public Accountants Consolidated Statements of Income - for each of the three years in the period ended August 31, 2002 Consolidated Balance Sheets - August 31, 2001 and 2002 Consolidated Statements of Cash Flows - for each of the three years in the period ended August 31, 2002 Consolidated Statements of Changes in Stockholders' Equity - for each of the three years in the period ended August 31, 2002 Notes to Consolidated Financial Statements 2. Financial Statement Schedule - the following financial statement schedule of Delta and Pine Land Company and subsidiaries is submitted in response to Part IV, Item 15: Independent Auditors' Report.................................................................55 Report of Independent Public Accountants.....................................................56 Schedule II - Consolidated Valuation and Qualifying Accounts.................................57
All other schedules have been omitted as not required, not applicable or because all the data is included in the financial statements. 3. Exhibits The exhibits to the Annual Report of Delta and Pine Land Company filed herewith are listed on Page 58. 4. Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended August 31, 2002. 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 on November 25, 2002. DELTA AND PINE LAND COMPANY (Registrant) /s/ Jon E. M. Jacoby November 25, 2002 - -------------------------------------------- By: Jon E. M. Jacoby, Chairman of the Board Pursuant to the requirements of the Securities and 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. Signature Title Date /s/ W. Thomas Jagodinski President, Chief Executive Officer, November 25, 2002 - -------------------------------------------- and Director W. Thomas Jagodinski (Principal Executive Officer) /s/ R. D. Greene Vice President - Finance, November 25, 2002 - -------------------------------------------- Treasurer and Assistant Secretary R. D. Greene (Principal Financial and Accounting Officer) /s/ Murray Robinson Vice Chairman and Director November 25, 2002 - -------------------------------------------- F. Murray Robinson /s/ Stanley P. Roth Vice Chairman and Director November 25, 2002 - -------------------------------------------- Stanley P. Roth /s/ Nam-Hai Chua Director November 25, 2002 - -------------------------------------------- Nam-Hai Chua /s/ Joseph M. Murphy Director November 25, 2002 - -------------------------------------------- Joseph M. Murphy /s/ Rudi E. Scheidt Director November 25, 2002 - -------------------------------------------- Rudi E. Scheidt
CERTIFICATION OF CHIEF EXECUTIVE OFFICER Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, W. Thomas Jagodinski, certify that: 1. I have reviewed this annual report of Delta and Pine Land Company; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of D&PL as of, and for, the periods presented in this annual report. 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 25, 2002 /s/ W. Thomas Jagodinski_________ W. Thomas Jagodinski President, Chief Executive Officer and Director CERTIFICATION OF CHIEF FINANCIAL OFFICER Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, R. D. Greene, certify that: 1. I have reviewed this annual report of Delta and Pine Land Company; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of D&PL as of, and for, the periods presented in this annual report. 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 25, 2002 /s/ R. D. Greene___________________ R. D. Greene Vice President-Finance, Treasurer and Assistant Secretary INDEPENDENT AUDITORS' REPORT THE BOARD OF DIRECTORS OF DELTA AND PINE LAND COMPANY: We have audited in accordance with auditing standards generally accepted in the United States, the 2002 financial statements of Delta and Pine Land Company included in this Form 10-K. Our audit was made for the purpose of forming an opinion on the basic 2002 financial statements taken as a whole. The schedule listed in the Index of Part IV, Item 15(a)2, is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic 2002 financial statements. The schedule has been subjected to the auditing procedures applied in the audit of the basic 2002 financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic 2002 financial statements taken as a whole. /s/ KPMG LLP Memphis, Tennessee October 25, 2002 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO DELTA AND PINE LAND COMPANY: We have audited in accordance with auditing standards generally accepted in the United States, the financial statements of Delta and Pine Land Company included in this Form 10-K. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the Index of Part IV, Item 14(a)2, is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. The schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Arthur Andersen LLP Memphis, Tennessee, October 26, 2001. This is a copy of the audit report previously issued by Arthur Andersen LLP in connection with Delta and Pine Land Company's filing on Form 10-K for the year ended August 31, 2001. This audit report has not been reissued by Arthur Andersen LLP in connection with this filing on Form 10-K. See Exhibit 23.02 for further discussion. SCHEDULE II DELTA AND PINE LAND COMPANY AND SUBSIDIARIES CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS (In thousands) - ------------------------------------------------------------------------------------------------------------------------ Column A Column B Column C Column D Column E - -------- -------- -------- -------- -------- Description Balance at Charged Charged to Balance Beginning to Costs Other at End of and Accounts Deductions of Period Expenses Period - ------------------------------------------------------------------------------------------------------------------------ Fiscal year ended August 31, 2000 Allowance for doubtful accounts $ 475 $ 643 $ - $ (27)(a) $ 1,091 Inventory valuation reserve $ 14,108 $ 8,500 $ - $ (15,001)(b) $ 7,607 Fiscal year ended August 31, 2001 Allowance for doubtful accounts $ 1,091 $ 153 $ - $ (57)(a) $ 1,187 Inventory valuation reserve $ 7,607 $ 10,818 $ (49)(c) $ (7,391)(b) $ 10,985 Fiscal year ended August 31, 2002 Allowance for doubtful accounts $ 1,187 $ 228 $ (303)(c) $ (12)(a) $ 1,100 Inventory valuation reserve $ 10,985 $ 10,335 $ 11 (c) $ (12,109)(b) $ 9,222 (a) Write off of uncollectible accounts, net of recoveries (b) Disposal and/or write-off of inventory. (c) Amount charged to cumulative translation adjustment for fluctuations in non-U.S. dollar denominated reserves.
INDEX EXHIBITS TO ANNUAL REPORT ON FORM 10-K YEAR ENDED AUGUST 31, 2002 DELTA AND PINE LAND COMPANY Exhibits(1) Description 2.01 Agreement and Plan of Merger dated as of May 8, 1998, by and between Monsanto Company and Delta and Pine Land Company. (2) 2.02 Termination Option Agreement dated as of May 8, 1998, by and between Monsanto, Company and Delta and Pine Land Company. (2) 3.01 Restated Certificate of Incorporation of the Registrant dated June 11, 1993. 3.02 Amended and Restated By-Laws of the Registrant dated April 26, 1993. 4.01 Certificate of Designation, Convertible Preferred Stock of Delta and Pine Land Company. (3) 4.02 Specimen Certificate representing the Common Stock, par value $.10 per share. 4.03 Letter from Registrant to John Hancock Mutual Life Insurance Company regarding certain registration rights dated June 28, 1993. 4.04 Rights Agreement, dated as of August 13, 1996, between Delta and Pine Land Company and Harris Trust and Savings Bank, including the form of Right Certificate and related form of Election to Purchase as Exhibit A and the Summary of Rights to Purchase Preferred Shares as Exhibit B. (4) 4.05 Amendment No. 1 to the Rights Agreement dated May 8, 1998, by and between Delta and Pine Land Company and the Harris Trust and Savings Bank. (2) 4.06 Amendment No. 2 to the Rights Agreement dated May 8, 1998 by and between Delta and Pine Land Company and the Harris Trust and Savings Bank. (14) 4.07 Certificate of Designations of the rights and privileges of the shares of junior participating preferred stock created on August 13, 1996, to be filed pursuant to Section 151 of the Delaware General Corporation Law. (4) 10.05 Incentive Bonus Program. (1)(6) 10.06 Retirement Plan of D&PL, dated January 2, 1992, Amendment No. 1 to the Plan dated April 30, 1992, Amendment No. 2 to the Plan dated December 20, 1992, and Amendment No. 3 to the Plan dated October 6, 1994. (1)(5) 10.08 Supplemental Executive Retirement plan dated May 22, 1992, and effective January 1, 1992. (1)(6) 10.10 1993 Stock Option Plan of Registrant, as adopted on June 11,1993.(1)(6) 10.11 Asset Purchase agreement between Delta and Pine Land Company and Cargill, Inc. dated May 2, 1994 (8) 10.13 1994 Saving Plan of Registrant, as adopted on April 1, 1994, Amendment No. 1 dated May 1, 1994. (5)(6) 10.15 Hartz Cotton Acquisition Agreement dated February 2, 1996 among Monsanto Company ("Monsanto"), Hartz Cotton, Inc. ("Hartz Cotton"), Delta and Pine Land Company (the "Company") and Paymaster Technology Corp. ("PTC"). (3) 10.16 Trademark License Agreement dated February 2, 1996 between Monsanto and D&PL. (3) 10.17 Registration Rights Agreement between D&PL and Monsanto dated February 2, 1996. (3) 10.18 Temporary Services Agreement dated February 2, 1996 between Monsanto, D&PL, and PTC. (3) 10.19 Research Facility Lease with Option to Purchase dated February 2, 1996 between Monsanto and PTC. (3) 10.20 Greenhouse Lease dated February 2, 1996 between Monsanto and PTC. (3) 10.21 Research Agreement dated February 2, 1996 between Monsanto and PTC. (3) 10.22 Partnership Agreement dated February 2, 1996 between D&PL and Monsanto.(3) 10.23 Marketing Services Agreement dated February 2, 1996 between D&PL, Monsanto and D&M Partners. (3) 10.24 Bollgard Gene License and Seed Services Agreement dated February 2, 1996 between Monsanto, D&M Partners, and D&PL. (3) 10.25 Roundup Ready Gene License and Seed Services Agreement dated February 2, 1996 between Monsanto, D&M Partners and D&PL. (3) 10.26 Option Agreement dated February 2,1996 between Monsanto and D&PL.(3)(6) 10.27 Agreement between the D&PL Companies and the Sure Grow Companies, Sure Grow Shareholders and Sure Grow Principals dated May 20, 1996. (9) 10.28 Delta and Pine Land Company 1995 Long-Term Incentive Plan, as adopted on February 6, 1996. (6)(10) 10.29 Amendment to Agreements dated as of December 8, 1999, by and between Monsanto Company, Registrant, D&M Partners, a partnership of Monsanto and D&PL, and Paymaster Technology Corp. (12) 10.30 D&M International Operating Agreement on March 10, 1995, between Delta and Pine Land Company, through its wholly-owned subsidiary D&PL International Technology Corp. and Monsanto Company. (13) 10.31 Bollgard II Gene License and Seed Services Agreement dated December 11, 2000. (11) 10.32 Roundup Ready Soybean License and Seed Services Agreement and the Amended and Restated Licensee Incentive Agreement. (11) 10.33 Bollgard Gene License Agreement for the Republic of Mexico. (11) 10.34 Roundup Ready License Agreement for the Republic of South Africa dated September 24, 2001. (11) 10.35 Glyphosate-Tolerant Cotton Agreement - Australia dated July 3,2001.(11) 10.36 Bollgard Gene License Agreement by and between Monsanto Company, Delta and Pine Land Company, D&PL International Technology Corp., and D&M International and Amendment. (15) 10.37 Redemption Agreement dated as of May 28, 2002 among D&M International, L.L.C., D&PL International Technology Corp., Pharmacia Corporation, solely for the purposes of Section 1.2c and Articles II and III hereof, and Monsanto Company, and, solely for the purposes of Section 3.2 hereof, Delta and Pine Land Company. (15) 16.00 Letter from Arthur Andersen LLP to the Securities and Exchange Commission dated May 14, 2002 regarding change in certifying accountant (16) 21.01 Subsidiaries of the Registrant. (15) 23.01 Independent Auditors' Consent. (15) 23.02 Notice Regarding Consent of Arthur Andersen LLP. (15) 99.01 Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350 (15) 99.02 Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350 (15) - ------------------------- (1) All incorporated by reference from Registration Statement on form S-1, File No. 33-61568, filed June 29, 1993 except as otherwise noted herein. (2) Incorporated by reference from Form 8-K filed May 14, 1998 (3) Incorporated by reference from Form 8-K, File No. 000-14136, filed February 19, 1996 (4) Incorporated by reference from Form 8-A, File No. 000-21293, filed September 3, 1996 (5) Incorporated by reference from Form 10-K, File No. 00-21788, filed November 22, 1995 (6) Represents management contract or compensatory plan (7) Incorporated by reference from Form 10-Q, File No. 000-21788, filed July 14, 1995 (8) Incorporated by reference from Form 8-K filed May 16, 1994 (9) Incorporated by reference from Form 8-K, File No. 000-21788, filed June 4, 1996 (10) Incorporated by reference from Form 10-K, File No. 001-14136, filed November 27, 1996 (11) Incorporated by reference from Form 10-K filed November 29, 2001 (12) Incorporated by reference from Form 8-K filed May 18, 2000 (13) Incorporated by reference from Form 8-K filed September 14, 2000 (14) Incorporated by reference from Form 10-K filed November 24, 1998 (15) Filed herewith (16) Incorporated by reference from Form 8-K filed May 17, 2002 EXHIBIT 21.01 SUBSIDIARIES OF REGISTRANT SUBSIDIARY PLACE OF INCORPORATION - ----------------------------------------------- -------------------------------- ATLED CORPORATION USA D&M INTERNATIONAL, LLC USA D&M PARTNERS USA D&PL ARGENTINA, INC. USA D&PL CHINA, INC. USA D&PL CHINA PTE, LTD. SINGAPORE D&PL INVESTING CORP. USA D&PL INVESTMENTS, INC. USA D&PL MEXICO, INC. USA DELTAPINE PARAGUAY, INC. USA D&PL SOUTH AFRICA, INC. USA D&PL INTERNATIONAL TECHNOLOGY CORP. USA DELTA AND PINE LAND INTERNATIONAL, LTD. VIRGIN ISLANDS DELTA PINE DE MEXICO, S.A. de C.V. MEXICO DELTAPINE AUSTRALIA PTY. LIMITED AUSTRALIA GREENFIELD SEED COMPANY USA HEBEI JI DAI COTTONSEED TECHNOLOGY COMPANY, LTD. CHINA PAYMASTER TECHNOLOGY CORP. USA TURK DELTAPINE, INC. USA SURE GROW SEED, INC. USA ELLIS BROTHERS SEED, INC. USA ARIZONA PROCESSING, INC. USA MISSISSIPPI SEED, INC. USA D&PL Semillas LTD. Costa Rica CDM MandIyu S.R.L. Argentina Delta and Pine Land Hellas Monoprosopi, e.P.E. Greece D&PL BraSil, Ltda. Brazil Anhui An Dai Cottonseed Technology Company, Ltd. China D&PL Technology Holding Corp. USA D&M Brasil algodao, Ltda Brazil MDM Maeda DeltaPine Monsanto Algodao Ltda. Brazil Exhibit 23.01 Independent Auditors' Consent The Board of Directors Delta and Pine Land Company: We consent to the incorporation by reference in the registration statements (Nos. 333-21049 and 333-74168) on Form S-8 of Delta and Pine Land Company of our reports dated October 25, 2002, with respect to the consolidated balance sheet of Delta and Pine Land Company as of August 31, 2002, and the related consolidated statements of operations, stockholders' equity and comprehensive income, and cash flows for the year ended August 31, 2002, and all related financial statement schedules, which reports appear in the August 31, 2002, annual report on Form 10-K of Delta and Pine Land Company. /s/ KPMG LLP Memphis, Tennessee November 25, 2002 EXHIBIT 23.02 NOTICE REGARDING CONSENT OF ARTHUR ANDERSEN LLP Section 11(a) of the Securities Act of 1933, as amended (the "Securities Act"), provides that if part of a registration statement at the time it becomes effective contains an untrue statement of a material fact, or omits a material fact required to be stated therein or necessary to make the statements therein not misleading, any person acquiring a security pursuant to such registration statement (unless it is proved that at the time of such acquisition such person knew of such untruth or omission) may assert a claim against, among others, an accountant who has consented to be named as having certified any part of the registration statement or as having prepared any report for use in connection with the registration statement. On May 15, 2002, the Board of Directors of Delta and Pine Land Company ("D&PL"), upon recommendation of its Audit Committee, decided to no longer engage Arthur Andersen LLP ("Arthur Andersen") as D&PL's independent public accountants, effective immediately. For additional information, see D&PL's Current Report on Form 8-K filed with the Securities and Exchange Commission ("SEC") on May 17, 2002. After reasonable efforts, D&PL has been unable to obtain Arthur Andersen's written consent to the incorporation by reference into D&PL's registration statements (Form S-8 Nos. 333-21049 and 333-74168) (the "Registration Statements") of Arthur Andersen's audit report with respect to D&PL's consolidated financial statements as of August 31, 2001, and for the two years in the period then ended. Under these circumstances, Rule 437a under the Securities Act permits D&PL to file this Annual Report on Form 10-K, which is incorporated by reference into the Registration Statements, without a written consent from Arthur Andersen. As a result, with respect to transactions in D&PL's securities pursuant to the Registration Statements that occur subsequent to the date this Annual Report on Form 10-K is filed with the Securities and Exchange Commission, Arthur Andersen will not have any liability under Section 11(a) of the Securities Act for any untrue statements of a material fact contained in the financial statements audited by Arthur Andersen or any omissions of a material fact required to be stated therein. Accordingly, an acquiror of D&PL's securities would be unable to assert a claim against Arthur Andersen under Section 11(a) of the Securities Act. EXHIBIT 99.01 Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350 Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and in connection with the annual report on Form 10-K of Delta and Pine Land Company for the fiscal year ended August 31, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned W. Thomas Jagodinski, the President and Chief Executive Officer hereby certifies the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of D&PL. Signature Title Date /s/ W. Thomas Jagodinski President, Chief Executive Officer November 25, 2002 - ----------------------------------- W. Thomas Jagodinski and Director (Principal Executive Officer)
This certificate is made solely for purpose of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purposes. EXHIBIT 99.02 Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350 Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and in connection with the annual report on Form 10-K of Delta and Pine Land Company for the fiscal year ended August 31, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned R. D. Greene, the Vice President-Finance, Treasurer, and Assistant Secretary hereby certifies the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of D&PL. Signature Title Date /s/ R. D. Greene Vice President - Finance, November 25, 2002 - -------------------------------------------- R. D. Greene Treasurer and Assistant Secretary (Principal Financial and Accounting Officer)
This certificate is made solely for purpose of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purposes. EX-10 3 ex1036.txt Exhibit 10.36 BOLLGARD(R) GENE LICENSE AGREEMENT THIS AGREEMENT is made as of the 7th day of June, 2002, by and between Monsanto Company ("MONSANTO"), having a place of business at 800 North Lindbergh Boulevard, St. Louis, Missouri 63167, and Delta and Pine Land Company ("D&PL"), D&PL International Technology Corp. ("DITC") and D&M International LLC ("D&M") having places of business at One Cotton Row, Scott, Mississippi 38772. SECTION 1 - BACKGROUND 1.1 MONSANTO has developed and has a present intention to continue to develop TECHNOLOGY which is useful in the production of genetically modified cotton plants exhibiting resistance to LEPIDOPTERAN INSECTS and also possesses certain know-how and germplasm relating to such cotton plants. D&PL has produced proprietary cotton varieties containing such MONSANTO TECHNOLOGY. 1.2 Whereas, MONSANTO's parent company, Pharmacia Corporation (formerly known as Monsanto Company) ("PHARMACIA") and DITC (formerly known as D&PL Technology Corp.), a wholly-owned subsidiary of D&PL, formed D&M, with DITC as the Managing Member. 1.3 PHARMACIA and DITC approved the establishment and ownership of businesses by D&M in Hebei Province and in Anhui Province, Peoples Republic of China, in Argentina and in Brazil. On May 28, 2002, D&M redeemed PHARMACIA's interest in D&M. 1.4 DITC, as Managing Member of D&M, caused the establishment of the D&M JOINT VENTURE COMPANIES, owned in part (either directly or indirectly) by D&M, and in part by third parties, in Hebei Province and in Anhui Province, Peoples Republic of China, in Argentina and in Brazil. 1.5 PHARMACIA and D&PL entered into the OPTION AGREEMENT under which PHARMACIA granted to D&PL, and D&PL holds, certain options to license, outside the United States of America (and in certain cases inside the United States of America), certain technology owned or controlled by MONSANTO. 1.6 D&M has granted to each of the D&M JOINT VENTURE COMPANIES a license to a LEPIDOPTERAN-ACTIVE GENE and related MONSANTO TECHNOLOGY for use in the production and sale of cotton planting seed in a certain geographical territory as described in the D&M LICENSES. 1.7 The parties wish to formalize the grant of licenses from MONSANTO to D&PL and sublicenses from D&PL to D&M in connection with the D&M LICENSES and to set out the terms of payment for royalties due to MONSANTO and to DITC; Now, therefore, the Parties do agree as follows: SECTION 2 - INTERPRETATION 2.1 DEFINITIONS: In this Agreement, unless the context otherwise requires: 2.1.1 The term "AFFILIATE" means an entity which controls, is controlled by, or is under common control with another company; "control" being defined as owning more than fifty percent (50%) of the voting shares of the controlled entity, or the power to nominate more than half of the directors, or the power otherwise to determine the policy of a company or organization. The JV COMPANIES shall be considered to be AFFILIATES of D&PL regardless of the percentage ownership. 2.1.2 The term "B.t. TOXIN" means the insecticidal protein derived from Bacillus thuringiensis, and any active fragment, modification, deletion, or mutation thereof, which is toxic to LEPIDOPTERAN INSECTS. 2.1.3 The term "COMMERCIAL DEVELOPMENT" of a LEPIDOPTERAN ACTIVE GENE means the evaluation of such LEPIDOPTERAN ACTIVE GENE by D&PL in one or more DELTAPINE CULTIVARS and/or by a third party in such third party's cultivars. 2.1.4 The term "COMMERCIAL SALE" with respect to a LEPIDOPTERAN ACTIVE GENE means sale or other transfer for value of COTTON PLANTING SEED containing such LEPIDOPTERAN-ACTIVE GENE for use in producing a commercial commodity cotton crop (other than sale or other transfer for testing or seed multiplication on behalf of the transferor). 2.1.5 The term "COMPENSATION" means the partial consideration for the LICENSES determined for each LICENSED COUNTRY according to the terms of the respective D&M LICENSES. 2.1.6 The term "COTTON PLANTING SEED" means cotton seed which is intended for and has been so produced and conditioned as to be suitable for planting to produce a commercial cotton crop. 2.1.7 The term "D&M JOINT VENTURE COMPANY" or "D&M JOINT VENTURE COMPANIES" means one or more of the following: MDM Maeda Delta Pine Monsanto Algodao Ltda. (Brazil), CDM Mandiyu S.R.L. (Argentina), Hebei Ji Dai Cotton Seed Technology Company, Ltd., and Anhui An Dai Cotton Seed Technology Company, ltd. (both for China). 2.1.8 The term "D&M" means D&M International LLC, a Missouri limited liability company having its principal place of business at One Cotton Row, Scott, Mississippi, 38772. 2.1.9 The term "D&M LICENSES" shall mean those licenses granted by D&M to the D&M JOINT VENTURE COMPANIES, true and correct copies of which, as previously amended as the case may be, are appended hereto as collective Appendix 1. 2.1.10 The term "D&PL" means Delta and Pine Land Company, a Delaware corporation having its principal place of business at One Cotton Row, Scott, Mississippi 38772. 2.1.11 The term "D&PL TECHNOLOGY" means any information, data and germplasm that D&PL or any of its AFFILIATES develops, produces, makes, or obtains or has the rights to (other than from MONSANTO), relating to the breeding and development of commercial varieties or hybrids of LICENSED COMMERCIAL SEED or other varieties or hybrids of cotton and which is not the property of MONSANTO. D&PL TECHNOLOGY does not include any of the above that has become part of the public domain through no fault of MONSANTO. 2.1.12 The term "DELTAPINE CULTIVAR" means a cultivar of cotton produced from germplasm which D&PL has the right to use for plant-breeding purposes. 2.1.13 The term "DELTAPINE LEPIDOPTERAN-ACTIVE CULTIVAR" means a DELTAPINE CULTIVAR which contains lepidopteran-active gene. 2.1.14 The term "DITC" means D&PL International Technology Corp., a Delaware corporation having its principal place of business at One Cotton Row, Scott, Mississippi 38772. 2.1.15 The term "EFFECTIVE DATE" means the date first above written. 2.1.16 The term "FIRST LEPIDOPTERAN ACTIVE GENE" means the gene encoding the B.t. TOXIN contained in cotton seed derived from the cotton line denominated Event 531. 2.1.17 The term "GLYPHOSATE" means any herbicidally effective form of N-phosphonomethylglycine including any salt thereof or any other EPSP synthase inhibitor. 2.1.18 The term "GOVERNMENTAL APPROVAL" with respect to a LICENSED COUNTRY with respect to a particular LEPIDOPTERAN ACTIVE GENE means that any required official clearances or written approvals, if any, for COMMERCIAL SALE of seed to produce genetically transformed cotton plants containing one or both have been obtained by MONSANTO from all governmental agencies in the LICENSED COUNTRY which, as of that date, have authority to regular the production, use, and sale of such plants or seed produced thereform. Provided, however, that this shall not require MONSANTO to obtain approval from any agency with respect to the issuance of seed certificates or phytosanitary certificates or certificates of plant variety protection under any plant variety protection act or any other governmental approval specific to a DELTAPINE LEPIDOPTERAN-ACTIVE CULTIVAR, which approvals, when appropriate or required, shall be the responsibility of D&PL. 2.1.19 The term "LEPIDOPTERAN-ACTIVE GENE" means a DNA molecule received from MONSANTO, or a replicate thereof, encoding a toxin (whether or not a B.t. TOXIN) that provides LEPIDOPTERAN RESISTANCE. 2.1.20 The term "LEPIDOPTERAN INSECTS" means any insects of the Order Lepidoptera which have an economic impact in the production of cotton, including, but not limited to, cotton boll worms, tobacco budworms, and pink boll worms. 2.1.21 The term "LEPIDOPTERAN RESISTANCE" means the property of cotton plants to be toxic to LEPIDOPTERAN INSECTS due to the presence of one or more heterologous gene sequences (whether or not encoding a B.t. TOXIN). 2.1.22 The term "LICENSED COMMERCIAL SEED" means COTTON PLANTING SEED which incorporates the FIRST LEPIDOPTERAN-ACTIVE GENE. D&PL or a D&M JOINT VENTURE COMPANY, if licensed by MONSANTO to sell cotton seed containing a ROUNDUP READY(R) GENE, may, if GOVERNMENTAL APPROVALS so allow, combine the ROUNDUP READY(R) GENE with the FIRST LEPIDOPTERAN-ACTIVE GENE in LICENSED COMMERCIAL SEED, but the term of that other license shall govern that ROUNDUP READY(R) GENE, including, but not limited to, the price for using that ROUNDUP READY(R) GENE in LICENSED COMMERCIAL SEED. 2.1.23 The term "LICENSED COUNTRY" or "LICENSED COUNTRIES" means one or all of the countries described in one or more of the respective D&M Licenses, to-wit: Argentina, Brazil, Paraguay, Bolivia and the Peoples Republic of China. All rights and obligations of MONSANTO and D&PL hereunder apply only to sales of LICENSED COMMERCIAL SEED in the LICENSED COUNTRIES. 2.1.24 The term "LICENSED GROWER(S)" means any person or entity which has been granted a license under MONSANTO'S GOVERNMENTAL APPROVALS and/or rights in MONSANTO TECHNOLOGY to produce, and/or use MONSANTO TECHNOLOGY in the production of, a commercial cotton crop. 2.1.25 The term "LICENSED PATENT RIGHTS" means MONSANTO PATENT RIGHTS and patent rights of others acquired or licensed by MONSANTO (with the right to sublicense) during the term of this Agreement under which a license is required for D&PL's performance hereunder. Each patent included within the LICENSED PATENT RIGHTS is listed on Appendix 2, which Appendix 2 shall be amended by written notice form MONSANTO to D&PL whenever MONSANTO acquires any such additional LICENSED PATENT RIGHTS. MONSANTO shall periodically notify D&PL of the patent numbers to be included in the notice if required in the applicable Appendix. 2.1.26 The term "MONSANTO" means Monsanto Company, a company incorporated in the State of Delaware, having a place of business at 800 North Lindbergh Boulevard, St. Louis, Missouri 63167. 2.1.27 The term "MONSANTO PATENT RIGHTS" means any applicable patents and patent applications which are owned by MONSANTO or for which MONSANTO has the right to license to D&PL, a license to which is required to permit D&PL to produce LICENSED COMMERCIAL SEED for export to and sale in a licensed COUNTRY, and any patents granted or issued pursuant to any of the foregoing applications and any extensions, continuations, continuations in part, reissues or divisions thereof. 2.1.28 The term "MONSANTO TECHNOLOGY" means information, data, know-how, and technology to which MONSANTO has rights, that has to do with the use of lepidopteran active gene in cotton including, but not limited to, information technology relating to cells and seeds of cotton plants, DNA sequences and probes therefor, transformation methodology, tissue cultures, assays, residue analyses, regeneration and selection procedures, plant genetic constituents, vectors useful in transforming any genetic constituents, construction and use of such vectors in cotton and registration approvals. MONSANTO TECHNOLOGY shall not include information or technology that has become part of the public domain through no fault of D&PL. 2.1.29 The term "OPTION AGREEMENT" means the Option Agreement between MONSANTO and D&PL dated February 2, 1996, and amended as of December 8, 1999, as the same may be further amended in accordance with its terms. 2.1.30 The term "RECIPIENT" means a party, which receives confidential information of another party as described in Section 8. 2.1.31 The term "ROUNDUP READY(R) GENE" means a DNA molecule (including regulatory sequences) supplied by MONSANTO or a replicate thereof, which when inserted into cotton results in increased tolerance to GLYPHOSATE. 2.1.32 The term "SUBLICENSEE PAYMENTS" shall mean the payments due to D&M from its licensees under the D&M LICENSES for use of MONSANTO TECHNOLOGY. 2.1.33 The term "SUBLICENSEE(s)" shall mean one or more of the licensees named in the D&M LICENSES. 2.1.34 The term "SUBSEQUENT LEPIDOPTERAN-ACTIVE GENE" means each LEPIDOPTERAN-ACTIVE GENE, other than the FIRST LEPIDOPTERAN-ACTIVE GENE, authorized by MONSANTO for COMMERCIAL DEVELOPMENT in the LICENSED COUNTRY. It is understood that a SUBSEQUENT LEPIDOPTRAN-ACTIVE GENE, denominated as Event 15985 may be sold in combination with the FIRST Lepidopteran-Active Gene. 2.1.35 The term "TECHNOLOGY" means MONSANTO TECHNOLOGY and/or D&PL TECHNOLOGY, as appropriate. SECTION 3 - LICENSES 3.1 LICENSE GRANT: MONSANTO hereby grants to D&PL a license of all rights necessary for D&PL to grant sublicenses to enable D&M to grant the rights in the D&M LICENSES, and D&PL grants to D&M a sublicense of such rights, which license and sublicense shall be retroactive as necessary to the effective dates of the respective D&M LICENSES. 3.2 REGISTRATIONS AND DATA: ----------------------- (a) MONSANTO shall use commercially reasonable efforts, at its expense, to obtain and maintain regulatory approvals that are needed to sell cotton planting seed containing the FIRST LEPIDOPTERAN-ACTIVE GENE in each country or, in the case of China, in each province, in which the parties have approved the establishment and ownership of a business by D&M, provided, however, that MONSANTO shall not be responsible for obtaining any regulatory approvals for specific varieties of DELTAPINE LEPIDOPTERAN-ACTIVE CULTIVARS. Such regulatory approvals for the FIRST LEPIDOPTERAN-ACTIVE GENE shall be obtained in the name of MONSANTO or its AFFILIATES and are and shall remain the property of MONSANTO or its AFFILIATES. MONSANTO shall give written notice to D&M and the subject D&M JOINT VENTURE COMPANY of governmental requirements regarding the use of licensed MONSANTO TECHNOLOGY and products containing it in the subject country. D&M shall use reasonable efforts to cause the D&M JOINT VENTURE COMPANY to comply with all such governmental requirements regarding the licensed MONSANTO TECHNOLOGY and products containing it, of which MONSANTO has given notice. The foregoing provision shall not apply to acts or omissions approved or acquiesced in by MONSANTO or its representatives. (b) MONSANTO and D&PL (or DITC as the case may be) shall jointly own all safety and efficacy data developed through activities jointly undertaken or funded in a country in which the Parties have approved the establishment and ownership of a business by D&M. MONSANTO and its AFFILIATES and D&PL and its AFFILIATES shall be permitted to use such jointly-owned safety and efficacy data, provided, however, that such use shall not be for the sole benefit of a third party. All such data solely developed by either party shall be owned by the respective party. In addition, D&M shall direct all of its SUBLICENSEES to allow MONSANTO and D&PL and their respective AFFILIATES, upon written request, to obtain copies and to use all safety and efficacy data developed by any of them. 3.3 ENFORCEMENT OF SUBLICENSES: D&M agrees that it shall make timely and reasonable efforts to enforce those terms of any D&M LICENSE which are not based on the direct licensing of rights licensed by MONSANTO to the D&M JOINT VENTURE COMPANIES. MONSANTO agrees that it shall make timely and reasonable efforts to enforce those terms of any D&M LICENSE which are based on the direct licensing of rights by MONSANTO to the D&M JOINT VENTURE COMPANIES. MONSANTO and D&M shall each notify the other party of any violations of the D&M LICENSES of which it becomes aware. MONSANTO and D&M shall consult with each other about any enforcement efforts. In addition, D&PL shall use its best efforts to require that the D&M JOINT VENTURES use commercially reasonable efforts to have available for sale a sufficient quantity of COTTON PLANTING SEED of DELTAPINE LEPIDOPTERAN-ACTIVE CULTIVARS to satisfy the reasonably foreseeable market demand in the LICENSED COUNTRIES in the applicable sales season taking into account the commercial viability of the market. 3.4 LIMITATIONS ON LICENSES AND SUBLICENSES: This Agreement is not to be construed as including a grant from MONSANTO to D&PL of any license, sublicense or other right: (a) to make or sell LEPIDOPTERAN-ACTIVE GENE(S), ROUNDUP READY(R) GENE(S) or MONSANTO TECHNOLOGY except as expressly set forth herein or in the D&M LICENSES, (b) to use LEPIDOPTERAN-ACTIVE GENE(S), ROUNDUP READY(R) GENE(S) or MONSANTO TECHNOLOGY for any purpose other than those expressly set forth herein or in the D&M LICENSES, or (c) to grant sublicenses except as expressly set forth herein or in the D&M LICENSES, provided that the D&M LICENSES applicable in the Peoples Republic of China may be extended in geographical scope or varieties to include additional provinces in the Peoples Republic of China or additional DELTAPINE LEPIDOPTERAN-ACTIVE CULTIVARS with respect to which all relevant GOVERNMENTAL APPROVALS have been received, provided that copies of such amendments are provided to MONSANTO. SECTION 4 - DEVELOPMENT ACTIVITIES 4.1 RESPONSIBILITIES OF THE PARTIES: It shall be MONSANTO'S responsibility, to the extent consistent with the D&M LICENSES, to (1) determine the appropriate marketing claims and price for the LEPIDOPTERAN-ACTIVE GENE(S) consistent with the provisions of the D&M LICENSES, which price may be adjusted by February 1 preceding the crop season in which the new price will be in effect and provided that in China, the negotiations with governmental entities to set the financial terms for the LEPIDOPTERAN-ACTIVE GENE shall be led by MONSANTO and supported by D&PL, D&M and their agents or employees in China; and (2) determine and implement the system for licensing growers. It shall be D&PL's responsibility, to the extent consistent with the D&M LICENSES, to (1) comply, and require compliance by its AFFILIATES and distributors, with all conditions, of which it has been notified, of such registrations and approvals applicable to its activities under this Agreement; and (2) determine the appropriate marketing claims and prices for DELTAPINE LEPIDOPTERAN-ACTIVE CULTIVARS other than those for the LEPIDOPTERAN-ACTIVE GENE(S). SECTION 5 - EXCLUSIVE LICENSE/OPTION RIGHTS 5.1 Exclusivity: (a) The license and sublicense granted in Subsection 3.1 shall be an exclusive license for the FIRST LEPIDOPTERAN-ACTIVE GENE in each LICENSED COUNTRY, subject to the following. MONSANTO shall have the right to convert the licenses, on a country by country basis, to non-exclusive and to grant licenses to other parties to sell COTTON PLANTING SEED containing the FIRST LEPIDOPTERAN-ACTIVE GENE in that LICENSED COUNTRY beginning twenty-four (24) months before the date designated by D&PL by a written notice as the date that D&PL or the applicable D&M JOINT VENTURE intends to commence COMMERCIAL sale, in that LICENSED COUNTRY, of COTTON PLANTING SEED containing one or more heterologous genes or gene sequences from a source other than MONSANTO which confer LEPIDOPTERAN RESISTANCE (a "NON-MONSANTO LEPIDOPTERAN-ACTIVE GENE"). D&PL shall give MONSANTO notice of such intent to sell such COTTON PLANTING SEED in a LICENSED COUNTRY the greater of (i) twenty-four (24) months or (ii) the minimum period legally required to obtain variety registration in the LICENSED COUNTRY (if such variety registration should be required in the LICENSED COUNTRY), prior to the first commercial sale of such COTTON PLANTING SEED in the LICENSED COUNTRY. Such licenses shall not allow the third party licensee to sell products, containing the subject LEPIDOPTERAN-ACTIVE GENE, earlier than the date on which D&PL has notified MONSANTO that COMMERCIAL sales of COTTON PLANTING SEED containing such NON-MONSANTO LEPIDOPTERAN-ACTIVE GENE are planned to commence in the LICENSED COUNTRY. Subject to D&PL's compliance with the notice provisions of this Subsection 5.1(a), MONSANTO hereby waives any rights, if any, that it may have to enforce provisions of the D&M LICENSES that prohibit or restrict the development or sale by the D&M JOINT VENTURE COMPANIES of COTTON PLANTING SEED containing NON-MONSANTO LEPIDOPTERAN-ACTIVE GENE(S). (b) In the event that D&PL fails to provide the notice required in subparagraph (a) above, D&PL shall pay to MONSANTO the portion of SUBLICENSEE PAYMENTS retained by D&PL or D&M with respect to any sales of LICENSED COTTON SEED in the LICENSED COUNTRY by the D&M JOINT VENTURE made at any time when such notice should have been in effect but was not, plus interest as provided below. 5.2 Option Agreement: It is acknowledged and agreed that the granting of rights by MONSANTO to D&PL and the granting of rights by D&PL to D&M under this Agreement and the granting of rights by D&M to D&M JOINT VENTURE COMPANIES under D&M LICENSES is not in fulfillment of and does not supercede or affect the rights of D&PL under the OPTION AGREEMENT (except that, with respect to any LEPIDOPTERAN-ACTIVE GENE or NON-LEPIDOPTERAN-ACTIVE GENE (as defined in Subsection 2.1.18 of the OPTION AGREEMENT) and related MONSANTO TECHNOLOGY licensed by MONSANTO to D&M and sublicensed by D&M to a D&M JOINT VENTURE COMPANY, such licensing shall not be considered a violation of D&PL's right under the OPTION AGREEMENT to a license for the particular LEPIDOPTERAN-ACTIVE GENE(s) and NON-LEPIDOPTERAN-ACTIVE GENE(s) and related MONSANTO TECHNOLOGY in the geographical territory covered by the subject D&M LICENSE), provided that the right of D&PL to a license to any particular LEPIDOPTERAN-ACTIVE GENE(s) or NON-LEPIDOPTERAN-ACTIVE GENE(s) and related MONSANTO TECHNOLOGY in the geographical territory covered by the subject D&M LICENSE shall be suspended for so long as (a) either D&PL or DITC or another affiliate of D&PL is a member of D&M, (b) D&M is an owner of an interest in the D&M JOINT VENTURE COMPANY which is the licensee under the subject D&M LICENSE, (c) the subject D&M LICENSE is in effect and (d) the D&M JOINT VENTURE COMPANY is engaged in the production and sale of cotton planting seed embodying the subject LEPIDOPTERAN-ACTIVE GENE or NON-LEPIDOPTERAN-ACTIVE GENE and related MONSANTO TECHNOLOGY in the subject geographical territory, provided that Subparagraph (d) shall not apply to the D&M JOINT VENTURE COMPANY in Brazil until one year after governmental approval of production and/or sale of cotton planting seed containing LEPIDOPTERAN-ACTIVE GENE(s) or NON-LEPIDOPTERAN-ACTIVE GENE(s) in Brazil. In the event that any of the conditions (a), (b), (c) or (d) as set forth in the preceding sentence ceases to exist, said suspension of D&PL's right under the OPTION AGREEMENT shall terminate and D&PL shall have rights to licenses to the subject LEPIDOPTERAN-ACTIVE GENE(S) or NON-LEPIDOPTERAN-ACTIVE GENE(s) and related MONSANTO TECHNOLOGY in the affected geographical territory as are provided for in the OPTION AGREEMENT, provided that if, at the applicable date, the license to a particular D&M JOINT VENTURE COMPANY has become non-exclusive under the provisions of Section 5.1(a), the license to D&PL for the affected geographical territory under the OPTION AGREEMENT shall be non-exclusive as to the FIRST LEPIDOPTERAN- ACTIVE GENE. It is understood and agreed that the grant of a D&M LICENSE covering one or more provinces of China does not extinguish the Option with respect to provinces of China not covered by that D&M LICENSE. SECTION 6 - COMPENSATION AND REPORTS 6.1 PAYMENTS AND REPORTS TO MONSANTO: As consideration for the sublicense rights granted in Section 3, D&M shall pay directly to MONSANTO seventy percent (70%) of the net amount of SUBLICENSEE PAYMENTS, after deduction of any taxes other than income taxes payable by D&M with respect to SUBLICENSEE PAYMENTS and after addition of any interest earned by D&M on the SUBLICENSEE PAYMENTS. Payments shall be made within thirty (30) days of receipt by D&M of the SUBLICENSEE PAYMENTS and shall be accompanied by a report of all receipts of SUBLICENSEE PAYMENTS and receipts for taxes deducted by D&M from the SUBLICENSEE PAYMENTS. Payment shall be made by wire transfer to: CitiBank New York Routing number: 021000089 Account number: 3042-4808 Account name:Monsanto Company with a written notice of such wire transfer or another account in the United States which MONSANTO may subsequently designate from time to time by prior, written notice to D&M. D&PL and D&M shall use commercially reasonable efforts to cause each D&M JOINT VENTURE COMPANY (1) to make timely payment to D&M of SUBLICENSEE PAYMENTS due to D&M and (2) not to use any TECHNOLOGY FEES collected with respect to sales of LICENSED COMMERCIAL SEED occurring on or after the EFFECTIVE DATE for D&M JOINT VENTURE COMPANY operations, including but not limited to, seed production, research and development, capital investments, and interest payments, in priority over payment to D&M of the SUBLICENSEE PAYMENTS due to D&M, all subject to the Foreign Exchange Balance provisions of the contracts for formation of the D&M JOINT VENTURES as such provisions existed at formation. 6.2 LATE PAYMENTS: If D&M fails to pay MONSANTO on or before the due date any amount which is payable under this Agreement, then, without prejudice to Section 10.3, that amount shall bear interest at the "Prime Rate on Corporate Loans at Large U. S. Money Center Commercial Banks" as reported by the Wall Street Journal on said due date plus three percent (3%) per annum from the due date until payment is made in full, both before and after any judgment. 6.3 REPORTS: D&M shall send copies of all reports required by the terms of the D&M LICENSES to MONSANTO within thirty (30) days of receipt. SECTION 7 - BUSINESS RECORDS 7.1 BUSINESS RECORDS: D&PL further agrees to submit the books and records of D&PL and D&M and the D&M JOINT VENTURES to be examined from time to time to the extent necessary to verify the reports required herein, such confidential examination to be made by a national auditing firm appointed by and at the expense of the party requesting such audit, which firm shall be reasonably acceptable to the other party. In the event that in any such audit, errors which in the aggregate are identified that result in a payment by the audited party to the requesting party of more than 2.5 percent of the amount which should have been paid, then the audited party shall pay the reasonable expense of such audit SECTION 8 - CONFIDENTIALITY 8.1 NON-DISCLOSURE OF CONFIDENTIAL INFORMATION: ------------------------------------------ (a) Neither D&PL, D&M, DITC nor MONSANTO shall, at any time during the period specified by Subsection 8.2, disclose to any other person any confidential TECHNOLOGY or other confidential information which has been disclosed to it by the other party except with the prior written consent of the other party or as provided in Subsection 8.3; provided, however, MONSANTO shall be permitted to disclose any general information relating to performance of a LEPIDOPTERAN-ACTIVE GENE to the extent such disclosure is necessary or desirable for the commercialization of cotton seed containing a LEPIDOPTERAN-ACTIVE GENE in each LICENSED COUNTRY; provided, further that, MONSANTO shall not be permitted to disclose information relating specifically only to DELTAPINE CULTIVARS. (b) MONSANTO shall not disclose confidential D&PL pricing, sales, or other sensitive information to any competitor of D&PL. 8.2 PERIOD OF CONFIDENTIALITY: The period referred to in Subsection 8.1 shall be the period beginning with the date of receipt of the confidential TECHNOLOGY or other confidential information and ending, with respect to that TECHNOLOGY or other information, ten (10) years thereafter. 8.3 USES OF CONFIDENTIAL INFORMATION: Subject to any overriding provisions of this Agreement, any TECHNOLOGY or other confidential information which is disclosed by either D&PL or MONSANTO to the other party may be: (a) Disclosed by the RECIPIENT to any directors, officers, employees, agents or contractors of the RECIPIENT, to such extent only as is reasonably necessary for fulfillment of the RECIPIENT'S obligations under this Agreement or for the commercial exploitation of the cotton seed containing a LEPIDOPTERAN-ACTIVE GENE, and subject, in each case, to the RECIPIENT'S obligating the person in question to hold the same confidential by written agreement coincident in scope and term with the confidentiality obligation of this Agreement and that person further agreeing not to use the same except for the purposes for which the disclosure is made; (b) Disclosed by the RECIPIENT to any governmental or other authority or regulatory body to the extent required by law. Provided, however, that the RECIPIENT shall take all reasonable measures to ensure that such authority or body keeps the same confidential and does not use the same except for the purpose for which such disclosure is made. Provided, further, that the party proposing to so disclose shall give prior notice of that intent to the party which disclosed such TECHNOLOGY and/or other confidential information and permit said other party, at its option, to contest said requirement and to seek confidential treatment of such TECHNOLOGY or information; (c) Disclosed to a Court or litigant, to the extent such disclosure is ordered by a Court or governmental agency of competent jurisdiction. Provided, however, that the RECIPIENT shall take all reasonable measures to ensure that the Court, other litigants, or governmental agency keep the same confidential and does not use the same except for the purpose for which such disclosure is made. Provided, further, that the party proposing to so disclose shall give prior notice of that intent to the party which disclosed such TECHNOLOGY and/or other confidential information and permit said other party, at its option to contest said requirement and to seek confidential treatment of such TECHNOLOGY or information; and (b) Used by the RECIPIENT for any purpose, or disclosed by the RECIPIENT to any other person, to the extent only that it is on the EFFECTIVE DATE or thereafter becomes, public knowledge through no fault of the RECIPIENT, or is disclosed to the RECIPIENT by a third party as a matter of right, or can be shown by the RECIPIENT by written records to have been known to the RECIPIENT prior to such disclosure. SECTION 9- FORCE MAJEURE 9.1 FORCE MAJEURE: Except with regard to any payments required pursuant to this Agreement, no party shall be liable for delay or failure to perform, in whole or in part, by reason of contingencies beyond its reasonable control ("Force Majeure"), whether herein specifically enumerated or not, including, among others, acts of God, war, acts of war, revolution, civil commotion, riots, acts of public enemies, blockade or embargo, delays of carriers, car shortage, fire, explosion, breakdown of equipment, strike, chemical reversal reactions, lockout, labor dispute, casualty or accident, earthquake, epidemic, flood, cyclone, tornado, hurricane or other windstorm, delays of vendors, or by reason of any law, order, proclamation, regulation, ordinance, demand, requisition, requirement or any other act of any governmental authority, including, but not limited to, governmental actions restricting or preventing the growing or marketing of LICENSED COMMERCIAL SEED; provided, however, that the party so affected shall, as promptly as reasonably possible under the circumstances, give written or oral notice to each other parties whenever such a contingency appears likely to occur or has occurred and shall use all reasonable efforts to overcome the effects of the contingency as promptly as possible and shall allow each such party such access and information as may be necessary or desirable to evaluate such contingency. No party shall be required to resolve a strike, lockout or other labor problem in a manner, which it alone does not deem proper and advisable. If any party is affected by an event of the sort enumerated in or contemplated by this Subsection 9.1, it may suspend performance of this Agreement for a period of time equal to the duration of the event excusing such performance and the time required to overcome the consequences of such event and resume performance. The affected party shall complete performance as required by this Agreement as soon as practicable after removal or cessation of the cause for the delay or reduction in performance. SECTION 10 -- TERM AND TERMINATION 10.1 TERM OF THE AGREEMENT: The term of this Agreement shall be for the term of the last to expire of the D&M LICENSES or the dissolution of D&M, whichever shall be first. 10.2 TERMINATION OF A D&M LICENSE: In the event a D&M LICENSE is terminated for any reason, the rights granted in Section 3 are terminated with respect to the rights granted by that D&M LICENSE. 10.3 BREACH OF OBLIGATIONS: Breach by any party of any of the material provisions of this Agreement (other than the confidentiality obligations of Section 8 or default upon any of the payment obligations provided herein) shall entitle each of the other parties to give the party in breach or default at least ninety (90) days' notice to cure such breach or default. If a material breach or default by the defaulting party is not cured within the ninety (90) day period, the materially affected other party may terminate this Agreement as to the affected D&M LICENSE, if the breach affects certain D&M LICENSE(s), or in its entirety if the breach affects all D&M LICENSES, by giving written notice to the other parties to take effect immediately. Any termination under this Subsection 10.3 shall not affect any other rights the notifying party may have under this Agreement or at law. 10.4 EFFECT OF TERMINATION: In the event this Agreement is terminated in its entirety or with respect to certain D&M LICENSE(S), by either D&M or MONSANTO, D&M shall lose all rights granted to it pursuant to this Agreement with respect to the affected D&M LICENSE, and, as provided in Section 4 any applicable suspension of D&PL's rights under the OPTION AGREEMENT shall terminate and any of D&PL's rights under the OPTION AGREEMENT, previously suspended, shall be in full force and effect in the affected geographical territory; provided, however, that if this Agreement is terminated by D&PL on account of a breach or default by MONSANTO, D&PL and its Sublicensee(s) shall have the right to sell LICENSED COMMERCIAL SEED then in the possession of D&PL or its SUBLICENSEE(S) or which D&PL or its SUBLICENSEE(S) are then obligated by contract to take delivery in the LICENSED COUNTRY. 10.5 SURVIVAL OF COVENANTS: Notwithstanding the termination of this Agreement by notice or otherwise, the rights and obligations conferred by Sections 5, 6, 8, 11, 12, 13 and 14, with respect to events which occurred prior to such termination shall survive termination. SECTION 11-- Warranties and Indemnities 11.1 MONSANTO WARRANTIES IN D&M LICENSES: MONSANTO affirms the warranties given in the name of MONSANTO to the respective D&M JOINT VENTURE COMPANIES in each of the EXISTING D&M LICENSES. 11.2 MUTUAL WARRANTIES: ----------------- (a) MONSANTO warrants to D&PL and D&M that this Agreement does not, and performance by MONSANTO of its obligations hereunder will not, contravene any provision of any agreement or contract binding upon MONSANTO. (b) D&PL warrants to MONSANTO and D&M that this Agreement does not, and performance of D&PL of its obligations hereunder will not, contravene any provision of any agreement or contract binding upon D&PL. (c) D&M warrants to MONSANTO and D&PL that this Agreement does not, and performance by D&M of its obligations hereunder will not, contravene any provision of any agreement or contract binding upon D&M. 11.3 MONSANTO WARRANTIES: MONSANTO hereby warrants and represents that with respect to each LEPIDOPTERAN-ACTIVE GENE authorized by MONSANTO for COMMERCIAL SALE, as of the EFFECTIVE DATE, MONSANTO: (i) is the owner of such LEPIDOPTERAN-ACTIVE GENE and MONSANTO TECHNOLOGY used in the development thereof; (ii) is owner or licensee of any applicable LICENSED PATENT RIGHTS; and (iii) has the right to license (or sublicense) D&PL such LEPIDOPTERAN-ACTIVE GENE and the LICENSED PATENT RIGHTS and MONSANTO TECHNOLOGY used in the development thereof, for use under the terms of this Agreement. 11.4 NO OTHER WARRANTIES: EXCEPT AS MAY BE OTHERWISE PROVIDED IN ONE OR MORE OF THE D&M LICENSES, IT IS EXPRESSLY UNDERSTOOD THAT D&M AND MONSANTO AND D&PL MAKE NO OTHER REPRESENTATIONS, EXTEND NO OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED, AND ASSUME NO RESPONSIBILITIES, OTHER THAN EXPRESSLY PROVIDED FOR HEREIN, INCLUDING, BUT NOT LIMITED TO, ANY REPRESENTATION OR WARRANTY WITH RESPECT TO: (a) THE PERFORMANCE, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF ANY LEPIDOPTERAN-ACTIVE GENE(S), NON-LEPIDOPTERAN-ACTIVE GENE(S), ROUNDUP READY(R)GENE(S), OR OTHER MONSANTO TECHNOLOGY, OR ANY COTTON CULTIVAR; (b) THE SCOPE OR VALIDITY OF ANY PATENT; OR (c) ANY LEPIDOPTERAN-ACTIVE GENE, RELATED MONSANTO TECHNOLOGY, OR COTTON CULTIVARS OR USE THEREOF BEING FREE FROM INFRINGEMENT OF PATENT RIGHTS OF THIRD PARTIES. 11.5 INDEMNITY: MONSANTO does hereby agree to defend and indemnify against, and hold D&M and its SUBLICENSEES and their respective employees, directors, officers, and agents harmless from, any loss, cost, liability or expense (including court costs and reasonable fees of attorneys and other professionals) incurred from a claim arising or alleged to arise out of a breach of a warranty given by MONSANTO in any D&M LICENSE. Except as provided in the foregoing sentence, D&M does hereby agree to defend and indemnify against, and hold MONSANTO and D&PL and their respective employees, directors, officers and agents harmless from, any loss, cost, liability or expense (including court costs and reasonable fees of attorneys and other professionals) incurred from a claim arising or alleged to arise out of the manufacture, use, distribution or sale of any product containing MONSANTO TECHNOLOGY and licensed hereunder (other than a claim of patent infringement); provided, however, that (i) D&M shall have sole control of such defense, and (ii) MONSANTO or D&PL shall provide notice promptly to D&M of any actual or threatened claim of which MONSANTO or D&PL becomes aware. However, MONSANTO may choose to defend any claim of violation of a governmental prohibition or requirement with respect to MONSANTO TECHNOLOGY, in which case D&M shall only be responsible for the governmental fines or penalties, but not MONSANTO's costs of defense. Any expenses incurred by D&M under this Subsection 11.5 shall be shared equally between MONSANTO and DITC. D&M may establish reasonable reserves for payment of claims and expenses covered by this Subsection 11.5. SECTION 12 -- PATENT INFRINGEMENT 12.1 UTILIZATION OF NON-INFRINGING TECHNOLOGY: If, in MONSANTO'S opinion, the development, production, processing, use, export or sale of LICENSED COMMERCIAL SEED with respect to the LICENSED COUNTRY, that has been authorized for COMMERCIAL SALE in writing by MONSANTO, would infringe a third party patent, MONSANTO shall employ reasonable business efforts and judgment to access the necessary license from said third party at no additional cost to D&PL, at which time said patent shall become part of the LICENSED PATENT RIGHTS. If MONSANTO has alternative TECHNOLOGY which MONSANTO can lawfully license for use by D&PL and the SUBLICENSEES that obviates the need for said third party license which MONSANTO cannot access at a reasonable cost and results in plants which exhibit LEPIDOPTERAN RESISTANCE at the same or greater levels as plants produced from LICENSED COMMERCIAL SEED containing previously authorized TECHNOLOGY, MONSANTO shall make such alternative TECHNOLOGY available to D&PL. D&PL and D&M shall promptly utilize, and shall use commercially reasonable efforts to cause SUBLICENSEES to utilize, such alternative TECHNOLOGY to avoid the need for such third party license. Nothing in this Agreement shall preclude D&PL from negotiating directly with any third party for rights under patents or patent applications held by a third party. Provided, however, that any costs incurred by D&PL in negotiating for or acquiring any third party patent rights shall not be credited against any payments due to MONSANTO by D&PL unless MONSANTO agrees to such credit in writing. 12.2 DEFENSE OF INFRINGEMENT CLAIMS: ------------------------------ (a) Subject to the limitations of Subsection 12.3, MONSANTO shall assume the defense of any claim brought against D&PL by a third party for infringement of any patent of the LICENSED COUNTRY insofar as such claim arises solely from D&PL'S or the SUBLICENSEES use in the LICENSED COUNTRY of transonic cotton germplasm provided by MONSANTO pursuant to this Agreement ("D&PL Infringement Claim") and, except as provided to the contrary in this Section 12, shall assume the legal costs and expenses of defending D&PL, D&M and the SUBLICENSEES against any such D&PL Infringement Claim. MONSANTO shall be permitted to conduct such defense with a recognized patent counsel on the subject LICENSED COUNTRY and litigation lawyers of its choice experienced in patent law and shall regularly keep D&PL informed in writing of the status and progress of the suit . If D&PL desires to have its counsel participate in the preparation of such defense, trial, or settlement of any D&PL Infringement Claim, such participation shall be at D&PL'S expense. Subject to the limitations of Subsection 12.2 and 12.3, MONSANTO shall indemnify D&PL, D&M and the SUBLICENSEES against any and all monetary damages and/or costs actually awarded in such suit or any amounts paid in settlement in respect to such an D&PL Infringement Claim. In the event that D&PL assumes the defense against any D&PL Infringement Claim, MONSANTO shall have no obligation to defend or indemnify D&PL with respect to such D&PL Infringement Claim. (b) If the D&PL Infringement Claim is made by a third party, and (i) a license agreement is available on reasonable terms to settle the D&PL Infringement Claim, and (ii) D&PL does not accept the proposed reasonable license agreement, then MONSANTO's liability under its obligations to defend and indemnify D&PL with respect to such D&PL Infringement Claim shall be limited to the sum of the costs incurred and damages attributable to D&PL's activities prior to the availability of the license plus an amount not to exceed the royalties and other monetary payments that would have been payable for D&PL's activities after availability of the license to the third party licensor had such license agreement been accepted. (c) The obligation of MONSANTO pursuant to this Subsection 12.2 shall apply only if: (i) D&PL notifies MONSANTO within twenty (20) days of the receipt by D&PL of a notice of an alleged or potential infringement of a third-party patent by the production, use or sale of LICENSED COMMERCIAL SEED or a D&PL Infringement Claim; (ii) MONSANTO is given exclusive control of the defense of such D&PL Infringement Claim and all negotiations relating to its settlement; provided however that, MONSANTO shall keep D&PL advised of the status of the D&PL Infringement Claim and any such negotiations and that any settlement by MONSANTO which has or reasonably could have a substantial direct financial impact on D&PL shall require the prior written approval of D&PL which shall not be unreasonably withheld; provided further that for the purposes of this Subsection 12.2(c)(ii), a settlement which requires the payment of not more than the remaining indemnification amount of Subsection 12.3 to the third-party patent owner and would require no further payment to said third party for continued development, production, use or sale of LICENSED COMMERCIAL SEED shall not be considered to have a direct financial impact on D&PL; and (iii) D&PL promptly provides to the attorney(s) defending the action all relevant information in its possession (excluding information covered by confidentiality obligations to third parties) reasonably requested by MONSANTO and reasonably makes available all personnel of D&PL for depositions, testimony and consultations, and provides such technical assistance reasonably requested by MONSANTO to the extent necessary for the conduct of the suit and to the extent that D&PL has the power and the legal right to do so. (d) In the event of a D&PL Infringement Claim or an allegation of infringement of a third-party patent in the LICENSED COUNTRY and if a reasonable license agreement with that third party is not available, then D&PL shall, upon the written request of MONSANTO promptly cease and desist the infringing activity. If D&PL does not cease and desist such activity, MONSANTO shall have no obligation to defend or indemnify D&PL with respect to any such D&PL Infringement Claim. 12.3 LIMITATION OF LIABILITY: MONSANTO's total liability at any time for all indemnification payments to D&PL, D&M and/or its SUBLICENSEES for its payments to third parties for patent infringement, payments made in settlement of infringement claims against D&PL, and D&PL's costs, and costs associated with the defense of all D&PL Infringement Claims, shall not cumulatively exceed, the total amount of COMPENSATION received by MONSANTO for sales of the relevant product in the LICENSED COUNTRY, if any, including those fees received by MONSANTO for sales in the LICENSED COUNTRY prior to the EFFECTIVE DATE. 12.4 SUSPECTED INFRINGEMENT OF LICENSED PATENT RIGHTS: In the event D&PL learns of suspected infringement of LICENSED PATENT RIGHTS, then to the extent that D&PL is lawfully permitted to do so, D&PL shall notify MONSANTO to such effect and provide MONSANTO with the evidence concerning suspected infringement in D&PL'S possession. MONSANTO shall use reasonable efforts to terminate such infringement without litigation. Nothing herein shall be construed as conferring on D&PL any right to bring suit for infringement of LICENSED PATENT RIGHTS. 12.5 EFFECT OF INVALIDITY OF LICENSED PATENT RIGHTS: In the event any claim of LICENSED PATENT RIGHTS is declared invalid or unenforceable by a final judgment of a court having competent jurisdiction, the LICENSES granted under Section 3 shall terminate and have no force or effect as to the subject matter covered by that claim. However, subject to the provisions of Sections 6 and 10, the LICENSES shall continue with respect to any remaining patent claims within LICENSED PATENT RIGHTS. SECTION 13 -- CLAIMS BY VENDEES FOR FAILURE OF GENE PERFORMANCE 13.1 All claims by vendees for failure of gene performance shall be handled according to the applicable terms of the D&M LICENSES, if any. SECTION 14 - GENERAL 14.1 ASSIGNMENT OF D&PL'S RIGHTS AND OBLIGATIONS: D&PL shall have the right to assign this Agreement in connection with the reorganization, consolidation, spin-off, sale, or transfer of substantially all of the stock or assets related to that portion of its business pertaining to the subject matter of this Agreement, either alone or in conjunction with other D&PL businesses. The assignee shall agree in writing to be bound by all terms of this Agreement, and D&PL shall thereafter be released from all obligations hereunder. In addition, D&PL shall have the right to assign its respective rights or obligations and delegate its performance hereunder, in whole or in part, to any of its AFFILIATES which carries out the activities licensed under this Agreement; provided, however, that D&PL shall remain liable for the obligations of that AFFILIATE hereunder. Except as provided above, D&PL shall not (by operation of law or otherwise) assign, mortgage, give as security, or license any of its rights hereunder, nor shall D&PL subcontract or delegate (other than in the ordinary course of business) any of its obligations hereunder (except as otherwise provided in this Agreement), except with the written consent of MONSANTO. 14.2 ASSIGNMENT OF MONSANTO'S RIGHTS AND OBLIGATIONS: MONSANTO shall have the right to assign this Agreement in connection with the reorganization, consolidation, spin-off, sale, or transfer of substantially all of the stock or assets related to that portion of its business pertaining to the subject matter of this Agreement, either alone or in conjunction with other MONSANTO businesses. The assignee shall agree in writing to be bound by all the terms of this Agreement, and MONSANTO shall thereafter be released from all obligations hereunder. In addition, MONSANTO shall have the right to assign its respective rights or obligations and delegate its performance hereunder, in whole or in part, to any of its AFFILIATES provided, however, that MONSANTO shall remain liable for all obligations hereunder. Except as provided above, MONSANTO shall not (by operation of law or otherwise) assign, mortgage, give as security, or license any of its rights hereunder, nor shall MONSANTO subcontract or delegate (other than in the ordinary course of business) any of its obligations hereunder (except as otherwise provided in this Agreement), except with the written consent of D&PL. 14.3 RELATION OF PARTIES: Nothing in this Agreement shall create, or be deemed to create, a partnership, or the relationship of principal and agent among the parties. No provision of this Agreement is intended to be for the benefit of or enforceable by any third party. 14.4 Integration of Contract: This Agreement constitutes a complete and exclusive statement of the terms and conditions of their agreement relating to the subject matter set forth in Section 3.1. Except as expressly set forth in Section 5.1, this Agreement does not supersede or modify (a) the OPTION AGREEMENT, (b) the D&M LICENSES, or (c) the organizational documents of the D&M JOINT VENTURE COMPANIES and the ancillary contracts identified therein. 14.5 WAIVERS AND AMENDMENTS: This Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by the parties, or, in the case of a waiver, by the party waiving compliance. Except where a specific period for action or inaction is provided herein, no delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof. Nor shall any waiver on the part of any party of any such right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof or the exercise of any subsequent or other such right, power or privilege. Except as otherwise provided herein, no conditions, usage of trade, course of dealing or performance, understanding or agreement purporting to modify, vary, explain or supplement the terms or conditions of this Agreement shall be binding unless hereafter made in writing and signed by the party to be bound, or by a written amendment hereof executed by the parties, and no modification shall be effected by the acknowledgement or acceptance of any forms or other documents containing terms or conditions at variance with or in addition to those set forth in this Agreement. 14.6 HEADINGS: Section and Subsection headings as to the contents of particular Sections and Subsections are for convenience only and are in no way to be construed as part of this Agreement or as a limitation of the scope of the particular Section or Subsection to which they refer. 14.7 REFERENCES TO SECTIONS AND SUBSECTIONS: Unless otherwise expressly stated, all Sections and Subsections referred to herein are Sections and Subsections of this Agreement. 14.8 PARTIAL INVALIDITY: If any provision of this Agreement is held by any competent authority to be invalid or unenforceable in whole or in part, this Agreement shall continue to be valid as to the other provisions thereof and the remainder of the affected provision, provided that in the event that the absence of such provision(s) causes a material adverse change in either the risks or benefits of this Agreement to any party, the parties shall negotiate in good faith concerning a commercially reasonable substitute or replacement for the invalid or unenforceable provision(s). 14.9 GOVERNING CONTRACT LAW: This Agreement shall be governed and construed in all respects in accordance with the laws of the State of Delaware (other than its rules of conflicts of law). 14.10 Notices: Any notice or other information required or authorized by this Agreement to be given by any party to the others shall be given in writing and shall be deemed sufficiently given when delivered by hand, or transmitted by express mail or overnight courier service, or transmitted by facsimile or other means of electronic data transmission, confirmed by express mail or overnight courier service, to the following addresses of the other party or such other address as is notified to the other party from time to time: If to D&M: D&M International, L.L.C. One Cotton Row Scott, MS 38772 Attn: D&PL International Technology Corp. Its Managing Member If to D&PL or DITC: Delta and Pine Land Company One Cotton Row Scott, MS 38772 Attention: President If to MONSANTO: Monsanto Company 800 North Lindbergh Blvd. St. Louis, MO 63167 Attention: Cotton Product Manager 14.11 DISPUTE RESOLUTION: (a) Any claim, dispute, difference or controversy between the parties arising out of, or relating to, this Agreement which cannot be settled by mutual understanding between the parties (a "DISPUTE") shall be submitted within thirty (30) days of such DISPUTE to a panel consisting of a senior executive nominated by each party (the "PANEL"). Such PANEL shall meet and use reasonable efforts to resolve said Dispute. (b) If the DISPUTE cannot be resolved within thirty (30) days of submission to the PANEL, then the DISPUTE shall be finally settled by binding arbitration in accordance with the provisions of Section 10.11 of the OPTION AGREEMENT. (c) Notwithstanding the foregoing Subsections 14.11(a) and 14.11(b), any DISPUTE covered by the dispute resolution provisions of a D&M LICENSE shall be resolved in accordance to those provisions. 14.12 INCORPORATION OF APPENDIXES: The Appendices and Attachments are incorporated herein and made a part hereto. IN WITNESS WHEREOF, this Agreement has been executed by duly authorized representatives of the parties herein. D&M INTERNATIONAL, L.L.C. By: D&PL International Technology Corp. Its Managing Member By:_/s/ Murray Robinson____________ Title:_Chairman____________________ DELTA AND PINE LAND COMPANY By:_/s/ Murray Robinson ___________ Title:_President & CEO_____________ D&PL INTERNATIONAL TECHNOLOGY CORP. By:__/s/ Murray Robinson___________ Title:__Chairman___________________ MONSANTO COMPANY By:_/s/ W. R. Deaton_______________ Title:__Cotton Strategy Lead ______ APPENDIX 1 EXISTING D&M LICENSES: 1. ANHUI JV INSECT RESISTANCE TECHNOLOGY LICENSE 2. HEBEI JV INSECT RESISTANCE TECHNOLOGY LICENSE 3. CDM MANDIYU S.R.L. INSECT RESISTANCE TECHNOLOGY LICENSE 4. MDM MAEDA DELTAPINE MONSANTO ALGODAO LTDA. INSECT RESISTANCE TECHNOLOGY LICENSE APPENDIX 2 Argentina Patent 243234 Brazil (to be supplied at a later date) AMENDMENT TO THE BOLLGARD(R) GENE LICENSE AGREEMENT OF JUNE 7, 2002 Monsanto Company ("MONSANTO"), having a place of business at 800 North Lindbergh Boulevard, St. Louis, Missouri 63167; and Delta and Pine Land Company ("D&PL"), D&PL International Technology Corp. ("DITC"), and D&M International LLC ("D&M"), each having its place of business at One Cotton Row, Scott, Mississippi 38772, are parties to the above entitled agreement. The parties now do here agree that it be amended by the addition of a new paragraph as follows: 3.5 MONSANTO hereby waives any rights, if any, that it may have to approve and execute, and, to the extent necessary, hereby consents to, amendments to the D&M LICENSES to delete Article 2.05(b) of the D&M LICENSES for Hebei Ji Dai Cotton Seed Technology Company, Ltd., and Anhui An Dai Cotton Seed Technology Company, Ltd. and Article 2.05(d) of the D&M LICENSES for MDM Maeda Delta Pine Monsanto Algodao Ltda. and CDM Mandiyu S.R.L. and to expressly allow the D&M JOINT VENTURE COMPANIES to insert into a line of LICENSED COMMERCIAL SEED of DELTAPINE LEPIDOPTERAN-ACTIVE CULTIVARS any heterologous gene or gene construct not licensed to D&PL by MONSANTO expressing a trait not naturally occurring in cotton (a "NON-MONSANTO COTTON GENE") provided that, with respect to any LICENSED COMMERCIAL SEED sold by a D&M JOINT VENTURE COMPANY in a LICENSED COUNTRY which contains any NON-MONSANTO COTTON GENE ("STACKED GENE COTTON SEED"): (1) The D&M JOINT VENTURE COMPANY shall not sell in the LICENSED COUNTRY any STACKED GENE COTTON SEED unless D&PL has sold COTTON PLANTING SEED containing the same NON-MONSANTO COTTON GENE has been approved for commercial sale in the United States of America and for import into Japan ; (2) The STACKED GENE COTTON SEED must meet all standards for sale in the LICENSED COUNTRY as LICENSED COMMERCIAL SEED except that the traits imparted by the designated NON-MONSANTO COTTON GENE shall not be considered "unintended genetically-modified traits" for purposes of the terms of the D&M LICENSES, if necessary; (3) D&PL or the applicable D&M JOINT VENTURE COMPANY shall, at its sole expense, obtain all required official clearances or written approvals, if any, for COMMERCIAL SALE of seed containing the NON-MONSANTO COTTON GENE from all governmental agencies in the LICENSED COUNTRY which, as of that date, have authority to regulate the production, use, and sale of such seed in the LICENSED COUNTRY. D&PL may request that MONSANTO provide assistance, to obtain such approvals, and, if MONSANTO provides such assistance at D&PL's request. D&PL shall reimburse MONSANTO its reasonable expenses incurred in providing such requested assistance; (4) MONSANTO shall have the right by written notice to D&PL to prohibit the display of the BOLLGARD(R) GENE TRADEMARK on packages containing STACKED GENE COTTON SEED, provided that, in the event such notice is given, D&PL may sell such STACKED GENE COTTON SEED in packaging not displaying the BOLLGARD trademark. (5) Notwithstanding the provisions of any other agreement among the parties, D&PL shall defend and indemnify against and hold MONSANTO and its Affiliates and their respective employees, directors, officers, and agents harmless from any loss, cost, liability, or expense (including court costs and reasonable fees of attorneys and other professionals) incurred from any claim by cotton farmers who purchased LICENSED COMMERCIAL SEED and of distributors against whom such farmers may make claims arising or alleged to arise out of the performance of such STACKED GENE COTTON SEED or plants grown from STACKED GENE COTTON SEED, unless such failure of performance is proximately caused solely by the presence of a gene received from MONSANTO in such STACKED GENE COTTON SEED, provided that, on the issue of causation, D&PL shall bear the burden of proof and provided that costs of claims covered by the immediately preceding clause (i.e., claims where D&PL meets such burden of proof) shall be prorated between MONSANTO and D&PL so that MONSANTO'S respective percentage share of the costs of such claims shall be based on MONSANTO'S respective percentage share of the total of the net license revenues and seed premiums (in instances where no technology license fees are charged for such NON-MONSANTO COTTON GENE) derived from the presence of genetically-engineered technology in the subject STACKED GENE COTTON SEED. (6) In any year that a D&M JOINT VENTURE COMPANY is making COMMERCIAL SALES of STACKED GENE COTTON SEED in the LICENSED COUNTRY, the D&M JOINT VENTURE COMPANY shall have available for sale in the LICENSED COUNTRY quantities of LICENSED COMMERCIAL SEED containing only MONSANTO TECHNOLOGY (and no NON-MONSANTO COTTON GENES) which equal or exceed the quantities of the such LICENSED COMMERCIAL SEED sold by the D&M JOINT VENTURE COMPANY (net of returns) in the LICENSED COUNTRY in the immediately preceding year. (7) Any fees or other compensation paid to retailers and/or distributors for their service in granting licenses or sublicenses to growers relating to technology embodied in STACKED GENE COTTON SEED and/or to collect license fees from growers of STACKED GENE COTTON SEED, not specifically related to a particular technology, shall be apportioned based on the ratio between (i) the aggregate of royalties received by MONSANTO for use of MONSANTO TECHNOLOGY and (ii) the aggregate net license revenues and seed premiums or other value received by the subject technology provider (in instances where no technology license fees are charged for such NON-MONSANTO COTTON GENE) derived from the presence of genetically-engineered technology in the subject STACKED GENE COTTON SEED other than MONSANTO TECHNOLOGY, provided, however, in no event shall MONSANTO be required to pay or bear any amount of fees or other compensation to retailers and/or distributors for such services in excess of that which MONSANTO would have paid or borne for such services under this Agreement if the subject STACKED GENE COTTON SEED had been seed containing only the LEPIDOPTERAN ACTIVE GENE or other technology provided by MONSANTO. D&PL and any third party technology provider will provide to MONSANTO all information reasonably necessary to determine compliance with this Subsection 3.5(7) and D&PL shall refund to MONSANTO any fees or other compensation paid by MONSANTO to retailers and/or distributors which is in excess of the amount it should have paid under the above provisions no later than one month following notice from MONSANTO of a discrepancy or error. (8) Prior to sale in the LICENSED COUNTRY of any particular STACKED GENE COTTON SEED by a D&M JOINT VENTURE COMPANY, D&PL and any third party provider of a NON-MONSANTO COTTON GENE in the STACKED GENE COTTON SEED which D&PL proposes to sell shall meet with MONSANTO to address issues involving governmental regulations, public acceptance, or stewardship in the LICENSED COUNTRY of genetic technology embodied in that STACKED GENE COTTON SEED. In cases where there are bona fide disputes concerning the sale or the terms and conditions of sale of a particular STACKED GENE COTTON SEED in the LICENSED COUNTRY involving governmental regulations, public acceptance, or stewardship in the LICENSED COUNTRY of genetic technology embodied in that STACKED GENE COTTON SEED, D&PL shall not sell such STACKED GENE COTTON SEED in the LICENSED COUNTRY until MONSANTO, in its commercially reasonable judgment, has agreed to such sale, such agreement not to be unreasonably withheld or delayed. (9) D&PL shall provide to MONSANTO a copy of any amendment, under this Subsection 3.5, to the D&M LICENSES, for review and comment prior to its execution. IN WITNESS WHEREOF, this Agreement has been executed by duly authorized representatives of the parties herein. D&M INTERNATIONAL, L.L.C. By: D&PL International Technology Corp. Its Managing Member By:_/s/ R. D. Greene_______________ Title:_Vice President______________ DELTA AND PINE LAND COMPANY By:_/s/ R. D. Greene ______________ Title:_Vice President______________ D&PL INTERNATIONAL TECHNOLOGY CORP. By:_/s/ R. D. Greene_______________ Title:_Vice President______________ MONSANTO COMPANY By:_/s/ W. R. Deaton_______________ Title:_Cotton Strategy Lead________ EX-10 4 ex1037.txt Exhibit 10.37 REDEMPTION AGREEMENT dated as of May 28, 2002 among D&M International, L.L.C., D&PL International Technology Corp., Pharmacia Corporation, solely for the purposes of Section 1.2(c) and Articles II and III hereof, Monsanto Company, and, solely for the purposes of Section 3.2 hereof, Delta and Pine Land Company ffny03\sorabwi\458892.8 TABLE OF CONTENTS Page ARTICLE I REDEMPTION OF INTERESTS; CLOSING...................................2 1.1. Redemption................................................2 1.2. The Closing; Deliveries...................................2 ARTICLE II REPRESENTATIONS AND WARRANTIES.....................................2 2.1. Representations and Warranties of the Parties.............3 2.2. Representations and Warranties of Pharmacia...............3 2.3. Representations and Warranties of DITC....................4 2.4. Representations and Warranties of New Monsanto............4 ARTICLE III ESCROW AGREEMENT...................................................4 3.1. Escrow Agreement..........................................4 3.2. Good Faith Negotiations...................................5 3.3. Release...................................................5 ARTICLE IV MISCELLANEOUS......................................................5 4.1. Defined Terms; Interpretations............................5 4.2. Survival of Representation and Warranties.................6 4.3. Successors and Assigns....................................6 4.4. Entire Agreement..........................................6 4.5. Notices...................................................7 4.6. Counterparts..............................................8 4.7. Headings..................................................8 4.8. Governing Law.............................................8 4.9. Exclusive Jurisdiction and Consent to Service of Process..8 4.10. Severability..............................................9 Execution Copy REDEMPTION AGREEMENT REDEMPTION AGREEMENT (this "Agreement"), dated as of May 28, 2002, among D&M International, L.L.C., a Missouri limited liability company (the "Company"), D&PL International Technology Corp. (f/k/a D&PL Technology Corp.), a Delaware corporation ("DITC"), Pharmacia Corporation, a Delaware corporation ("Pharmacia"), solely for purposes of Section 1.2(c) and Articles II and III hereof, Monsanto Company, a Delaware corporation (including all subsidiaries, "New Monsanto"), and, solely for purposes of Section 3.2 hereof, Delta and Pine Land Company, a Delaware Corporation ("DPL"). The Company, DITC, Pharmacia, New Monsanto and DPL are sometimes hereinafter referred to as the "Parties" and each is sometimes referred to as a "Party". W I T N E S S E T H : WHEREAS, DITC and Pharmacia (formerly known as Monsanto Company) are parties to that certain Operating Agreement of D&M International, L.L.C., dated as of March 10, 1995 (the "Operating Agreement"); and WHEREAS, Pharmacia is the owner and holder of the Interests (as defined herein), which Interests are held by Pharmacia in trust for the benefit of New Monsanto; and WHEREAS, on April 25, 2002, Pharmacia delivered a notice to DITC that, as a Member (as defined in the Operating Agreement) of the Company, it intends to rely on Section 9.5 of the Operating Agreement (such notice, the "Offering Notice"), and on May 10, 2002 (the "Election Date"), in response to the Offering Notice, DITC delivered a notice to Pharmacia of DITC's election pursuant to Section 9.5(b)(ii) of the Operating Agreement to cause the Company to redeem the Interests (as hereinafter defined); and WHEREAS, Section 9.5(d) of the Operating Agreement provides that Pharmacia will deliver documents upon the closing of the transactions contemplated by Section 9.5 of the Operating Agreement conveying the Interests to the Company free and clear of any liens or encumbrances; and WHEREAS, as an inducement to the Parties to enter into this Agreement, DITC, New Monsanto and an escrow agent shall enter into the Escrow Agreement (as defined herein) to provide for the allocation of funds among the parties thereto pending the outcome of certain negotiations among the Parties hereto; NOW, THEREFORE, for consideration of the promises and the mutual representations, warranties, covenants and agreements set forth in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows: ARTICLE I REDEMPTION OF INTERESTS; CLOSING 1.1. Redemption. Upon the terms and subject to the conditions set forth herein, at the Closing, (a) DITC shall pay to the Company by wire transfer of immediately available funds to an account designated by the Company prior to the Closing an amount equal to the Purchase Amount; (b) Pharmacia shall convey all of the Interests to the Company free and clear of any Encumbrances; and (c) the Company shall (i) redeem all of the Interests and (ii) pay to Pharmacia by wire transfer of immediately available funds to an account designated by Pharmacia prior to the Closing an amount equal to $1,351,662.00 (the "Purchase Amount"), which amount the Parties acknowledge is the sum of (i) the amount Pharmacia would receive if the assets of the Company were sold for the Specified Dollar Amount (as defined in the Operating Agreement and provided in the Offering Notice) and the proceeds distributed pursuant to Section 9.2 of the Operating Agreement (the "Purchase Price"), plus (ii) the interest payable on the Purchase Price computed at the Prime Rate (as defined in the Operating Agreement) for the period beginning on the Election Date and ending on the Closing Date, as provided by Section 9.5(c) of the Operating Agreement (all such actions collectively, the "Redemption"). 1.2. The Closing; Deliveries. (a) The closing of the Redemption hereunder and any and all other transactions contemplated hereby and by the Operating Agreement in connection with the Redemption (the "Closing") shall take place at 5:00 p.m. (local time) on May 28, 2002 (the "Closing Date") at the office of Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New York, New York 10004. (b) At the Closing, (i) Pharmacia shall deliver to the Company certificates, if any, representing the Interests or an assignment document conveying the Interests as provided herein and (ii) the Secretary of the Company (or such other employee of the Company as may be designated by the Secretary, an Assistant Secretary or a Managing Member of the Company) shall register the Redemption in the transfer records of the limited liability interests of the Company. The Redemption of the Interests shall be deemed effective as of the Election Date. (c) At the Closing, the Company, DITC, Pharmacia and New Monsanto shall each deliver a secretary's certificate customary for such transactions, which shall (i) certify that each individual signing on behalf of such Party is a duly elected officer of such Party and (ii) have attached thereto (A) a copy of such Party's certificate of incorporation or other appropriate organizational document certified by the secretary of state of the state of incorporation or organization of such Party, (B) a true, complete and correct copy of such Party's bylaws, if applicable, and (C) a true, complete and correct copy or copies of the resolutions of the board of directors or other governing body of such Party authorizing the transactions contemplated hereby, if applicable. ARTICLE II REPRESENTATIONS AND WARRANTIES 2.1. Representations and Warranties of the Parties. Each Party hereby represents and warrants to each other Party, severally and not jointly, as of the date hereof and as of the Closing, as follows: (a) Organization. Such Party is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization and has the requisite power and authority to carry on its business as it is now being conducted. (b) Due Authorization. Such Party has all right, power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery by such Party of this Agreement, the compliance by such Party with each of the provisions of this Agreement, and the consummation by such Party of the transactions contemplated hereby (i) are within the power and authority of such Party and (ii) have been duly authorized by all necessary action on the part of such Party. This Agreement constitutes a valid and binding agreement of such Party enforceable against such Party in accordance with its respective terms, except as such enforcement is limited by bankruptcy, insolvency and other similar laws affecting the enforcement of creditors' rights generally and for limitations imposed by general principles of equity. (c) Consents; No Violations. Neither the execution, delivery or performance by such Party of this Agreement nor the consummation of the transactions contemplated hereby will (i) conflict with, or result in a breach or a violation of, any provision of (A) the organizational documents of such Party, (B) the bylaws, if applicable, of such Party or (C) any Law of which such Party has Knowledge, or (ii) require any consent, approval or authorization of, notification to, filing with, or exemption or waiver by, any Governmental Entity or any other Person of which such Party has Knowledge on the part of such Party. (d) No Effect on License. The Redemption and the other transactions contemplated hereby (except the License (as defined in the Escrow Agreement), if executed) shall have no effect on the license between New Monsanto, on the one hand, and D&M, DITC and DPL, on the other hand, relating to insect and herbicide tolerance technologies, including, without limitation, the existence or non-existence of such license, the terms thereof, as evidenced by the Parties' past conduct and practice, and the payment of accrued technology fees that may become due and payable thereunder. 2.2. Representations and Warranties of Pharmacia. Pharmacia hereby represents and warrants to each other Party as of the date hereof and as of the Closing, as follows: (a) Pharmacia has good, valid and marketable title to 50.00 percent of the total outstanding membership interests in the Company, which membership interests were originally issued and conveyed to Old Monsanto (the "Interests"), subject to its holding the Interests in trust for the benefit of New Monsanto. The Interests are not subject to any Encumbrance. Pharmacia has complete and unrestricted power and the unqualified right to convey, sell, assign, transfer and deliver the Interests to the Company, except as expressly provided in Section 8.1 of the Operating Agreement, and upon the consummation of the transactions contemplated hereby, the Company will acquire good and marketable title to the Interests, free and clear of any and all Encumbrances. (b) Pharmacia agrees that at no time prior to the Closing shall it sell, transfer or otherwise dispose of the Interests nor will it agree to take any of the foregoing actions. 2.3. Representations and Warranties of DITC. DITC hereby represents and warrants to each other Party as of the date hereof and as of the Closing, as follows: DITC has available sufficient or committed funds to pay the Purchase Amount as provided in this Agreement and the Escrow Amount (as defined in the Escrow Agreement) as provided in the Escrow Agreement. 2.4. Representations and Warranties of New Monsanto. New Monsanto hereby represents and warrants to each other Party as follows: (a) As of the date hereof, the Interests are held in trust by Pharmacia for the benefit of New Monsanto, and, as of the Closing, New Monsanto will not have any right, title or interest whatsoever in, to or relating to the Interests. (b) New Monsanto hereby unconditionally consents to and acknowledges the Redemption of the Interests held in trust by Pharmacia for its benefit as contemplated hereby and hereby waives any and all claims and causes of action New Monsanto has or may have against any Party which may assert or claim any right, title or interest whatsoever in or to the Interests. ARTICLE III ESCROW AGREEMENT 3.1. Escrow Agreement. Each of DITC and New Monsanto shall use reasonable best efforts to identify and retain an independent escrow agent reasonably acceptable to DITC and New Monsanto (the "Escrow Agent") as promptly as possible and shall execute and deliver an escrow agreement among themselves and the Escrow Agent in the form attached hereto as Exhibit A, which form shall be changed only as required by the Escrow Agent (the "Escrow Agreement"), and DITC and New Monsanto hereby agree to be bound thereby notwithstanding any changes made to the Escrow Agreement at the request of the Escrow Agent or in connection with the negotiations with such Escrow Agent; provided that if DITC and New Monsanto are not able to agree upon an independent escrow agent to serve as the escrow agent under the Escrow Agreement or are unable to agree with the Escrow Agent on the terms of the Escrow Agreement on or before May 30, 2002, DITC and New Monsanto hereby consent to have Fried, Frank, Harris, Shriver & Jacobson ("Fried Frank") serve as the Escrow Agent acting on behalf of both DITC and New Monsanto and Fried Frank will not request any changes as to the substance of the Escrow Agreement except to add an acknowledgement of Fried Frank's representation of DITC. In the event Fried Frank shall serve as the Escrow Agent, the fees of Fried Frank with respect to such services shall be paid by DITC. In no event shall the failure of the Parties to enter into any agreements contemplated by Paragraphs 4 and 5 of the Escrow Agreement be deemed to nullify, modify or amend this Agreement or the Redemption. All or any portion of the Escrow Amount (as defined in the Escrow Agreement) released by the Escrow Agent to New Monsanto shall be deemed to be an adjustment to the purchase price paid for the Interests for purposes of the accounting treatment thereof and the Parties hereby agree to account for the payment of such released amounts in accordance with the same. 3.2. Good Faith Negotiations. (a) Each Party hereby agrees to use its reasonable best efforts and to negotiate in good faith to reach agreement with all other relevant Parties and execute all necessary documentation by June 4, 2002 to satisfy or waive all of the conditions relevant to such Party set forth in Paragraph 4(a) of the Escrow Agreement. Each of DITC and New Monsanto hereby agree to deliver the First Satisfaction Notice (as defined in the Escrow Agreement) to the Escrow Agreement by June 4, 2002 or such mutually agreed upon later date upon satisfaction or waiver of all of the conditions set forth in Paragraph 4(a) of the Escrow Agreement. (b) Each Party hereby agrees to use its reasonable best efforts and to negotiate in good faith and to cause each of the Existing D&M Joint Ventures (as defined in the Escrow Agreement) to use its reasonable best efforts and to negotiate in good faith, to reach agreement with all other relevant Parties and/or the Existing D&M Joint Ventures and execute all necessary documentation by June 17, 2002 to satisfy or waive all of the conditions relevant to such Party set forth in Paragraph 5(a) of the Escrow Agreement. Each of DITC and New Monsanto hereby agree to deliver the Second Satisfaction Notice (as defined in the Escrow Agreement) to the Escrow Agreement by June 17, 2002 or such mutually agreed upon later date upon satisfaction or waiver of all of the conditions set forth in Paragraph 5(a) of the Escrow Agreement. 3.3. Release. Pharmacia and New Monsanto hereby waive any and all claims and causes of action they have or may have against DITC and/or the Company relating to any operations or practices of the Company that may have differed from the manner of operations or practices of the Company or either of the members thereof as provided in the Operating Agreement. DITC and the Company hereby agree to indemnify, defend and hold harmless Pharmacia and New Monsanto from any claim, loss, charge, liability, expense, tax, obligation to pay money or other obligation (each, a "Loss") which may arise out of or relate to any operations or practices of the Company or DITC that may have differed from the manner of operations or practices of the Company or either of the members thereof as provided in the Operating Agreement; provided, however, that neither DITC nor the Company shall have any obligation to indemnify either Pharmacia or New Monsanto hereunder for any Loss caused by their gross negligence or their willful misconduct. ARTICLE IV MISCELLANEOUS 4.1. Defined Terms; Interpretations. The following capitalized terms, as used in this Agreement, shall have the following meanings: "Capital Lease" shall mean a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP. "Encumbrance" shall mean, with respect to any Person, any mortgage, lien, pledge, charge, claim, defect, objection, option, proxy, voting trust, security interest, or other encumbrance, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or Capital Lease, upon or with respect to any property or asset of such Person (including in the case of stock, stockholder agreements, voting trust agreements and all similar arrangements). "GAAP" shall mean United States generally accepted accounting principles. "Governmental Entity" shall mean any supernational, national, foreign, federal, state or local judicial, legislative, executive, administrative or regulatory body or authority. "Knowledge", with respect to each Party, shall mean the knowledge of any executive officer of such Party and the knowledge that any of the executive officers of such Party would have after due and reasonable inquiry and reasonable investigation. "Laws" shall mean all foreign, federal, state, and local laws, statutes, ordinances, rules, regulations, orders, judgments, decrees and bodies of law. "Person" shall mean any individual, firm, corporation, limited liability company, partnership, company, trust or other entity, and shall include any successor (by merger or otherwise) of such entity. 4.2. Survival of Representation and Warranties. The representations and warranties of the Parties contained in this Agreement shall survive the Closing hereunder, and such representations and warranties shall be unaffected by any investigation, including due diligence, made prior to or subsequent to the Closing by or on behalf of any Party and shall continue in full force and effect until the tenth (10th) anniversary of the Closing. 4.3. Successors and Assigns. This Agreement shall bind and inure to the benefit of the Parties and their respective successors, permitted assigns, heirs and personal representatives, provided that no Party may assign its rights or obligations under this Agreement to any Person without the prior written consent of all other Parties hereto, which consent shall not be unreasonably withheld or delayed. 4.4. Entire Agreement. This Agreement and the Operating Agreement contain the entire agreement among the Parties with respect to the Redemption and supersede all prior and contemporaneous arrangements or understandings with respect thereto. Notwithstanding anything to the contrary contained herein, in the Escrow Agreement or in any transaction contemplated hereby or thereby, none of this Agreement, the Escrow Agreement nor any of the transactions contemplated hereby or thereby shall preclude or restrict the Parties in presenting their respective positions with respect to the January 18 Suit (as defined in DPL's Annual Report on Form 10-K for the fiscal year ended August 31, 2001), including, without limitation, any Party's rights, claims, allegations, causes of action, defenses, liabilities, damages or rights of appeal relating to or arising out of the January 18 Suit. 4.5. Notices. All notices, requests, consents and other communications hereunder to any Party shall be deemed to be sufficient if contained in a written instrument delivered in person or sent by telecopy, nationally recognized overnight courier or first class registered or certified mail, return receipt requested, postage prepaid, addressed to such Party at the address set forth below or such other address as may hereafter be designated in writing by such Party to the other Parties: (i) if to the Company, to: D&M International, L.L.C. One Cotton Row, P.O. Box 157 Scott, Mississippi 38772 Telecopy: (662) 742-3795 Attention: F. Murray Robinson D&PL International Technology Corp., Managing Member (ii) if to DITC or DPL, to: c/o D&PL International Technology Corp. One Cotton Row, P.O. Box 157 Scott, Mississippi 38772 Telecopy: (662) 742-3795 Attention: F. Murray Robinson with a copy to: Fried, Frank, Harris, Shriver & Jacobson One New York Plaza New York, NY 10004 Telecopy: (212) 859-4000 Attention: Thomas W. Christopher, Esq. (iii) if to Pharmacia, to: Pharmacia Corporation 100 Route 206 North Peapack, New Jersey 07977 Telecopy: (908) 901-1810 Attention: Richard T. Collier (iv) if to New Monsanto, to: Monsanto Company 800 North Lindbergh Boulevard St. Louis, Missouri 63167 Telecopy: (314) 694-1667 Attention: Hugh Grant with a copy to: Monsanto Company 800 North Lindbergh Boulevard St. Louis, Missouri 63167 Telecopy: (314) 694-2816 Attention: Commercial Law Department Head All such notices, requests, consents and other communications shall be deemed to have been given or made if and when delivered personally or by overnight courier to the Parties at the above addresses or sent by electronic transmission, with confirmation received, to the telecopy numbers specified above (or at such other address or telecopy number for a Party as shall be specified by like notice). Any notice delivered by any Party hereto to any other Party hereto shall also be delivered to each other Party hereto simultaneously with delivery to the first Party receiving such notice. 4.6. Counterparts. This Agreement may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. 4.7. Headings. The headings of the sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of this Agreement. 4.8. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MISSOURI WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW, OTHER THAN THE CHOICE OF LAW PRINCIPLES OF SUCH STATE. 4.9. Exclusive Jurisdiction and Consent to Service of Process. The Parties agree that any legal action, suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby (except for the Escrow Agreement and the transactions contemplated thereby) shall be instituted in a federal court located in the Eastern District of Missouri, which shall be the exclusive jurisdiction and venue of said legal proceedings, and each Party hereby waives any objection which such Party may now or hereafter have to the laying of venue of any such action, suit or proceeding, and irrevocably submits to the jurisdiction of such court in any such action, suit or proceeding. Any and all service of process and any other notice in any such action, suit or proceeding shall be effective against such Party upon notice to such party thereof in accordance with the provisions of Section 4.5 hereof. Nothing contained herein shall be deemed to affect the right of any Party to serve process in any matter permitted by law. Notwithstanding the foregoing, if a dispute, controversy or claim arises out of or in connection with this Agreement, prior to bringing any legal action, suit or proceeding against a Party, a Party shall attempt in the first instance to resolve such dispute through consultations; provided, however, that no Party shall be obligated to engage in consultations pursuant to this sentence for a period in excess of thirty (30) calendar days. 4.10. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written. D&M INTERNATIONAL, L.L.C. By: D&PL International Technology Corp. Managing Member By: /s/ Murray Robinson ---------------------------------------------- Name: F. Murray Robinson Title: Chairman D&PL INTERNATIONAL TECHNOLOGY CORP. By: /s/ Murray Robinson ---------------------------------------------- Name: F. Murray Robinson Title: Chairman PHARMACIA CORPORATION By: /s/ Don W. Schmitz ---------------------------------------------- Name: Don W. Schmitz Title: Vice President, Associate General Counsel and Secretary For purposes of Section 1.2(c) and Articles II and III hereof MONSANTO COMPANY By: /s/ Hugh Grant ---------------------------------------------- Name: Hugh Grant Title: Executive Vice President and Chief Operating Officer For purposes of Section 3.2 hereof DELTA AND PINE LAND COMPANY By: /s/ Murray Robinson ---------------------------------------------- Name: F. Murray Robinson Title: President and Chief Executive Officer -----END PRIVACY-ENHANCED MESSAGE-----