OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
OF
MYCOGEN CORPORATION
AT
$28.00 NET PER SHARE
BY
AGROSCIENCES ACQUISITION INC.
A MAJORITY-OWNED SUBSIDIARY OF
DOW AGROSCIENCES LLC
AND A WHOLLY OWNED INDIRECT SUBSIDIARY OF
THE DOW CHEMICAL COMPANY
THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME,
ON FRIDAY, OCTOBER 2, 1998, UNLESS THE OFFER IS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A
NUMBER OF SHARES OF COMMON STOCK, PAR VALUE $0.001 PER SHARE (INCLUDING THE
ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) (THE "SHARES"), OF MYCOGEN
CORPORATION (THE "COMPANY") SUCH THAT, UPON PURCHASE OF SUCH SHARES BY
AGROSCIENCES ACQUISITION INC. ("PURCHASER"), PURCHASER AND DOW AGROSCIENCES LLC
("PARENT"), COLLECTIVELY, WILL BE THE OWNERS OF SHARES REPRESENTING AT LEAST 90%
OF THE FULLY DILUTED SHARES (AS DEFINED IN THE INTRODUCTION OF THIS OFFER TO
PURCHASE). THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS CONTAINED IN
THIS OFFER TO PURCHASE. SEE THE INTRODUCTION AND SECTIONS 1 AND 13 HEREOF.
THE OFFER IS BEING MADE PURSUANT TO THE AGREEMENT AND PLAN OF MERGER (THE
"MERGER AGREEMENT") DATED AS OF AUGUST 31, 1998, AMONG THE COMPANY, PARENT,
PURCHASER, AND, FOR THE LIMITED PURPOSE SET FORTH IN THE MERGER AGREEMENT, THE
DOW CHEMICAL COMPANY ("TDCC"). UNDER THE MERGER AGREEMENT, FOLLOWING THE
CONSUMMATION OF THE OFFER AND SUBJECT TO CERTAIN CONDITIONS, PURCHASER WILL BE
MERGED WITH AND INTO THE COMPANY (THE "MERGER"). IN THE MERGER, EACH OUTSTANDING
SHARE (OTHER THAN SHARES HELD BY PARENT, PURCHASER OR THE COMPANY, WHICH SHALL
BE CANCELED, AND SHARES HELD BY STOCKHOLDERS WHO PROPERLY EXERCISE DISSENTERS'
RIGHTS UNDER CALIFORNIA LAW) WOULD BE CONVERTED INTO THE RIGHT TO RECEIVE $28.00
PER SHARE, AND THE COMPANY WOULD BECOME AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
TDCC.
A SPECIAL COMMITTEE OF TWO OF THE COMPANY'S DIRECTORS INDEPENDENT OF TDCC,
PARENT, PURCHASER AND MANAGEMENT OF THE COMPANY (THE "SPECIAL COMMITTEE")
UNANIMOUSLY RECOMMENDED TO THE COMPANY'S BOARD OF DIRECTORS THAT IT ENTER INTO
THE MERGER AGREEMENT AND APPROVE THE OFFER. THE COMPANY'S BOARD OF DIRECTORS
UNANIMOUSLY HAS APPROVED THE OFFER AND RECOMMENDS THAT STOCKHOLDERS OF THE
COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES. THE OFFER IS BEING EFFECTED TO
FACILITATE THE MERGER. SEE "RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS."
------------------
IMPORTANT
Any stockholder desiring to tender all or any portion of such stockholder's
Shares, should either (1) complete and sign the Letter of Transmittal (or a
facsimile thereof) in accordance with the instructions in the Letter of
Transmittal and deliver it and any other required documents to the Depositary
and either deliver the certificate(s) representing such Shares to the Depositary
along with the Letter of Transmittal or tender such Shares pursuant to the
procedure for book-entry transfer set forth in Section 3 hereof or (2) request
such stockholder's broker, dealer, commercial bank, trust company or other
nominee to effect the transaction for such stockholder. Any stockholder whose
Shares are registered in the name of a broker, dealer, commercial bank, trust
company or other nominee must contact such broker, dealer, commercial bank,
trust company or other nominee if such stockholder desires to tender such
Shares.
A stockholder who desires to tender Shares and whose certificates
representing such Shares are not immediately available, or who cannot comply
with the procedure for book-entry transfer on a timely basis, may tender such
Shares by following the procedures for guaranteed delivery set forth in Section
3.
Questions and requests for assistance or additional copies of this Offer to
Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may be
directed to Salomon Smith Barney Inc. ("Salomon Smith Barney") or to the
Information Agent, at their respective addresses and telephone numbers set forth
on the back cover of this Offer to Purchase. Additional copies of this Offer to
Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may be
obtained from the Information Agent or from brokers, dealers, commercial banks
or trust companies.
------------------
The Dealer Manager for the Offer is:
SALOMON SMITH BARNEY INC.
------------------
The date of this Offer to Purchase is September 4, 1998.
TABLE OF CONTENTS
PAGE
---------
INTRODUCTION.............................................................................................. 1
RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS........................................................ 3
THE TENDER OFFER.......................................................................................... 3
1. Terms of the Offer; Extension of Tender Period; Termination; Amendment............................. 3
2. Acceptance for Payment and Payment for Shares...................................................... 5
3. Procedure for Tendering Shares..................................................................... 6
4. Withdrawal Rights; Statutory Rights................................................................ 10
5. Certain U.S. Federal Income Tax Considerations..................................................... 10
6. Price Range of the Shares.......................................................................... 12
7. Certain Information Concerning the Company......................................................... 13
8. Certain Information Concerning Purchaser, Parent and Certain Affiliates of Parent.................. 14
9. Background of the Offer............................................................................ 16
10. Purpose of the Offer; the Merger Agreement......................................................... 41
11. Source and Amount of Funds......................................................................... 52
12. Certain Effects of the Offer....................................................................... 52
13. Certain Conditions of the Offer.................................................................... 54
14. Certain Legal Matters; Regulatory Approvals........................................................ 56
15. Fees and Expenses.................................................................................. 56
16. Miscellaneous...................................................................................... 57
Schedule I--Information Concerning the Directors and Executive Officers of Parent, Purchaser and Certain
Affiliates of Parent.................................................................................... I-1
Schedule II--Chapter 13 of the California General Corporation Law......................................... II-1
Schedule III--Opinion of Wasserstein Perella & Co., Inc................................................... III-1
i
To the Stockholders of Mycogen Corporation:
INTRODUCTION
AgroSciences Acquisition Inc., a Delaware corporation ("Purchaser") and a
majority-owned subsidiary of Dow AgroSciences LLC, a Delaware limited liability
company ("Parent"), hereby offers to purchase all of the outstanding shares of
common stock, par value $0.001 per share (including the associated preferred
stock purchase rights) (the "Shares"), of Mycogen Corporation, a California
corporation (the "Company"), at a purchase price of $28.00 per Share (the "Offer
Price"), net to the seller in cash, in accordance with the terms and subject to
the conditions set forth in this Offer to Purchase and in the related Letter of
Transmittal (which, as amended from time to time, collectively constitute the
"Offer"). Parent and Purchaser are each indirect wholly owned subsidiaries of
The Dow Chemical Company, a Delaware corporation ("TDCC").
The Offer is being made in connection with an Agreement and Plan of Merger
(the "Merger Agreement") dated as of August 31, 1998, among the Company,
Purchaser, Parent and, for the limited purpose set forth in the Merger
Agreement, TDCC. The Merger Agreement requires Purchaser, on the terms and
subject to the conditions set forth therein, to offer to purchase all of the
outstanding Shares of the Company pursuant to the Offer.
The Offer is conditioned upon, among other things, there being validly
tendered and not properly withdrawn prior to the expiration of the Offer a
number of Shares such that upon purchase of such Shares by Purchaser, Purchaser
and Parent, collectively, will be the owners of Shares representing at least 90%
of the Fully Diluted Shares (as defined below) (the "Minimum Condition").
Purchaser may not waive the Minimum Condition without the consent of the Special
Committee (as defined below) unless, following the consummation of the Offer,
Purchaser and Parent, collectively, would be the owners of Shares representing
at least 81.07% of the Fully Diluted Shares. Parent and Purchaser would
collectively own at least this percentage of Fully Diluted Shares only if
Purchaser purchased at least a majority of the Fully Diluted Shares which Parent
does not already own and therefore could be purchased by Purchaser pursuant to
the Offer. The Offer is also subject to the other terms and conditions contained
in this Offer to Purchase. See Sections 1 and 13.
"Fully Diluted Shares" as of a particular date means the issued and
outstanding Shares as of such date, plus the Shares that would be issued if all
options to purchase Shares under the Company's option plan ("Options") (whether
or not vested) outstanding as of that date were exercisable and exercised and
all Shares that would be issued if all eligible persons executed and delivered
to the Company valid Stock Purchase Elections (as defined in Section 10 hereof)
under the Company's Stock Purchase Plan.
As of August 31, 1998, there were outstanding 36,275,538 Shares held by
approximately 4,700 holders of record, of which Parent owned 24,766,157 Shares,
or 68.3%. As of August 31, 1998, Options covering a total of 3,568,635 Shares
were outstanding. Unless Parent consents, the Company may not issue additional
Options prior to the consummation of the Offer. Under the Merger Agreement, all
unvested Options will become exercisable immediately prior to the expiration of
the Offer (contingent upon Purchaser purchasing Shares in the Offer), and all
Shares issuable upon the exercise of Options (whether or not previously vested)
may be tendered in the Offer. Under the Merger Agreement, Shares that would be
issuable under the Company's Stock Purchase Plan as of November 30, 1998 may be
purchased immediately prior to the expiration of the Offer (contingent upon
Purchaser purchasing Shares in the Offer) and tendered in the Offer. The Company
anticipates that there will be no more than 24,000 Shares issuable under the
Stock Purchase Plan that would be issued and tendered in the Offer. Under the
Merger Agreement, the Shares outstanding under the Restricted Stock Plan may be
tendered in the Offer (contingent upon Purchaser purchasing Shares in the
Offer). Assuming that no additional Options are issued and that 24,000 Shares
are issued under the Stock Purchase Plan, Purchaser estimates that there must be
approximately 11,115,000 Shares (including Shares tendered after being issued
upon the exercise of Options or under the Stock Purchase Plan and including
Shares of Restricted Stock) validly tendered and not properly withdrawn in order
to satisfy the Minimum Condition.
Under the Merger Agreement, following the consummation of the Offer and
subject to certain conditions, Purchaser will merge with and into the Company
(the "Merger"). In the Merger, each outstanding Share of the Company (other than
Shares held by Parent, Purchaser and the Company which will be canceled, and
Shares held by stockholders who properly exercise dissenters' rights under
California Law) will be converted into the right to receive an amount in cash
equal to the Offer Price. Assuming Shares are purchased in the Offer, the
conditions to the Merger, described in more detail in Section 10, include that
Purchaser, assuming the transfer of all Shares owned by Parent to Purchaser, own
at least 90% of the outstanding Shares and that there not be any order, decree,
ruling or other governmental action restraining or prohibiting the Merger.
Following the consummation of the Merger, the Company will continue as the
surviving corporation (the "Surviving Corporation") and will be a majority-owned
subsidiary of Parent and a wholly owned indirect subsidiary of TDCC. If
Purchaser elects to waive the Minimum Condition and purchase Shares pursuant to
the Offer, but, subsequent to the Offer, does not own a sufficient number of
Shares to effect the Merger, then, pursuant to the terms of the Merger
Agreement, the Exchange and Purchase Agreement (as defined in Section 9) would
no longer prevent Purchaser, Parent or their affiliates from acquiring
additional Shares or impose conditions on the acquisition of additional Shares
or increasing their ownership of the Company (whether through any tender offer,
open market purchase, negotiated transaction, merger, consolidation, reverse
stock split or otherwise).
A SPECIAL COMMITTEE OF TWO OF THE COMPANY'S DIRECTORS INDEPENDENT OF TDCC,
PARENT, PURCHASER AND MANAGEMENT OF THE COMPANY (THE "SPECIAL COMMITTEE")
UNANIMOUSLY RECOMMENDED TO THE COMPANY'S BOARD OF DIRECTORS THAT THE COMPANY
ENTER INTO THE MERGER AGREEMENT AND THAT THE BOARD OF DIRECTORS APPROVE THE
OFFER. THE COMPANY'S ENTIRE BOARD OF DIRECTORS ALSO REVIEWED THE OFFER AND,
AFTER RECEIPT OF THE RECOMMENDATION OF THE SPECIAL COMMITTEE, CONCLUDED THAT THE
OFFER IS IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS (OTHER THAN
TDCC OR ITS AFFILIATES). ACCORDINGLY, THE COMPANY'S BOARD OF DIRECTORS
UNANIMOUSLY HAS DETERMINED THAT EACH OF (1) THE OFFER AND (2) THE MERGER IS FAIR
TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF THE COMPANY (OTHER THAN TDCC
OR ITS AFFILIATES) AND UNANIMOUSLY HAS APPROVED THE OFFER AND RECOMMENDS THAT
STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES. SEE
"RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS."
Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, transfer taxes on the transfer and sale of Shares pursuant to the
Offer. Purchaser will pay all fees and expenses of Salomon Smith Barney Inc.
("Salomon Smith Barney"), which is acting as Dealer Manager for the Offer (the
"Dealer Manager"), BankBoston, N.A. (the "Depositary") and Georgeson & Company
Inc. (the "Information Agent") incurred in connection with the Offer. See
Section 15.
The purpose of the Offer is for Parent, through Purchaser, to acquire any
and all outstanding Shares and to facilitate the Merger. On August 31, 1998, the
closing market price of the Company's Shares was $20.00 per Share. Accordingly,
the Offer provides an opportunity to existing stockholders of the Company to
sell Shares at a significant premium over recent trading prices. See Section 6.
THIS OFFER TO PURCHASE DOES NOT CONSTITUTE A SOLICITATION OF A PROXY,
CONSENT OR AUTHORIZATION FOR OR WITH RESPECT TO AN ANNUAL MEETING OR ANY SPECIAL
MEETING OF THE COMPANY'S STOCKHOLDERS OR ANY ACTION IN LIEU THEREOF. ANY SUCH
SOLICITATION, IF REQUIRED, WILL BE MADE ONLY PURSUANT TO SEPARATE PROXY
MATERIALS IN COMPLIANCE WITH THE REQUIREMENTS OF SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT").
Information concerning the Company contained herein has been provided by the
Company unless otherwise stated.
* * * * *
2
Subject to certain exceptions set forth below, Purchaser expressly reserves
the right to waive any one or more of the conditions to the Offer. See Sections
1 and 13.
Stockholders are urged to read this Offer to Purchase and the related Letter
of Transmittal carefully before deciding whether to tender their Shares.
RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS
The Special Committee unanimously recommended to the Company's Board of
Directors that it approve the Offer. The Company's entire Board of Directors
also reviewed the Offer and, after receipt of the recommendation of the Special
Committee, concluded that the Offer is in the best interests of the Company and
its stockholders (other than TDCC or its affiliates). Accordingly, the Company's
Board of Directors has unanimously (1) determined that the Merger Agreement is
fair to and in the best interests of the stockholders of the Company other than
TDCC or its affiliates (the "Minority Stockholders") (2) approved and adopted
the Merger Agreement, including the Merger and the Offer, and recommends that
the stockholders of the Company accept the Offer, tender their Shares to
Purchaser and, if required by applicable law, approve and adopt the Merger
Agreement and the Merger. The Offer is being effected to acquire any and all
outstanding Shares and to facilitate the Merger. The Offer allows stockholders
to receive cash at a premium over recent trading prices for the Company's
Shares. See Sections 6 and 9.
The Special Committee's financial advisor, Wasserstein Perella & Co., Inc.
("Wasserstein Perella") has delivered to the Special Committee its written
opinion, dated August 31, 1998, to the effect that, subject to the various
assumptions and limitations set forth therein, as of the date of such opinion,
the $28.00 cash price to be received by the holders of Shares (other than TDCC
and its affiliates) pursuant to the Merger Agreement is fair to such holders
from a financial point of view. A copy of the full text of the opinion of
Wasserstein Perella, dated August 31, 1998, which sets forth, among other
things, the opinion expressed, assumptions made, procedures followed, matters
considered and limitations of review undertaken in connection with such opinion,
is attached as Schedule III hereto and should be read in its entirety.
THE TENDER OFFER
1. TERMS OF THE OFFER; EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension or
amendment), Purchaser will accept for payment and pay for all Shares validly
tendered and not properly withdrawn on or prior to the Expiration Date (as
hereinafter defined) at a price of $28.00 per Share, net to the seller in cash.
Purchaser may not make a material change to the terms of the Offer other than
pursuant to the Merger Agreement or an amendment thereto. The term "Expiration
Date" means 12:00 Midnight, New York City time, on Friday, October 2, 1998,
unless Purchaser shall have extended the period during which the Offer is open,
in which event the term "Expiration Date" shall mean the latest time and date at
which the Offer, as so extended by Purchaser, shall expire.
The Offer is conditioned upon, among other things, satisfaction of the
Minimum Condition. The Offer is also subject to certain other conditions set
forth in Section 13. Purchaser may waive the Minimum Condition if, following the
consummation of the Offer, Purchaser and Parent collectively would be the owners
of Shares representing at least 81.07% of the Fully Diluted Shares. Parent and
Purchaser would collectively own at least this percentage of Fully Diluted
Shares only if Purchaser purchased at least a majority of the Fully Diluted
Shares which Parent does not already own and therefore could be purchased by
Purchaser pursuant to the Offer. Purchaser may not waive the Minimum Condition
(unless the Special Committee consents) if, following the consummation of the
Offer, Purchaser and Parent, collectively, would be the owners of Shares
representing less than 81.07% of the Fully Diluted Shares.
3
Purchaser expressly reserves the right, in its reasonable discretion, to
extend the Offer (i) for any period required by any rule, regulation,
interpretation or position of the Securities and Exchange Commission (the
"Commission") or the staff thereof applicable to the Offer, (ii) if at any
scheduled expiration date any of the conditions to the Offer set forth in
paragraphs (a) - (e) of Section 13 have not been satisfied or waived, until such
time as all of such conditions will have been satisfied or waived, (iii) in the
event all of the conditions to the Offer will have been satisfied or waived,
other than the Minimum Condition, for a period or periods aggregating not more
than 40 business days after the later of (A) the initial expiration date of the
Offer and (B) the date on which all of the conditions set forth in paragraphs
(a) - (e) of Section 13 will have been satisfied or waived or (iv) as may
otherwise be permitted pursuant to the Merger Agreement or any amendment to the
Merger Agreement. If at any scheduled expiration date of the Offer, the Minimum
Condition will not have been satisfied, then, at the request of the Company
(acting at the direction of the Special Committee, which request will
subsequently be confirmed in writing), Purchaser will, and Parent will cause
Purchaser to, extend the Offer for a period or periods aggregating not more than
40 business days, subject to the right of Purchaser and Parent to terminate the
Merger Agreement as described herein. In addition, if at any scheduled
expiration date of the Offer, a condition set forth in paragraph (c) or (d) of
Section 13 will not have been satisfied but all of the other conditions set
forth in paragraphs (a) - (e) of Section 13 will then have been satisfied, then,
at the request of the Company (acting at the direction of the Special Committee,
which request will subsequently be confirmed in writing) and so long as the
Company is using its reasonable best efforts to cause such conditions to become
satisfied, Purchaser will, and Parent will cause Purchaser to, extend the Offer
for up to an additional 20 business days, subject to the right of Purchaser and
Parent to terminate the Merger Agreement as described in Section 10. Subject to
the right of Purchaser and Parent to terminate the Merger Agreement as described
in Section 10, Purchaser will not terminate or withdraw the Offer prior to any
scheduled expiration date of the Offer, including as extended as described in
this paragraph; provided, however, that Purchaser may, at its option, terminate
and withdraw the Offer if, after such extensions described in this paragraph,
the Offer has expired in accordance with its terms without Purchaser being
required to accept Shares for payment pursuant to the Merger Agreement.
Purchaser reserves the right to extend, delay, terminate or amend the Offer
or waive satisfaction of any condition to the Offer but only as, when and to the
extent permitted by the Merger Agreement or any amendment to the Merger
Agreement. Any extension, termination or waiver of the Offer will be made by
giving oral or written notice of such extension, termination or waiver to the
Depositary and by causing the Depositary to provide as soon as practicable
thereafter a copy of such notice to all holders of Shares whose Shares have not
been taken up prior to the extension. Purchaser acknowledges that (i) Rule
14e-1(c) under the Exchange Act requires Purchaser to pay the consideration
offered or return the Shares tendered promptly after the termination or
withdrawal of the Offer and (ii) Purchaser may not delay acceptance for payment
of (except as provided by clause (i)) any Shares upon the occurrence of any of
the conditions specified in Section 13 without extending the period of time
during which the Offer is open.
Purchaser may increase the Offer Price and may waive any condition to the
Offer, except that it may not waive the Minimum Condition unless either (i) the
Special Committee consents or (ii) following consummation of the Offer,
Purchaser and Parent collectively would be the owners of at least 81.07% of the
Fully Diluted Shares. In addition, without the consent of the Special Committee,
no change to the Offer may be made that decreases the price per Share payable in
the Offer, changes the form of consideration payable in the Offer, reduces the
maximum number of Shares to be purchased in the Offer or imposes conditions to
the Offer in addition to the conditions set forth in Section 13.
Any such extension, termination or waiver will be followed as promptly as
practicable by public announcement thereof, and such announcement in the case of
an extension will be made no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date. Without
limiting the manner in which Purchaser may choose to make any public
announcement, except as provided by applicable law (including Rules 14d-4(c) and
14d-6(d) under the Exchange Act, which require
4
that material changes be promptly disseminated to holders of Shares), Purchaser
shall have no obligation to publish, advertise or otherwise communicate any such
announcement other than by issuing a release to the Dow Jones News Service or as
otherwise may be required by law.
If Purchaser makes a material change in the terms of the Offer or if
Purchaser waives a material condition of the Offer, Purchaser will extend the
Offer to the extent required by Rules 14d-4(c) and 14d-6(d) under the Exchange
Act. The minimum period during which an offer must remain open following
material changes in the terms of the Offer, other than a change in price or a
change in the percentages of securities sought, will depend on the facts and
circumstances, including the materiality, of the changes. With respect to a
change in price or, subject to certain limitations, a change in the percentage
of securities sought, a minimum ten business day period from the day of such
change is generally required to allow for adequate dissemination to
stockholders. Accordingly, if prior to the Expiration Date, Purchaser decreases
the number of Shares being sought, increases or decreases the consideration
offered pursuant to the Offer and if the Offer is scheduled to expire at any
time earlier than the period ending on the tenth business day from the date that
notice of such increase or decrease is first published, sent or given to
stockholders, the Offer will be extended at least until the expiration of such
ten business day period. Except as otherwise provided herein, any extension of
the Offer will not constitute a waiver by Purchaser of any of the conditions set
forth in Section 13.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension or
amendment), Purchaser will accept for payment all Shares validly tendered and
not properly withdrawn on or prior to the Expiration Date as soon as practicable
after the later to occur of (i) the Expiration Date and (ii) the date of
satisfaction or waiver of the conditions set forth in Section 13. As promptly as
practicable after such acceptance, Purchaser shall, subject to applicable law,
pay for such Shares.
For purposes of the Offer, Purchaser shall be deemed to have accepted for
payment and thereby purchased tendered Shares of the Company if, as and when
Purchaser gives oral or written notice to the Depositary of its acceptance of
such Shares for payment pursuant to the Offer. Payment for Shares of the Company
accepted for payment pursuant to the Offer will be made by deposit by Purchaser
of the purchase price to be paid by it with the Depositary, which Depositary
will act as agent for the tendering stockholders for the purpose of receiving
payments from Purchaser and transmitting such payments to tendering
stockholders. Under no circumstances will interest be paid by Purchaser on the
consideration paid for the Shares of the Company pursuant to the Offer,
regardless of any delay in making such payment. Purchaser will pay all stock
transfer taxes, if any, payable on the transfer of Shares of the Company
purchased by it pursuant to the Offer, except as set forth in Instruction 6 of
the Letter of Transmittal.
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of a
certificate(s) for such Shares or a timely confirmation of a book-entry transfer
of such Shares into the Depositary's account at the Book-Entry Transfer Facility
(as defined in Section 3), a Letter of Transmittal (or a facsimile thereof),
properly completed and duly executed, with any required signature guarantees or
Agent's Message (as defined in Section 3) and any other documents required by
the Letter of Transmittal. For a description of the procedure for tendering
Shares of the Company pursuant to the Offer, see Section 3.
If any tendered Shares are not accepted for payment for any reason or if
certificate(s) are submitted for more Shares than are tendered, certificates
evidencing unpurchased or untendered Shares will be returned without expense to
the tendering stockholder (or, in the case of Shares tendered by book-entry
transfer into the Depositary's account at the Book-Entry Transfer Facility
pursuant to the procedures set forth in Section 3, such Shares will be credited
to an account maintained at the Book-Entry Transfer Facility) as promptly as
practicable following the expiration, termination or withdrawal of the Offer.
5
If Purchaser increases the consideration offered to stockholders pursuant to
the Offer, such increased consideration will be paid to all stockholders whose
Shares are purchased pursuant to the Offer, whether or not such Shares were
tendered or accepted for payment prior to such increase in consideration.
Purchaser reserves the right to assign, in whole or from time to time in
part, to Parent or an affiliate of Parent, the right to purchase all or any
portion of the Shares tendered pursuant to the Offer, but any such assignment
will not relieve Purchaser of its obligations under the Offer nor will any such
assignment prejudice in any way the rights of tendering stockholders to receive
payment for Shares validly tendered and accepted for payment pursuant to the
Offer.
During the pendency of the Offer, Purchaser will not purchase any Shares,
whether in the open market or otherwise, except pursuant to the Offer.
3. PROCEDURE FOR TENDERING SHARES
VALID TENDER OF SHARES
Except as set forth below, in order for Shares to be validly tendered
pursuant to the Offer, the Letter of Transmittal (or a facsimile thereof),
properly completed and duly executed, together with any required signature
guarantees, or an Agent's Message (as defined below) in connection with a
book-entry delivery of Shares as described below, and any other documents
required by the Letter of Transmittal, must be received by the Depositary at one
of its addresses set forth on the back cover of this Offer to Purchase. In
addition, either (i) certificates evidencing tendered Shares must be received by
the Depositary at any such address or such Shares must be tendered pursuant to
the procedure for book-entry transfer (and a confirmation of receipt of such
delivery must be received by the Depositary), in each case, on or prior to the
Expiration Date or (ii) the guaranteed delivery procedures set forth below must
be complied with. The term "Agent's Message" means a message transmitted by The
Depository Trust Company (the "Book-Entry Transfer Facility") to and received by
the Depositary and forming a part of a Book-Entry Confirmation, which states
that the Book-Entry Transfer Facility has received an express acknowledgment
from the participant in the Book-Entry Transfer Facility tendering the Shares
which are the subject of the Book-Entry Confirmation, that such participant has
received and agrees to be bound by the terms of the Letter of Transmittal and
that Purchaser may enforce such agreement against such participant.
BOOK-ENTRY TRANSFER
The Depositary will establish an account with respect to the Shares at the
Book-Entry Transfer Facility for purposes of the Offer within two business days
after the date of this Offer to Purchase. Any financial institution that is a
participant in the system of the Book-Entry Transfer Facility may make
book-entry delivery of Shares by causing the Book-Entry Transfer Facility to
transfer such Shares into the Depositary's account in accordance with the
Book-Entry Transfer Facility's procedures for such transfer. Although delivery
of Shares may be effected through book-entry transfer at the Book-Entry Transfer
Facility, the Letter of Transmittal (or a facsimile thereof), properly completed
and duly executed, together with any required signature guarantees, or an
Agent's Message in connection with a book-entry transfer, and any other required
documents, must, in any case, be received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase on or prior to
the Expiration Date, or the guaranteed delivery procedures described below must
be complied with.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH
THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO
THE DEPOSITARY.
SIGNATURE GUARANTEES
Except as otherwise provided below, signatures on Letters of Transmittal
must be guaranteed by a member firm of a registered national securities
exchange, a member of the National Association of
6
Securities Dealers, Inc. (the "NASD"), or a commercial bank or trust company
having an office, branch, agency or correspondent in the United States (each of
the foregoing constituting an "Eligible Institution"). Signatures on Letters of
Transmittal need not be guaranteed if (i) the Letter of Transmittal is signed by
the registered holder of Shares tendered and such holder has not completed
either the box entitled "Special Delivery Instructions" or the box entitled
"Special Payment Instructions" on the Letter of Transmittal or (ii) such Shares
are tendered for the account of an Eligible Institution. See Instructions 1 and
5 of the Letter of Transmittal.
If the certificates representing Shares are registered in the name of a
person other than the signer of the Letter of Transmittal, or if payment is to
be made or certificates for Shares not accepted for payment or not tendered are
to be returned to a person other than the registered holder, then the tendered
certificates must be endorsed or accompanied by appropriate stock powers, in
either case signed exactly as the name(s) of the registered holder(s) appear(s)
on the certificates, with the signatures on the certificates or stock powers
guaranteed as described above. See Instructions 1 and 5 of the Letter of
Transmittal.
GUARANTEED DELIVERY
If a stockholder desires to tender Shares pursuant to the Offer and such
stockholder's certificates are not immediately available, or such stockholder
cannot deliver the certificates and all other required documents to reach the
Depositary on or prior to the Expiration Date, or such stockholder cannot
complete the procedure for book-entry transfer on a timely basis, such Shares
may nevertheless be tendered if the following guaranteed delivery procedures are
satisfied:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by Purchaser, is received by
the Depositary as provided below on or prior to the Expiration Date; and
(iii) the certificates (or a book-entry transfer confirmation)
representing all tendered Shares, in proper form for transfer, in each case
together with the Letter of Transmittal (or a facsimile thereof) properly
completed and duly executed, with any required signature guarantees (or, in
the case of a book-entry transfer, an Agent's Message) and any other
documents required by the Letter of Transmittal are received by the
Depositary within three NASDAQ National Market System ("NASDAQ NMS") trading
days after the date of execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
telegram, telex, facsimile transmission or mail to the Depositary and must
include a guarantee by an Eligible Institution in the form set forth in such
Notice of Guaranteed Delivery.
THE METHOD OF DELIVERY OF CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS,
INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION
AND RISK OF THE TENDERING STOCKHOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY
WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED
MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED IS RECOMMENDED. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO INSURE TIMELY DELIVERY.
OPTIONS
Under the Merger Agreement, holders of unvested Options outstanding under
the Mycogen Corporation 1992 Stock Option Plan (which incorporates outstanding
Options under the Mycogen Corporation 1983 Stock Option Plan (the "1992 Plan")
who submit valid Option Elections (as defined in Section 10) to the Company
prior to the expiration of the Offer will be able (contingent on the purchase by
Purchaser of Shares pursuant to the Offer) to exercise their Options immediately
prior to the expiration of the Offer and to tender the Shares issuable upon such
exercise in the Offer. All Option exercises must be effected through the
Company. A holder of Options who wishes to participate in the Offer must submit
to the
7
Company an Option Election pursuant to which such holder will be deemed,
immediately prior to the expiration of the Offer (and conditioned upon the
purchase by Purchaser of Shares pursuant to the Offer), to have (i) exercised
all of such holder's Options to purchase Shares and (ii) then tendered such
Shares pursuant to the Offer. Any such exercise of an Option and tender of
Shares must be in accordance with the terms of the 1992 Plan and the Options.
In no event are any Options or Option Elections to be delivered to the
Depositary, Purchaser, Parent or any other person other than the Company in
connection with a tender of Shares hereunder.
The Company will send or deliver to holders of Options additional materials
concerning the exercise of Options and the tender of Shares issuable upon
exercise of Options, including an Option Election. Holders should use the Option
Election to exercise Options and to tender Shares issuable upon exercise of
Options, as described above. HOLDERS OF OPTIONS MAY NOT USE THE LETTER OF
TRANSMITTAL TO DIRECT THE TENDER OF SHARES ISSUABLE UPON EXERCISE OF OPTIONS.
Questions with respect to tendering Shares issuable upon exercise of Options
should be directed to Mycogen Corporation, AgroSciences Tender Offer, 5501
Oberlin Drive, San Diego, California 92121, Attention: Cheri Manis; telephone
number (800) 745-7475.
IN ORDER TO ASSURE THAT THE COMPANY, ON BEHALF OF HOLDERS OF OPTIONS WHO
EXERCISE THEIR OPTIONS PURSUANT TO OPTION ELECTIONS, CAN TIMELY TENDER SHARES
ISSUABLE UPON EXERCISE OF OPTIONS, HOLDERS OF OPTIONS SHOULD COMPLETE AND RETURN
THE OPTION ELECTION SO THAT IT IS RECEIVED BY THE COMPANY NO LATER THAN 5:00
P.M., SAN DIEGO, CALIFORNIA TIME, ON WEDNESDAY, SEPTEMBER 30, 1998, UNLESS THE
OFFER IS EXTENDED.
PURCHASE RIGHTS
Under the Merger Agreement, holders of purchase rights ("Purchase Rights")
under the Mycogen Corporation Employee Stock Purchase Plan (the "Stock Plan")
who submit a Stock Purchase Election to the Company prior to the expiration of
the Offer will be able (contingent on the purchase of Shares in the Offer) to
exercise their Purchase Rights immediately prior to the expiration of the Offer
and to tender the Shares issuable upon such exercise (the "Stock Purchase
Shares") in the Offer.
All Purchase Right exercises must be effected through the Company. A holder
of Purchase Rights who wishes to participate in the Offer must submit to the
Company a Stock Purchase Election to exercise all of such holder's Purchase
Rights to purchase Stock Purchase Shares and then tender such Stock Purchase
Shares pursuant to the Offer; provided, that any such exercise of a Purchase
Rights is in accordance with the terms of the Stock Plan.
In no event are any Purchase Rights or Stock Purchase Elections to be
delivered to the Depositary, Purchaser, Parent or any other person other than
the Company in connection with a tender of Stock Purchase Shares hereunder.
The Company will send or deliver to holders of Purchase Rights additional
materials concerning the exercise of Purchase Rights and the tender of Stock
Purchase Shares, including a Stock Purchase Election. Holders should use the
Stock Purchase Election to exercise Purchase Rights and to tender Stock Purchase
Shares, as described above. HOLDERS OF PURCHASE RIGHTS MAY NOT USE THE LETTER OF
TRANSMITTAL TO DIRECT THE TENDER OF STOCK PURCHASE SHARES. Questions with
respect to tendering Stock Purchase Shares should be directed to Mycogen
Corporation, AgroSciences Tender Offer, 5501 Oberlin Drive, San Diego,
California 92121, Attention: Cheri Manis; telephone number (800) 745-7475.
IN ORDER TO ASSURE THAT THE COMPANY, ON BEHALF OF HOLDERS OF PURCHASE RIGHTS
WHO EXERCISE THEIR PURCHASE RIGHTS PURSUANT TO STOCK PURCHASE ELECTIONS, CAN
TIMELY TENDER STOCK PURCHASE SHARES, HOLDERS OF PURCHASE RIGHTS SHOULD COMPLETE
AND RETURN THE STOCK PURCHASE ELECTION SO THAT IT IS RECEIVED BY THE COMPANY NO
LATER THAN 5:00 P.M., SAN DIEGO, CALIFORNIA TIME, ON WEDNESDAY, SEPTEMBER 30,
1998, UNLESS THE OFFER IS EXTENDED.
8
RESTRICTED SHARES
Under the Merger Agreement, holders of shares of restricted stock of the
Company ("Restricted Stock") which were granted pursuant to the Mycogen
Corporation Restricted Stock Issuance Plan (the "Restricted Stock Plan") who
submit a Restricted Stock Election (as defined in Section 10) to the Company
prior to the expiration of the Offer will be able (contingent on the purchase of
Shares in the Offer) to tender their Restricted Stock in the Offer.
Purchaser is offering, as part of the Offer, to purchase any of the
Restricted Stock granted pursuant to the Restricted Stock Plan. All tenders of
Restricted Stock must be effected through the Company. A holder of Restricted
Stock who wishes to participate in the Offer must submit to the Company a
Restricted Stock Election to vest such Restricted Stock, a Letter of Transmittal
and such holder's Restricted Stock certificates.
In no event are any Restricted Stock Elections and Restricted Stock
certificates to be delivered to the Depositary, Purchaser, Parent or any other
person other than the Company in connection with a tender of Restricted Stock
hereunder.
The Company will send or deliver to holders of Restricted Stock additional
materials concerning the tender of Restricted Stock, including a Restricted
Stock Election. Holders should use the Restricted Stock Election and the Letter
of Transmittal to tender Restricted Stock as described above. Questions with
respect to tendering Restricted Shares should be directed to Mycogen
Corporation, AgroSciences Tender Offer, 5501 Oberlin Drive, San Diego,
California 92121, Attention: Cheri Manis; telephone number (800) 745-7475.
IN ORDER TO ASSURE THAT THE COMPANY CAN PERMIT THE RESTRICTED STOCKS TO VEST
(CONTINGENT UPON THE PURCHASE BY PURCHASER OF SHARES PURSUANT TO THE OFFER) AND
THEREBY PERMIT A TIMELY AND VALID TENDER OF THE RESTRICTED SHARES, HOLDERS OF
RESTRICTED SHARES SHOULD COMPLETE AND RETURN THE RESTRICTED STOCK ELECTION AND
THE LETTER OF TRANSMITTAL ALONG WITH THE RELATED RESTRICTED SHARE CERTIFICATES
SO THAT THEY ARE RECEIVED BY THE COMPANY NO LATER THAT 5:00 P.M., SAN DIEGO,
CALIFORNIA TIME, ON WEDNESDAY, SEPTEMBER 30, 1998, UNLESS THE OFFER IS EXTENDED.
BACKUP U.S. FEDERAL INCOME TAX WITHHOLDING
For a discussion of U.S. federal income tax considerations relating to
backup withholding, see Section 5.
APPOINTMENT AS PROXY
By executing a Letter of Transmittal, a tendering stockholder irrevocably
appoints designees of Purchaser as such stockholder's proxies in the manner set
forth in the Letter of Transmittal to the full extent of such stockholder's
rights with respect to the Shares tendered by such stockholder and accepted for
payment by Purchaser (and with respect to any and all other Shares or other
securities issued or issuable in respect of such Shares on or after the date of
this Offer to Purchase). All such proxies shall be irrevocable and coupled with
an interest in the tendered Shares. Such appointment will be effective when, and
only to the extent that, Purchaser accepts such Shares for payment. Upon such
acceptance for payment, all prior proxies and consents granted by such
stockholder with respect to such Shares and other securities will be revoked
without further action, and no subsequent proxies may be given nor subsequent
written consents executed (and, if given or executed, such proxies or consents
will not be deemed effective). The designees of Purchaser will be empowered to
exercise all voting and other rights of such stockholder as they, in their sole
discretion, may deem proper at any annual, special or adjourned meeting of the
Company's stockholders, by written consent or otherwise. Purchaser reserves the
right to require that, in order for Shares to be deemed validly tendered,
immediately upon Purchaser's payment for such
9
Shares, Purchaser must be able to exercise full voting rights with respect to
such Shares, including voting at any meeting of stockholders scheduled or acting
by written consent without a meeting.
DETERMINATION OF VALIDITY
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for payment of any tender of Shares will be determined
by Purchaser in its reasonable discretion. Purchaser reserves the absolute right
to reject any and all tenders of Shares determined by it not to be in proper
form or the acceptance for payment of which may, in the opinion of Purchaser's
counsel, be unlawful. Purchaser reserves the absolute right to waive any defect
or irregularity in any tender of Shares of any particular stockholder. None of
Purchaser, Parent, any of their affiliates or assigns, the Dealer Manager, the
Depositary, the Information Agent or any other person will be under any duty to
give notification of any defects or irregularities in tenders or incur any
liability for failure to give any such notification.
4. WITHDRAWAL RIGHTS; STATUTORY RIGHTS
Tenders of Shares pursuant to the Offer may be withdrawn at any time on or
prior to the Expiration Date (or such later date as may apply in case the Offer
is extended). Thereafter, such tenders are irrevocable, except that they may be
withdrawn after November 2, 1998, unless theretofore accepted for payment as
provided in this Offer to Purchase. If Purchaser extends the Offer, is delayed
in accepting for payment or paying for Shares or is unable to accept for payment
or pay for Shares pursuant to the Offer for any reason, then, without prejudice
to Purchaser's rights under the Offer, the Depositary may, on behalf of
Purchaser, retain all Shares tendered, and such Shares may not be withdrawn
except to the extent that tendering stockholders are entitled to withdrawal
rights as set forth in this Section 4.
For a withdrawal to be effective, a written, telegraphic, telex or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase. Any
notice of withdrawal must specify the name of the person who tendered the Shares
to be withdrawn, the number of Shares to be withdrawn and the name of the
registered holder, if different from that of the person who tendered such
Shares. If certificates evidencing Shares to be withdrawn have been delivered or
otherwise identified to the Depositary, then prior to the physical release of
such certificates, the serial numbers shown on such certificates must be
submitted to the Depositary, and the signatures on the notice of withdrawal must
be guaranteed by an Eligible Institution unless such Shares have been tendered
for the account of an Eligible Institution. If Shares have been tendered
pursuant to the procedure for book-entry transfer set forth in Section 3, the
notice of withdrawal must specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Shares.
Withdrawals may not be rescinded, and Shares withdrawn will thereafter be
deemed not validly tendered for purposes of the Offer. However, withdrawn Shares
of the Company may be retendered at any time prior to the Expiration Date by
again following one of the procedures described in Section 3.
All questions as to the form and validity (including time of receipt) of any
notice of withdrawal will be determined by Purchaser, in its reasonable
discretion. None of Purchaser, Parent, any of their affiliates or assigns, the
Dealer Manager, the Depositary, the Information Agent or any other person will
be under any duty to give notification of any defects or irregularities in any
notice of withdrawal or incur any liability for failure to give such
notification.
5. CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material U.S. federal income tax
consequences of the Offer and the Merger. This summary is based upon the current
provisions of the Internal Revenue Code of 1986, as amended, its legislative
history, Treasury regulations, administrative pronouncements and judicial
decisions, all of which are subject to change, possibly with retroactive effect.
This summary does not purport to
10
be a complete discussion of all U.S. federal income tax consequences relating to
the Offer and the Merger. This summary does not address the tax consequences of
the Offer and the Merger under state, local or non-U.S. tax laws. In addition,
this summary may not apply, in whole or in part, to particular categories of
holders of Shares, such as financial institutions, broker-dealers, life
insurance companies, tax-exempt organizations, investment companies, foreign
taxpayers, individuals who received Shares pursuant to employee stock options,
restricted stock programs or in other compensatory transactions, and other
special status taxpayers. Finally, a tax ruling from the Internal Revenue
Service ("IRS") has not be requested. THIS SUMMARY IS INCLUDED FOR GENERAL
INFORMATION ONLY. ALL HOLDERS OF SHARES ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE OFFER AND THE MERGER,
INCLUDING ANY STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES.
A holder of a Share who receives cash in exchange for his or her Share
pursuant to the Offer or the Merger (including cash received upon the exercise
of dissenters' appraisal rights) will recognize gain or loss for U.S. federal
income tax purposes equal to the difference between the amount of cash received
for such Share and such holder's tax basis in such Share. Such gain or loss will
be a capital gain or loss, provided that such Share was held as a capital asset
of the holder at the time such Share was tendered in the Offer or exchanged for
cash in the Merger, as the case may be. A capital gain or loss will be a
long-term capital gain or loss if the holder's holding period is more than 12
months. For individual holders, long-term capital gains are subject to a maximum
federal income tax rate of 20 percent. The deduction of capital losses may be
subject to limitation.
Certain holders of Shares who receive cash in exchange for their Shares
pursuant to the Offer or the Merger (including cash received upon the exercise
of dissenters' appraisal rights) are required to provide the Depositary (as
payer) with their correct taxpayer identification number ("TIN") on a Substitute
Form W-9 (included as part of the Letter of Transmittal). If the Depositary is
not provided with the correct TIN, a holder may be subject to a $50 penalty
imposed by the IRS. In addition, payments made to such holder may be subject to
backup withholding. If backup withholding applies, the Depositary is required to
withhold 31% of any payment made to a holder. Backup withholding is not an
additional federal income tax. Rather, the federal income tax liability of a
person subject to backup withholding will be reduced by the amount of tax
withheld, provided that the required information is given to the IRS. If backup
withholding results in an overpayment of federal income taxes, a refund may be
obtained from the IRS. See instruction 8 of the Letter of Transmittal for a more
detailed discussion regarding backup withholding.
11
6. PRICE RANGE OF THE SHARES
The Company's Shares are listed and quoted on the NASDAQ NMS under the
symbol MYCO. The following table sets forth, for the periods indicated, the high
and low sale prices per share for the Shares for the periods indicated. The
Company has not paid dividends with respect to Shares in the past two years and
is not expected to do so in the foreseeable future.
SHARES
-----------------
HIGH LOW
------- -------
Fiscal Year Ended August 31, 1997:
First Quarter....................................................... $17 1/8 $13 3/4
Second Quarter...................................................... 29 1/4 16 3/4
Third Quarter....................................................... 28 1/2 17 1/2
Fourth Quarter...................................................... 25 18 3/4
Fiscal Year Ended August 31, 1998:
First Quarter....................................................... $25 1/2 $19 1/2
Second Quarter...................................................... 22 1/2 15 7/8
Third Quarter....................................................... 25 1/4 16 5/8
Fourth Quarter...................................................... 25 20
Fiscal Year Ended August 31, 1999:
First Quarter (through 9/3/98)...................................... $27 3/4 $27
The following table sets forth for the periods indicated, the purchases of
Shares made by Parent, the range of prices paid for such Shares and the average
purchase price for each quarterly period of the Company during such periods:
SHARES
--------------------------------------------
NUMBER OF
SHARES HIGH LOW AVERAGE
---------- --------- ---------- ---------
Fiscal Year Ended August 31, 1997:
First Quarter................................ 297,700 $ 16.875 $ 15.50 $ 16.484
Second Quarter............................... 1,979,700 25.625 16.75 19.456
Third Quarter................................ 805,077 28.00 21.50 25.429
Fourth Quarter............................... 226,666 24.00 19.25 23.047
Fiscal Year Ended August 31, 1998:
First Quarter................................ 146,400 $ 20.75 $ 20.5625 $ 20.694
Second Quarter............................... 4,696,512 20.761 19.3333 19.927
Third Quarter................................ 2,000,000 20.059 20.059 20.059
Fourth Quarter............................... 0 -- -- --
Fiscal Year Ended August 31, 1999:
First Quarter (through 9/3/98)............... 0 -- -- --
On August 31, 1998, the last full trading day prior to announcement of the
execution of the Merger Agreement and Purchaser's intention to commence the
Offer, the closing sale price of the Shares on the NASDAQ NMS was $20.00 per
Share. On September 3, 1998, the last full trading day prior to the commencement
of the Offer, such closing sale price was $27.5625 per Share. STOCKHOLDERS ARE
URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES.
12
7. CERTAIN INFORMATION CONCERNING THE COMPANY
GENERAL
The Company is a California corporation with its principal office located at
5501 Oberlin Drive, San Diego, California 92121. The Company is a diversified
agribusiness and biotechnology company that develops and markets seed for
improved crop varieties and provides crop protection products and services.
FINANCIAL INFORMATION
Set forth below is certain selected consolidated financial information with
respect to the Company and its subsidiaries derived from the Company's public
reports filed with the Commission. More comprehensive financial information is
included in reports and other documents filed by the Company with the
Commission, and the following summary is qualified in its entirety by reference
to such reports and other documents and all of the financial information
(including any related notes) contained therein. Such reports and other
documents are available for inspection and copies thereof are obtainable in the
manner set forth below under "Available Information."
MYCOGEN CORPORATION
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED
YEAR ENDED AUGUST 31, MAY 31,
------------------------------------- ------------------------
1997(1) 1996(1) 1995 1998 1997
----------- ----------- ----------- ----------- -----------
Net Operating Revenues.......................... $ 202,407 $ 146,800 $ 106,169 $ 177,562 $ 170,895
Total Revenue................................... 210,973 155,589 113,218 184,318 177,236
Net Loss Applicable to Common Shares............ (37,683 (2) (47,636 (2) (15,946) (37,757 (2) (6,981)(2)
Net Loss Per Common Share (Basic)............... (1.22 (1) (1.82 (1) (0.83) (1.13) (0.23)
Net Loss Per Common Share (Diluted)............. (1.22 (1) (1.82 (1) (0.83) (1.13) (0.23)
Cash, Cash Equivalents and Securities
Available-for-Sale............................ 2,211 68,038 17,600 1,514 3,097
Total Assets.................................... 239,687 227,469 159,608 342,359 280,622
Long-Term Liabilities........................... 15,544 5,228 3,291 20,266 16,187
Redeemable Preferred Stock...................... -- -- -- -- --
Stockholders' Equity............................ 157,214 181,194 113,703 203,232 184,341
- ------------------------
(1) The acquisitions of Morgan Seeds in 1997 and UAS and Mycogen Seeds in 1996
affect the comparability of the Selected Financial Data.
(2) Net loss in 1997, 1996, the nine months ended May 31, 1998 and the nine
months ended May 31, 1997 includes other charges of $31.7 million, $27.6
million, $39.0 million and $14.3 million, respectively, as discussed in
further detail in the Notes to the Company's Consolidated Financial
Statements.
13
RECENT DEVELOPMENTS
The Company has advised Parent that the Company's fourth quarter has been
negatively impacted by promotional (free seed) efforts on the part of the
Company's competitors. The Company also has advised Parent that fourth quarter
results have been negatively impacted by high litigation costs. Based on
management's preliminary assessment of the business, fourth quarter revenues are
anticipated by the Company to be approximately $25.5 million with a net loss of
approximately $25 million, or approximately $0.69 per Share.
AVAILABLE INFORMATION
The Company is registered under the Exchange Act, and, accordingly, is
subject to the informational filing requirements of the Exchange Act. In
accordance therewith, the Company files periodic reports, proxy statements and
other information with the Commission under the Exchange Act relating to its
business, financial condition and other matters. The Company is required to
disclose in such proxy statements certain information, as of particular dates,
concerning the Company's directors and officers, their remuneration, stock
options granted to them, the principal holders of the Company's securities and
any material interest of such persons in transactions with the Company. Such
reports, proxy statements and other information may be inspected at the
Commission's office at 450 Fifth Street, N.W., Washington, D.C. 20549, and also
should be available for inspection and copying at the regional offices of the
Commission located at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511; and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies may be obtained by mail from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission also maintains a World Wide Website on the Internet at
http://www.sec.gov which site contains registration statements, reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission, including the Company. In addition, such
material should be available for inspection at the NASD, 1735 K Street, N.W.,
Washington, D.C. 20006.
8. CERTAIN INFORMATION CONCERNING PURCHASER, PARENT AND CERTAIN AFFILIATES OF
PARENT
GENERAL
Purchaser, a Delaware corporation with its principal offices at 2030 Dow
Center, Midland, Michigan 48674, was organized in April 1998 for the purpose of
effecting the Offer and the Merger, and has not carried on any activities except
in connection with the Offer and the Merger. Parent owns 69% of the outstanding
common stock of Purchaser and Centen Ag Inc., a Delaware corporation ("Centen"),
owns 31% of the outstanding common stock of Purchaser.
Parent is a Delaware limited liability company with its principal offices
located at 9330 Zionsville Road, Indianapolis, Indiana 46268. Parent's principal
business is the production of agricultural products, such as Broadstrike-TM-
herbicides, Lorsban-TM- insecticides and Dursban-TM- insecticides, used in crop
protection and production and for industrial pest control. Parent is 63% owned
by Rofan Services Inc., a Delaware corporation ("Rofan") and 37% owned by
Centen.
Rofan is a Delaware corporation with its principal offices located at 2030
Dow Center, Midland, Michigan 48674. Rofan's principal business is to hold
investments in other entities, such as Parent. Rofan is a wholly owned
subsidiary of TDCC.
Centen is a Delaware corporation with its principal offices located at 2030
Dow Center, Midland, Michigan 48674. Centen's principal business is to hold a
membership interest in Parent. Centen is a wholly owned subsidiary of TDCC.
TDCC is a Delaware corporation with its principal offices located at 2030
Dow Center, Midland, Michigan 48674. TDCC's principal business is the
manufacture and sale of chemicals, plastic materials,
14
agricultural and other specialized products and services. TDCC is a public
corporation whose stock is traded on various exchanges, including the New York
Stock Exchange, Inc. ("NYSE").
Except as described in this Offer to Purchase, during the last five years,
none of TDCC, Rofan, Centen, Parent, Purchaser or, to the best of their
knowledge, any of the persons listed in Schedule I (i) has been convicted in a
criminal proceeding (excluding traffic violations and similar misdemeanors) or
(ii) was a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
activities subject to, federal or state securities laws or finding any violation
of such laws. The name, business address, present principal occupation or
employment, five-year employment history and citizenship of each director and
executive officer of TDCC, Rofan, Centen, Parent and Purchaser are set forth in
Schedule I.
FINANCIAL INFORMATION
Set forth below is certain selected consolidated financial information with
respect to TDCC and its subsidiaries as of its fiscal years ended December 31,
1997, 1996 and 1995. More comprehensive financial information is included in
reports and in documents filed by TDCC with the Commission, and the following
summary is qualified in its entirety by reference to such reports and other
documents and all of the financial information (including any related notes)
contained therein. Such reports and other documents should be available for
inspection and copies thereof should be obtainable in the manner set forth below
under "Available Information."
THE DOW CHEMICAL COMPANY AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL INFORMATION
FISCAL YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
(IN MILLIONS OF DOLLARS EXCEPT PER
SHARE AMOUNTS)
STATEMENT OF EARNINGS DATA:
Net Sales.................................................................. $ 20,018 $ 20,053 $ 20,200
Income from Continuing Operations.......................................... 1,802 1,900 1,900
Net Income Available for Common Stockholders............................... 1,802 1,900 2,071
PER SHARE DATA:
Earnings per Common Share from Continuing Operations....................... $ 7.81 $ 7.71 $ 7.03
Earnings per Common Share.................................................. 7.81 7.71 7.72
Earnings per Common Share from Continuing Operations -- Assuming
Dilution................................................................. 7.70 7.60 6.93
Earnings per Common Share -- Assuming Dilution............................. 7.70 7.60 7.61
BALANCE SHEET DATA:
Working Capital............................................................ $ 1,300 $ 3,826 $ 4,953
Total Assets............................................................... 24,040 24,673 23,582
Net Stockholders Equity.................................................... 7,626 7,954 7,361
Weighted-average Common Shares
Outstanding (in millions)................................................ 230.6 246.3 268.2
AVAILABLE INFORMATION
TDCC is registered under the Exchange Act, and, accordingly, is subject to
the informational filing requirements of the Exchange Act. In accordance
therewith, TDCC files periodic reports, proxy statements
15
and other information with the Commission under the Exchange Act relating to its
business, financial condition and other matters. TDCC is required to disclose in
such proxy statements certain information, as of particular dates, concerning
TDCC's directors and officers, their remuneration, stock options granted to
them, the principal holders of TDCC's securities and any material interest of
such persons in transactions with TDCC. Such reports, proxy statements and other
information may be inspected at the Commission's office at 450 Fifth Street,
N.W., Washington, D.C. 20549, and also should be available for inspection and
copying at the regional offices of the Commission located at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511; and 7 World Trade Center, 13th
Floor, New York, New York 10048. Copies may be obtained by mail from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission also maintains a World Wide Website
on the Internet at http://www.sec.gov which site contains registration
statements, reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission, including
TDCC. In addition, such material should be available for inspection at the NYSE,
20 Broad Street, New York, New York 10005.
Except as described in this Offer to Purchase, (i) none of TDCC, Rofan,
Centen, Parent or Purchaser or, to the best of their knowledge, any of the
persons listed in Schedule I or any associate or majority-owned subsidiary of
any such persons, beneficially owns or has a right to acquire any equity
security of the Company and (ii) none of TDCC, Rofan, Centen, Parent or
Purchaser or, to the best of their knowledge, any of the other persons referred
to above, or any of the respective directors, executive officers or subsidiaries
of any of the foregoing, has effected any transaction in any equity security of
the Company during the past 60 days. Jerry E. Toomer, Vice President-Human
Resources of Parent, directly owns 840 Shares. Purchaser believes that Mr.
Toomer will tender all of his Shares pursuant to the Offer. The designees of
Parent who serve on the Board of the Company have agreements with Parent
pursuant to which such persons agree to forfeit to Parent any Shares issuable
pursuant to Options granted in connection with that service. Accordingly, any
Shares subject to such Options cannot be tendered by such persons in response to
the Offer.
Except as described in this Offer to Purchase, (i) none of TDCC, Rofan,
Centen, Parent or Purchaser or, to the best of their knowledge, any of the
persons listed in Schedule I has any contract, arrangement, understanding or
relationship (whether or not legally enforceable) with any other person with
respect to any securities of the Company, including, but not limited to, any
contract, arrangement, understanding or relationship concerning the transfer of
the voting of any such securities, joint ventures, loan or option arrangements,
puts or calls, guarantees of loans, guarantees against loss, or the giving or
withholding of proxies; (ii) there have been no contacts, negotiations or
transactions between TDCC, Centen, Rofan, Parent, Purchaser or any of their
respective subsidiaries or, to the best of their knowledge, any of the persons
listed on Schedule I on the one hand, and the Company or any of its directors,
officers or affiliates, on the other hand, concerning a merger, consolidation or
acquisition, tender offer or other acquisition of securities, election of
directors, a sale or other transfer of a material amount of assets or concerning
any other transactions with the Company that are required to be disclosed
pursuant to the rules and regulations of the Commission.
9. BACKGROUND OF THE OFFER
As noted above, on January 15, 1996, Parent and the Company entered into the
Exchange and Purchase Agreement. Pursuant to the Exchange and Purchase
Agreement, Parent agreed (i) to acquire 2,707,884 shares of Common Stock and a
$100,000 promissory note of Agrigenetics, Inc. in exchange for all of the
outstanding common stock of United Agriseeds, Inc. and (ii) to purchase
1,745,450 shares of Common Stock for consideration of $26,400,000. In addition,
on January 15, 1996, Parent entered into a Stock Purchase Agreement with The
Lubrizol Corporation to purchase 9,502,348 shares of Common Stock from The
Lubrizol Corporation and an affiliate for $126,217,849. The transactions
contemplated by these agreements closed on February 20, 1996 (the "Measurement
Date").
16
Pursuant to the Exchange and Purchase Agreement, among other things, Parent
agreed that it would not acquire shares of Common Stock beyond specified levels
at certain periods, and that it would not acquire shares of Common Stock such
that it would hold more than 79.9% of the outstanding Common Stock, unless
certain detailed procedures were undertaken. See Item 3(b)(2) "Exchange and
Purchase Agreement."
During calendar year 1996, Parent continued to acquire shares of Common
Stock in the open market, from employees of the Company in connection with the
exercise of their stock options, and directly from individual sellers. On
December 2, 1996, Parent purchased 1,000,000 shares of Common Stock from Pioneer
Overseas Corporation, which, aggregated with shares already owned by Parent,
gave Parent ownership of greater than 50% of the outstanding shares of Common
Stock and control over the Company's Board of Directors (the "Board").
From December 1996 through November 1997, Parent continued to acquire shares
of Common Stock in the open market and directly from third-party sellers
(including from Dr. Jerry Caulder, who resigned as Chairman of the Board and
Chief Executive Officer of the Company in May 1997, but remained a director of
the Company).
On June 30, 1997, TDCC, through wholly-owned subsidiaries, became the 100%
owner of Parent, purchasing the 40% stake in Parent held by another entity.
During the summer of 1997, three of the Company's directors--Dr. Caulder,
Thomas J. Cable and W. Wayne Withers--alleged that Parent, TDCC and Parent's
designees on the Board had breached their fiduciary duties to the Company and
the Minority Stockholders. Those allegations are discussed below. See "Summary
of Special Committee Investigation of Certain Allegations." TDCC, Parent and
Parent's designees deny that they acted wrongfully.
On November 11, 1997, Parent notified four directors of the Company (Dr.
Caulder, Mr. Cable, Dr. David H. Rammler and Mr. Withers) that Parent would not
vote to reelect them to the Board. Parent stated that, in addition to its own
designees and Carlton J. Eibl, President of the Company, it would nominate three
candidates with special expertise and talents in plant biotechnology, the seed
industry and the financial affairs of growth oriented high technology companies.
At the Company's annual meeting of stockholders held on January 8, 1998, Joseph
P. Sullivan, Dr. George Khachatourians and Roy M. Barbee were elected to fill
those vacancies. During March and April 1997, these three new members of the
Board were appointed as an independent committee to work with the Company's
management in evaluating the best path for the Company.
On April 30, 1998, prior to completion of the work of the independent
committee described above, Parent notified the Company and publicly announced
that it desired to amend the Exchange and Purchase Agreement to allow Parent to
purchase all of the Shares held by the Minority Stockholders (the "Minority
Shares") and stated that, if the Exchange and Purchase Agreement were amended to
permit such discussions, Parent would be prepared to discuss such a transaction
at a price per share of $20.50 (the "Initial Proposal"). On May 6, 1998, the
Company announced that it had received the Initial Proposal and that the Board
had appointed the Special Committee to evaluate Parent's request. The Special
Committee, appointed in light of the conflict of interest, with respect to the
Initial Proposal, of the five member majority of the Board designated by Parent,
consisted of Mr. Sullivan and Dr. Khachatourians.
In early May 1998, the Special Committee retained Altheimer & Gray as its
legal adviser, and made inquiries with, and interviewed, a number of investment
banking firms, including Wasserstein Perella. These contacts were reviewed by
the Special Committee at a meeting on May 18, 1998, at which the Special
Committee also reviewed with Altheimer & Gray the duties of special committees
in similar situations.
On May 22, 1998, the Special Committee met with Wasserstein Perella
regarding Wasserstein Perella's retention and the work Wasserstein Perella would
perform in connection therewith (including due
17
diligence efforts), and on May 26, 1998, the Special Committee announced the
retention of Wasserstein Perella as its financial advisor.
During late May and early June 1998, the Special Committee and its advisors
began extensive due diligence with respect to the Company, including its
financial condition and its intellectual property assets and position, both
through on-site visits to the Company's headquarters in San Diego, California
and by telephone and receipt and review of documents.
During late May and early June 1998, Altheimer & Gray learned from Dr.
Khachatourians that Dr. Khachatourians had provided three days of consulting
services to TDCC and Parent in August 1997 for total consideration of $18,000.
In order to avoid any questions regarding his independence, Dr. Khachatourians
determined that he should resign from the Special Committee. At a meeting on
June 11, 1998, Dr. Khachatourians voluntarily resigned from the Special
Committee, and, in accordance with the recommendation of Mr. Sullivan,
Ambassador Clayton K. Yeutter was appointed to the Board and to the Special
Committee. Mr. Sullivan had considered a number of candidates for the
anticipated vacancy on the Special Committee and selected Mr. Yeutter due to his
extensive experience in the agricultural field (including serving as U.S.
Secretary of Agriculture), his strong negotiating skills and background
(including serving as U.S. ambassador to the Uruguay Round of GATT) and Mr.
Sullivan's view, based on their experience together with The Vigoro Corporation,
where Mr. Sullivan was Chairman of the Board and Mr. Yeutter a director, that
Mr. Yeutter would be able to promptly and effectively step into his role on the
Special Committee and be a strong representative of the Minority Stockholders.
In order to permit Mr. Yeutter's appointment to the Board, Mr. Barbee resigned
from the Board.
In mid-June 1998, through its due diligence investigation, the Special
Committee learned of certain allegations involving actions of Parent and its
designated directors on the Board made by former directors and executive
officers of the Company, which are described in detail below. See "Summary of
Special Committee Investigation of Certain Allegations." These allegations
generally involved whether Parent and its Board designees had treated the
Company as a wholly-owned subsidiary, ignoring the rights of the Minority
Stockholders, and had made decisions based on the benefits of opportunities to
Parent, rather than the Company as an independent entity. As described below,
the Special Committee and its representatives investigated these allegations.
The Special Committee took the results of its investigation into account in its
determinations as to the value of the Company and had frank discussions
regarding such allegations during its negotiations with Parent.
On June 10, 1998, Wasserstein Perella sent a letter to TDCC requesting
information on a number of due diligence matters, including issues raised by
these allegations.
On June 25, 1998, the Special Committee and its legal and financial advisors
met with Parent and its representatives to discuss ongoing due diligence issues,
disclosure issues (including issues relating to the allegations referred to
above) and the anticipated schedule for the process. At this meeting, there was
significant discussion as to the information requested by Wasserstein Perella on
behalf of the Special Committee and the scope of information to be provided to
the Special Committee. At a meeting of the Special Committee later on June 25,
the Special Committee was presented with an initial preliminary report by
Wasserstein Perella and a detailed discussion by Altheimer & Gray of the Special
Committee's duties and issues relating to disclosure by Parent to the Special
Committee of certain information.
Based on the June 25 meetings, on June 26, 1998, Wasserstein Perella sent
another letter to TDCC requesting additional information, particularly with
respect to TDCC's and Parent's analyses of the Company, any material discussions
in which TDCC or Parent might be engaged with respect to transactions in the
biotech area and the issues raised by certain of the Company's former officers
and directors.
As a part of its review of the Company's business, Altheimer & Gray learned
that Parent had performed significant work in two areas relating to the
Company's intellectual property estate. Specifically, attorneys for Parent had
prepared an overview and categorization of the Company's intellectual property
18
assets, including an assessment of pending litigation, and Parent was managing
or participating in a substantial part of the outstanding patent litigation to
which the Company is a party. In response to requests from Altheimer & Gray and
the Special Commitee, on July 9, 1998, Mr. Sullivan and attorneys from Altheimer
& Gray met with Parent and its patent litigation counsel to discuss these due
diligence matters.
On July 21, 1998, the Special Committee met and approved an amendment to the
Exchange and Purchase Agreement, subject to approval by the full Board (which
approval was granted the following day), to allow (i) substantive discussions
and negotiations with respect to a potential buyout transaction and (ii) a
transaction to be formally proposed and consummated if such discussions and
negotiations warranted. At that meeting, Wasserstein Perella informed the
Special Committee that, if asked, Wasserstein Perella would be unable to opine
that a price of $20.50 for such a transaction would be fair to the Minority
Stockholders from a financial point of view. Also at that meeting, the Special
Committee and its advisors discussed strategies with respect to a meeting with
Parent to be held the next day.
On July 22, 1998, the Special Committee, along with Wasserstein Perella and
Altheimer & Gray met with Parent and its legal and financial advisors in
Midland, Michigan. Discussions were held as to certain recently disclosed
information, the historical relationship between the Company and Parent
(including issues raised by the allegations noted above) and other due diligence
matters, including Parent's plans for the Company and the Company's strategic
value to Parent. Later that day, the Board approved the amendment to the
Exchange and Purchase Agreement and the amendment was executed.
On July 24, 1998, the Special Committee received Altheimer & Gray's
preliminary analysis of the Company's intellectual property estate and the
litigation with respect thereto. The final report with respect to these issues
was delivered to the Special Committee on July 31, 1998.
On July 27, 1998, the Special Committee met with Altheimer & Gray and
Wasserstein Perella and received Wasserstein Perella's preliminary presentation
as to the value of the Company, with a view toward a presentation of this
analysis to Parent at a meeting scheduled for August 3, 1998. At this July 27
meeting, the Special Committee and its advisors reviewed the presentation in
detail and held lengthy and significant discussions with Wasserstein Perella as
to its analysis and assumptions. Wasserstein Perella circulated another draft of
its preliminary report, and on July 31, 1998, the Special Committee met by
teleconference with its advisors to review the status of the presentation and
review further modifications.
On August 3, 1998, the Special Committee and Wasserstein Perella met with
Parent and its financial advisor, Salomon Smith Barney Inc. The advisors made
presentations at this meeting as to their respective analyses of the Company's
value, and delivered reports to the parties with respect thereto.
During the succeeding ten days, the parties exchanged correspondence
regarding the presentations and conclusions of the financial advisors. During
this period, Parent questioned the wide discrepancy between the projections
presented by the Company's management to the Board in December 1997 and the
projections included in the Wasserstein Perella materials. Also during this
period, the Special Committee received a report from Mr. Eibl regarding the view
of the Company's management with respect to the financial advisors' reports,
assumptions and conclusions. This report was provided by the Special Committee
to Parent.
On August 14, 1998, the Special Committee met with Parent and discussed the
terms of the proposed transaction. Discussions centered on a range of values,
with Parent, at this meeting, indicating a high value of $26.00 per Share and
the Special Committee, at this meeting, indicating that the low end of its range
was $30.00 per Share. The parties agreed to discuss their positions with their
respective advisors and to meet again on August 26, 1998.
During the succeeding two weeks, the Special Committee and its legal and
financial advisors met several times to finalize and refine their information as
to all of the matters discussed above.
19
On August 26, 1998, the Special Committee met with Parent and the parties
reached a preliminary and tentative agreement as to price at $28.00 per Share,
subject to agreement as to the terms and conditions of a definitive agreement
and any other material issues that might arise. Parent and the Special Committee
instructed their respective advisors to proceed on this basis. Parent indicated
to the Special Committee that it would need the approval of its governing body.
Following the Special Committee meeting with Parent, the Special Committee asked
Wasserstein Perella to formally determine if it would be prepared to render a
fairness opinion with respect to a price of $28.00 per Share.
On August 27, 1998, counsel for Parent delivered an initial draft merger
agreement to Altheimer & Gray, and over the next four days, the parties and
their representatives negotiated the terms of the Merger Agreement. During this
time, legal counsel for Parent and the Special Committee also entered into
discussions with legal counsel for the Company stockholder plaintiffs in the
putative class action litigation with respect to a possible settlement. As a
result of these discussions, on September 3, 1998, counsel for the plaintiffs,
Parent, TDCC and the Special Committee entered into a "Memorandum of
Understanding" ("MOU"). The MOU provides that, subject to a number of
conditions, including confirmatory discovery, and court approval, the parties
would agree to dismiss the putative class action litigation with prejudice. See
Item 8.
On August 31, 1998, the Special Committee met with Mr. Eibl, Wasserstein
Perella and Altheimer & Gray to review the process undertaken to date, review
the Merger Agreement as finally negotiated, receive reports from Mr. Eibl, on
behalf of management of the Company, from Altheimer & Gray, as to their review
of the Company's intellectual property position, the allegations noted above and
the Special Committee's duties under applicable law, and from Wasserstein
Perella as to its report with respect to the Company from a financial point of
view. At this meeting, Wasserstein Perella delivered its opinion, dated August
31, 1998, to the Special Committee to the effect that, subject to the various
assumptions and limitations set forth therein, the $28.00 cash price to be
received by the Minority Stockholders pursuant to the Merger Agreement is fair
to such stockholders from a financial point of view. A copy of the full text of
the opinion of Wasserstein Perella, dated August 31, 1998, which sets forth,
among other things, the opinion expressed, assumptions made, procedures
followed, matters considered and limitations of review undertaken in connection
with such opinion, is attached hereto as Annex A and should be read in its
entirety. The Special Committee (i) unanimously determined that the Merger
Agreement, the Offer, the Merger and the other transactions contemplated by the
Merger Agreement are advisable and fair to, and in the best interests of, the
Company and the Minority Stockholders, (ii) authorized and approved the
acquisition of Shares by Purchaser in the Offer and the Merger, (iii) approved
and adopted in all respects the Merger Agreement and the performance by the
Company of its obligations thereunder, (iv) recommended acceptance of the Offer
and the tender of shares pursuant thereto, and (v) recommended that the Board
approve and adopt the Merger Agreement, the acquisition of Shares pursuant
thereto and that the Board recommend that the Minority Stockholders tender their
Shares in the Offer and, to the extent required, approve and adopt the Merger
Agreement and the transactions contemplated thereby.
Later on August 31, 1998, at a meeting of the Board, the Special Committee
presented its report to the Board, including its recommendations set forth
above. The Board unanimously (i) determined that the Merger Agreement, the
Offer, the Merger and the other transactions contemplated by the Merger
Agreement are advisable and fair to, and in the best interests of, the Company
and the Minority Stockholders, (ii) authorized and approved the acquisition of
shares by Purchaser in the Offer and the Merger, (iii) approved and adopted in
all respects the Merger Agreement and the performance by the Company of its
obligations thereunder, and (iv) recommended that the Minority Stockholders
tender their Shares in the Offer and, to the extent required, approve and adopt
the Merger Agreement and the transactions contemplated thereby. Finally, the
Compensation Committee of the Board, which governs each of the Mycogen
Corporation 1992 Stock Option Plan, the Mycogen Corporation Restricted Stock
Issuance Plan and the Mycogen Corporation 1995 Stock Purchase Plan, approved the
treatment of the
20
options, purchase rights and restricted stock subject to those plans, as
described in the Merger Agreement, and took actions designed to effect such
treatment.
The Merger Agreement was executed on August 31, 1998, and Parent and the
Company issued a joint press release announcing such execution and delivery on
August 31, 1998 (a copy of which is attached hereto as Exhibit 28).
(b)(2) Reasons for the Recommendation of the Special Committee and the
Board. In determining that the Offer and the Merger are fair to, and in the best
interests of, the Minority Stockholders, and in making its recommendation to the
Board, the Special Committee considered the following material factors, which
taken as a whole, supported its determination:
(i) the offer of $28.00 per Share represented a premium of approximately
36.6%, 53.4% and 64.7% over the closing price of the Shares on the NASDAQ
National Market one full trading day, thirty days and sixty days prior to
the public announcement of the Initial Proposal on April 30, 1998,
respectively;
(ii) the Special Committee's review of historical market prices and
recent trading activity of the Shares, including the fact that prior to
August 31, 1998, the Shares had not closed above $25.50 per Share since June
1997, and developments in the stock market since the date of the Initial
Proposal;
(iii) the Special Committee's consideration of, among other things, (a)
the business plan and information with respect to the financial condition,
results of operations, business and prospects of the Company, (b) the
changes and consolidation occurring in the agricultural biotechnology
industry, their impact on the Company and the potential implication of these
changes on the Company's relationship with Parent, (c) the historical
relationship between the Company and Parent, including with respect to the
Special Committee's investigation of the allegations described below, (d)
the fact that the valuation analyses of Wasserstein Perella involved
potentially speculative valuation of income opportunities which were far in
the future and involved assumptions of market share in such future periods,
(e) the inherent uncertainty as to the value of certain intellectual
property rights of the Company which are subject to a number of
uncertainties (such as, for example, the litigation to which the
intellectual property is subject, the need to commercially develop such
rights, and the inherent speculative nature of commercial development of
these rights, including the area of oral immunology, and the effect of the
Company's competition in these fields), and (f) concerns regarding the
achievability of the Company's projections which formed the basis for the
discounted cash flow analysis in Wasserstein Perella's report;
(iv) the history of the negotiations between the Special Committee and
its representatives and Parent's representatives, including the fact that
(a) the negotiations resulted in an increase in the price at which Parent
was prepared to acquire the Shares from $20.50 per Share to $28.00 per
Share, an increase of 36.6%, and (b) the Special Committee believed that
Parent would not further increase the price payable in the Offer and that
$28.00 per Share was the highest price that could be obtained from Parent;
(v) the Special Committee's review of presentations by, and discussion
of the terms of the Merger Agreement (including the Offer and the Merger)
with, representatives of the Special Committee's legal counsel and its
financial advisors;
(vi) the terms of the Offer, the Merger and the Merger Agreement,
including the structural features of the Offer, which provide for a prompt
cash tender offer for all outstanding Shares held by the Minority
Stockholders to be followed if certain conditions are satisfied by a merger
for the same consideration (thereby enabling the Minority Stockholders to
obtain the benefits of the transaction in exchange for their Shares at the
earliest possible time);
21
(vii) other provisions of the Offer and the Merger Agreement, including
the fact that (a) the Purchaser is not permitted to waive the Minimum
Condition without the approval of the Special Committee unless, after the
consummation of the Offer, Parent and Purchaser would own at least 81.07% of
the Fully Diluted Shares (so that at least a majority of the Minority Shares
on a fully diluted basis would have been tendered), (b) the Offer is not
subject to any financing condition and (c) the terms of the Merger Agreement
may not be amended or waived without the approval of the Special Committee;
(viii) the likelihood that the proposed acquisition would be consummated,
based in part on the financial condition of Parent and the limited scope of
conditions (other than the Minimum Condition) to be satisfied prior to the
consummation of the Merger as provided in the Merger Agreement;
(ix) the written opinion of Wasserstein Perella delivered to the Special
Committee on August 31, 1998 (the "Wasserstein Perella Opinion") to the
effect that, subject to the various assumptions and limitations set forth in
the Wasserstein Perella Opinion, the $28.00 cash price to be received by the
holders of shares of Common Stock (other than TDCC or its affiliates)
pursuant to the Merger Agreement is fair to such holders from a financial
point of view, and the report and analysis presented by Wasserstein Perella.
The full text of the Wasserstein Perella Opinion, which sets forth among
other things, assumptions made, matters considered and limitations on the
review undertaken, is attached hereto as Annex A and is incorporated herein
by reference. The Wasserstein Perella Opinion is directed to the Special
Committee, addresses only the fairness of the consideration to be received
by the Minority Stockholders from a financial point of view and does not
constitute a recommendation to any such stockholder as to whether such
stockholder should accept the Offer and tender its Shares. STOCKHOLDERS ARE
URGED TO CAREFULLY READ THE WASSERSTEIN PERELLA OPINION AND THE "OPINION OF
WASSERSTEIN PERELLA." SECTION SET FORTH BELOW IN THEIR ENTIRETY;
(x) the risk that the Company would suffer the loss of key employees and
other adverse consequences if the Company had not accepted Parent's offer to
engage in the transactions contemplated by the Merger Agreement and had
pursued other alternatives with the attendant delay inherent in such
alternatives (in particular, it was noted that a competitor of the Company
had announced plans to open a facility near the Company's headquarters, and
that the risk of loss of key employees described above, which management had
indicated was already high, would be increased thereby);
(xi) the belief of the Special Committee, and the concurrence of the
Company's management, that, in a rapidly developing competitive market, in
order for the Company to effectively compete, it would need to be a part of
a larger strategic organization or fundamentally change to a different
strategy, whether a niche strategy or otherwise, and the fact that such
change was unlikely to happen in light of Parent's majority ownership of the
Company; in this connection, the Special Committee also considered
management's view that the Company has short term cash needs as well as
continuing needs over many years to fund certain of its research and
development opportunities which would be difficult to meet in the absence of
consummating a buyout of the Minority Stockholders by Parent;
(xii) the fact that Parent owns a majority of the shares of Common Stock,
control of the Board and the right to maintain such ownership level and
control, and the stated unwillingness of Parent to sell such shares to a
third party bidder for the acquisition of the Company and the improbability
of a third party making such a bid; and in connection therewith, Parent had
indicated that it was not interested in selling the Company to a third party
and the Special Committee and Wasserstein Perella were not authorized to,
and did not, solicit third party indications of interest for the acquisition
of the Company or its businesses;
(xiii) the Special Committee's determination, and the concurrence of the
Company's management, that, in light of allegations made and other
organizational differences between Parent and the Company, a continuation of
the status quo position of the parties would be highly undesirable and
22
would present a significant risk of further erosion of the relationship
between Parent and the Company and of the value of the Company;
(xiv) the Special Committee's view that, in light of factors (x)--(xiii),
together with continued disappointing operating results, and risks with
respect to the trading price of the Shares and the stock market in general,
the consideration that the stockholders of the Company (other than Parent
and Purchaser) would obtain in a future transaction (including any
transaction which might be effected by Parent pursuant to the Exchange and
Purchase Agreement following February 1999) would likely be less
advantageous than the consideration they would receive pursuant to the Offer
and the Merger; and
(xv) the ability of the Minority Stockholders to exercise dissenters'
rights under the California Law in connection with the Merger.
In reaching its determinations referred to above, the Board considered the
recommendation of the Special Committee and a report of the Special Committee,
which, in the view of the Board, supported such determinations.
The members of the Board, including the members of the Special Committee,
evaluated the various factors considered in light of their knowledge of the
business, financial condition and prospects of the Company, and sought and
considered the advice of financial and legal advisors. In light of the number
and variety of factors that the Board and the Special Committee considered in
connection with their evaluation of the Offer and the Merger, neither the Board
nor the Special Committee found it practicable to quantify or otherwise assign
relative weights to any of the foregoing factors, and, accordingly, neither the
Board nor the Special Committee did so. In addition to the factors listed above,
the Special Committee considered the fact that consummation of the Offer and the
Merger would eliminate the opportunity of the Minority Stockholders to
participate in any potential future growth in the value of the Company, but
believed that this loss of opportunity was appropriately reflected by the price
of $28.00 per Share to be paid in the Offer and the Merger.
The Board, including the Special Committee, believes that the Offer and the
Merger are procedurally fair because, among other things: (i) the Special
Committee consisted of independent directors (unaffiliated with Parent,
Purchaser or their affiliates or the Company's management) appointed to
represent the interests of the Minority Stockholders; (ii) the Special Committee
retained and was advised by independent legal counsel; (iii) the Special
Committee retained and was advised by independent financial advisors, who
assisted the Special Committee in evaluating the Offer and the Merger and
rendered a fairness opinion, as described herein; (iv) the detailed review by
the Special Committee and its advisors of the business, financial condition and
intellectual property estate of the Company and the review of the allegations of
improprieties by Parent in its relationship with the Company; (iv) the
deliberations pursuant to which the Special Committee evaluated the Offer and
the Merger and alternatives thereto; (v) the $28.00 per Share price and the
other terms and conditions of the Merger Agreement resulted from active
arms'-length bargaining between members of the Special Committee, on the one
hand, and Parent, on the other; and (vi) Purchaser is not permitted to waive the
Minimum Condition without the consent of the Special Committee unless, after the
consummation of the Offer, Parent and Purchaser would own at least 81.07% of the
Fully Diluted Shares (which would constitute the tender of a majority of the
Minority Shares, on a fully diluted basis).
On August 31, 1998, the Board held a meeting and, based upon, among other
things, the unanimous recommendation of the Special Committee, determined that
the Merger Agreement and the transactions contemplated thereby, including the
Offer and the Merger, upon the terms and subject to the conditions set forth in
the Merger Agreement are fair to, and in the best interests of, the Company and
its Minority Stockholders and approved the Offer, the Merger and the Merger
Agreement and recommends that the Minority Stockholders of the Company accept
the Offer and tender their Shares to Purchaser pursuant to the Offer.
23
THE BOARD OF DIRECTORS OF THE COMPANY BELIEVES THAT THE MERGER IS FAIR TO AND IN
THE BEST INTEREST OF THE COMPANY AND THE MINORITY STOCKHOLDERS, AND, UPON THE
RECOMMENDATION OF THE SPECIAL COMMITTEE, RECOMMENDS THAT MINORITY STOCKHOLDERS
ACCEPT THE OFFER AND TENDER THEIR SHARES TO PURCHASER.
SUMMARY OF SPECIAL COMMITTEE INVESTIGATION OF CERTAIN ALLEGATIONS
During the course of the Special Committee's due diligence efforts, the
Special Committee learned of certain allegations made by former officers and
directors of the Company. These allegations essentially alleged that Parent and
Parent's nominees to the Board had breached fiduciary duties owed to the Company
and the Minority Stockholders. The allegations, although involving numerous
specifics, fit into five general categories: (i) that Parent and its nominees
had inhibited, blocked or prevented the Company from entering into certain
transactions (such as mergers, acquisitions, joint development agreements and
the like) with third parties that allegedly would have been beneficial to the
Company; (ii) that Parent and its nominees had prevented the Company from making
a public offering; (iii) that Parent provided equity financing to the Company on
terms that were unfair to the Company; (iv), that Parent and its nominees had
offered the Company's technology to others in exchange for technology of little
or no interest to the Company, but of value to Parent; and (v) that Parent had
passed up opportunities to sell the Company as a whole for a favorable price.
These allegations have been principally made by Dr. Jerry Caulder, Chief
Executive Officer of the Company until May 1997 and Thomas Cable, a director of
the Company until January 1998. In November 1997, Parent determined not to vote
for the re-election to the Board of Dr. Caulder (who had remained a member of
the Board after his resignation as Chief Executive Officer), Mr. Cable, David
Rammler, the founder of the Company, and W. Wayne Withers, formerly of Monsanto
Corporation and currently General Counsel of Emerson Electric Company.
In the summer of 1997, while still members of the Board of the Company (but
after Dr. Caulder had resigned as Chief Executive Officer), Dr. Caulder and Mr.
Cable sent an unsigned letter (marked "draft") to Pedro Reinhard, Chief
Financial Officer of TDCC, cataloging a number of complaints about the way TDCC
and Parent had managed the Company. Mr. Withers sent a letter to TDCC around the
same time period requesting that the Company hire an independent law firm to
advise the independent members of the Board concerning alleged conflicts of
interest between Parent and the Company. TDCC and Parent denied the complaints
set forth in the draft letter; there is no known response to Mr. Withers' letter
and no counsel was hired. In approximately April 1998, officers of the Company
prepared two chronologies, one of which described the history of the discussions
concerning raising public equity in 1997 and Parent's ultimate refusal to permit
additional shares to be sold to the public and the other cataloging a number of
transactions with third parties that were said to have been blocked by Parent.
During its due diligence review of the Company, the Special Committee
(neither of whose members had been on the Board at the time of the events in
question) learned of the Caulder/Cable draft letter and the chronologies
described above. Altheimer & Gray, as counsel to the Special Committee, assisted
the Special Committee in an investigation into these matters. Following is a
summary of the Special Committee's analysis of these documents and the
allegations set forth therein.
1. Both the Caulder/Cable draft letter and one of the management
chronologies, as well as other sources, document cases in which the Company's
management wished to pursue various business opportunities--some in the form of
acquisitions, some structured as licenses, some as joint development agreements
or otherwise--but was purportedly unable to obtain Parent's approval to do so.
These transactions involved a large range of differing circumstances. Only one
of these transactions was ever actually presented to the Board, which rejected
it by a 5-4 vote in February 1997, all of the Parent designees voting against
and all of the other directors voting in favor. Other transactions that were
favored by the
24
Company's management were not approved by the Company's "Technology Committee"
(dominated by Parent), but were not submitted to the Board. The transactions in
question were also at various stages of completion. The largest and most
ambitious projects were never close to consummation. The Special Committee had
significant questions regarding whether these transactions could have been
accomplished even with the enthusiastic support of Parent. Other potential
business deals were more advanced in their development, even at the final
contract stage. In general, the Special Committee found it impossible to tell
whether and to what extent the Company would be better off had any or all of
these transactions been accomplished. Many were in the nature of long term trait
development transactions and it would have been several years before it would be
clear whether they would have been profitable.
2. As set forth in the Caulder/Cable draft letter and the other chronology,
the Company had been considering means of financing its operations for much of
1997. The Board looked into raising money through the public sale of shares of
Common Stock. During the summer of 1997, Parent decided that it would not permit
the Company to issue new shares to anyone other than Parent, which Parent had a
right to do under the Exchange and Purchase Agreement. The Special Committee
determined that Parent's contractual rights, which had been extensively
bargained for at arms' length, supported its actions in this case. In addition,
Parent has maintained its belief that the raising of funds through outside
equity would be too expensive for the Company. Moreover, there is no assurance
that the Company could have successfully completed a public sale of shares of
Common Stock, or at what price.
3. In approximately October 1997, in connection with a proposed but
ultimately unsuccessful acquisition, Parent was prepared to purchase
approximately $150 million in value of Common Stock at $24.00 per share. A
fairness opinion for that price had been obtained. After the collapse of that
transaction, in November 1997, Parent agreed to purchase $75 million in value of
Common Stock at a contractually stipulated price of the 90 day trailing average.
This transaction was approved unanimously by the Board, including by Dr. Caulder
and Messrs. Cable, Rammler and Withers. No fairness opinion was obtained for
this transaction. During the two-month period between the time the Board
approved the transaction and when it was consummated, the 90 day trailing
average price declined from $23.02 to $19.94. Because the stock price was
falling at that time, the considerable period of time it took for Parent to
formally approve and consumate the transaction resulted in lowering the cost of
acquisition for Parent.
4. In the Caulder/Cable draft letter, the allegation is made that Parent
had offered to trade (presumably by way of a cross license) the Company's
technology to others in exchange for technology that was of little or no
interest to the Company but was of value to TDCC and Parent. However, neither
Dr. Caulder, Mr. Cable nor current management of the Company were aware of any
instance in which such a technology trade was in fact consummated.
5. Finally, Dr. Caulder has maintained that Parent could have arranged for
the sale of all of the Company's stock (including the Shares held by the
Minority Stockholders) at a considerable premium over the market price if it had
chosen to do so. The Special Committee recognized that as a matter of law,
Parent was and is under no obligation to agree to sell its own shares of Common
Stock, even if it might have been in the best interests of the Minority
Stockholders that Parent do so.
TDCC, Parent and Parent's designees have denied that they acted wrongfully
with respect to any of the matters raised in these allegations.
As described above, the Special Committee took these matters and the results
of its investigation into account in making its determinations described above
and in making its recommendations to the Board.
VALUATION BY THE FINANCIAL ADVISOR TO TDCC
As noted above, Salomon Smith Barney, as financial advisor to TDCC, made a
presentation to the Special Committee on August 3, 1998, regarding its updated
views on the stand-alone valuation of the
25
Company, which presentation had previously been prepared and delivered to TDCC
(the "Salomon Smith Barney Valuation").
In connection with its preparation of the Salomon Smith Barney Valuation,
Salomon Smith Barney reviewed certain publicly available information concerning
the Company and certain other financial information concerning the Company,
including financial forecasts that were developed by the managements of the
Company and Parent, respectively, and provided to Salomon Smith Barney by
Parent. Salomon Smith Barney discussed the past and current business operations,
financial condition and prospects of the Company with certain officers and
employees of Parent and TDCC. Salomon Smith Barney also considered such other
information, financial studies, analyses, investigations and financial, economic
and market criteria that it deemed relevant.
In its review and analysis, and in arriving at the Salomon Smith Barney
Valuation, Salomon Smith Barney assumed and relied upon the accuracy and
completeness of the information reviewed by it for purposes of the Salomon Smith
Barney Valuation, and Salomon Smith Barney did not assume any responsibility for
independent verification of such information. With respect to the financial
forecasts of the Company, Salomon Smith Barney assumed that they had been
reasonably prepared and reflected the best currently available estimates and
judgments of the Company and Parent, and Salomon Smith Barney expressed no view
with respect to such forecasts or the assumptions upon which they were based.
Salomon Smith Barney did not assume any responsibility for making or obtaining
any independent evaluations or appraisals of any of the assets (including
properties and facilities) or liabilities of the Company, nor was it provided
with any such evaluation or appraisal.
The Salomon Smith Barney Valuation was necessarily based upon conditions as
they existed and could be evaluated as of such date. The Salomon Smith Barney
Valuation is comprised of two sets of analyses: a review of a preliminary
valuation analysis prepared for TDCC and delivered on April 28, 1998
("Preliminary Valuation") and a revised valuation analysis, which updated the
Preliminary Valuation, as of August 3, 1998 ("Updated Valuation"). The Salomon
Smith Barney Valuation did not imply any conclusion as to the likely trading
range, if any, of the Shares following the consummation of a TDCC purchase of
the outside shareholders' stock, which may vary depending upon, among other
factors, changes in interest rates, dividend rates, market conditions, liquidity
and float and other factors that generally influence the price of securities.
The Salomon Smith Barney Valuation was only an estimate of the value, from a
financial point of view, of the Shares to be purchased by Parent and did not
constitute a recommendation to TDCC or to any holder of Shares as to whether
such holders should tender Shares in connection with the Offer. The Salomon
Smith Barney Valuation also does not constitute an opinion to TDCC or any other
person as to the fairness of the consideration to be paid or received in
connection with the Offer.
The following is a summary of the material analyses presented and discussed
by Salomon Smith Barney at the meeting on August 3, 1998.
HISTORICAL STOCK PRICE PERFORMANCE. Salomon Smith Barney reviewed the
trading prices for Shares over the period from July 1, 1997 to July 31, 1998,
which indicated that the stock had traded from a low of approximately $18 per
Share to a high of approximately $24 per Share during such period. Salomon Smith
Barney noted that the Shares had underperformed by comparison to both the S&P
Composite Average and an index of certain of the Company's peer companies.
ANALYSIS OF SELECTED PUBLICLY TRADED AGRICULTURAL BIOTECHNOLOGY
COMPANIES. Using publicly available information, Salomon Smith Barney compared
the financial, operating and market performance of the Company with those of the
following agricultural biotechnology companies: AgriBioTech Inc., DEKALB
Genetics Corporation ("Dekalb"), Delta and Pine Land Company ("Delta & Pine
Land"), Empresas La Moderna S.A. de C.V., Monsanto Company ("Monsanto"), Pioneer
Hi-Bred International, Inc. ("Pioneer Hi-Bred"), and Vilmorin et Compagnie (the
"Comparable Companies"). Salomon Smith Barney considered the Comparable
Companies to be reasonably similar to the Company insofar as they participate in
business segments similar to the Company's business segments, but none of these
companies has the same
26
management, makeup, size and combination of businesses as the Company.
Accordingly, the analysis described below is not purely mathematical. Rather it
involves complex considerations and judgments concerning differences in
historical and projected financial and operating characteristics of the Company
and the Comparable Companies and other factors that could affect public trading
value.
For the Company and each of the Comparable Companies, Salomon Smith Barney
calculated multiples of firm value to the lastest twelve months ("LTM")
revenues. Other traditional valuation measures such as multiples of firm value
to estimated 1998, 1999, and 2000 earnings as well as firm value to earnings
before interest, taxes, depreciation, and amortization ("EBITDA"), and to
earnings before interest and taxes ("EBIT") were also calculated, but deemed not
to be meaningful due to the Company's negative financial performance. The
multiples of firm value to LTM revenues for the Comparable Companies calculated
in connection with the Preliminary Valuation ranged from 1.1x to 9.2x, with a
median of 2.7x and a mean of 3.6x; while such multiple for the Company was 3.6x.
The multiples of firm value to LTM revenues for the Comparable Companies
calculated in connection with the Updated Valuation ranged from 1.4x to 9.8x,
with a median of 4.2x and a mean of 4.9x; while such multiple for the Company
was 4.2x.
After review of the different sizes, focuses, market shares, and
intellectual property components of the Comparable Companies as well as the
Company's total lack of profitability as compared to the performances achieved
by the Comparable Companies, Salomon Smith Barney determined that the LTM
revenue multiple to be applied in a valuation of the Company would be
significantly less than the median multiple found in the agricultural
biotechnology sector. In addition, especially as of the Updated Valuation, the
agricultural biotechnology sector experienced considerable consolidation which
Salomon Smith Barney believed had had an unusually positive impact on the
stronger Comparable Companies' stock prices, thereby producing inflated
valuation multiples.
By applying an adjusted multiple range of 1.2x to 2.5x to the Company's LTM
revenue, Salomon Smith Barney derived an implied equity value per Share ranging
from $6.34 to $13.68 for the Preliminary Valuation. In connection with the
Updated Valuation, Salomon Smith Barney applied an adjusted multiple range of
1.5x to 2.7x, resulting in an implied equity value per Share of $8.03 to $14.81.
To account for a possible minority acquisition premium associated with the
purchase of the remaining Shares, Salomon Smith Barney applied a 20% to 30%
premium (the "Premium") to the implied equity value per Share to arrive at an
estimated equity value per Share of $7.60 to $17.79 for the Preliminary
Valuation and $9.64 to $19.25 for the Updated Valuation.
Salomon Smith Barney also performed a multiple analysis based upon the
Company's 2002 projected EBITDA in connection with which the implied value per
Share was derived utilizing a 20-30x multiple discounted back to 1998 in an
attempt to capture the impact of the Company's projected future profitability.
In performing this and other analyses, Salomon Smith Barney utilized two sets of
projections. The first set of projections was compiled by the Company management
and presented to Parent's Operating Committee in December 1997 ("Company
Projections"). The second set of projections included Parent's adjustments to
the Company Projections based upon the Company's recent disappointing financial
performance, the Company's poor competitive position, and differing assumptions
pertaining to the corn market ("TDCC Projections"). Using the Company
Projections, Salomon Smith Barney derived an implied value per Share of $5.98 to
$13.12 including the Premium. Using the TDCC Projections, Salomon Smith Barney
derived an implied value per Share range of $3.25 to $7.88 with the Premium.
ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS. Salomon Smith Barney also
analyzed certain financial, operating and stock market information publicly
available or estimated by Parent for certain selected merger or acquisition
transactions. Since the Company's operations involve both a seed trait business
and an intellectual property business, Salomon Smith Barney reviewed ten
selected seed driven agricultural biotechnology transactions (the "Seed
Transactions") as well as twelve selected intellectual property driven
27
agricultural biotechnology transactions (the "IP Transactions") in order to
derive an implied private market valuation for the Shares.
Salomon Smith Barney derived the firm values implied by the terms of the
transactions and then calculated the resulting multiples of firm value to LTM
revenues. In connection with the Preliminary Valuation, the multiple of firm
value to LTM revenues in the Seed Transactions ranged from 1.1x to 4.8x, with a
median of 2.1x and a mean of 2.3x, while the multiple of firm value to LTM
revenues in the IP Transactions ranged from 3.0x to 96.2x, with a median of
10.3x and a mean of 8.3x. To properly account for the Company's distinct seed
and intellectual property businesses, Salomon Smith Barney utilized various
blended weighted averages of the selected multiple ranges from the Seed
Transactions and IP Transactions to derive a reference valuation range of $15.23
to $19.89 per Share.
The Updated Valuation included five precedent transactions which occurred
after the Preliminary Valuation was complete. By including these five
transactions in the derivation of the Seed Transaction and IP Transaction
multiple ranges and employing the blended weighted averages used in the
Preliminary Valuation, Salomon Smith Barney derived a reference valuation range
of $18.76 to $25.54 per Share.
While Salomon Smith Barney considered the Seed Transactions and the IP
Transactions to be reasonably similar to the Offer and the Merger, no
transaction used in the analysis of the Precedent Transactions summarized above
is identical to such transactions. The Company's lack of profitability and weak
market position, combined with a very limited universe of potential buyers, all
impact the comparability of certain of the precedent transactions.
DISCOUNTED CASH FLOW ANALYSIS. Salomon Smith Barney also performed a
discounted cash flow analysis in connection with which reference ranges of per
Share equity value were derived based upon the sum of (i) the value, discounted
to present, of a stream of projected unlevered cash flows and (ii) a projected
terminal value.
The Company's seed business and the intellectual property business were
discounted at different discount rates due to their significantly different risk
profiles. For each segment, Salomon Smith Barney conducted an analysis based
upon the Company Projections and the TDCC Projections. Due to the Company's
current negative financial performance there is a considerable impact on values
calculated by utilizing a nine year projected cash flow stream by comparison to
a four year projected cash flow stream in the discounted cash flow analysis.
Therefore, Salomon Smith Barney valued the Company utilizing each set of
projections for each of the two different segments of the business based on both
a four year and nine year set of projected discounted unlevered cash flows. For
the seed business valuations, a weighted average cost of capital ("WACC")
ranging from 12.0% to 14.0% was used and the Company terminal value was
calculated by applying a 12.0x to 18.0x range of multiples to the Company's
projected EBITDA in the final year. For the intellectual property business
valuations, Salomon Smith Barney used a 15% to 25% WACC and applied a 6.0x to
10.0x range of multiples to the Company's projected revenue in the final year to
derive the terminal value.
Salomon Smith Barney calculated an implied per Share equity value for the
Company using the Company Projections ranging from $6.65 to $8.92 when four
years of cash flows were used and ranging from $8.62 to $15.51 when nine years
of projected cash flow were used. When the TDCC Projections were utilized, the
implied per Share equity value for the Company ranged from $5.21 to $6.95 when
four years of cash flows were used to $5.07 to $9.59 when nine years of
projected cash flows were used.
Salomon Smith Barney prepared the Valuation solely in connection with
advising TDCC with respect to Parent's purchase of the outside shareholders'
Shares. Salomon Smith Barney has not rendered an opinion, nor does the Salomon
Smith Barney Valuation constitute its opinion, to the Company, Parent, TDCC or
any other person as to the fairness of the consideration to be paid or received
in the Offer.
The preparation of valuation analyses is a complex process involving
subjective judgments and is not susceptible to partial analysis or summary
descriptions. The summary set forth above does not purport to
28
be a complete description of the analyses underlying the Salomon Smith Barney
Valuation. Salomon Smith Barney believes that its analysis and the summary set
forth above must be considered as a whole and that selecting portions of its
analyses and the factors considered by it, without considering all analyses and
factors, could create an incomplete view of the processes underlying the
analysis set forth in the Salomon Smith Barney Valuation. The ranges of
valuation implied by any particular analysis described above should not be taken
to be the view of Salomon Smith Barney as to the actual value of the Company.
In performing its analyses, Salomon Smith Barney made numerous assumptions
with respect to industry performance, general business, financial, market and
economic conditions and other matters, many of which are beyond the control of
Parent and the Company. Any estimates contained in such analyses are not
necessarily indicative of actual values or predictive of future results, which
may be significantly more or less than such estimates. Estimated values do not
purport to be appraisals and do not necessarily reflect the prices at which
businesses or companies might actually trade or be sold.
Salomon Smith Barney has acted as financial advisor to TDCC in connection
with its purchase of Shares and, as described under "Fees and Expenses" below,
will receive a fee for its services, a substantial portion of which is
contingent upon consummation of the Offer. In the ordinary course of its
business, Salomon Smith Barney and its affiliates may actively trade the equity
securities of TDCC and the Company for their own account and the accounts of
their customers and, accordingly, may at any time hold a long or short position
in such securities. Salomon Smith Barney and its affiliates have previously
rendered certain investment banking and financial advisory services to TDCC for
which they have received customary compensation. Salomon Smith Barney and its
affiliates (including Travelers Group Inc.) may have other business
relationships with TDCC, Parent or the Company in the ordinary course of their
businesses.
Salomon Smith Barney is an internationally recognized investment banking
firm that provides financial services in connection with a wide range of
business transactions. As part of its business, Salomon Smith Barney regularly
engages in the valuation of companies and their securities in connection with
mergers and acquisitions, restructurings, leveraged buyouts, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. TDCC retained Salomon Smith Barney based on Salomon Smith
Barney's expertise in the valuation of companies as well as its familiarity with
companies in the agriculture biotechnology industry.
OPINION OF WASSERSTEIN PERELLA
The Special Committee retained Wasserstein Perella to act as its financial
advisor in connection with the Transactions (as defined herein). Wasserstein
Perella has delivered a written opinion to the Special Committee, dated August
31, 1998, to the effect that, subject to the various assumptions and limitations
set forth therein, as of the date thereof, the $28.00 per Share cash
consideration to be received by holders of Shares (other than TDCC and its
affiliates) in the Offer and the Merger pursuant to the Merger Agreement
(collectively, the "Transactions") is fair to such shareholders from a financial
point of view. Wasserstein Perella was engaged and acted solely as an advisor to
the Special Committee and not as an advisor to or agent of any other person,
including the Company. Wasserstein Perella's opinion is for the benefit and use
of the Special Committee in its consideration of the Transactions and may not be
used for any other purpose.
THE FULL TEXT OF THE WRITTEN OPINION OF WASSERSTEIN PERELLA, DATED AUGUST
31, 1998, WHICH SETS FORTH AMONG OTHER THINGS THE OPINIONS EXPRESSED, THE
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS OF THE
REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS SCHEDULE III
AND HOLDERS OF THE SHARES ARE URGED TO READ IT IN ITS ENTIRETY. WASSERSTEIN
PERELLA'S OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF SHARES
AS TO WHETHER OR NOT SUCH
29
HOLDER SHOULD TENDER SHARES PURSUANT TO THE OFFER OR HOW SUCH HOLDER SHOULD VOTE
OR OTHERWISE ACT IN RESPECT OF THE OFFER, THE MERGER AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED THEREBY AND SHOULD NOT BE RELIED UPON BY ANY HOLDER IN
RESPECT OF SUCH MATTERS. THE SUMMARY OF THE OPINION OF WASSERSTEIN PERELLA SET
FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
OPINION ATTACHED AS SCHEDULE III.
In connection with rendering its opinion, Wasserstein Perella, among other
things, (i) reviewed the financial terms and provisions of the Merger Agreement;
(ii) reviewed the Exchange and Purchase Agreement, dated January 15, 1996, among
the Company, Agrigenetics, Inc., Parent and United Agriseeds, Inc. (the
"Exchange and Purchase Agreement"), including TDCC's and its affiliates' rights
and obligations thereunder both if the Transactions are completed and not
completed; (iii) reviewed and analyzed certain publicly available business and
financial information relating to the Company for recent years and interim
periods to date, as well as certain internal financial and operating
information, financial forecasts, projections and analyses prepared by or on
behalf of the Company and provided to Wasserstein Perella for purposes of its
analyses; (iv) met with certain representatives of the Company and Parent to
review and discuss such information and, among other matters, the Company's
business, financial condition, results of operations and prospects; (v) reviewed
and considered certain financial and stock market data relating to the Company
and compared that data with similar data for certain other companies, the
securities of which are publicly traded and that Wasserstein Perella believed
might be relevant or comparable in certain respects to the Company or one or
more of its businesses or assets; (vi) reviewed and considered the financial
terms of certain recent acquisitions and business combination transactions in
the seed and agrobiotech industries specifically, and in other industries
generally, which Wasserstein Perella believed to be reasonably comparable to the
Transactions or otherwise relevant to its analysis; and (vii) performed such
other studies, analyses and investigations and reviewed such other information
as Wasserstein Perella considered appropriate.
In its review and analysis and in formulating its opinion, Wasserstein
Perella assumed and relied on the accuracy and completeness of all the financial
and other information provided to or discussed with it or publicly available,
including the financial projections, forecasts, analyses and other information
provided to Wasserstein Perella, without assuming any responsibility for
independent verification of, or expressing an opinion as to, any of such
information. Wasserstein Perella also relied upon the reasonableness and
accuracy of the unadjusted projections, forecasts, analyses and other
information furnished to Wasserstein Perella and assumed, with the Special
Committee's consent, that such projections, forecasts, analyses and other
information were reasonably prepared in good faith and on bases reflecting the
best currently available judgments and estimates of the Company's management as
of August 31, 1998 and that management of the Company is unaware of any facts
that would make the projections, forecasts and other information provided to
Wasserstein Perella incomplete or misleading. Wasserstein Perella expressed no
opinion with respect to such projections, forecasts and analyses or the
assumptions on which they are based. Wasserstein Perella also did not review any
of the books and records of the Company or Parent, and although Wasserstein
Perella visited certain facilities of the Company, Wasserstein Perella was not
retained to conduct, and did not assume any responsibility for conducting, a
physical inspection of the properties or facilities of the Company or Parent, or
for making or obtaining an independent valuation or appraisal of the assets or
liabilities of the Company or Parent, and no such independent valuation or
appraisal was provided to it. Wasserstein Perella's opinion was based on
economic and market conditions and other circumstances as they existed and could
be evaluated by it on August 31, 1998. Although subsequent developments may
affect Wasserstein Perella's opinion, it is under no obligation to update,
revise or reaffirm its opinion. Wasserstein Perella's analysis assumes that the
transactions described in the Merger Agreement will be consummated on the terms
set forth therein, without material waiver or modification.
In the context of its engagement, Wasserstein Perella was not authorized to
solicit and did not solicit alternative offers for the Company or its assets, or
investigate any other alternative transactions which may
30
be available to the Company. Wasserstein Perella expressed no opinion with
respect to the Third Party Sale Value of the Company as such term is defined in
the Exchange and Purchase Agreement.
The following is a summary of the report presented by Wasserstein Perella to
the Special Committee in connection with the delivery of its opinion on August
31, 1998.
DISCOUNTED CASH FLOW ANALYSES. Wasserstein Perella performed two different
discounted cash flow ("DCF") analyses of the Company based on the Company's
financial projections for the 1998-2007 period by business segment: (i) a
variable discount rate DCF analysis and (ii) a probability-weighted method DCF
analysis. The Company's projections for the 1998-2007 period include the impact
of three pending acquisitions in Brazil, including the impact of an increase in
net debt as a result of these acquisitions. Certain synergies that would be
expected in a combination with TDCC such as expense reductions and the Company's
use of net operating losses were included in the projections.
In conducting the variable discount rate DCF analysis, Wasserstein Perella
used a range of discount rates and a range of terminal multiples of earnings
before interest and taxes ("EBIT") for each of the Company's more established,
growing business segments. For the Company's Biopesticides and the SoilServ
business segments, Wasserstein Perella used discount rates ranging from 11.0% to
14.0% and terminal EBIT multiples ranging from 6x to 10x. For the Company's
Conventional Seed business segment, Wasserstein Perella used discount rates
ranging from 12.0% to 14.0% and terminal EBIT multiples ranging from 8x to 12x.
For the Conventional Seed portion of the Company's joint venture with Verneuil
Holding, S.A. ("VMO") and the Company's entire AC Humko joint venture,
Wasserstein Perella used discount rates ranging from 12.0% to 14.0% and terminal
EBIT multiples ranging from 6x to 10x. For the Company's JG Boswell joint
venture, Wasserstein Perella used discount rates ranging from 12.0% to 14.0% and
terminal EBIT multiples ranging from 8x to 12x. For the Company's DAS Canada
joint venture, Wasserstein Perella used discount rates ranging from 20.0% to 24
.0% and terminal EBIT multiples ranging from 8x to 12x. These analyses yielded
ranges of per share values for each such business segment as follows:
Biopesticides $0.09 to $0.12; SoilServ $0.73 to $1.02; Conventional Seed $6.48
to $13.05; VMO (conventional seed only) $0.18 to $0.27; AC Humko $0.06 to $0.07;
JG Boswell $1.54 to $2.22; and DAS Canada $0.34 to $0.54.
With respect to the Company's less well established business segments or
business segments that rely on unproven technology, Wasserstein Perella used a
range of discount rates and a range of projected unlevered cash flow perpetuity
growth rates. For the Company's Herbicide and Insect Resistence business
segment, Wasserstein Perella used discount rates ranging from 20.0% to 24.0% and
perpetuity growth rates from 0.0% to 6.5%. For the Company's Output Traits
business segment, Wasserstein Perella used discount rates ranging from 25.0% to
30.0% and perpetuity growth rates ranging from 5.0% to 6.5%. For the Company's
Disease Resistence business segment, Wasserstein Perella used discount rates
ranging from 31.0% to 50.0% and perpetuity growth rates ranging from 8.0% to
10.0%. For all portions of the Company's VMO joint venture excluding the
conventional seed portion, Wasserstein Perella used discount rates ranging from
20.0% to 50.0% and perpetuity growth rates ranging from 5.0% to 10.0%.
Wasserstein Perella applied discount rates ranging from 20.0% to 24.0% to
projected Pioneer Hi-Bred royalties. For the Company's other partner royalties,
Wasserstein Perella used discount rates ranging from 20.0% to 24.0% and
perpetuity growth rates ranging from 1.0% to 2.5%. For the Company's other pest
and crop royalties, Wasserstein Perella used discount rates ranging from 31.0%
to 50.0% and perpetuity growth rates ranging from 5.0% to 6.5%. These analyses
yielded ranges of per share values for each business segment as follows:
Herbicide and Insect Resistence $3.75 to $6.65; Output Traits $4.71 to $8.72;
Disease Resistence $2.98 to $4.03; VMO (other than conventional seed) $0.02 to
$0.08; Pioneer Hi-Bred royalties $0.90 to $0.97; other partner royalties $0.35
to $0.54; and other pest and crop royalties $0.53 to $2.67. In addition, the
Wasserstein Perella valued certain miscellaneous items including potential cost
savings and use of net operating losses which yielded, in the aggregate, a range
of per share values from $4.64 to $6.48.
31
This variable discount rate DCF analyses yielded an aggregate value per
share for the Shares ranging from $27.37 to $47.29. Wasserstein Perella also
noted that recent declines in volume and unit sales price with respect to corn
seed may adversely impact the Company's long term growth projections and that,
assuming the Company's recent market share erosion impacts projected market
share growth in a constant fashion, the range of values per share of the
Company's Shares would be reduced to $26.22 to $45.44.
In addition, Wasserstein Perella performed a sensitivity analysis based on
certain financial forecasts provided to Wasserstein Perella by management of the
Company with respect to certain key business segments of the North America and
Brazil portions of the Company's Conventional Seed, Herbicide and Insect
Resistance and Output Traits business segments. The Base Case for the
sensitivity analysis was predicated on forecasts of the Company's market share
in each key business segment for the period from 1997 through 2007 (the "Base
Case"). The Base Case projections implied that the Company's market share of the
Conventional Seed business for corn in North American will grow from 3.4% in
1997 to 13.6% in 2007 and that such business segment's contribution to the
overall value of the Company ranges from $2.46 to $5.40 and that the Company's
market share of the Conventional Seed business for corn in Brazil will grow from
11.0% in 1997 to 29.0% in 2007 and that such business segment's contribution to
the overall value of the Company ranges from $2.65 to $4.50. The Base Case
projections also implied that the Company's market share of the Herbicide and
Insect Resistance business for corn crops in North America will grow from 3.4%
in 1997 to 13.6% in 2007 and that such business segment's contribution to the
overall value of the Company ranges from $1.88 to $3.25 and that the Company's
market share of the Herbicide and Insect Resistance business for soybean crops
in North America will grow from 1.8% in 1997 to 7.8% in 2007 and that such
business segment's contribution to the overall value of the Company ranges from
$1.16 to $1.86. The Base Case projections further implied that the Company's
market share of the Output Traits business for soybean crops in North America
will grow from 1.8% in 1997 to 7.8% in 2007 and that such business segment's
contribution to the overall value of the Company ranges from $3.77 to $6.83. In
the Base Case, these key business segments comprised 45.3% of the Company's
overall value and the remainder of the Company's value was derived from 35
additional business units and miscellaneous items.
For purposes of its sensitivity analysis only, Wasserstein Perella also
considered two alternative cases (i) a revised Base Case which was predicated on
the Company achieving 75% of its projected growth in market share for the key
business segments through the year 2007 (the "75% Case") and (ii) a revised Base
Case which was predicated on the Company achieving 125% of its projected growth
in market share for the key business segments through the year 2007 (the "125%
Case"). In the 75% Case, the contribution of the Conventional Seed business for
corn in North America to the Company's overall value ranged from $0.98 to $2.87,
a reduction from the Base Case of 60.2% and the contribution of the Company's
Conventional Seed business for corn in Brazil to the Company's overall value
ranged from $2.34 to $3.91, a reduction from the Base Case of 11.7%. In the 75%
Case, the contribution of the Company's Herbicide and Pesticide Resistance
business for corn crops in North America to the Company's overall value ranged
from $1.60 to $2.76, a reduction from the Base Case of 14.9% and the
contribution of the Company's Herbicide and Pesticide Resistance business for
soybean crops in North America to the Company's overall value ranged from $0.86
to $1.36, a reduction from the Base Case of 25.9%. In the 75% Case, the
contribution of the Company's Output Traits business for soybean crops in North
America to the Company's overall value ranged from $3.55 to $6.40, a reduction
from the Base Case of 5.8%. In the 75% Case, these key business segments
comprised 40.6% of the Company's overall value.
In the 125% Case, the contribution of the Conventional Seed business for
corn in North America to the Company's overall value ranged from $3.93 to $7.92,
an increase from the Base Case of 59.8% and the contribution of the Company's
Conventional Seed business for corn in Brazil to the Company's overall value
ranged from $2.97 to $5.09, an increase from the Base Case of 12.1%. In the 125%
Case, the contribution of the Company's Herbicide and Pesticide Resistance
business for corn crops in North America to the Company's overall value ranged
from $2.16 to $3.72, an increase from the Base Case of 14.9% and the Company's
Herbicide and Pesticide Resistance business for soybean crops in North
32
America to the Company's overall value ranged from $1.22 to $1.96, an increase
from the Base Case of 5.2%. In the 125% Case, the contribution of the Company's
Output Traits business for soybean crops in North America to the Company's
overall value ranged from $3.99 to $7.24, an increase from the Base Case of
5.8%. In the 125% Case, the key business segments comprised 48.7% of the
Company's overall value.
The Base Case, the 75% Case, and the 125% Case resulted in per share
valuation ranges for the Shares from $27.37 to $47.29; $23.98 to $41.51 and
$30.25 to $52.38, respectively.
For purposes of the probability-weighted method DCF analysis, Wasserstein
Perella used estimates provided by management of the probability that new
products will proceed through certain stages of the commercialization process
and ultimately be commercialized in order to weigh the expenses anticipated in
connection with commercializing the product and the revenues anticipated to be
generated by the product. These probability-weighted expense and revenue streams
were then used to estimate the free cash flow attributable to such products.
Wasserstein Perella lowered management's probability estimates to reflect
execution and commercialization risk in light of the size and financial
resources available to the Company's competitors as follows: (i) Wasserstein
Perella used 90% of management's probability estimates with respect to Herbicide
and Pesticide Resistance products; (ii) Wasserstein Perella used 81% of
management's probability estimates with respect to Output Traits products, and;
(iii) Wasserstein Perella used 72% of management's probability estimates with
respect to Disease Resistance products.
For the Company's Biopesticides and the SoilServ business segments,
Wasserstein Perella used discount rates ranging from 10.0% to 14.0% and terminal
EBIT multiples ranging from 6x to 10x. For the Company's Conventional Seed
business segment, Wasserstein Perella used discount rates ranging from 11.0% to
14.0% and terminal EBIT multiples ranging from 8x to 10x. For the conventional
seed portion of the Company's VMO joint venture and the Company's entire joint
ventures with AC Humko and JG Boswell, Wasserstein Perella used discount rates
ranging from 11.0% to 14.0% and terminal EBIT multiples ranging from 6x to 12x.
For the Company's DAS Canada joint venture, Wasserstein Perella used discount
rates ranging from 10.0% to 14 .0% and terminal EBIT multiples ranging from 4x
to 10x.
For the Company's Herbicide and Insect Resistence business segment, Output
Traits business segment, other partner royalties business segment and other pest
and crop royalties business segment, Wasserstein Perella used discount rates
ranging from 11.0% to 14.0% and perpetuity growth rates ranging from 5.0% to
6.5%. For the Company's Disease Resistence business segment and VMO joint
venture (excluding the conventional seed portion), Wasserstein Perella applied
discount rates ranging from 11.0% to 14.0% and perpetuity growth rates ranging
from 5.0% to 10.0%. Wasserstein Perella applied discount rates ranging from
10.0% to 14.0% to projected Pioneer Hi-Bred royalties.
The probability-weighted method DCF analyses yielded an aggregate value per
share for the Share ranging from $27.77 to $54.92. Wasserstein Perella also
noted that recent declines in volume and unit sales price with respect to corn
seed may adversely impact the Company's long term growth projections and that,
assuming the Company's recent market share erosion impacts projected market
share growth in a constant fashion, the range of values per share would be
reduced to $26.83 to $53.29.
COMPARABLE TRANSACTION ANALYSIS. Wasserstein Perella reviewed recent
acquisitions of all the outstanding equity of, or strategic equity investments
in, four publicly traded agrobiotech companies from April 1, 1996 to August 31,
1998 in which the total purchase price for the seller ranged from $268 million
to $3.88 billion (acquiror/seller): Monsanto Company ("Monsanto")/Delta and Pine
Land Company ("Delta"); E. I. du Pont de Nemours and Company/Pioneer Hi-Bred
International, Inc. ("Pioneer"); Monsanto/DeKalb Genetics Corporation
("DeKalb"); and Monsanto/Calgene, Inc. ("Calgene"). In those transactions in
which only a substantial equity investment was made, the purchase price was
adjusted to translate the price the acquiror paid for part of the seller into a
price for the entire company.
For each transaction, Wasserstein Perella calculated the multiple of
announced purchase price (or adjusted purchase price in the case of substantial
equity investments) to the seller's (i) last twelve months
33
("LTM") sales, (ii) LTM earnings before interest, taxes, depreciation and
amortization ("EBITDA") and (iii) LTM EBIT. Wasserstein Perella also calculated
the implied equity value of each seller as a multiple of net income and book
value.
The analysis of the foregoing four transactions, excluding certain multiples
which Wasserstein Perella determined were not meaningful, yielded a range of
multiples of (a) announced or adjusted purchase price to (i) LTM sales of 4.6x
to 9.87x, (ii) LTM EBITDA of 18.4x to 69.8x, (iii) LTM EBIT of 22.6x to 89.6x
and (b) of implied equity value to (i) net income of 33.9x (in the one instance
in which such information was meaningful) and (ii) book value of 3.1x to 25.1x.
Wasserstein Perella used these comparable transaction multiples to calculate
implied values for the shares based on the ranges of multiples derived from such
transactions. The per Share value implied by this analysis ranged from $33.24
per share to $38.85 per share.
PREMIUM ANALYSIS. As part of its analysis, Wasserstein Perella reviewed
three acquisition transactions by majority shareholders of publicly owned
minority interests in agrobiotech companies with values ranging from $119.4
million to $3,426 million to derive a range of premiums paid over (i) the
seller's market price per share one day prior to the announcement of the
respective transaction (the "1-Day Market Price"); (ii) the seller's market
price per share 30 days prior to the announcement of the respective transaction
(the "30-Day Market Price"); and (iii) the seller's market price per share 60
days prior to the announcement of the respective transaction ("60-Day Market
Price"). The three transactions involved the following pairs of companies
(acquiror/seller): Monsanto/Calgene; Novartis AG/SyStemix, Inc.; and
Monsanto/DeKalb (the "Premium Transactions").
The Premium Transactions yielded a range of acquisition premiums to the
1-Day Market Price of 34.9% to 77.3% with a mean of 52.5% and a median of 45.5%.
The 1-Day Market Price of the Company was $20.50. The median acquisition premium
to the 1-Day Market Price for the Premium Transactions implies a per share price
of $29.82. The mean acquisition premium to the 1-Day Market Price for the
Premium Transactions implies a per share price of $31.27.
The Premium Transactions yielded a range of acquisition premiums to the
30-Day Market Price of 41.2% to 60.0% with a mean of 53.5% and a median of
59.2%. The 30-Day Market Price of the Company was $18.25. The median acquisition
premium to the 30-Day Market Price for the Premium Transactions implies a per
share price of $29.05. The mean acquisition premium to the 30-Day Market Price
for the PremiumTransactions implies a per share price of $28.01.
The Premium Transactions yielded a range of acquisition premiums to the
60-Day Market Price of 42.57% to 48.6% with a mean of 45.5% and a median of
45.5%. The 60-Day Market Price of the Company was $17.00. The median acquisition
premium to the 60-Day Market Price for the Premium Transactions implies a per
share price of $24.73. The mean acquisition premium to the 60-Day Market Price
for the Premium Transactions implies a per share price of $24.74.
COMPARABLE COMPANY ANALYSIS. Wasserstein Perella reviewed and compared
certain financial information of the Company to corresponding financial
information for four publicly traded companies: Pioneer; DeKalb; Delta and
Agribiotech, Inc. (collectively, the "Comparable Companies"). Such financial
information was used to calculate for each Comparable Company (a) the
price/earnings ratio ("P/E Ratio") for 1997, the estimated P/E ratio for 1998,
the ratio of 1998 estimated P/E Ratio to estimated three to five year earnings
growth rate and the price to book ratio, (b) the multiple of adjusted market
value to 1997, LTM and estimated 1998 and 1999 financial results, including
sales, EBITDA and EBIT and (c) net debt as a percentage of market
capitalization.
Such analysis, excluding certain multiples which Wasserstein Perella
determined were not meaningful, indicated that, (a) the Company had a price to
book ratio of 4.1x, as compared to a range of 4.6x to 18.3x, with a mean of
10.1x and a median of 8.8x, for the Comparable Companies, (b) with respect to
adjusted market value, (i) the Company traded at a multiple of 4.29x 1997 sales,
as compared to a range of 1.34x to
34
10.32x, with a mean of 5.66x and a median of 5.50x, for the Comparable
Companies, (ii) the Company traded at a multiple of 4.15x LTM sales, as compared
to a range of 1.34x to 9.33x, with a mean of 5.20x and a median of 5.08x, for
the Comparable Companies, (iii) the Company traded at a multiple of 3.53x
estimated 1998 sales, as compared to a range of 1.45x to 7.13x, with a mean of
4.72x and a median of 5.15x, for the Comparable Companies, (iv) the Company
traded at a multiple of 3.03x estimated 1999 sales, as compared to a range of
0.72x to 5.33x, with a mean of 3.87x and a median of 4.71x, for the Comparable
Companies and (c) the Company's net debt was 9.9% of its market capitalization,
as compared to a range of (2.3%) to 9.5%, with a mean of 2.6% and a median of
1.6% for the Comparable Companies. The above analysis, when adjusted to account
for control premiums of 10%, 30% and 50%, implied per share values of $30.22,
$31.93 and $33.64, respectively.
COMPOSITE RANGE. Based on the above analyses, Wasserstein Perella derived a
composite range of per share values of $25.00 to $35.00. In deriving this
composite range, Wasserstein Perella took into account, among other things, that
(i) the Company historically has failed to achieve its operating projections and
the projections provided to Wasserstein Perella by management of the Company
were significantly higher than those included in the Company's 1997 business
plan, (ii) the Company is projecting net operating losses for the next several
years, (iii) due to the fact that the Company is projecting net losses for the
next several years, the inherent uncertainty associated with the success and
timing of scientific research activities and the historical uncertainty
associated with the Company's cash flows, selection of appropriate discount
rates for purposes of the DCF analyses set forth above involved a greater than
usual degree of subjective judgement, and (iv) the Company's competitors
generally are significantly larger, better established companies with much
greater resources, larger market capitalization, greater market share and a
history of profits.
CERTAIN GENERAL MATTERS. No company or transaction used in the foregoing
analyses is identical to the Company or the Transactions. In addition, those
analyses and the discounted cash flow analyses are based and heavily dependent
upon, among other factors, assumptions as to future performance and other
factors, and are therefore subject to the limitations described in Wasserstein
Perella's opinion. Accordingly, an analysis of the results of the foregoing is
not entirely mathematical; rather, it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the acquisition value or the
public trading value of the companies to which they are being compared and the
Company.
A fairness analysis is a complex process and is not necessarily susceptible
to a partial analysis or summary description. Wasserstein Perella believes that
its analyses must be considered as a whole and that selecting portions of its
analyses, without considering the analyses taken as a whole, would create an
incomplete view of the process underlying the analyses performed in reaching its
opinion. In addition, Wasserstein Perella considered the results of all such
analyses and did not assign relative weights to any of the analyses, so that the
ranges of valuations resulting from any particular analysis described above
should not be taken to be Wasserstein Perella's view of the actual value of the
Company.
In performing its analyses, Wasserstein Perella made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of the Company. The
analyses performed by Wasserstein Perella are not necessarily indicative of
actual values, which may be significantly more or less favorable than suggested
by such analyses. Such analyses were prepared solely as part of Wasserstein
Perella's opinion. The analyses do not purport to be appraisals or to reflect
the prices at which a company might actually be sold.
The Special Committee retained Wasserstein Perella based upon its experience
and expertise. Wasserstein Perella is an internationally recognized investment
banking and advisory firm. Wasserstein Perella, as part of its investment
banking business, is continuously engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate
35
and other purposes. In the course of its market marking and other trading
activities, Wasserstein Perella and its affiliates may, from time to time, have
a long or short position, and may buy and sell, securities of the Company.
ENGAGEMENT AGREEMENTS OF FINANCIAL ADVISORS
Pursuant to the terms of a letter agreement, dated June 11, 1998 between
Wasserstein Perella and the Company (the "Wasserstein Perella Letter
Agreement"), the Special Committee retained Wasserstein Perella to serve as
financial advisor to the Special Committee with respect a proposal received by
the Company from Parent (i) to amend the Exchange and Purchase Agreement and
(ii) following such amendment, to acquire all outstanding Shares held by persons
other than TDCC and its affiliates at a price initially proposed to be $20.50
per share (an "Engagement Transaction").
The Company agreed in the Wasserstein Perella Letter Agreement to pay
Wasserstein Perella $250,000 upon the execution of the Wasserstein Perella
Letter Agreement and an additional fee of $1,000,000 at such time as Wasserstein
Perella advises the Special Committee that it is prepared to render an opinion
to the Special Committee with respect to the fairness from a financial point of
view of the consideration to be received by the public holders of Shares
pursuant to an Engagement Transaction or that, having completed its review of
the proposed Engagement Transaction, it is unable to render such an opinion. In
addition, the Company also agreed to pay Wasserstein Perella upon the
consummation of an Engagement Transaction 0.50% of the aggregate value paid or
payable to the public shareholders of the Company, in excess of $20.50 per share
plus 1.80% of the aggregate value paid or payable to such shareholders in excess
of $24.06. The Company and Wasserstein Perella further agreed that fees paid to
Wasserstein Perella shall in no event be less than $2,250,000 or more than 0.80%
of the aggregate value paid to public shareholders.
Pursuant to the terms of a letter agreement, dated July 31, 1998, between
Merrill Lynch & Co. ("ML") and the Company (the "ML Letter Agreement"), the
Special Committee retained ML to make available to the Special Committee certain
employees of ML formerly employed by Wasserstein Perella. The Company agreed in
the ML Letter Agreement to pay ML $300,000 if a definitive agreement with
respect to the Transactions was executed on or prior to August 29, 1998 or
$500,000 if a definitive agreement with respect to the Transactions was executed
after August 29, 1998.
The Company has also agreed to reimburse Wasserstein Perella and ML, subject
to certain limitations, for all reasonable out-of-pocket expenses incurred by
Wasserstein Perella and ML (including the reasonable fees and disbursements of
counsel) in connection with the matters contemplated by the Wasserstein Perella
Letter Agreement and the ML Letter Agreement. In addition, pursuant to the terms
of an indemnification agreement with Wasserstein Perella, dated June 11, 1998,
and an indemnification agreement with ML, dated July 31, 1998, the Company
agreed to indemnify Wasserstein Perella and ML (and their affiliates, their
respective directors, officers, agents, employees and controlling persons)
against certain liabilities arising out of or in connection with Wasserstein
Perella's and ML's engagements, including liabilities under the federal
securities laws.
Such report, opinion or appraisal shall be made available for inspection and
copying at the principal executive offices of the Company between 9:00 a.m. and
5:00 p.m. Eastern time by any interested stockholder or his representative who
has been so designated in writing. A copy of such report, opinion or appraisal
will be transmitted by the Company to any interested stockholder or his
representative who has been so designated in writing upon written request and at
the expense of the requesting stockholder.
POSITION OF PARENT, PURCHASER, ROFAN, CENTEN AND TDCC REGARDING FAIRNESS
OF THE OFFER AND THE MERGER
Parent, Purchaser, Rofan, Centen and TDCC (the "Dow Entities") believe that
the acquisition of all of the outstanding Shares of the Company is necessary in
order for the Company to sustain its viability in
36
the highly competitive business environment in which it operates. In particular,
the Dow Entities believe that it will be necessary to utilize efficiently the
financial, technological and other resources of the Company and Parent in order
for the Company to effectively compete in the plant genetics biotechnology
industry, which has been undergoing rapid consolidation. The Dow Entities have
concluded that utilizing the resources of the Company and Parent in the most
effective manner will only be possible if the Company becomes a wholly owned
subsidiary of Parent.
The Dow Entities believe that the consideration to be received by the
Company's stockholders pursuant to the Offer and the Merger is fair to the
Minority Stockholders. The Dow Entities base this belief on (i) the fact that
the Company's Board of Directors, acting upon the unanimous recommendation of
the Special Committee, determined that the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger, upon the terms and
subject to the conditions set forth in the Merger Agreement are fair to, and in
the best interests of, the Company and its Minority Stockholders, (ii) the fact
that the Dow Entities and their financial and legal advisors negotiated the
Merger Agreement with the Special Committee on an arms'-length basis, (iii) the
financial analysis of Salomon Smith Barney provided to certain senior executives
of the Dow Entities and summarized above, (iv) the current and historical market
prices for the Shares and the fact that the consideration to be paid in the
Offer and the Merger represents a premium of 40% over the closing price for the
Shares on the NASDAQ NMS on August 31, 1998, the last trading day prior to the
public announcement of the execution of the Merger Agreement and (v) the fact
that Parent is not interested under any circumstances in selling its interest in
the Company to a third party. The Dow Entities have reviewed the factors
considered by the Special Committee in support of its decision, as described
above, and have no basis to question their consideration of or reliance on those
factors. None of the Dow Entities found it practicable to assign, nor did any of
them assign, relative weights to the individual factors considered in reaching
their conclusion as to fairness.
SHAREHOLDER LITIGATION
In early May 1998, seven putative class action lawsuits were filed in the
Superior Court of California for the County of San Diego by various alleged
shareholders of the Company (the "plaintiffs") against the Company and the
individual directors of the Company (the "defendants"), Parent and TDCC,
purportedly on behalf of themselves and a putative class of all other
shareholders of the Company, excluding the defendants and any affiliates of the
defendants. These cases have been consolidated by the court under the lead case
of LESLIE SUSSER V. MYCOGEN CORP., ET AL., Case No. 720255. Each of the class
action complaints alleged in substance that the original acquisition price of
$20.50 proposed by Parent was inadequate and that it would be a breach of the
defendants' fiduciary duties to the plaintiffs and the members of the putative
class to agree to an acquisition at that price. The defendants deny all of these
allegations. The lawsuits seek an injunction against the acquisition by Parent,
damages and an award of attorneys' fees and expenses.
The court approved the law firms of Milberg Weiss Bershad Hynes & Lerach LLP
and Abbey, Gardy & Squitieri as plaintiffs' co-lead counsel. Parent and the
Special Committee provided financial analyses prepared by their financial
advisors and other documents and information relating to the proposed
transaction to plaintiffs co-lead counsel. Plaintiffs' co-lead counsel retained
an independent financial advisor and, together with that advisor, reviewed these
materials and other publicly available information filed with the Commission
with respect to the Company. Plaintiffs' co-lead counsel and their financial
advisor also met in person with attorneys and financial advisors for Parent,
TDCC and the Special Committee to discuss the proposed transaction and the
ongoing negotiations between Parent and the Special Committee, and to present
their views.
Plaintiffs' co-lead counsel, after consultation with their independent
financial advisor, have agreed in principle that the terms of the Offer and the
Merger are fair to and in the best interests of the plaintiffs and the members
of the putative class. Based on this agreement in principle, plaintiffs' co-lead
counsel and counsel for the defendants entered into a Memorandum of
Understanding on September 3, 1998 providing
37
for settlement of the lawsuits. The settlement is subject to the right of
plaintiffs' co-lead counsel to conduct further investigation and to take further
discovery from the defendants in order to confirm the fairness of the terms of
the Offer and the Merger. The settlement also is conditioned on the closing of
the Offer and subject to the approval of the court. The settlement does not
require any payments by or to any party, except that the defendants will pay
attorneys' fees to the plaintiffs' attorneys in an amount to be determined by
the court. The payment of attorneys' fees will be made by Parent or TDCC and
will not affect the Offer Price or the amount to be paid to any shareholder for
such shareholder's Shares. The Memorandum of Understanding provides for the
members of the putative class to be given notice and the opportunity to be
excluded from the settlement in such manner as the court determines to be
appropriate.
In the event settlement of the above-described actions is not consummated
and plaintiff's counsel continues above-described actions, such litigation could
result in substantial expense to the Company and significant diversion of
efforts of the Company's management team. The Company believes that all of such
lawsuits are without merit, and would vigorously defend such actions. There can
be no assurance, however, that the plaintiffs will not be successful. The above
summary does not purport to be complete and is qualified in its entirety by
reference to the full text of the complaints, the order of consolidation and the
Memorandum of Understanding, which are attached as Exhibits to the Schedule
14D-1 filed by Purchaser, respectively, and which are incorporated herein by
reference in their entirety.
CERTAIN RELATIONSHIPS
THE EXCHANGE AND PURCHASE AGREEMENT. On January 15, 1996, Parent, the
Company, Agrigenetics, Inc. (currently a wholly owned subsidiary of the Company)
and United AgriSeeds, Inc. entered into the Exchange and Purchase Agreement
pursuant to which, among other things, Parent acquired 2,707,884 Shares on
February 20, 1996.
Pursuant to the Exchange and Purchase Agreement, Parent agreed that from
February 20, 1998 to February 20, 1999, Parent would not acquire more than 65%
of the outstanding Shares (excluding Shares purchased directly from the Company
or its employees). Furthermore, Parent agreed not to acquire from any person
more than 79.9% of the total outstanding Shares except pursuant to a Buyout
Transaction as described below.
Under the Exchange and Purchase Agreement, following February 20, 1999,
Parent would be permitted to increase its beneficial ownership of Shares above
79.9% of the total outstanding Shares only pursuant to a Buyout Transaction. A
Buyout Transaction could only be effected if approved by a majority of the
Company's independent directors or if the value to be offered to holders of
Shares were determined by an independent appraiser.
The Exchange and Purchase Agreement also provides that, until February 20,
1999, (a) at any time Parent is the beneficial owner of less than 20% of the
outstanding Shares, Parent will be entitled to designate for nomination one
person to serve on the board of directors of the Company, (b) at any time Parent
is the beneficial owner of 20% or more but less than 30% of the outstanding
Shares, Parent will be entitled to designate for nomination two directors of the
Company, (c) at any time Parent is the beneficial owner of 30% or more but less
than 50% of the outstanding Shares, the Company will cause its Board of
Directors to consist of seven members and Parent will be entitled to designate
for nomination three (or, if the number of directors is other than seven, the
nearest whole number less than one-half times the total number of directors)
directors of the Company and (d) at any time Parent is the beneficial owner or
more than 50% of the outstanding Shares, the Company will cause its Board of
Directors to consist of nine directors and Parent will be entitled to designate
for nomination five (or, if the number of directors is other than nine, the
nearest whole number greater than one-half times the total number of directors)
directors of the Company. Five of the directors of the Company are designees of
Parent at the present time.
38
Under the terms of the Exchange and Purchase Agreement, so long as Parent
has the right to nominate at least two members to the Company's Board of
Directors, the Company agreed that it would not, without prior approval of
Parent, issue any Shares or any securities exchangeable for or having the same
voting rights as Shares except: (i) Shares authorized and reserved as of January
15, 1996 pursuant to certain existing benefit plans; (ii) new securities
exchangeable for or having the same voting rights as not more than an aggregate
of 2,000,000 Shares pursuant to employee benefit plans approved by the Company
during the three-year period ending February 20, 1999; and (iii) not more than
2,000,000 Shares in exchange for the assets or securities of one or more other
persons. If the Company proposes to issue any Shares pursuant to the above, the
Company is obligated to offer Parent the right to purchase at market value
additional Shares to permit Parent to maintain its total percentage interest in
the Company.
Following February 20, 1998, the Company is not permitted under the Exchange
and Purchase Agreement to issue new securities for cash, other than (i) any
securities issuable upon conversion of any convertible security of the Company
outstanding as of January 15, 1996, (ii) any securities issuable upon exercise
of any option, warrant or other similar security of the Company authorized as of
January 15, 1996, and (iii) any securities issuable to stockholders of the
Company on a proportional basis in connection with any stock split, stock
dividend or recapitalization of the Company, unless the Company affords Parent a
right of first refusal to purchase all of the new securities proposed to be
issued (other than any new securities issued to officers, directors and
employees pursuant to any existing benefit plans or any newly created employee
benefit plan or to Parent and its affiliates.)
The Company also agreed in the Exchange and Purchase Agreement that it (i)
would ensure that the Rights Agreement and the rights thereunder would not
prevent Parent or an affiliate from acquiring or proposing to acquire some or
all of the outstanding Shares and (ii) would not amend, interpret or enforce the
Rights Agreement or adopt any new shareholder rights agreement if such action
would have an adverse effect on Parent or on the ability of Parent or an
affiliate to acquire or propose to acquire some or all of the outstanding
Shares.
Under the terms of the Merger Agreement, the Exchange and Purchase Agreement
was amended to the extent necessary to permit the execution, delivery and
performance of the Merger Agreement and the transactions contemplated thereby,
including the Offer and the Merger. The Merger Agreement also provides that the
Exchange and Purchase Agreement will be deemed to have been canceled and
terminated and no longer binding on the parties except for a section of that
agreement (providing for the continued inapplicability of the Company's
Shareholder Rights Plan to Parent and its affiliates) upon consummation of the
Offer, even if Purchaser waives the Minimum Condition and the Merger cannot be
consummated.
TECHNOLOGY AGREEMENT. Pursuant to the Exchange and Purchase Agreement, the
Company, Agrigenetics and Parent executed an Agreement (the "Technology
Agreement") providing for the exchange between the parties of certain currently
existing genes and tools and certain new genes and tools developed or acquired
by the parties during the five year period ending February 20, 2001.
LOAN ARRANGEMENTS. Pursuant to certain loan arrangements, the Company may
borrow up to $75 million from Parent, of which $20.0 million was unused at
August 31, 1998. Such advances from Parent are due September 30, 1999. Pursuant
to certain other loan arrangements, Parent may borrow up to $75 million from the
Company, none of which was outstanding at August 31, 1998. Additionally, the
Company's Argentina subsidiary may borrow up to $50 million from an affiliate of
Parent, of which $38.5 million was unused at August 31, 1998; any of these
borrowings are due December 31, 1998. The Company maintains an $11.3 million
unsecured term loan due February 1, 2002, which bears interest at a rate of 7.5%
through February 1999. Additionally, the Company has a $10.0 million bank line
of credit facility, which expires February 1999, all of which was unused at
August 31, 1998. The Company has advanced to Dow Quimica S.A., a subsidiary of
TDCC, $9.9 million as of August 13, 1998. Any advances to Dow Quimica are due
April 27, 1999.
39
SERVICES AGREEMENT. Pursuant to a services agreement, Parent has agreed to
provide certain services to the Company including commercial, finance, treasury,
tax, order entry, logistics, operations planning, information systems, legal,
materials, management, controllers and purchasing services.
VERNEUIL HOLDING S.A. In January 1998, the Company obtained an additional
16.25% interest in VMO in exchange for the issuance of 483,439 Shares to Parent
valued at $9.4 million. The Company now owns 35% of VMO.
OILSEED BRASSICA AGREEMENT. Parent's subsidiary, Dow AgroSciences Canada
(DASC), and the Company are parties to a Brassica License and Research
Agreement, effective as of May 15, 1996 the ("Brassica Agreement"). Under the
Brassica Agreement, DASC and the Company has agreed to develop imporved
cultivars and incorporate insect resistance traits in oilseed BRASSICA varieties
in a program to be funded by DASC (the "Brassica Program"). Program product
goals and development targets will be determined by a Management Development
Committee consisting of two employees of the Company and three employees of
DASC. DASC is obligated to fund the Brassica Program at a minimum level of
$750,000 per year for at least 5 years.
Under the Brassica agreement, the Company granted to DASC an exclusive
license to make, use, sell and sublicense BRASSICA varieties developed by the
Company prior to the date of the agreement, as well as BRASSICA varieties
developed under the Brassica Agreement. DASC agreed to pay the Company royalties
on equal to 5% of the Net Sales of any such varieties, plus 20% of the premium
earned for varieties which have an oleic acid content in their oil of 70% or
more. In connection with the above, DASC granted the Company: (i) an option to
obtain a license to any of the foregoing varieties on terms no less favorable
than those offered to any third party licensee (but only to the extent that DASC
has licensed such varieties to third parties), and (ii) a first right of
production of seed of such varieties for DASC and its affiliates.
In addition, pursuant to the Brassica Agreement, the Company granted DASC:
(i) an option to obtain a license to any Round-Up-Registered Trademark- Ready
traits which the Company may obtain for use in BRASSICA, to the extent that the
Company can sublicense such traits, and (ii) an option to obtain a license to Bt
and other future traits for use in BRASSICA, (but only to the extent that the
Company has licensed such traits to third parties); in each case on terms no
less favorable than those offered to any third party.
HIGH OIL CORN AGREEMENT. Parent and the Company are parties to a Maize High
Oil Breeding and License Agreement effective as of April 1996 (the "Maize High
Agreement").
Under the Maize High Agreement, Parent and the Company agreed to engage in a
maize high oil development program (the "Maize High Program") using their
intellectual property to develop varieties of corn with an oil content of 5% or
more. Under the Maize High Program, using germplasm from both Parent and the
Company, the Company agreed to use diligent efforts to incorporate developmental
targets into maize germplasm. Parent is obligated to pay the direct costs for
the Maize High Program for a minimum of 5 years, up to a total agreegate amount
during that period of $5,300,000.
Under the Maize High Agreement, the Company granted to Parent a
royalty-bearing license to use and sublicense the Company's intellectual
property and inbreds to the extent necessary to make, have made, use, sublicense
and sell high oil inbreds and hybrids. In consideration of this license Parent
agreed to pay the Company royalties ranging from 1.5% to 6.0% of the net sales
of Parent, its affiliates and their sublicensees based on the percentage of
Mycogen germplasm in the parent inbred lines used to produce each variety.
However, no royalty will be due on any high oil variety if the parent inbred
lines for the variety all contain less than 50% of Mycogen germplasm. In
addition, if a variety contains a Bt or other Company value added trait under
rights proprietary to the Company, then Parent will pay an additional royalty,
to be negotiated in good faith by the parties, for a non-exclusive license to
such trait. Parent also granted the Company and its affiliates an option to
produce high oil varieties for itself, and high oil foundation seed for Parent,
its affiliates and their sublicensees provided the Company or its affiliate (i)
is
40
able to offer such production on a competitive basis, and (ii) has the internal
capacity to process said production without contracting with a non-affiliated
party.
FORFEITURE OF DIRECTOR OPTIONS TO PARENT. Persons who are designated by
Parent to serve on the Board of the Company have agreements with Parent pursuant
to which such persons agree to forfeit to Parent any Shares issuable pursuant to
options granted in connection with such service.
10. PURPOSE OF THE OFFER; THE MERGER AGREEMENT
PURPOSE OF THE OFFER
The purpose of the Offer is to enable Parent, through Purchaser, to acquire
any and all outstanding Shares. If the Minimum Condition is satisfied and
Purchaser purchases Shares pursuant to the Offer, Purchaser intends to exercise
its right under California Law, if and to the extent available, to acquire all
of the Shares not purchased in the Offer by way of a statutory short-form
merger.
THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement. This summary does not purport to be complete and is qualified in its
entirety by reference to the Merger Agreement which has been filed as an exhibit
to the Schedule 14D-1.
THE OFFER
Pursuant to the terms of the Merger Agreement, Purchaser was required to
commence the Offer no later than the fifth business day following the public
announcement of the terms of the Merger Agreement. Purchaser will, and Parent
will cause Purchaser to, subject only to the prior satisfaction or waiver of the
conditions of the Offer, accept for payment Shares validly tendered as soon as
it is legally permitted to do so under applicable law. As promptly as
practicable after such acceptance, Purchaser will, subject to applicable law,
pay for such Shares. The Offer Price payable in the Offer will be paid net to
the seller in cash, upon the terms and subject to the conditions of the Offer,
including the Minimum Condition and the other conditions described in Section
13. Purchaser may not waive the Minimum Condition without the consent of the
Special Committee unless, following the consummation of the Offer, Purchaser and
Parent, collectively, would be the owners of Shares representing at least 81.07%
of the Fully Diluted Shares. Parent and Purchaser would collectively own at
least this percentage of Fully Diluted Shares only if Purchaser purchased a
majority of the Fully Diluted Shares which Parent does not already own and
therefore could be purchased by Purchaser pursuant to the Offer. Purchaser may
increase the cash Offer Price, provided that no change may be made that
decreases the Offer Price, changes the form of consideration payable in the
Offer, reduces the maximum number of Shares to be purchased in the Offer or
imposes conditions to the Offer in addition to those set forth in Section 13.
The initial expiration date of the Offer will be midnight on Friday, October
2, 1998, the 20th business day following commencement of the Offer. The
foregoing notwithstanding, Purchaser may, without the consent of the Company,
extend the Offer (i) for any period required by any rule, regulation,
interpretation or position of the Commission or the staff thereof applicable to
the Offer, (ii) if at any scheduled expiration date any of the conditions to the
Offer set forth in paragraphs (a) - (e) of Section 13 have not been satisfied or
waived, until such time as all of such conditions will have been satisfied or
waived, or (iii) in the event all of the conditions to the Offer will have been
satisfied or waived, other than the Minimum Condition, for a period or periods
aggregating not more than 40 business days after the later of (A) the initial
expiration date of the Offer and (B) the date on which all of the conditions set
forth in paragraphs (a) - (e) of Section 13 will have been satisfied or waived.
If at any scheduled expiration date of the Offer, the Minimum Condition will not
have been satisfied, then, at the request of the Company (acting at the
direction of the Special Committee, which request will subsequently be confirmed
in writing), Purchaser will, and Parent will cause Purchaser to, extend the
Offer for a period or periods aggregating not
41
more than 40 business days, subject to the right of Purchaser and Parent to
terminate the Merger Agreement as described herein. In addition, if at any
scheduled expiration date of the Offer, a condition set forth in paragraph (c)
or (d) of Section 13 will not have been satisfied but all of the other
conditions set forth in paragraphs (a) - (e) of Section 13 will then have been
satisfied, then, at the request of the Company (acting at the direction of the
Special Committee, which request will subsequently be confirmed in writing) and
so long as the Company is using its reasonable best efforts to cause such
conditions to become satisfied, Purchaser will, and Parent will cause Purchaser
to, extend the Offer for up to an additional 20 business days, subject to the
right of Purchaser and Parent to terminate the Merger Agreement as described in
"Termination" below. Subject to the right of Purchaser and Parent to terminate
the Merger Agreement as described in "Termination" below, Purchaser will not
terminate or withdraw the Offer prior to any scheduled expiration date of the
Offer, including as extended as described in this paragraph; provided, however,
that Purchaser may, at its option, terminate and withdraw the Offer if, after
such required extensions described in this paragraph, the Offer has expired in
accordance with its terms without Purchaser being required to accept Shares for
payment pursuant to the Merger Agreement.
The Merger Agreement requires, as soon as practicable on the date of
commencement of the Offer, (a) Parent and Purchaser to file with the Commission
(i) a Tender Offer Statement on Schedule 14D-1 with respect to the Offer, which
will contain the Offer to Purchase and form of the related Letter of Transmittal
and (ii) a Rule 13e-3 Transaction Statement with respect to the Offer and the
other transactions contemplated thereby and (b) the Company to file a
Solicitation/Recommendation Statement on Schedule 14D-9, which it will mail to
stockholders promptly after the commencement of the Offer. Purchaser and the
Company also agreed to take all steps necessary to cause the Offer to Purchase
and form of the related Letter of Transmittal to be disseminated to holders of
Shares as and to the extent required by applicable law.
OPTIONS
If the conditions set forth in "Conditions to the Consummation of the
Merger" below are satisfied, the Company will use its best efforts to cause all
Options still outstanding immediately prior to the Effective Time (as defined
below) to become exercisable immediately prior to the Effective Time and to
terminate and cease to be outstanding as of the Effective Time; provided,
however, that arrangement will be made so that each holder of such an Option who
consents to the termination of Options (either before the Effective Time or
within a reasonable time thereafter) will be entitled to receive in respect of
such Option an amount in cash equal to (x) the Offer Price less the exercise
price per Share under such Option multiplied by (y) the number of Shares covered
by such Option. Without limiting the generality of the foregoing, the Company's
best efforts will, if necessary, be deemed to include the Company's Board of
Directors amending the 1992 Plan to provide that the term "Corporate
Transaction" shall be deemed to include the Merger.
As soon as practicable after the commencement of the Offer, the Company will
use its reasonable best efforts to cause each holder of Options (whether or not
such Options are vested) to execute and deliver to the Company, prior to the
expiration of the Offer, an agreement (an "Option Election") under which such
holder would agree, contingent upon the purchase of Shares by Purchaser pursuant
to the Offer, to cause, immediately prior to the expiration of the Offer, such
Option to be exercised and the Shares issued as a result of that exercise to be
tendered in the Offer. The Company and Purchaser will reflect on their books and
records the transactions effected pursuant to the Option Elections. Subject to
the terms of the Option Elections and contingent upon the purchase of Shares by
Purchaser pursuant to the Offer, the Company will make available to each holder
of Options the funds necessary to exercise such Options, and Parent will advance
such funds to the Company. The funds advanced to any Option holders in
accordance with the preceding sentence will be deducted from the amount payable
to such Option holder pursuant to the Offer, and the Option Election and the
Offer shall so provide. The funds so deducted will be retained by Purchaser as
repayment of the amount advanced to the Company by Parent. The Plan
Administrator of the
42
1992 Plan has taken action to provide that each outstanding Option as to which a
valid Option Election with respect to such Option is executed (and not revoked)
and delivered to the Company will become exercisable immediately prior to the
purchase of Shares (and contingent upon such purchase) by Purchaser pursuant to
the Offer. The parties to the Merger Agreement consented to the action of the
Plan Administrator of the 1992 Plan referenced in the immediately preceding
sentence, agreed that they will not cause the revocation of such action and will
use their best efforts to take whatever steps are necessary to make it possible
for Shares issuable upon the exercise of Options resulting from the execution
and delivery of valid Option Elections to be tendered in the Offer.
EMPLOYEE STOCK PURCHASE PLAN
The Company will use its best efforts to effectuate the provisions described
in the next following paragraph, to provide for termination of the Stock
Purchase Plan, effective no later than the Effective Time and to provide that,
upon termination of the Stock Purchase Plan and contingent upon the purchase by
Purchaser of Shares pursuant to the Offer, any payroll deductions accumulated
under the Stock Purchase Plan and not used to purchase Shares under the Stock
Purchase Plan for tender in the Offer as described in the next following
paragraph will be returned to the applicable participants; provided, however,
that arrangement will be made so that each holder of Purchase Rights as
described in the next following paragraph who consents to the termination of all
Purchase Rights (either before the Effective Time or within a reasonable time
thereafter) will be entitled to receive an amount in cash equal to the net
amount such holder of Purchase Rights would have received as described in the
next following paragraph if such holder had made a Stock Purchase Election.
As soon as practicable after the commencement of the Offer, the Company will
use its reasonable best efforts to cause each individual who has Purchase Rights
outstanding under the Stock Purchase Plan to execute and deliver to the Company,
prior to the expiration of the Offer, an agreement (a "Stock Purchase Election")
under which such holder would agree, contingent upon the purchase of Shares by
Purchaser pursuant to the Offer, to cause, immediately prior to the expiration
of the Offer, such Purchase Rights to be exercised (the date on which the Shares
are purchased by a holder of Purchase Rights being a "Purchase Date" for
purposes of the Stock Purchase Plan) and the Shares issued as a result of such
exercise to be tendered in the Offer. The Company and Purchaser will reflect on
their books and records the transactions effected pursuant to the Stock Purchase
Elections. Subject to the terms of the Stock Purchase Elections and contingent
upon the purchase of Shares by Purchaser pursuant to the Offer, the Company will
make available to each holder of Purchase Rights who has delivered to the
Company an executed Stock Purchase Election (and has not revoked such election)
the funds necessary to exercise such Purchase Rights for the amount of Shares
that would have been purchased upon such exercise if the purchase period under
the Stock Purchase Plan had expired on November 30, 1998 (assuming that the Fair
Market Value (as defined in the Stock Purchase Plan) for November 30, 1998 for
purposes of calculating the purchase price (within the meaning of the Stock
Purchase Plan) would be the Per Share Amount and that payroll deductions had
continued at the same level through November 30, 1998), less any payroll
deductions accumulated with respect to the holder pursuant to normal operation
of the Stock Purchase Plan through the date on which the Offer terminates, and
Parent will advance such funds to the Company. The funds advanced to any holder
of Purchase Rights in accordance with the preceding sentence will be deducted
from the amount payable to such holder of Purchase Rights pursuant to the Offer.
The funds so deducted will be retained by Purchaser as repayment of the amount
advanced to the Company by Parent. The parties to the Merger Agreement will use
their best efforts to take whatever steps are necessary to make it possible for
Shares issuable upon the exercise of Purchase Rights resulting from the
execution and delivery of valid Stock Purchase Elections to be tendered in the
Offer.
43
RESTRICTED STOCK
The Company represents that the Plan Administrator of the Restricted Stock
Plan has taken action to provide that each share of Restricted Stock outstanding
under the Restricted Stock Plan as to which a valid Restricted Stock Election
(as defined below) with respect to such Restricted Stock is executed (and not
revoked) and delivered to the Company will become fully vested and
nonforfeitable immediately prior to the purchase of Shares (and contingent upon
such purchase) by Purchaser pursuant to the Offer. The parties to the Merger
Agreement consent to the action of the Plan Administrator of the Restricted
Stock Plan referenced in the immediately preceding sentence, agree that they
will not cause the revocation of such action and will use their best efforts to
take whatever steps are necessary to make it possible for the Restricted Stock
as to which a valid Restricted Stock Election has been made to be tendered in
the Offer. As soon as practicable after the commencement of the Offer, the
Company will use its reasonable best efforts to cause each holder of shares of
Restricted Stock to execute and deliver to the Company, prior to the expiration
of the Offer, an agreement (a "Restricted Stock Election") under which such
holder would agree, contingent upon the purchase of Shares by Purchaser pursuant
to the Offer, to cause, immediately prior to the expiration of the Offer, the
shares of Restricted Stock (which would be vested in accordance with the
foregoing provisions as described in this paragraph) to be tendered in the
Offer. Immediately prior to the Effective Time, if the Conditions set forth in
"Conditions to the Consummation of the Merger" below are satisfied, the Company
will cause the Plan Administrator of the Restricted Stock Plan to cause all
shares of Restricted Stock outstanding as of the Effective Time to be fully
vested and nonforfeitable.
THE MERGER
Immediately following the satisfaction or waiver of all conditions set forth
in "Conditions to the Consummation of the Merger" below (assuming the transfer
of all of Parent's Shares to Purchaser), Parent will cause Purchaser to become
the beneficial and record owner of all Shares then owned of record by Parent
(the time immediately following such action is referred to herein as the
"Designated Time").
At the Designated Time, the parties will (i) file a certificate of ownership
with the Secretary of State of the State of California in accordance with
California Law (the "California Filing") and (ii) file a certificate of
ownership and merger with the Secretary of State of the State of Delaware in
accordance with Delaware Law (the "Delaware Filing"). The Merger will become
effective at such time as the California Filing and the Delaware Filing are duly
filed in accordance with California Law and Delaware Law, respectively, or at
such later time as is agreed upon by the parties and specified in the California
Filing and the Delaware Filing (the "Effective Time").
At the Effective Time, upon the terms and subject to the conditions of the
Merger Agreement and in accordance with California Law and Delaware Law,
Purchaser will be merged with and into the Company, whereupon the separate
corporate existence of Purchaser will cease and the Company will continue as the
Surviving Corporation.
The Articles of Incorporation of the Company in effect immediately prior to
the Effective Time will be the Articles of Incorporation of the Surviving
Corporation until amended in accordance with applicable law. The First Amended
and Restated Bylaws of the Company in effect at the Effective Time will be the
Bylaws of the Surviving Corporation until amended in accordance with applicable
law. The directors of Purchaser at the Effective Time will be the initial
directors of the Surviving Corporation, each to hold office in accordance with
the Articles of Incorporation and Bylaws of the Surviving Corporation and until
his or her successor is duly elected and qualified. The officers of the Company
at the Effective Time, and any additional individuals designated by Parent, will
be the initial officers of the Surviving Corporation, each to hold office in
accordance with the Articles of Incorporation and Bylaws of the Surviving
Corporation and until his or her successor is duly appointed and qualified.
44
At the Effective Time, by virtue of the Merger and without any action on the
part of Parent, Purchaser (except as required by California Law), the Company or
the holder of any of the following securities:
(i) Each Share issued and outstanding immediately prior to the Effective
Time (other than Shares to be canceled as described in the next following
clause and Dissenting Shares (as defined in "Dissenting Shares" below)),
will by virtue of the Merger and without any action on the part of the
holder thereof be canceled and extinguished and be converted into the right
to receive an amount in cash equal to the Offer Price;
(ii) Each Share issued and outstanding immediately prior to the
Effective Time and owned by Parent or Purchaser or any direct or indirect
wholly owned subsidiary of Parent or Purchaser, or which is held in the
treasury of the Company or by any of the Company's subsidiaries, will be
canceled and retired and no payment of any consideration will be made with
respect thereto;
(iii) Each share of common stock of Purchaser issued and outstanding
immediately prior to the Effective Time will be converted into and become
one validly issued, fully paid and nonassessable share of common stock of
the Surviving Corporation.
Promptly after the Effective Time, the Surviving Corporation will cause to
be mailed to each record holder, as of the Effective Time, of a certificate or
certificates that, prior to the Effective Time, represented Shares, a form of
letter of transmittal and instructions for use in effecting the surrender of the
certificates in exchange for the Offer Price therefor. Subject to the provision
described in the next following paragraph, upon the surrender of each such
certificate formerly representing Shares, together with such letter of
transmittal, duly completed and validly executed in accordance with the
instructions thereto, the Depositary will deliver to the holder of such
certificate the Offer Price multiplied by the number of Shares formerly
represented by such certificate in exchange therefor, and such certificate will
forthwith be canceled. Until so surrendered and exchanged, each such certificate
(other than certificates representing Dissenting Shares or Shares held by
Parent, Purchaser or the Company, or any direct or indirect subsidiary thereof)
will represent solely the right to receive the Offer Price. No interest will be
paid or accrue on the Offer Price. If the Offer Price (or any portion thereof)
is to be delivered to any person other than the person in whose name the
certificate formerly representing Shares surrendered in exchange therefor is
registered, the certificate so surrendered will be properly endorsed or
otherwise be in proper form for transfer and that the person requesting such
exchange must pay to the Depositary any transfer or other taxes required by
reason of the payment of the Offer Price to a person other than the registered
holder of the certificate surrendered, or must establish to the satisfaction of
the Depositary that such tax has been paid or is not applicable.
Following the date which is six months after the Effective Time, each holder
of a certificate formerly representing a Share may surrender such certificate to
the Surviving Corporation and (subject to applicable abandoned property, escheat
and similar laws) receive in exchange therefor the Offer Price, without any
interest thereon.
After the Effective Time, there will be no transfers on the stock transfer
books of the Surviving Corporation of any Shares. If, after the Effective Time,
certificates formerly representing Shares are presented to the Surviving
Corporation or the Depositary, such certificates will be canceled and exchanged
for the Offer Price, as described above, subject to applicable law in the case
of Dissenting Shares.
DISSENTING SHARES
Holders of Shares do not have dissenters' rights as a result of the Offer.
However, in connection with the Merger, holders of Shares, by complying with the
provisions of Chapter 13 of California Law, may have certain rights to dissent
and to require the Company to purchase their Shares for cash at fair market
value. In general, holders of Shares will be entitled to exercise "dissenters'
rights" under California Law only if the holders of five percent or more of the
outstanding Shares properly file demands for payment or if the
45
Shares held by such holders are subject to any restriction on transfer imposed
by the Company or any law or regulation ("Restricted Shares"). Accordingly, any
holder of Restricted Shares and, if the holders of five percent or more of the
Shares properly file demands for payment, all other such holders who fully
comply with all other applicable provisions of Chapter 13 of California Law
("Dissenting Shares") will be entitled to require the Company to purchase their
Shares for cash at their fair market value if the Merger is consummated. In
addition, if, immediately prior to the Effective Time, the Shares are not listed
on a national securities exchange or on the list of OTC margin stocks issued by
the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"), holders of Shares may likewise exercise their dissenters' rights as to
any or all of their Shares entitled to such rights. If the statutory procedures
under California Law relating to dissenters' rights were complied with, such
rights could lead to a judicial determination of the fair market value of the
Shares. The "fair market value" would be determined as of the day before the
first announcement of the terms of the proposed Merger, excluding any
appreciation or depreciation in consequence of the Merger. The value so
determined could be more or less than the Offer Price.
THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING STOCKHOLDERS DOES NOT
PURPORT TO BE A COMPLETE STATEMENT OF THE PROCEDURES TO BE FOLLOWED BY
STOCKHOLDERS DESIRING TO EXERCISE ANY AVAILABLE DISSENTERS' RIGHTS. THE
PRESERVATION AND EXERCISE OF DISSENTERS' RIGHTS REQUIRE STRICT ADHERENCE TO THE
APPLICABLE PROVISIONS OF SECTION 13 OF CALIFORNIA LAW, A COMPLETE COPY OF WHICH
IS ATTACHED HERETO AS SCHEDULE II.
Notwithstanding anything in the Merger Agreement to the contrary, if demands
for payment are filed (within the meaning of California Law) with respect to
five percent or more of the outstanding Shares, Shares outstanding immediately
prior to the Effective Time and held by a holder who has not voted such Shares
in favor of the Merger or consented thereto in writing and who has demanded
appraisal for such Shares in accordance with California Law will not be
converted into a right to receive the Offer Price unless such holder fails to
perfect or withdraws or otherwise loses his, her or its right to appraisal under
California Law. If, after the Effective Time, such holder fails to perfect or
withdraws (with the consent of the Company to the extent such consent is
required by applicable law) or loses his, her or its right to appraisal under
California Law, such holder's Shares will be treated as if they had been
converted as of the Effective Time into a right to receive the Offer Price
without interest thereon.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of the
Company, including representations by the Company as to (i) organization,
qualification and similar corporate matters of the Company and its subsidiaries,
(ii) capitalization of the Company and its subsidiaries, (iii) the
authorization, execution, delivery, performance and enforceability of the Merger
Agreement, (iv) the non-contravention of the Merger Agreement and related
transactions with any provision of the Articles of Incorporation or Bylaws,
material contract, order, law or regulation to which the Company or its
subsidiaries is a party or by which it is bound or obligated, (v) the filing of
required Commission reports and the absence of untrue statements of material
facts or omissions of material facts in such reports, (vi) the absence of
changes or events which have had a material adverse effect on the Company other
than the changes or events set forth in the Merger Agreement, (vii) the absence
of any untrue statement of a material fact or omission of any material fact
required to be stated in any recommendation statement of the Company's Board of
Directors, document related to the Offer or proxy or information statement or
similar materials distributed to the Company's stockholders in connection with
the Merger, (viii) the absence of payments to any intermediary other than listed
intermediaries of any finder's, professional or other fee or commission, (ix)
the absence of any vote or other approval of the holders of a class of any
Company security required to approve the Merger or to approve or adopt the
Merger Agreement except any actions required to be taken by Purchaser pursuant
to California Law other than the satisfaction of the condition described in
46
"Conditions to the Consummation of the Merger" below, (x) Wasserstein Perella's
delivery to the Special Committee, and authorization to deliver to the Company's
stockholders pursuant to California Law, its written opinion to the effect that,
as of the date of such opinion, subject to the various assumptions and
limitations set forth therein as of the date of such opinion, the cash
consideration to be received by the holders of Shares pursuant to the Offer and
the Merger is fair to such holders from a financial point of view and (xi) the
Company and its Board of Directors having taken all necessary action so that
from and after January 15, 1996 (a) Parent and its affiliates (including,
without limitation, Purchaser) have never been and will never be included in the
definition of "Acquiring Person" under the Company's Amended and Restated Rights
Agreement dated as of October 19, 1995, as amended, between the Company and the
First National Bank of Boston (the "Rights Agreement") and (b) the acquisition
of Shares (whether pursuant to the Exchange and Purchase Agreement (as defined
in "Exchange and Purchase Agreement; No Restrictions on Purchase" below), the
Merger Agreement or otherwise) by Parent and its affiliates (including, without
limitation, Purchaser) has never caused and will never cause under any
circumstances whatsoever any adverse consequence to Parent, any of its
affiliates (including, without limitation, Purchaser), or the Company pursuant
to the Rights Agreement, including, without limitation, the occurrence of a
Distribution Date (as defined in the Rights Agreement) or any adjustment to the
Purchase Price (as defined in the Rights Agreement). The Merger Agreement
provides that no representation or warranty is made by the Company as to certain
matters or conditions which were known to Parent's designees to the Board on or
prior to the date of the Merger Agreement, or as to certain other listed matters
or conditions.
The Merger Agreement contains various customary representations and
warranties of Parent and Purchaser, including representations by Parent and
Purchaser as to (i) organization, qualification and similar limited liability
company or corporate matters of Parent and Purchaser, (ii) the authorization,
execution, delivery, performance and enforceability of the Merger Agreement,
(iii) the non-contravention of the Merger Agreement and related transactions
with any provision of the limited liability company agreement of Parent, the
Certificate of Incorporation or Bylaws of Purchaser, or any material contract,
order, law or regulation to which Parent or Purchaser is a party or by which it
is bound or obligated, (iv) the absence of untrue statements of material facts
or omissions of material facts in any documents related to the Offer and in
information provided to the Company in connection with the Schedule 14D-9 or
proxy or information statement or similar materials distributed to the Company's
stockholders in connection with the Merger, (v) the absence of prior activities
of Purchaser other than in connection with or as contemplated by the Merger
Agreement, (vi) the availability of all funds necessary to satisfy Purchaser's
obligations under the Merger Agreement, (vii) the absence of payments to any
intermediary other than listed intermediaries of any finder's, professional or
other fee or commission and (viii) the availability of Parent's "director and
officer" insurance coverage for the members of the Special Committee.
COVENANTS
CONDUCT OF THE BUSINESS OF THE COMPANY. Except with respect to certain
enumerated items, from the date of the Merger Agreement to the earlier of the
Effective Time or the date on which the Merger Agreement is terminated in
accordance with its terms, the Company and its subsidiaries will each conduct
its operations in the ordinary course of business consistent with past practice,
and the Company and its subsidiaries will, consistent with the foregoing, each
use its reasonable best efforts to preserve its business organization, to keep
available the services of its officers and employees and to maintain existing
relationships with licensors, licensees, suppliers, contractors, distributors,
customers and others having business relationships with it.
Accordingly, prior to the Effective Time, except as otherwise expressly
provided in the Merger Agreement, neither the Company nor any of its
subsidiaries may, without the prior written consent of Purchaser, which consent
will not be unreasonably withheld or delayed, engage or agree to engage in an
enumerated list of transactions generally characterized as being outside the
ordinary course of business.
47
Transactions requiring Purchaser's prior approval include actions by the Company
or its subsidiaries to (i) authorize for issuance, issue, sell, deliver or agree
to commit to issue, sell or deliver any Shares, any stock of any class or any
other securities or equity equivalents (including, without limitation, stock
appreciation rights), or amend any of the terms of any such securities or
agreements outstanding as of the date of the Merger Agreement; (ii) split,
combine or reclassify any shares of its capital stock, declare, set aside or pay
any dividend or other distribution (whether in cash, stock, or property or any
combination thereof) in respect of its capital stock, or redeem, repurchase or
otherwise acquire any of its securities or any securities of its subsidiaries;
or (iii) take or agree to take any action which would violate the covenants or
any action which would cause the condition described in paragraph (d) of Section
13 not to be satisfied.
REASONABLE BEST EFFORTS. Each of the parties will use its reasonable best
efforts to take all actions and do all things reasonably necessary to consummate
and make effective the transactions contemplated by the Merger Agreement.
PUBLIC ANNOUNCEMENTS. Parent and Purchaser, on the one hand, and the
Company, on the other hand, will consult with each other before issuing any
press release or otherwise making any public statements with respect to the
transactions contemplated by the Merger Agreement.
INDEMNIFICATION. Parent will cause the Surviving Corporation to keep in
effect in its Articles of Incorporation and Bylaws the provisions with respect
to exculpation of director and officer liability and indemnification and
advancement of expenses set forth in the Articles of Incorporation and First
Amended and Restated Bylaws of the Company on the date of the Merger Agreement
to the fullest extent permitted under applicable law, which provisions will not
be amended, repealed or otherwise modified for at least six years after the
Effective Time except as required by applicable law or except to make changes
permitted by applicable law that would enlarge the exculpation or rights of
indemnification or advancement of expenses thereunder. Parent will also cause
the Surviving Corporation to honor in accordance with their terms the existing
Indemnification Agreements between the Company and its directors and executive
officers.
From and after the Effective Time, Parent will guarantee the obligations of
the Surviving Corporation to perform all of its obligations under the Surviving
Corporation's Articles of Incorporation and Bylaws with respect to
indemnification and to cause the Surviving Corporation to perform all such
obligations.
The Company will, to the fullest extent permitted under applicable law and
regardless of whether the Merger becomes effective, indemnify and hold harmless,
to the fullest extent permitted by applicable law, Joseph P. Sullivan and
Clayton K. Yeutter (collectively, the "Indemnified Parties") against all costs
and expenses (including attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and settlement amounts paid in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to any action or
omission in such Indemnified Party's capacity as a director (including, without
limitation, as a member of the Special Committee) or fiduciary of the Company
(including, without limitation, in connection with the transactions contemplated
by the Merger Agreement) occurring on or before the Effective Time (or, if the
Merger Agreement is terminated without the Merger becoming effective, occurring
on or before the termination of the Merger Agreement), until the expiration of
the statute of limitations relating thereto (and will pay any expenses in
advance of the final disposition of such action or proceeding to each
Indemnified Party to the fullest extent permitted under applicable law, upon
receipt, in the case of the Company or the Surviving Corporation, as the case
may be, from the Indemnified Party to whom expenses are advanced of any
undertaking to repay such advances required under applicable law). If the Merger
becomes effective, Parent shall be jointly and severally responsible, to the
fullest extent permitted under applicable law (it being understood that
applicable law may permit Parent to indemnify or advance expenses to the
Indemnified Parties under circumstances in which the Company could not do so),
for the indemnification and advancement of expenses obligations provided for in
the immediately preceding sentence. If the Merger does not become effective,
Parent shall have the same responsibilities set forth in the immediately
48
preceding sentence, except that Parent shall have no responsibility for
indemnifying or advancing expenses to the Indemnified Parties with respect to
matters that do not arise out of or pertain to the work of the Special
Committee, the Merger Agreement or the transactions contemplated by the Merger
Agreement. In the event of any such claim, action, suit, proceeding or
investigation covered by this paragraph, (i) the Company, Parent or the
Surviving Corporation, as the case may be, will pay the reasonable fees and
expenses of counsel selected by the Indemnified Parties, which counsel will be
reasonably satisfactory to the Company or the Surviving Corporation, promptly
after statements therefor are received and (ii) the Company, Parent and the
Surviving Corporation will cooperate in the defense of any such matter;
provided, however, that neither the Company nor Parent nor the Surviving
Corporation will be liable for any settlement effected without its written
consent; and provided, further, that neither the Company, Parent nor the
Surviving Corporation, as the case may be, will be obligated as described in
this paragraph to pay the fees and expenses of more than one counsel (plus
appropriate local counsel) for all Indemnified Parties in any single action
except to the extent that two or more of such Indemnified Parties will have
conflicting interests in the outcome of such action, in which case additional
counsel (including local counsel) as may be required to avoid any such conflict
or likely conflict may be retained by the Indemnified Parties at the expense of
the Company, Parent or the Surviving Corporation, as the case may be; and
provided further that, in the event any claim for indemnification is asserted or
made within the period prior to the expiration of the applicable statute of
limitations, all rights to indemnification in respect of such claim will
continue until the disposition of such claim. In connection with Parent or the
Surviving Corporation making any payment or advancing any funds as described in
this paragraph, Parent or the Surviving Corporation, as the case may be, will be
entitled to require the Indemnified Party in question to use their reasonable
best efforts at the cost and expense of Parent and the Surviving Corporation, to
cause Parent or the Surviving Corporation, as the case may be, to be subrogated
to the rights of such Indemnified Party under any insurance coverage maintained
by the Surviving Corporation, Parent or any of their respective affiliates with
respect to the underlying subject matter of, and to the extent of, such payment
or advance.
Parent will cause the Surviving Corporation to maintain in effect for six
years from the Effective Time, if available, the coverage provided by the
current directors' and officers' liability insurance policies maintained by the
Company (provided that the Surviving Corporation may substitute therefor
policies of at least the same coverage containing terms and conditions which are
not less favorable) with respect to matters occurring prior to the Effective
Time; provided, however, that nothing contained in this Agreement will require
the Surviving Corporation to incur any annual premium in excess of 200% of the
last annual aggregate premium paid prior to the date of this Agreement for all
current directors' and officers' liability insurance policies maintained by the
Company. In addition, Parent will cause the Indemnified Parties to receive, for
six years following the date of the Merger Agreement, the same directors and
officers insurance coverage that other present or formal independent directors
of TDCC or its subsidiaries receive.
Heirs, representatives and estates of the Indemnified Parties will have the
right to enforce the indemnification obligations arising under the Merger
Agreement.
NOTIFICATION OF CERTAIN MATTERS. The Company will give prompt notice to
Parent or Purchaser, and Parent or Purchaser will give prompt notice to the
Company, as the case may be, of (i) the occurrence, or non-occurrence of any
event which would be likely to cause any condition contained in the Merger
Agreement to be unsatisfied and (ii) any failure of the Company, Parent or
Purchaser, as the case may be, to comply with or satisfy any covenant or
agreement under the Merger Agreement.
EXCHANGE AND PURCHASE AGREEMENT; NO RESTRICTIONS ON PURCHASE. The parties
agreed to amend the Exchange and Purchase Agreement to the extent necessary to
permit the execution, delivery and performance of the Merger Agreement and the
consummation of the transactions contemplated by the Merger Agreement. From and
after the date that Purchaser first makes payment with respect to validly
tendered and not withdrawn Shares pursuant to the Offer, the Exchange and
Purchase Agreement will be deemed to
49
have been canceled and terminated and no longer binding on the parties thereto
and shall be of no further force or effect; provided, however, that the
provisions of Section 6.10 of the Exchange and Purchase Agreement will remain in
full force and effect without any amendment thereto. Without limiting the
generality of the foregoing, from and after the date that Purchaser first makes
payment with respect to validly tendered and not withdrawn Shares pursuant to
the Offer, Parent, Purchaser and their affiliates will no longer be bound by the
restrictions set forth in Sections 6.12 and 6.13 of the Exchange and Purchase
Agreement and, subject to Purchaser's obligations under the Merger Agreement to
effect the Merger, Parent, Purchaser and their affiliates will be permitted to
acquire additional Shares and/or increase their percentage ownership of the
Company (whether through any tender offer, open market purchase, negotiated
transaction, merger, consolidation, reverse stock split or otherwise) without
restriction under the Exchange and Purchase Agreement.
COMPLIANCE BY PURCHASER; FINANCING. Parent will cause Purchaser to timely
perform and comply with all of its obligations under or related to the Merger
Agreement, including, without limitation, all obligations in or with respect to
the Offer.
TDCC will ensure that Purchaser has sufficient funds to acquire all the
outstanding Shares in the Offer and the Merger. In the Merger Agreement, TDCC
made a representation and warranty as to the validity of TDCC's execution and
delivery of the Merger Agreement and its enforceability against TDCC.
ACCESS TO INFORMATION. From the date of the Merger Agreement to the
Effective Time, subject to any applicable legal restrictions, fiduciary duties
or applicable privileges, the Company will (and will cause its subsidiaries to)
afford to authorized representatives (including, without limitation, attorneys,
auditors and financial advisors) of Parent and Purchaser reasonable access
during normal business hours to the Company's personnel, offices and other
facilities and to all books and records of the Company and will cause its
officers and employees to furnish Parent and Purchaser and their authorized
representatives such financial and operating data and other information with
respect to the Company's business and properties as Parent and Purchaser and
their authorized representatives may from time to time reasonably request.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The obligations of each party to the Merger Agreement to effect the Merger
under the Merger Agreement are subject to the satisfaction or, if appropriate,
waiver of the following conditions:
(i) PURCHASE OF SHARES. Purchaser will have purchased all Shares validly
tendered and not withdrawn pursuant to the Offer and Purchaser will be the
record and beneficial owner of a sufficient number of Shares (90% of the
outstanding Shares (assuming the transfer to Purchaser of all Shares owned
by Parent)) to permit the Merger to be effected pursuant to California Law.
(ii) NO PROHIBITION. No order, decree or ruling or other action
restraining, enjoining or otherwise prohibiting the Merger, will have been
issued or taken by any court or other governmental body.
TERMINATION
The Merger Agreement provides that the Merger Agreement may be terminated
and the Offer and the Merger may be abandoned at any time prior to the Effective
Time (i) by mutual written consent of Parent and Purchaser, on the one hand, and
of the Company acting upon the direction of the Special Committee, on the other
hand, (ii) by the Company acting upon the direction of the Special Committee or
by Parent to the extent that performance is prohibited, enjoined or otherwise
materially restrained by any final, non-appealable judgment, (iii) by the
Company acting upon the direction of the Special Committee or by Parent if, due
to an occurrence or circumstance that would result in a failure to satisfy any
condition set forth in Section 13, Purchaser will have (a) failed to commence
the Offer within 60 days following the date of the Merger Agreement or (b)
terminated the Offer without having accepted any Shares for payment thereunder;
provided, that the right to terminate this Agreement under this clause (iii)
will not be
50
available to any party whose failure to fulfill any material obligation under
this Agreement has been the cause or resulted in the circumstances described in
this clause (iii), (iv) by the Company, acting upon the direction of the Special
Committee if, prior to the purchase of Shares pursuant to the Offer, Parent or
Purchaser will have failed to comply in all material respects with any of its
covenants or agreements contained in the Merger Agreement required to be
complied with prior to the date of such termination, which failure to comply has
not been cured within 20 business days following receipt by Parent or Purchaser
of written notice of such failure to comply, (v) by the Company acting upon the
direction of the Special Committee if, prior to the purchase of Shares pursuant
to the Offer, there has been (a) a breach in any material respect by Parent or
Purchaser of any representation or warranty that is not qualified as to
materiality which has the effect of making such representation or warranty not
true and correct in all material respects or (b) a breach by Parent or Purchaser
of any representation that is qualified as to materiality, in each case which
breach has not been cured within 20 business days following receipt by Parent or
Purchaser of written notice of the breach, or (vi) by either the Company acting
upon the direction of the Special Committee or by Parent if the Merger will not
have occurred on or prior to April 30, 1999; provided, that the right to
terminate the Merger Agreement under this clause will not be available to any
party whose failure to fulfill any material obligation under the Merger
Agreement has been the cause of, or resulted in, the failure of the Merger to
have occurred on or before such date.
In the event of the termination and abandonment of the Merger Agreement as
described in the next previous paragraph, the Merger Agreement will become void
and have no effect, other than as described in this paragraph and in "Survival
of Representations and Warranties" below. No termination of the Merger Agreement
and nothing described in this paragraph or in "Survival of Representation and
Warranties" below will relieve any party from liability for any willful breach
of any representation or warranty contained in the Merger Agreement or any
breach of any covenant contained in the Merger Agreement occurring prior to such
termination.
Subject to the description in the next previous paragraph, each party will
bear its own expenses and costs in connection with the Merger Agreement and the
transactions.
AMENDMENT; EXTENSION; WAIVER
The Merger Agreement may be not be amended except by an instrument in
writing signed by Parent, Purchaser and the Company. Any amendment to the Merger
Agreement, any termination of the Merger Agreement by the Company, any extension
by the Company of the time for the performance of any of the obligations or
other acts of Parent or Purchaser or any waiver of any of the Company's rights
under the Merger Agreement will require the unanimous concurrence of the Special
Committee.
Subject to the description in the next previous paragraph, at any time prior
to the Effective Time, the Company, on the one hand, and Parent and Purchaser,
on the other hand, may (i) extend the time for the performance of any of the
obligations or other acts of the other party, (ii) waive any inaccuracies in the
representations and warranties of the other party contained in the Merger
Agreement or in any document, certificate or writing delivered pursuant to the
Merger Agreement or (iii) waive compliance by the other party with any of the
agreements or conditions contained in the Merger Agreement. Any agreement on the
part of any party to any such extension or waiver will be valid only if set
forth in an instrument in writing signed on behalf of such party. The failure of
any party to assert any of its rights under the Merger Agreement shall not
constitute a waiver of such rights. Without limiting the rights of any other
party to the Merger Agreement, the Merger Agreement provides that the Special
Committee has the right to exercise the Company's rights and enforce the terms
of the Merger Agreement on behalf of the Company.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The representations and warranties made in the Merger Agreement will not
survive beyond the Effective Time or any termination of the Merger Agreement.
The covenants and agreements in the Merger
51
Agreement or the termination of the Merger Agreement will survive the Effective
Time in accordance with their terms or as contemplated by such terms.
GOVERNING LAW
The Merger Agreement is governed by and construed in accordance with the
laws of the State of Delaware applicable to contracts executed in and to be
performed in that State, provided that matters of internal corporate law
relevant to the Company are governed by California Law.
CONFIDENTIALITY AGREEMENTS
The following summary of the Confidentiality Agreement does not purport to
be complete and is qualified in its entirety by reference to the complete text
of the Confidentiality Agreement, which is filed as an exhibit to Schedule 14D-1
and incorporated herein by reference.
On July 16, 1998, the Company (by the Special Committee), Parent, TDCC and
Wasserstein Perella entered into the Confidentiality Agreement providing for the
nondisclosure of confidential information to be provided by Parent and TDCC to
the Special Committee and its advisors. The Confidentiality Agreement provided
that the Special Committee and its attorneys and financial advisors, each agree
that the non-public, confidential, proprietary and/or privileged Parent or TDCC
information related to the Company, Parent or TDCC ("Confidential Information")
provided to the Special Committee and its attorneys and financial advisors will
be kept confidential and used only for evaluation of the proposed amendment and
transaction. Merrill Lynch has also agreed to be bound by the terms of the
Confidentiality Agreement.
All Confidential Information will remain subject to the terms of the
Confidentiality Agreement for ten years.
In addition to the Confidentiality Agreement, the members of the Special
Committee in their individual capacities entered into separate agreements with
TDCC and Parent to maintain the confidentiality of certain information of TDCC
and Parent.
11. SOURCE AND AMOUNT OF FUNDS
The total amount of funds required by Purchaser and Parent to consummate the
Offer and the Merger and to pay related fees and expenses is estimated to be
approximately $377 million. Purchaser has available to it all funds necessary to
satisfy its obligations under the Merger Agreement. TDCC will ensure that
Purchaser has sufficient funds to acquire all the outstanding Shares in the
Offer and the Merger.
12. CERTAIN EFFECTS OF THE OFFER
Following the consummation of the Offer, assuming satisfaction of the
Minimum Condition, Purchaser and Parent, collectively, will own at least 90% of
the outstanding Shares of the Company.
SHORT-FORM MERGER--SECTION 1110 OF CALIFORNIA LAW
The Merger Agreement provides, among other things, for the making of the
Offer and further provides that, following Purchaser's purchase of Shares
pursuant to the Offer, upon the terms and subject to the conditions set forth in
the Merger Agreement, and in accordance with California Law and Delaware Law,
Purchaser will be merged with and into the Company and the Company will continue
as the Surviving Corporation.
If Purchaser acquires, pursuant to the Offer, Shares which, together with
Shares owned by Parent, constitute at least 90% of the Shares then outstanding,
and Parent subsequently transfers its Shares to Purchaser, then under Section
1110 of California Law, Purchaser will be able to approve the Merger
52
Agreement and the transactions contemplated thereby, including the Merger,
without a vote of the Company's stockholders (a "short-form merger"). In such
event, Parent, Purchaser and the Company have agreed to take all necessary and
appropriate action to cause the Merger to become effective as soon as
practicable after such acquisition, without a meeting of the Company's
stockholders.
Section 1110 of California Law further provides that the Merger may not be
accomplished for cash paid to the Company's stockholders if Purchaser or Parent
owns directly or indirectly more than 50% but less than 90% of the then
outstanding shares unless either all the stockholders consent or the
Commissioner of Corporations of the State of California approves, after a
hearing, the terms and conditions of the Merger and the fairness thereof.
Purchaser currently intends to effect a short-form merger if it is able to do
so.
For a description of stockholder rights under California Law to dissent to
the Merger, see Section 10.
POSSIBLE EFFECTS OF THE OFFER ON THE MARKET FOR THE SHARES
The purchase of Shares pursuant to the Offer will reduce the number of
Shares that might otherwise trade publicly and could adversely affect the
liquidity and market value of the remaining Shares held by the public. The
purchase of Shares pursuant to the Offer can also be expected to reduce the
number of holders of Shares. Purchaser cannot predict whether the reduction in
the number of Shares that might otherwise trade publicly could adversely affect
the liquidity and market value of the remaining Shares held by the public.
Purchaser cannot predict whether the reduction in the number of Shares that
might otherwise trade publicly would have an adverse or beneficial effect on the
market price for or marketability of the Shares or whether it would cause future
market prices to be greater or less than the Offer Price therefor.
STOCK QUOTATION
Depending upon the number of Shares purchased pursuant to the Offer, the
Shares may no longer meet the listing requirements for the NASDAQ NMS, which
require that an issuer have at least 200,000 publicly held shares, held by at
least 400 stockholders or 300 stockholders of round lots, with a market value of
at least $1,000,000, and have net tangible assets of at least $1,000,000,
$2,000,000 or $4,000,000, depending on profitability levels during the issuer's
four most recent fiscal years. If these standards are not met, the Shares might
nevertheless continue to be publicly quoted in an over-the-counter market but if
the number of holders of the Shares were to fall below 300, or if the number of
publicly held Shares were to fall below 100,000 or there were not at least two
registered and active market makers for the Shares, the NASD's rules provide
that the Shares would no longer be "qualified" for NASD reporting and the NASD
would cease to provide any quotations. Shares held directly or indirectly by
directors, officers or beneficial owners of more than 10% of the Shares are not
considered as being publicly held for this purpose. According to the Company's
Form 10-K, as of October 14, 1997, there were approximately 4,694 holders of
Shares and, as of September 30, 1997, there were 31,404,483 Shares outstanding.
If, as a result of the purchase of Shares pursuant to the Offer or otherwise,
the Shares no longer meet the listing requirements for NASDAQ NMS or for any
other over-the-counter market, the market for Shares could be adversely
affected.
In the event that the Shares no longer meet the requirements of the NASD for
continued inclusion in any tier of the NASDAQ, it is possible that the Shares
would continue to trade in an over-the-counter market and that price quotations
would be reported by other sources. The extent of the public market for the
Shares and the availability of such quotations would, however, depend upon the
number of holders of Shares remaining at such time, the interests in maintaining
a market in Shares on the part of securities firms, the possible termination of
registration of the Shares under the Exchange Act, as described below, and other
factors.
53
EXCHANGE ACT REGISTRATION; FILING REQUIREMENTS
The Shares are currently registered under the Exchange Act. The purchase of
the Shares pursuant to the Offer may result in the Shares becoming eligible for
deregistration under the Exchange Act. Registration of the Shares may be
terminated upon application by the Company to the Commission if the Shares are
not listed on a "national securities exchange" and there are fewer than 300
record holders of Shares. Termination of registration of the Shares under the
Exchange Act would substantially reduce the information required to be furnished
by the Company to its stockholders and the Commission and would make certain
provisions of the Exchange Act, such as the short-swing profit recovery
provisions of Section 16(b) and the requirements of furnishing a proxy statement
in connection with stockholders' meetings pursuant to Section 14(a) or 14(c) and
the related requirement of an annual report, no longer applicable to the
Company. If the Shares are no longer registered under the Exchange Act, the
requirements of Rule 13e-3 under the Exchange Act with respect to "going
private" transactions would no longer be applicable to the Company. Furthermore,
the ability of "affiliates" of the Company and persons holding "restricted
securities" of the Company to dispose of such securities pursuant to Rule 144
promulgated under the Securities Act of 1933, as amended, may be impaired or,
with respect to certain persons, eliminated. If registration of the Shares under
the Exchange Act were terminated, the Shares would no longer be "margin
securities" or eligible for stock exchange listing or NASD reporting. Purchaser
believes that the purchase of the Shares pursuant to the Offer may result in the
Shares becoming eligible for deregistration under the Exchange Act, and it would
be the intention of Purchaser to cause the Company to make an application for
termination of registration of the Shares as soon as possible after successful
completion of the Offer if the Shares are then eligible for such termination.
If registration of the Shares is not terminated prior to the Merger, then
the registration of the Shares under the Exchange Act and the quotation of the
Shares on the NASDAQ NMS will be terminated following the consummation of the
Merger.
In addition to the possibility of deregistration under the Exchange Act,
Purchaser's purchase of the Shares pursuant to the Offer may result in the
suspension of the duty of the Company to file periodic and other reports with
the Commission. Under Section 15(d) of the Exchange Act, the duty of an issuer
of a class of securities to file certain periodic and other reports with the
Commission is automatically suspended as to any fiscal year (other than the
fiscal year in which the registration statement with respect to that class of
securities became effective), if, at the beginning of such fiscal year, the
securities are held by less than 300 persons. The suspension of the filing
requirements of the Company under the Exchange Act would substantially reduce
the information required to be provided by the Company to its stockholders and
the Commission.
MARGIN REGULATIONS
The Shares are currently "margin securities" under the regulations of the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board"),
which have the effect, among other things, of allowing brokers to extend credit
on the collateral of such Shares for the purpose of buying, carrying or trading
in securities ("Purpose Loans"). Depending upon factors such as the number of
record holders of the Shares and the number and market value of publicly held
Shares, following the purchase of Shares pursuant to the Offer, the Shares might
no longer constitute "margin securities" for purposes of the Federal Reserve
Board's margin regulations and, therefore, could no longer be used as collateral
for Purpose Loans made by brokers. In addition, if registration of the Shares
under the Exchange Act were terminated, the Shares would no longer constitute
"margin securities."
13. CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, the obligation of
Purchaser to accept for payment any Shares tendered pursuant to the Offer shall
be subject to (the following being referred to as the "Offer
54
Conditions") (i) the satisfaction or waiver (under the circumstances in which
such waiver is permitted under the Merger Agreement) of the Minimum Condition
and (ii) the satisfaction or waiver of the following conditions:
(a) NO PROHIBITION. There shall not have been any action or proceeding
brought by any governmental authority before any court, or any order or
preliminary or permanent injunction entered in any action or proceeding
before any court or governmental, administrative or regulatory authority or
any statute, rule, regulation, legislation, interpretation, judgment or
order proposed or sought, enacted, entered, enforced, promulgated, amended,
issued or deemed applicable to the Offer or the Merger by any court,
governmental, administrative or regulatory authority which could reasonably
be expected to have the effect of: (i) making illegal or otherwise
restraining or prohibiting or imposing material penalties or fines or
requiring the payment of material damages in connection with the making of
the Offer, the acceptance for payment of, payment for, or ownership of some
of or all the Shares by Parent or Purchaser, the consummation of the Offer
or the Merger; (ii) prohibiting or materially limiting the ownership or
operation by the Company or by Parent of all or any material portion of the
business or assets of the Company and any of its subsidiaries or Parent,
taken as a whole, or compelling Parent to dispose of or hold separate all or
any material portion of the business or assets of the Company and its
subsidiaries, taken as a whole, as a result of the transactions contemplated
by the Merger Agreement; (iii) imposing or confirming material limitations
on the ability of Parent effectively to acquire or hold or to exercise full
rights of ownership of Shares, including, without limitation, the right to
vote any Shares on all matters properly presented to the stockholders of the
Company, including, without limitation, the adoption and approval of the
Merger Agreement and the Merger or the right to vote any shares of capital
stock of any subsidiary of the Company; or (iv) requiring divestiture by
Parent or Purchaser, directly or indirectly, of any Shares.
(b) OUTSIDE EVENTS. There shall not have occurred (i) any general
suspension of trading in, or limitation on prices for, securities on any
securities exchange or in the over-the-counter market in the United States
(other than a shortening of trading hours or any coordinated trading halt
triggered solely as a result of a specified increase or decrease in a market
index) or (ii) the declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States.
(c) PERFORMANCE. The Company shall have performed in all material
respects its material covenants and agreements under the Merger Agreement.
(d) REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of the Company set forth in the Merger Agreement which are
qualified as to Material Adverse Effect (as defined in the Merger Agreement)
shall not be true and correct when made and as of the expiration of the
Offer, or any of the other representations and warranties of the Company set
forth in the Merger Agreement shall not be true and correct when made and as
of the expiration of the Offer, which failure would have a Material Adverse
Effect or, in the case of certain enumerated representations and warranties,
which failure would be material with respect to the transactions
contemplated by the Merger Agreement (except, in each case, in the case of
representations and warranties of the Company which address matters only as
of a particular date, which need only be true and correct as aforesaid as of
such date).
(e) NO TERMINATION. The Merger Agreement shall not have been terminated
in accordance with its terms or the Offer shall not have been amended or
terminated with the consent of the Company, acting at the direction of the
Special Committee.
Purchaser shall not be required to accept for payment any Shares tendered
pursuant to the Offer if any of the above conditions occurs and remains in
effect, which, in the reasonable judgment of Purchaser in any such case, and
regardless of the circumstances (including any action or omission by Purchaser
other than any breach by Parent or Purchaser of the Merger Agreement, or, in the
case of (c) or (d) above, a
55
failure of such condition which Parent or Purchaser has caused to occur) giving
rise to any such condition which makes it inadvisable to proceed with such
acceptance for payment or payments for Shares.
The foregoing conditions are for the sole benefit of Purchaser and may be
asserted by Purchaser regardless of the circumstances (including any action or
omission by Purchaser other than any breach by Parent or Purchaser of the Merger
Agreement, or, in the case of (c) or (d) above, a failure of such condition
which Parent or Purchaser has caused to occur) giving rise to any such condition
or may be waived by Purchaser in whole or in part at any time or from time to
time in its sole discretion. The failure by Purchaser at any time to exercise
any of the foregoing rights shall not be deemed a waiver of any such right, the
waiver of any such right with respect to particular facts or circumstances shall
not be deemed a waiver with respect to any other facts or circumstances, and
each such right shall be deemed an ongoing right that may be asserted at any
time or from time to time.
14. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS
Except as described below, Purchaser is not aware of any governmental
license or regulatory permit that appears to be material to the business of the
Company and its subsidiaries, taken as a whole, that might be adversely affected
by Purchaser's acquisition of the Company's Shares as contemplated herein or of
any approval or other action by any governmental, administrative or regulatory
authority or agency, domestic or foreign, that would be required for the
acquisition or ownership of Shares by Purchaser as contemplated herein. Should
any such approval or other action be required, Purchaser and Parent currently
contemplate that such approval or other action will be sought. Except as
otherwise expressly described in this Section 14, Purchaser does not presently
intend to delay the acceptance for payment of or payment for Shares tendered
pursuant to the Offer pending the outcome of any such matter. Purchaser is
unable to predict whether it may determine that it is required to delay the
acceptance for payment of or payment for Shares tendered pursuant to the Offer
pending the outcome of any such matter. There can be no assurance that any such
approval or other action, if needed, would be obtained or would be obtained
without substantial conditions or that the failure to obtain any such approval
or other action might not result in consequences adverse to the Company's
business or that certain parts of the Company's business might not have to be
disposed of. See Section 13 for certain conditions to the Offer.
15. FEES AND EXPENSES
Salomon Smith Barney is acting as the Dealer Manager in connection with the
Offer and has provided certain financial advisory services in connection with
the acquisition of the Company. Parent and Purchaser have agreed to pay Salomon
Smith Barney a fee of $1.75 million upon consummation of the Offer. The Company
also has agreed to reimburse Salomon Smith Barney for certain expenses incurred
in connection with the Offer, including out-of-pocket expenses and reasonable
attorney's fees and disbursements, and to indemnify Salomon Smith Barney against
certain liabilities in connection with the Offer, including certain liabilities
under the federal securities laws.
Purchaser has retained Georgeson & Company Inc. to act as the Information
Agent, and BankBoston, N.A. to act as the Depositary, in connection with the
Offer. The Information Agent may contact holders of Shares by mail, telephone,
telex, telegraph and personal interview and may request brokers, dealers and
other nominee stockholders to forward the Offer materials to beneficial owners.
Each of the Information Agent and the Depositary will receive reasonable and
customary compensation for their respective services, will be reimbursed for
certain reasonable out-of-pocket expenses and will be indemnified against
certain liabilities and expenses in connection with the Offer, including certain
liabilities under the federal securities laws.
56
The following table sets forth the estimated expenses incurred in connection
with the Merger. These fees will be paid by Parent and its affiliates and will
not be the responsibility of the Company.
Filing fees..................................................... $ 84,437
Printing costs.................................................. $ 200,000
Legal fees...................................................... $ 600,000
Accounting fees................................................. $ 0
Solicitation expenses........................................... $ 35,000
Financial Advisory Fees......................................... $1,750,000
---------
Total....................................................... $2,669,437
---------
---------
Except as set forth above, Purchaser will not pay any fees or commissions to
any broker or dealer or other person for soliciting tenders of Shares pursuant
to the Offer. Brokers, dealers, commercial banks and trust companies will, upon
request, be reimbursed by Purchaser for customary mailing and handling expenses
incurred by them in forwarding the Offer materials to their customers.
16. MISCELLANEOUS
The Offer is being made solely by this Offer to Purchase, the related Letter
of Transmittal, the Option Election, the Stock Purchase Election and the
Restricted Stock Election and is being made to all holders of Shares, Options,
Purchase Rights and Restricted Shares. The Offer is not being made to, nor will
tenders be accepted from or on behalf of, holders of Shares, Options, Purchase
Rights and Restricted Shares of the Company residing in any jurisdiction in
which the making of the Offer or the acceptance thereof would not be in
compliance with the securities, blue sky or other laws of such jurisdiction.
However, Purchaser may, in its discretion, take such action as it may deem
necessary to make the Offer in any jurisdiction and extend the Offer to holders
of Shares, Options, Purchase Rights and Restricted Shares in such jurisdiction.
In any jurisdiction where the securities, blue sky or other laws require the
Offer to be made by a licensed broker or dealer, the Offer will be deemed to be
made on behalf of Purchaser by the Dealer Manager or one or more registered
brokers or dealers that are licensed under the laws of such jurisdiction.
Parent and Purchaser have filed with the Commission the Schedule 14D-1
pursuant to Rule 14d-3 under the Exchange Act containing certain additional
information with respect to the Offer. Such Schedule and any amendments thereto,
including exhibits, may be examined and copies may be obtained from the
principal office of the Commission in the manner set forth in Section 8 (except
that they will not be available at the regional offices of the Commission).
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF PURCHASER OR PARENT NOT CONTAINED IN THIS OFFER TO
PURCHASE OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
57
SCHEDULE I
INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF PARENT,
PURCHASER AND CERTAIN AFFILIATES OF PARENT
A. DIRECTORS AND EXECUTIVE OFFICERS OF PARENT
The following table sets forth the name, present principal occupation or
employment and material occupation, positions, offices or employment for the
past five years of each director and executive officer of Parent. Unless
otherwise indicated below, the address of each director and officer is 9330
Zionsville Road, Indianapolis, Indiana 46268 and each such person is a citizen
of the United States.
PRESENT PRINCIPAL OCCUPATION OF EMPLOYMENT AND
NAME AND BUSINESS ADDRESS FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------------------ ---------------------------------------------------------------------------
A. Charles Fischer.................. Mr. Fischer has served as Vice President-Agricultural Chemicals and Urban
Pest of Parent since November 1997. Prior to assuming his current position,
Mr. Fischer had been Vice President-North America of Parent since 1992.
John L. Hagaman..................... Mr. Hagaman has served as President and Chief Executive Officer of Parent
since the formation of Parent in October 1989. He was appointed to the
Members Committee of Parent in August 1997. Mr. Hagaman served as a
Director of the Company from February 1996 to March 1997 and was reelected
to the Company board in March 1998. He is also a member of the Corporate
Leadership Team of TDCC.
Nickolas D. Hein.................... Mr. Hein is Vice President-Biotechnology for Parent. Prior to assuming that
role in February 1998, Mr. Hein had served as Parent's Global Vice
President since 1990. Mr. Hein has been a Director of the Company since
March 1997, and Chairman of the Board of Directors of the Company since May
1997.
Louis W. Pribila.................... Mr. Pribila has served as Vice President, Secretary and General Counsel of
Parent since May 1995. Mr. Pribila has been a Director of the Company since
December 1996. Prior to assuming his current position at Parent, Mr.
Pribila had been Assistant General Counsel of TDCC since 1989.
Sean S. Skinner..................... Mr. Skinner has been Treasurer of Parent since the formation of Parent in
October 1989.
John A. Tomke....................... Mr. Tomke has served as Vice President-Operations for Parent since January
1992.
Jerry E. Toomer..................... Mr. Toomer has been Vice President-Human Resources, for Parent since June
1995. Prior to that, Dr. Toomer had been Director of Human Resources for
TDCC's Pacific Area organization since 1991.
Gary L. Whitlock.................... Mr. Whitlock has served as Vice President-Finance for Parent since February
1998. In 1996, Mr. Whitlock was named Global Cost and Functional Controller
for TDCC. In addition, he was the financial liaison to a major joint
venture, DuPont Dow Elastomers LLC.
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PRESENT PRINCIPAL OCCUPATION OF EMPLOYMENT AND
NAME AND BUSINESS ADDRESS FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------------------ ---------------------------------------------------------------------------
Joseph L. Downey.................... Mr. Downey has served as Chairman of the Members Committee of Parent since
August 1997. Mr. Downey has been a Director of TDCC since 1989. Mr. Downey
has served as a Senior Consultant to TDCC since 1994. Until July 1994 Mr.
Downey served as a Senior Vice President of TDCC.
Fernand J. Kaufmann................. Mr. Kaufmann has served on the Members Committee of Parent since August
1997. Mr. Kaufmann has been a Vice President for New Businesses and
Strategic Development of TDCC since 1995. Prior to 1995, Mr. Kaufmann
served as Group Vice President for the Ventures, Chemicals and Plastics
Business Group of TDCC. Mr. Kaufmann is a citizen of Luxembourg.
J. Pedro Reinhard................... Mr. Reinhard has served on the Members Committee of Parent since August
1997. Mr. Reinhard has been a Director and the Chief Financial Officer of
TDCC since October 1995. Mr. Reinhard was elected Executive Vice President
of TDCC in November 1996. Prior to October 1995, Mr. Reinhard served as
Financial Vice President of TDCC. Mr. Reinhard is a citizen of Brazil.
William S. Stavropoulos............. Mr. Stavropoulos has served on the Members Committee of Parent since August
1997. Mr. Stavropoulos has been the Chief Executive Officer of TDCC since
November 1995. Prior to 1995, Mr. Stavropoulos served as President and
Chief Operating Officer of TDCC. Mr. Stavropoulos has been a Director since
July 1990.
I-2
B. DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER
The following table sets forth the name, business address, present principal
occupation or employment and material occupations, positions, offices or
employment for the past five years of each director and executive officer of
Purchaser. Unless otherwise indicated below, the address of each director and
officer is 2030 Dow Center, Midland, Michigan 48674.
PRESENT PRINCIPAL OCCUPATION OF EMPLOYMENT AND
NAME AND BUSINESS ADDRESS FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------------------ ---------------------------------------------------------------------------
Brian G. Taylorson.................. Mr. Taylorson is a Director and also the President of Purchaser. Mr.
Taylorson has served as Corporate Director, Mergers and Acquisitions of
TDCC since July 1995. Prior to that Mr. Taylorson served as Treasurer of
Dow Chemical Canada Inc. Mr. Taylorson is a citizen of the United Kingdom.
Charles J. Hahn..................... Mr. Hahn is a Director and also the Treasurer of Purchaser. Mr. Hahn has
served as Tax Director and Assistant Secretary of TDCC since 1994. Prior to
that, Mr. Hahn was a member of TDCC's Tax Department.
Jane M. Gootee...................... Ms. Gootee is a Director and also the Secretary of Purchaser. Ms. Gootee
has served as the Manager-Financial Law for TDCC since June 1994. Prior to
that Ms. Gootee served as a Senior Counsel of Dow Europe S.A.
I-3
C. DIRECTORS AND EXECUTIVE OFFICERS OF CENTEN
The following table sets forth the name, business address, present principal
occupation or employment and material occupations, positions, offices or
employment for the past five years of each director and executive officer of
Centen. Unless otherwise indicated below, the address of each director and
officer is 2030 Dow Center, Midland, Michigan 48674 and each such person is a
citizen of the United States.
PRESENT PRINCIPAL OCCUPATION OF EMPLOYMENT AND FIVE-YEAR
NAME AND BUSINESS ADDRESS EMPLOYMENT HISTORY
- -------------------------------------------------------- --------------------------------------------------------
Alfonso Escudero........................................ Mr. Escudero is a Director and also the Treasurer of
Centen. Mr. Escudero has served as Corporate Finance
Director of TDCC since November 1996. Prior to that Mr.
Escudero served as Treasurer for the Benelux/Nordic
region in Belgium. Mr. Escudero is a citizen of Spain.
Jane M. Gootee.......................................... Ms. Gootee is a Director and also the Secretary of
Centen. Ms. Gootee has served as the Manager-Financial
Law for TDCC since June 1994. Prior to that Ms. Gootee
served as a Senior Counsel of Dow Europe S.A.
Douglas F. Ward......................................... Mr. Ward is a Director of Centen. Mr. Ward has served as
Corporate Reporting Controller of TDCC since February
1998. Prior to that Mr. Ward served as Director of
Accounting Analysis and Reporting for the Corporate
Controllers Department of TDCC since 1993.
Brian G. Taylorson...................................... Mr. Taylorson is a Director and also the President of
Centen. Mr. Taylorson has served as Corporate Director,
Mergers and Acquisitions of TDCC since July 1995. Prior
to that Mr. Taylorson served as Treasurer of Dow
Chemical Canada Inc. Mr. Taylorson is a citizen of the
United Kingdom.
I-4
D. DIRECTORS AND EXECUTIVE OFFICERS OF ROFAN
The following table sets forth the name, business address, present principal
occupation or employment and material occupations, positions, offices or
employment for the past five years of each director and executive officer of
Rofan. Unless otherwise indicated below, the address of each director and
officer is 2030 Dow Center, Midland, Michigan 48674 and each such person is a
citizen of the United States.
PRESENT PRINCIPAL OCCUPATION OF EMPLOYMENT AND FIVE-YEAR
NAME AND BUSINESS ADDRESS EMPLOYMENT HISTORY
- -------------------------------------------------------- --------------------------------------------------------
J. Pedro Reinhard....................................... Mr. Reinhard is a Director and also the President of
Rofan. Mr. Reinhard has been a Director and the Chief
Financial Officer of TDCC since October 1995. Mr.
Reinhard was elected Executive Vice President of TDCC in
November 1996. Mr. Reinhard served as Financial Vice
President of TDCC from 1995-96 and as TDCC Treasurer
from 1988-96. Mr. Reinhard is a citizen of Brazil.
Geoffery E. Merszei..................................... Mr. Merszei is a Director and also a Vice President of
Rofan. Mr. Merszei has served as Vice President of TDCC
since July 1996 and as Treasurer of TDCC since May 1996.
Prior to that Mr. Merszei served as Director of Finance
for Dow Europe S.A. Mr. Merszei is a citizen of Canada.
Brian G. Taylorson...................................... Mr. Taylorson is a Director and also a Vice President of
Rofan. Mr. Taylorson has served as Corporate Director,
Mergers and Acquisitions of TDCC since July 1995. Prior
to that Mr. Taylorson served as Treasurer of Dow
Chemical Canada Inc. Mr. Taylorson is a citizen of the
United Kingdom.
Jane M. Gootee.......................................... Ms. Gootee is a Director and also the Secretary of
Rofan. Ms. Gootee has served as the Manager-Financial
Law for TDCC since June 1994. Prior to that Ms. Gootee
served as a Senior Counsel of Dow Europe S.A.
I-5
E. DIRECTORS AND EXECUTIVE OFFICERS OF TDCC
The following table sets forth the name, business address, present principal
occupation or employment and material occupations, positions, offices or
employment for the past five years of each director and executive officer of
TDCC. Unless otherwise indicated below, the address of each director and officer
is 2030 Dow Center, Midland, Michigan 48674 and each such person is a citizen of
the United States.
PRESENT PRINCIPAL OCCUPATION OF EMPLOYMENT AND FIVE-YEAR
NAME AND BUSINESS ADDRESS EMPLOYMENT HISTORY
- -------------------------------------------------------- --------------------------------------------------------
Frank P. Popoff......................................... Mr. Popoff has been the Chairman of the Board of
Directors of TDCC since December 1992 and has been a
Director since 1982. Mr. Popoff also served as Chief
Executive Officer of TDCC until November 1995. Mr.
Popoff is a Director of American Express Company, US
WEST, Inc., Chemical Financial Corporation, United
Technologies Corporation and the Michigan Molecular
Institute.
William S. Stavropoulos................................. Mr. Stavropoulos has been a Director of TDCC since July
1990, Chief Executive Officer of TDCC since November
1995 and President of TDCC since 1993. Prior to 1995,
Mr. Stavropoulos served as Chief Operating Officer of
TDCC. Mr. Stavropoulos has served on the Members
Committee of Parent since August 1997. Mr. Stavropoulos
is a Director of Dow Corning Corporation, NCR
Corporation, BellSouth Corporation, Chemical Financial
Corporation, and Chemical Bank and Trust Company.
J. Pedro Reinhard....................................... Mr. Reinhard has been a Director and the Chief Financial
Officer of TDCC since October 1995. Mr. Reinhard was
elected Executive Vice President of TDCC in November
1996. Mr. Reinhard served as Financial Vice President of
TDCC from 1995-1996 and as TDCC Treasurer from
1988-1996. Mr. Reinhard has served on the Members
Committee of Parent since August 1997. Mr. Reinhard is a
citizen of Brazil.
Arnold A. Allemang...................................... Mr. Allemang has been a Director of TDCC since July
1996. Mr. Allemang has also served as Vice President of
Operations of TDCC since August 1997. From 1993-1995,
Mr. Allemang was Vice President of Manufacturing
Operations for Dow Europe S.A. Mr. Allemang was Vice
President and Director of Manufacturing and Engineering
from 1995-1997.
Jacqueline K. Barton.................................... Dr. Barton has been a Director of TDCC since 1993. Dr.
Barton is the "Arthur and Marian Hanisch Memorial
Professor of Chemistry" at the California Institute of
Technology.
I-6
PRESENT PRINCIPAL OCCUPATION OF EMPLOYMENT AND FIVE-YEAR
NAME AND BUSINESS ADDRESS EMPLOYMENT HISTORY
- -------------------------------------------------------- --------------------------------------------------------
David T. Buzzelli....................................... Mr. Buzzelli has been a Director of TDCC since 1993. Mr.
Buzzelli has served as a Senior Consultant to TDCC since
July 1997. Mr. Buzzelli was Corporate Director of Public
Affairs from 1993-1997, Corporate Director of
Environment, Health and Safety from 1990-1997 and Dow
Vice President from 1990-1997. Mr. Buzzelli is also a
Director of the Dow Corning Corporation.
Anthony J. Carbone...................................... Mr. Carbone has been a Director of TDCC since July 1995
and has been Executive Vice President, Plastics,
Hydrocarbons and Energy of TDCC since 1996. Mr. Carbone
was Group Vice President-Global Plastics, Hydrocarbons
and Energy from 1995-1996 and Group Vice President for
Global Plastics from 1993-1995.
Fred P. Corson.......................................... Mr. Corson has been a Director of TDCC since 1994. Mr.
Corson has been a Senior Consultant to TDCC since April
1998. Mr. Corson served as Vice President and Director
of Research and Development of TDCC from 1990 until
March 31, 1998.
John C. Danforth........................................ Senator Danforth has been a Director of TDCC since
February 1996. Senator Danforth represented the State of
Missouri in the United States Senate from 1976 until his
retirement from the Senate in 1995. Mr. Danforth is a
partner with the law firm of Bryan Cave LLP. He is a
Director of General American Life Insurance Company and
Cerner Corporation.
Willie D. Davis......................................... Mr. Davis has been a Director of TDCC since 1988. Mr.
Davis is owner of All-Pro Broadcasting, Inc., a Los
Angeles broadcasting company. Mr. Davis is also a
Director of Sara Lee Corporation, Alliance Bank, MGM
Grand Company, Kmart Corporation, Wicor, Inc., Johnson
Controls Inc., Rally's Hamburgers Inc. and the Strong
Funds.
Michael L. Dow.......................................... Mr. Dow has been a Director of TDCC since 1988. Mr. Dow
is Chairman and Chief Executive Officer of General
Aviation, Inc. Mr. Dow is also a Director of Chemical
Financial Corporation and Chemical Bank and Trust
Company. Mr. Dow is also a trustee and the Treasurer of
the Herbert H. and Grace A. Dow Foundation and a trustee
of the Michigan State University Foundation.
I-7
PRESENT PRINCIPAL OCCUPATION OF EMPLOYMENT AND FIVE-YEAR
NAME AND BUSINESS ADDRESS EMPLOYMENT HISTORY
- -------------------------------------------------------- --------------------------------------------------------
Joseph L. Downey........................................ Mr. Downey has been a Director of TDCC since 1989. Mr.
Downey has served as a Senior Consultant to TDCC since
1994. Until July 1994 Mr. Downey served as a Senior Vice
President of TDCC. Mr. Downey has also served as
Chairman of the Members Committee of Parent since 1989.
Mr. Downey is a Director of Security National Bank.
Enrique C. Falla........................................ Mr. Falla has been a Director of TDCC since 1985. Mr.
Falla has served as a Senior Vice President to TDCC
since May 1997 and has been a Senior Consultant since
1997. Prior to that, Mr. Falla served as Executive Vice
President from 1991-1997 and Chief Financial Officer
from 1987-1995. Mr. Falla is a Director of Dow Corning
Corporation, Kmart Corporation, Guidant Corporation, and
the University of Miami.
Barbara Hackman Franklin................................ Ms. Franklin has served as a Director of TDCC since
1993. From 1992 to 1993, Ms. Franklin served as the U.S.
Secretary of Commerce. Ms. Franklin was a business
consultant from 1993 to 1995. Ms. Franklin has been
President and Chief Executive Officer of Barbara
Franklin Enterprises, a private consulting and
investment firm, since 1995.
Allan D. Gilmour........................................ Mr. Gilmour has served as a Director of TDCC since 1995.
Mr. Gilmour retired as Vice Chairman of the Ford Motor
Company in 1995. Mr. Gilmour is a Director of DTE Energy
Company, The Prudential Insurance Company of America, US
WEST, Inc. and Whirlpool Corporation.
Michael D. Parker....................................... Mr. Parker has served as a Director of TDCC since July
1995. Mr. Parker has served as Executive Vice President
of TDCC since 1996. Mr. Parker has been President of Dow
North America and Group Vice President-
Chemicals and Metals of TDCC since 1995. Mr. Parker was
Dow Group Vice President from 1993-1996 and Group Vice
President-Chemicals and Hydrocarbons 1993-1995. He is
also a Director of the National Association of
Manufacturers and the National Legal Center for the
Public Interest. Mr. Parker is a citizen of the United
Kingdom.
I-8
PRESENT PRINCIPAL OCCUPATION OF EMPLOYMENT AND FIVE-YEAR
NAME AND BUSINESS ADDRESS EMPLOYMENT HISTORY
- -------------------------------------------------------- --------------------------------------------------------
Harold T. Shapiro....................................... Dr. Shapiro has served as a Director of TDCC since 1985.
Dr. Shapiro is the President of Princeton University as
well as a professor of economics and public affairs. Dr.
Shapiro is Chairman of the Board and a Trustee of the
Alfred P. Sloan Foundation. He is also a Trustee of
Educational Testing Service, the University of
Pennsylvania Medical Center and the Universities
Research Association. He also serves as a Director of
the National Bureau of Economic Research. Dr. Shapiro is
a member of the Institute of Medicine and the American
Philosophical Society and a fellow of the American
Academy of Arts and Sciences.
Paul G. Stern........................................... Dr. Stern has been a Director of TDCC since 1992. Dr.
Stern is a partner and co-founder, in 1995, of Thayer
Capital Partners. From 1993-1995, Dr. Stern was a
Special Partner at Forstmann Little & Co. Dr. Stern is
also a director of LTV Corporation and Whirlpool
Corporation. Dr. Stern is Treasurer of the John F.
Kennedy Center for the Performing Arts.
John G. Scriven......................................... Mr. Scriven has served as Vice President and General
Counsel since January 1994 and Secretary of TDCC since
August 1996. Mr. Scriven is a visiting professor at
McGeorge School of Law, University of the Pacific and a
guest lecturer to the Swiss Banking Institute. Mr.
Scriven is a member of the North America Board of
Advisors of the Swiss Chamber of Commerce and a member
of the board of directors of the American Arbitration
Association. Mr. Scriven is a citizen of Switzerland.
Lawrence J. Washington, Jr.............................. Mr. Washington has served as Vice President-
Human Resources since October 1995 and as Vice President
of Environment, Health & Safety, Human Resources and
Public Affairs for TDCC since July 1997. From 1990-1994,
Mr. Washington served as Vice President, Dow North
America and General Manager for Michigan Division.
Geoffery E. Merszei..................................... Mr. Merszei has served as Vice President of TDCC since
July 1996 and as Treasurer of TDCC since May 1996. Prior
to that Mr. Merszei served as Director of Finance for
Dow Europe S.A. Mr. Merszei is a citizen of Canada.
I-9
PRESENT PRINCIPAL OCCUPATION OF EMPLOYMENT AND FIVE-YEAR
NAME AND BUSINESS ADDRESS EMPLOYMENT HISTORY
- -------------------------------------------------------- --------------------------------------------------------
G. Michael Lynch........................................ Mr. Lynch has served as Vice President and Controller of
TDCC since February 1997. Prior to that date Mr. Lynch
was an executive with the Ford Motor Company.
Richard M. Gross........................................ Mr. Gross has served as Vice President and Director of
Research & Development of TDCC since April 1998. From
1995-March 1998, Mr. Gross served as Vice President and
Director of Michigan Operations and Core Research and
Development. From 1992-94, Mr. Gross served as Research
and Development Director for North American Chemicals
and Metals/Hydrocarbons Research and Development. Mr.
Gross is on the governing board of the Council for
Chemical Research and is a member of the external
advisory board for the Chemical Engineering Department
at Georgia Tech University.
I-10
SCHEDULE II
CHAPTER 13 OF THE CALIFORNIA GENERAL CORPORATION LAW
SECTION 1300 [SHORT FORM MERGER; PURCHASE OF SHARES AT FAIR MARKET VALUE;
"DISSENTING SHARES" AND DISSENTING SHAREHOLDER].-- (a) If the approval of the
outstanding shares (Section 152) of a corporation is required for a
reorganization under subdivisions (a) and (b) or subdivision (e) or (f) of
Section 1201, each shareholder of the corporation entitled to vote on the
transaction and each shareholder of a subsidiary corporation in a short-form
merger may, by complying with this chapter, require the corporation in which the
shareholder holds shares to purchase for cash at their fair market value the
shares owned by the shareholder which are dissenting shares as defined in
subdivision (b). The fair market value shall be determined as of the day before
the first announcement of the terms of the proposed reorganization or short-form
merger, excluding any appreciation or depreciation in consequence of the
proposed action, but adjusted for any stock split, reverse stock split, or share
dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of Governors
of the Federal Reserve System, and the notice of meeting of shareholders to
act upon the reorganization summarizes this section and Sections 1301, 1302,
1303 and 1304; provided, however, that this provision does not apply to any
shares with respect to which there exists any restriction on transfer
imposed by the corporation or by any law or regulation; and provided,
further, that this provision does not apply to any class of shares described
in subparagraph (A) or (B) if demands for payment are filed with respect to
5 percent or more of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case where
the approval required by Section 1201 is sought by written consent rather
than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.
SECTION 1301 [DISSENTERS' RIGHTS; DEMAND ON CORPORATION FOR PURCHASE OF
SHARES].-- (a) If, in the case of a reorganization, any shareholders of a
corporation have a right under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation to
purchase their shares for cash, such corporation shall mail to each such
shareholder a notice of the approval of the reorganization by its outstanding
shares (Section 152) within 10 days after the date of such approval, accompanied
by a copy of Sections 1300, 1302, 1303, 1304 and this section, a statement of
the price determined by the corporation to represent the fair market value of
the dissenting shares, and a brief description of the procedure to be followed
if the shareholder desires to exercise the shareholder's
II-1
right under such sections. The statement of price constitutes an offer by the
corporation to purchase at the price stated any dissenting shares as defined in
subdivision (b) of Section 1300, unless they lose their status as dissenting
shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
SECTION 1302 [DISSENTING SHARES, STAMPING OR ENDORSING].-- Within 30 days
after the date on which notice of the approval by the outstanding shares or the
notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder, the shareholder shall submit to the corporation at its principal
office or at the office of any transfer agent thereof, (a) if the shares are
certificated securities, the shareholder's certificates representing any shares
which the shareholder demands that the corporation purchase, to be stamped or
endorsed with a statement that the shares are dissenting shares or to be
exchanged for certificates of appropriate denomination so stamped or endorsed or
(b) if the shares are uncertificated securities, written notice of the number of
shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
SECTION 1303 [DISSENTING SHAREHOLDER ENTITLED TO AGREED PRICE WITH INTEREST;
TIME OF PAYMENT].-- (a) If the corporation and the shareholder agree that the
shares are dissenting shares and agree upon the price of the shares, the
dissenting shareholder is entitled to the agreed price with interest thereon at
the legal rate on judgments from the date of the agreement. Any agreements
fixing the fair market value of any dissenting shares as between the corporation
and the holders thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
SECTION 1304 [DISSENTERS' ACTIONS; JOINDER; CONSOLIDATION; APPOINTMENT OF
APPRAISERS].-- (a) If the corporation denies that the shares are dissenting
shares, or the corporation and the shareholder fail to agree upon the fair
market values of the shares, then the shareholder demanding purchase of such
shares as dissenting shares or any interested corporation, within six months
after the date on which notice of the approval by the outstanding shares
(Section 152) or notice pursuant to subdivision (i) of Section 1110 was mailed
to the shareholder, but not thereafter, may file a complaint in the superior
court of the proper county praying the court to determine whether the shares are
dissenting
II-2
shares or the fair market value of the dissenting shares or both or may
intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SECTION 1305 [APPRAISERS' DUTY AND REPORT; COURT JUDGMENT; PAYMENT; APPEAL;
COSTS OF ACTION].-- (a) If the court appoints an appraiser or appraisers, they
shall proceed forthwith to determine the fair market value per share. Within the
time fixed by the court, the appraisers, or a majority of them, shall make and
file a report in the office of the clerk of the court. Thereupon, on the motion
of any party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time as
may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
SECTION 1306 [DISSENTING SHAREHOLDERS: EFFECT OF PREVENTION OF PAYMENT OF
FAIR MARKET VALUE].-- To the extent that the provisions of Chapter 5 prevent the
payment to any holders of dissenting shares of their fair market value, they
shall become creditors of the corporation for the amount thereof together with
interest at the legal rate on judgments until the date of payment, but
subordinate to all other creditors in any liquidation proceeding, such debt to
be payable when permissible under the provisions of Chapter 5.
SECTION 1307 [DISSENTING SHARES, DISPOSITION OF DIVIDENDS].-- Cash dividends
declared and paid by the corporation upon the dissenting shares after the date
of approval of the reorganization by the outstanding shares (Section 152) and
prior to payment for the shares by the corporation shall be credited against the
total amount to be paid by the corporation therefor.
SECTION 1308 [DISSENTING SHARES, RIGHTS AND PRIVILEGES].-- Except as
expressly limited in this chapter, holders of dissenting shares continue to have
all the rights and privileges incident to their shares, until the fair market
value of their shares is agreed upon or determined. A dissenting shareholder may
not withdraw a demand for payment unless the corporation consents thereto.
II-3
SECTION 1309 [DISSENTING SHARES, LOSS OF STATUS].-- Dissenting shares lose
their status as dissenting shares and the holders thereof cease to be dissenting
shareholders and cease to be entitled to require the corporation to purchase
their shares upon the happening of any of the following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
SECTION 1310 [SUSPENSION OF CERTAIN PROCEEDINGS WHILE LITIGATION IS
PENDING].-- If litigation is instituted to test the sufficiency or regularity of
the votes of the shareholders in authorizing a reorganization, any proceedings
under Sections 1304 and 1305 shall be suspended until final determination of
such litigation.
SECTION 1311 [CHAPTER INAPPLICABLE TO CERTAIN CLASSES OF SHARES].-- This
chapter, except Section 1312, does not apply to classes of shares whose terms
and provisions specifically set forth the amount to be paid in respect to such
shares in the event of a reorganization or merger.
SECTION 1312 [VALIDITY OF REORGANIZATION OR SHORT-FORM MERGER, ATTACK ON;
SHAREHOLDERS' RIGHTS; BURDEN OF PROOF].-- (a) No shareholder of a corporation
who has a right under this chapter to demand payment of cash for the shares held
by the shareholder shall have any right at law or in equity to attack the
validity of the reorganization or short-form merger, or to have the
reorganization or short-form merger set aside or rescinded, except in an action
to test whether the number of shares required to authorize or approve the
reorganization have been legally voted in favor thereof; but any holder of
shares of a class whose terms and provisions specifically set forth the amount
to be paid in respect to them in the event of a reorganization or short-form
merger is entitled to payment in accordance with those terms and provisions or,
if the principal terms of the reorganization are approved pursuant to
subdivision (b) of Section 1202, is entitled to payment in accordance with the
terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days,
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
II-4
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
II-5
SCHEDULE III
[LOGO]
August 31, 1998
Special Committee of the Board of Directors
Mycogen Corporation
5501 Oberlin Drive
San Diego, CA 92121
Members of the Special Committee of the Board:
You have asked us to advise you with respect to the fairness, from a
financial point of view, to the holders (other than The Dow Chemical Company and
its affiliates (collectively, the "Dow Group")) of shares of common stock, par
value $.001 per share (the "Shares"), of Mycogen Corporation, a California
corporation (the "Company"), of the consideration to be received by such holders
in the Transactions (as defined below) pursuant to the Agreement and Plan of
Merger, dated as of August 31, 1998, by and among the Company, Dow AgroSciences
LLC ("Parent") and AgroSciences Acquisition Inc. ("Acquisition") (the "Merger
Agreement"). The Merger Agreement provides for, among other things, a cash
tender offer (the "Tender Offer") by Acquisition to acquire all of the
outstanding Shares, other than Shares held by members of the Dow Group, at a
price of $28.00 per Share, net to the seller in cash (the "Cash Price"), and for
a subsequent merger of Acquisition with and into the Company pursuant to which
each outstanding Share (other than as provided in the Merger Agreement) will be
converted into the right to receive the Cash Price (the "Merger" and, together
with the Tender Offer, the "Transactions"). The terms and conditions of the
Transactions are set forth in more detail in the Merger Agreement.
In connection with rendering our opinion, we have reviewed the financial
terms and provisions of a draft of the Merger Agreement, and for purposes
hereof, we have assumed that the financial terms and provisions of the final
form of the Merger Agreement will not differ in any material respect from the
draft provided to us. We also reviewed the Exchange and Purchase Agreement,
dated January 15, 1996, among the Company, Agrigenetics, Inc., DowElanco and
United Agriseeds, Inc. (the "Exchange Agreement"), including the Dow Group's
rights and obligations thereunder both if the Transactions are completed and not
completed. We further reviewed and analyzed certain publicly available business
and financial information relating to the Company for recent years and interim
periods to date, as well as certain internal financial and operating
information, financial forecasts, projections and analyses prepared by or on
behalf of the Company and provided to us for purposes of our analysis. We have
met with certain representatives of the Company and the Dow Group to review and
discuss such information and, among other matters, the Company's business,
financial condition, results of operations and prospects.
[LOGO]
III-1
Special Committee of the Board of Directors
August 31, 1998
Page 2
We have reviewed and considered certain financial and stock market data
relating to the Company, and we have compared that data with similar data for
certain other companies, the securities of which are publicly traded, that we
believe may be relevant or comparable in certain respects to the Company or one
or more of its businesses or assets, and we have reviewed and considered the
financial terms of certain recent acquisitions and business combination
transactions in the seed and agrobiotech industries specifically, and in other
industries generally, which we believe to be reasonably comparable to the
Transactions or otherwise relevant to our inquiry. We have also performed such
other studies, analyses and investigations and reviewed such other information
as we considered appropriate for purposes of this opinion.
In our review and analysis and in formulating our opinion, we have assumed
and relied upon the accuracy and completeness of all the financial and other
information provided to or discussed with us or publicly available, including
the financial projections, forecasts, analyses and other information provided to
us, and we have not assumed any responsibility for independent verification of,
and express no opinion as to, any of such information. We also have relied upon
the reasonableness and accuracy of the unadjusted projections, forecasts,
analyses and other information furnished to us, and have assumed, with the
Special Committee's consent, that such projections, forecasts and analyses and
other information were reasonably prepared in good faith and on bases reflecting
the best currently available judgments and estimates of the Company's management
as of the date hereof and that management of the Company is unaware of any facts
that would make the projections, forecasts and other information provided to us
incomplete or misleading. We express no opinion with respect to such
projections, forecasts and analyses or the assumptions on which they are based.
We have not reviewed any of the books and records of the Company or Parent, and
although we have visited selected facilities, we were not retained to conduct,
nor have we assumed any responsibility for conducting, a physical inspection of
the properties or facilities of the Company or Parent, or for making or
obtaining an independent valuation or appraisal of the assets or liabilities of
the Company or Parent, and no such independent valuation or appraisal was
provided to us. Our opinion is necessarily based on economic and market
conditions and other circumstances as they exist and can be evaluated by us as
of the date hereof. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. Finally, we have assumed that the transactions
described in the Merger Agreement will be consummated on the terms set forth
therein, without material waiver or modification.
In the context of our engagement, we have not been authorized to and have
not solicited alternative offers for the Company or its assets, or investigated
any other alternative transactions which may be available to the Company. We
express no opinion with respect to the Third Party Sale Value of the Company as
such term is defined in the Exchange Agreement.
We are acting as financial advisor to the Special Committee of the Board of
Directors of the Company (the "Special Committee") in connection with the
proposed Transactions and will receive a fee for our services, including this
opinion, a significant portion of which is contingent upon the completion of the
proposed Transactions and the amount of consideration received by holders of the
Shares (other than the Dow Group) in the Transactions. In the ordinary course of
our business, we may actively trade the securities of the Company or members of
the Dow Group for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
[LOGO]
III-2
Special Committee of the Board of Directors
August 31, 1998
Page 3
Our opinion addresses only the fairness from a financial point of view to
the holders of the Shares (other than the members of the Dow Group) of the
consideration to be paid to them pursuant to the Merger Agreement and does not
address the Special Committee's underlying business decision to recommend the
Transactions.
This letter is for the benefit and use of the Special Committee in its
consideration of the Transactions, and may not be used for any other purpose or
reproduced, disseminated, quoted or referred to at any time, in any manner or
for any purpose without our prior written consent (except as otherwise provided
in the engagement letter, dated as of June 11, 1998, between the Company and
us). We have been engaged and are acting solely as an advisor to the Special
Committee and not as an advisor to or agent of any other person. This opinion
does not constitute a recommendation to any stockholder with respect to whether
such holder should tender Shares pursuant to the Tender Offer or as to how such
holder should vote or otherwise act with respect to the Merger, and should not
be relied upon by any stockholder as to any such matter.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein it is our opinion that, as of the date hereof,
the Cash Price to be received by the holders of Shares (other than members of
the Dow Group) in the Transactions pursuant to the Merger Agreement is fair to
such holders from a financial point of view.
Very truly yours,
[LOGO]
III-3
THE DEPOSITARY FOR THE OFFER IS:
BANKBOSTON, N.A.
BY MAIL: BY HAND: BY OVERNIGHT, CERTIFIED OR
BankBoston, N.A. Securities Transfer & EXPRESS MAIL DELIVERY:
Attn: Corporate Reorganization Reporting Services, Inc. BankBoston, N.A.
P.O. Box 8029 c/o Boston EquiServe LP Attn: Corporate
Boston, Massachusetts 02266-8029 1 Exchange Plaza Reorganization
55 Broadway, 3rd Floor 150 Royall Street
New York, New York 10006 Canton, Massachusetts 02021
BY FACSIMILE: CONFIRM FACSIMILE BY TELEPHONE:
(781) 575-2233/2232 (800) 730-4001
(For Eligible Institutions Only) (For Confirmation Only)
Questions and requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone numbers
listed below. Additional copies of this Offer to Purchase, the Letter of
Transmittal and other tender offer materials may be obtained from the
Information Agent as set forth below and will be furnished promptly at
Purchaser's expense. You may also contact the Dealer Manager or your broker,
dealer, commercial bank, trust company or other nominee for assistance
concerning the Offer.
THE INFORMATION AGENT FOR THE OFFER IS:
[LOGO]
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect: (212) 440-9800
ALL OTHERS CALL TOLL-FREE: (800) 223-2064
THE DEALER MANAGER FOR THE OFFER IS:
SALOMON SMITH BARNEY INC.
Seven World Trade Center
New York, New York 10048