item 14 exhibits financial statement schedules reports form 8k 1 financial statements following consolidated financial statements delta pine land company subsidiaries submitted response part ii item 8 report independent public accountants consolidated statements income three years period ended august 31 1998 consolidated balance sheets august 31 1997 1998 consolidated statements cash flows three years period ended august 31 1998 consolidated statements stockholders equity three years period ended august 31 1998 notes consolidated financial statements 2 financial statement schedule following financial statement schedule delta pine land company subsidiaries submitted response part iv item 14 report independent public accountants57 schedule ii consolidated valuation qualifying accounts58 schedules omitted required applicable data included financial statements 3 exhibits annual report delta pine land company filed herewith listed page 59 b 4 reports form 8k reports form 8k filed quarter ended august 31 1998 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized november 24 1998 delta pine land company registrant roger malkin roger malkin chairman board chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date roger malkin chairman board november 24 1998 chief executive officer roger malkin principal executive officer w thomas jagodinski vice presidentfinance november 24 1998 treasurer principal financial w thomas jagodinski accounting officer namhai chua director november 24 1998 namhai chua jon em jacoby director november 24 1998 jon em jacoby joseph murphy director november 24 1998 joseph murphy stanley p roth director november 24 1998 stanley p roth rudi e scheidt director november 24 1998 rudi e scheidt report independent public accountants delta pine land company audited accordance generally accepted auditing standards financial statements delta pine land company included form 10k audits made purpose forming opinion basic financial statements taken whole schedule listed index part iv item 14a2 responsibility companys management presented purposes complying securities exchange commissions rules part basic financial statements schedule subjected auditing procedures applied audit basic financial statements opinion fairly states material respects financial data required set forth therein relation basic financial statements taken whole arthur andersen llp memphis tennessee october 16 1998 schedule ii delta pine land company subsidiaries consolidated valuation qualifying accounts write uncollectible accounts net recoveries b primarily disposal excess corn sorghum inventory c reserve cottonseed result production cost optimization program disposal corn sorghum inventory 1409 write cottonseed inventory 1829 e reserve cottonseed resulting reduction cotton acreage 1998 realignment companys product line seed new technologies recall certain products meet quality standards index exhibits annual report form 10k year ended august 31 1998 delta pine land company exhibits description 201 agreement plan merger dated may 8 1998 monsanto company delta pine land company2 202 termination option agreement dated may 8 1998 monsanto company delta pine land company 2 301 restated certificate incorporation registrant dated june 11 1993 302 amended restated bylaws registrant dated april 26 1993 401 certificate designation convertible preferred stock delta pine land company3 402 specimen certificate representing common stock par value 10 per share 403 letter registrant john hancock mutual life insurance company regarding certain registration rights dated june 28 1993 404 rights agreement dated august 13 1996 delta pine land company harris trust savings bank including form right certificate related form election purchase exhibit summary rights purchase preferred shares exhibit b4 405 amendment 1 rights agreement dated may 8 1998 delta pine land company harris trust savings bank2 406 amendment 2 rights agreement dated may 8 1998 delta pine land company harris trust savings bank11 407 certificate designations rights privileges shares junior participating preferred stock created august 13 1996 filed pursuant section 151 delaware general corporation law4 1001 lease dated march 25 1995 registrant lessee prudential insurance company america prudential lessor regarding approximately 2500acre farm certain grain bins certain research facility scott mississippi5 1002 license agreement dated february 1 1990 registrant licensor semillas deltacol ltd licensee regarding operations columbia 1003 license agreement dated march 5 1990 registrant licensor helena chemical company dba hyperformer seed company licensee 1004 license agreement dated march 16 1992 registrant monsanto company amended agreement modified terms license agreement dated october 11 1993 confidential treatment requested portions exhibit pursuant rule 24b2 securities exchange act 1934 17 1005 incentive bonus program16 1006 retirement plan company dated january 2 1992 amendment 1 plan dated april 30 1992 amendment 2 plan dated december 20 1992 amendment 3 plan dated october 6 199415 1007 agreement educo inc southwide dated june 1 1975 relating employersponsored college scholarships medical expense plan children certain employees registrant 1008 supplemental executive retirement plan dated may 22 1992 effective january 1 199216 1009 tax sharing agreement dated may 24 1993 southwide registrant 1010 1993 stock option plan registrant adopted june 11 199316 1011 asset purchase agreement delta pine land company cargill inc8 1012 herbicidetolerant cotton license agreement dated august 22 1994 company ei dupont de nemours company confidential treatment requested portions exhibit pursuant rule 24b2 securities exchange act 19347 1013 1994 saving plan registrant adopted april 1 1994 amendment 1 dated may 1 199456 1014 50000000 revolving credit agreement registrant nations bank dated november 15 19955 1015 hartz cotton acquisition agreement dated february 2 1996 among monsanto company monsanto hartz cotton inc hartz cotton delta pine land company paymaster technology corp ptc3 1016 trademark license agreement dated february 2 1996 monsanto company3 1017 registration rights agreement company monsanto dated february 2 19963 1018 temporary services agreement dated february 2 1996 monsanto company ptc3 1019 research facility lease option purchase dated february 2 1996 monsanto ptc3 1020 greenhouse lease dated february 2 1996 monsanto ptc3 1021 research agreement dated february 2 1996 monsanto ptc3 1022 partnership agreement dated february 2 1996 company monsanto3 1023 marketing services agreement dated february 2 1996 company monsanto dm partners3 1024 bollgard gene license seed services agreement dated february 2 1996 monsanto dm partners company3 1025 roundup ready gene license seed services agreement dated february 2 1996 monsanto dm partners company3 1026 option agreement dated february 2 1996 monsanto company36 1027 agreement dpl companies sure grow companies sure grow shareholders sure grow principals dated may 20 19969 1028 delta pine land company 1995 longterm incentive plan adopted february 6 1996610 1101 statement computation earnings per share11 2101 subsidiaries registrant 11 2301 consent independent public accountants 11 2701 financial data schedule 11 1 incorporated reference registration statement form s1 file 3361568 filed june 29 1993 except otherwise noted herein 2 incorporated reference form 8k filed may 14 1998 3 incorporated reference form 8k filed february 19 1996 4 incorporated reference form 8a filed september 3 1996 5 incorporated reference form 10k filed november 22 1995 6 represents management contract compensatory plan 7 incorporated reference form 10q filed july 14 1995 8 incorporated reference form 8k filed may 16 1994 9 incorporated reference form 8k filed june 4 1996 10 incorporated reference form 10k filed november 27 1996 11 filed herewith amendment 2 rights agreement exhibit 406 amendment second amendment dated july 10 1998 entered delta pine land company delaware corporation company harris trust savings bank illinois banking corporation rights agent rights agent w n e h whereas company rights agent entered rights agreement dated august 13 1996 amended pursuant first amendment referred agreement whereas company monsanto company monsanto entered agreement plan merger dated may 8 1998 providing merger company monsanto merger terms subject conditions set forth therein whereas company rights agent entered amendment 1 rights agreement dated may 8 1988 first amendment eliminate possibility monsanto deemed acquiring person result merger amend related provisions agreement whereas monsanto american home products corporation ahp entered agreement plan merger dated may 31 1998 ahp merger agreement provides merger whollyowned subsidiary ahp monsanto ahp merger whereas company wishes effect deems necessary desirable amendment agreement eliminate possibility ahp merger consummated prior merger ahp affiliate associate monsanto deemed acquiring person result merger amend related provisions agreement whereas section 27 agreement provides company may supplement amend agreement without approval holders rights order make provisions respect rights company may deem necessary desirable therefore company rights agent hereby amend agreement follows 1 capitalized terms used second amendment without definition shall meanings given agreement 2 section 1a agreement definition term acquiring person amended deleting final sentence thereof phrase subsidiary buyer subsidiary referred herein merger sub established effect merger defined herein inserting word final sentence thereof phrase affiliate associate buyer 3 term agreement used agreement shall deemed refer agreement amended hereby 4 second amendment shall governed constructed accordance laws state delaware 5 second amendment shall effective date first written except set forth herein agreement shall remain full force effect shall otherwise unaffected hereby 6 second amendment may executed two counterparts shall deemed original together shall constitute one instrument witness whereof parties hereto caused second amendment duly executed 10th day july 1998 delta pine land company roger malkin name roger malkin title chairman chief executive officer harris trust savings bank ginger l lawrence name ginger l lawrence title trust officer exhibit 1101 computation earnings per share thousands except per share data exhibit 2101 subsidiaries registrant subsidiary place incorporation atled corporation usa dm international llc usa dm partners usa dpl argentina inc usa dpl china inc usa dpl china pte ltd singapore dpl investing corp usa dpl investments inc usa dpl mexico inc usa deltapine paraguay inc usa dpl south africa inc usa dpl international technology corp usa delta pine land international ltd virgin islands delta pine de mexico sa de cv mexico deltapine australia pty limited australia greenfield seed company usa hebei ji dai cottonseed technology company ltd china paymaster technology corp usa turk deltapine inc usa sure grow seed inc usa ellis brothers seed inc usa arizona processing inc usa mississippi seed inc usa dpl semillas limitada costa rica cdm mandyu srl argentina delta pine land hellas monoprosopi epe greece dpl brasil ltda brazil dpl espana srl spain anhui dai cottonseed technology company ltd china sg seed inc usa dm brasil ltda brazil mdm maeda deltapine monsanto algodao ltda brazil exhibit 2301 consent independent public accountants independent public accountants hereby consent incorporation report dated october 16 1998 included form 10k delta pine lands previously filed registration statement file 33321049 arthur andersen llp memphis tennessee november 20 1998item 14 exhibits financial statement schedules reports form 8k 1 financial statements following consolidated financial statements delta pine land company subsidiaries submitted response part ii item 8 report independent public accountants consolidated statements income three years period ended august 31 1999 consolidated balance sheets august 31 1998 1999 consolidated statements cash flows three years period ended august 31 1999 consolidated statements stockholders equity three years period ended august 31 1999 notes consolidated financial statements 2 financial statement schedule following financial statement schedule delta pine land company subsidiaries submitted response part iv item 14 report independent public accountants73 schedule ii consolidated valuation qualifying accounts74 schedules omitted required applicable data included financial statements 3 exhibits annual report delta pine land company filed herewith listed page 62 b 4 reports form 8k reports form 8k filed quarter ended august 31 1999 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized november19 1999 delta pine land company registrant roger malkin november 19 1999 roger malkin chairman board chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date roger malkin chairman board november 19 1999 chief executive officer roger malkin principal executive officer w thomas jagodinski vice presidentfinance november 19 1999 treasurer principal financial w thomas jagodinski accounting officer namhai chua director november 19 1999 namhai chua sjon em jacoby director november 19 1999 jon em jacoby joseph murphy director november 19 1999 joseph murphy stanley p roth director november 19 1999 stanley p roth rudi e scheidt director november 19 1999 rudi e scheidt report independent public accountants delta pine land company audited accordance generally accepted auditing standards financial statements delta pine land company included form 10k audits made purpose forming opinion basic financial statements taken whole schedule listed index part iv item 14a2 responsibility companys management presented purposes complying securities exchange commissions rules part basic financial statements schedule subjected auditing procedures applied audit basic financial statements opinion fairly states material respects financial data required set forth therein relation basic financial statements taken whole arthur andersen llp memphis tennessee november 15 1999 schedule ii delta pine land company subsidiaries consolidated valuation qualifying accounts write uncollectible accounts net recoveries b reserve cottonseed result production cost optimization program c disposal andor writeoff inventory reserve cottonseed resulting reduction cotton acreage 1998 realignment companys product line seed new technologies recall certain products meet quality standards e reserves excess planting seed inventory realignment companys product line index exhibits annual report form 10k year ended august 31 1999 delta pine land company exhibits1 description 201 agreement plan merger dated may 8 1998 monsanto company delta pine land company 2 202 termination option agreement dated may 8 1998 monsanto company delta pine land company 2 301 restated certificate incorporation registrant dated june 11 1993 302 amended restated bylaws registrant dated april 26 1993 401 certificate designation convertible preferred stock delta pine land company 3 402 specimen certificate representing common stock par value 10 per share 403 letter registrant john hancock mutual life insurance company regarding certain registration rights dated june 28 1993 404 rights agreement dated august 13 1996 delta pine land company harris trust savings bank including form right certificate related form election purchase exhibit summary rights purchase preferred shares exhibit b 4 405 amendment 1 rights agreement dated may 8 1998 delta pine land company harris trust savings bank 2 406 certificate designations rights privileges shares junior participating preferred stock created august 13 1996 filed pursuant section 151 delaware general corporation law 4 1001 lease dated march 25 1995 registrant lessee prudential insurance company america lessor regarding approximately 2500acre farm certain grain bins certain research facility scott mississippi 5 1002 license agreement dated february 1 1990 registrant licensor semillas deltacol ltd licensee regarding operations columbia 1003 license agreement dated march 5 1990 registrant licensor helena chemical company dba hyperformer seed company licensee 1004 license agreement dated march 16 1992 registrant monsanto company amended agreement modified terms license agreement dated october 11 1993 confidential treatment requested portions exhibit pursuant rule 24b2 securities exchange act 1934 17 1005 incentive bonus program16 1006 retirement plan company dated january 2 1992 amendment 1 plan dated april 30 1992 amendment 2 plan dated december 20 1992 amendment 3 plan dated october 6 1994 15 1007 agreement educo inc southwide dated june 1 1975 relating employersponsored college scholarships medical expense plan children certain employees registrant 1008 supplemental executive retirement plan dated may 22 1992 effective january 1 1992 16 1009 tax sharing agreement dated may 24 1993 southwide registrant 1010 1993 stock option plan registrant adopted june 11 1993 16 1011 asset purchase agreement delta pine land company cargill inc dated may 2 1994 8 1012 herbicidetolerant cotton license agreement dated august 22 1994 company ei dupont de nemours company confidential treatment requested portions exhibit pursuant rule 24b2 securities exchange act 19347 1013 1994 saving plan registrant adopted april 1 1994 amendment 1 dated may 1 1994 56 1014 50000000 revolving credit agreement registrant nations bank dated november 15 1995 5 1015 hartz cotton acquisition agreement dated february 2 1996 among monsanto company monsanto hartz cotton inc hartz cotton delta pine land company paymaster technology corp ptc 3 1016 trademark license agreement dated february 2 1996 monsanto company 3 1017 registration rights agreement company monsanto dated february 2 1996 3 1018 temporary services agreement dated february 2 1996 monsanto company ptc 3 1019 research facility lease option purchase dated february 2 1996 monsanto ptc 3 1020 greenhouse lease dated february 2 1996 monsanto ptc 3 1021 research agreement dated february 2 1996 monsanto ptc 3 1022 partnership agreement dated february 2 1996 company monsanto3 1023 marketing services agreement dated february 2 1996 company monsanto dm partners 3 1024 bollgard gene license seed services agreement dated february 2 1996 monsanto dm partners company 3 1025 roundup ready gene license seed services agreement dated february 2 1996 monsanto dm partners company 3 1026 option agreement dated february 2 1996 monsanto company 36 1027 agreement dpl companies sure grow companies sure grow shareholders sure grow principals dated may 20 1996 9 1028 delta pine land company 1995 longterm incentive plan adopted february 6 1996 610 1101 statement computation earnings per share 11 2101 subsidiaries registrant 11 2301 consent independent public accountants 11 271 financial data schedule 11 1 incorporated reference registration statement form s1 file 3361568 filed june 29 1993 except otherwise noted herein 2 incorporated reference form 8k filed may 14 1998 3 incorporated reference form 8k filed february 19 1996 4 incorporated reference form 8a filed september 3 1996 5 incorporated reference form 10k filed november 22 1995 6 represents management contract compensatory plan 7 incorporated reference form 10q filed july 14 1995 8 incorporated reference form 8k filed may 16 1994 9 incorporated reference form 8k filed june 4 1996 10 incorporated reference form 10k filed november 27 1996 11 filed herewith exhibit 1101 computation earnings per share thousands except per share data twelve months ended august 31 august 31 august 31 1997 1998 1999 basic earnings per share weighted average number shares common stock outstanding period 37579 38011 38438 net income applicable common shares 6850 1783 7477 basic earnings per share 018 005 019 diluted earnings per share weighted average number shares common stock outstanding period 37579 38011 38438 weighted average number shares attributed convertible preferred stock 1066 weighted average number shares attributed options 1484 1762 1469 weighted average number shares common stock outstanding period computation diluted earnings per share 40129 40839 40973 net income 6913 1879 7573 diluted earnings per share 017 004 018 exhibit 2101 subsidiaries registrant subsidiary place incorporation atled corporation usa dm international llc usa dm partners usa dpl argentina inc usa dpl china inc usa dpl china pte ltd singapore dpl investing corp usa dpl investments inc usa dpl mexico inc usa deltapine paraguay inc usa dpl south africa inc usa dpl international technology corp usa delta pine land international ltd virgin islands delta pine de mexico sa de cv mexico deltapine australia pty limited australia greenfield seed company usa hebei ji dai cottonseed technology company ltd china paymaster technology corp usa turk deltapine inc usa sure grow seed inc usa ellis brothers seed inc usa arizona processing inc usa mississippi seed inc usa dpl semillas limitada costa rica cdm mandyu srl argentina delta pine land hellas monoprosopi epe greece dpl brasil ltda brazil anhui dai cottonseed technology company ltd china sg seed inc name changed november 17 1998 usa dpl technology holding corp dm brasil ltda brazil mdm maeda deltapine monsanto algodao ltda brazil exhibit 2301 consent independent public accountants independent public accountants hereby consent incorporation report dated october 15 1999 included form 10k delta pine lands previously filed registration statement file 33321049 arthur andersen llp memphis tennessee november 24 1999item 14 exhibits financial statement schedules reports form 8k 1 financial statements following consolidated financial statements delta pine land company subsidiaries submitted response part ii item 8 report independent public accountants consolidated statements income three years period ended august 31 2000 consolidated balance sheets august 31 1999 2000 consolidated statements cash flows three years period ended august 31 2000 consolidated statements changes stockholders equity three years period ended august 31 2000 notes consolidated financial statements 2 financial statement schedule following financial statement schedule delta pine land company subsidiaries submitted response part iv item 14 report independent public accountants50 schedule ii consolidated valuation qualifying accounts51 schedules omitted required applicable data included financial statements 3 exhibits annual report delta pine land company filed herewith listed page 51 b 4 reports form 8k reports form 8k filed quarter ended august 31 2000 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized november 22 2000 delta pine land company registrant november 22 2000 jon e jacoby jon e jacoby chairman board pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date f murray robinson vice chairman november 22 2000 chief executive officer f murray robinson principal executive officer sw thomas jagodinski senior vice president november 22 2000 chief financial officer w thomas jagodinski principal financial accounting officer stanley p roth vice chairman director november 22 2000 stanley p roth namhai chua director november 22 2000 namhai chua joseph murphy director november 22 2000 joseph murphy rudi e scheidt director november 22 2000 rudi e scheidt report independent public accountants delta pine land company audited accordance auditing standards generally accepted united states financial statements delta pine land company included form 10k audits made purpose forming opinion basic financial statements taken whole schedule listed index part iv item 14a2 responsibility companys management presented purposes complying securities exchange commissions rules part basic financial statements schedule subjected auditing procedures applied audit basic financial statements opinion fairly states material respects financial data required set forth therein relation basic financial statements taken whole arthur andersen llp memphis tennessee october 18 2000 write uncollectible accounts net recoveries b reserve cottonseed result production cost optimization program c disposal andor writeoff inventory reserve cottonseed resulting reduction cotton acreage 1998 realignment companys product line seed new technologies recall certain products meet quality standards e reserves excess planting seed inventory realignment companys product line index exhibits annual report form 10k year ended august 31 2000 delta pine land company exhibits1 description 201 agreement plan merger dated may 8 1998 monsanto company delta pine land company 2 202 termination option agreement dated may 8 1998 monsanto company delta pine land company 2 301 restated certificate incorporation registrant dated june 11 1993 302 amended restated bylaws registrant dated april 26 1993 401 certificate designation convertible preferred stock delta pine land company 3 402 specimen certificate representing common stock par value 10 per share 403 letter registrant john hancock mutual life insurance company regarding certain registration rights dated june 28 1993 404 rights agreement dated august 13 1996 delta pine land company harris trust savings bank including form right certificate related form election purchase exhibit summary rights purchase preferred shares exhibit b 4 405 amendment 1 rights agreement dated may 8 1998 delta pine land company harris trust savings bank 2 406 amendment 2 rights agreement dated may 8 1998 delta pine land company harris trust savings bank 407 certificate designations rights privileges shares junior participating preferred stock created august 13 1996 filed pursuant section 151 delaware general corporation law 4 1001 lease dated march 25 1995 registrant lessee prudential insurance company america lessor regarding approximately 2500acre farm certain grain bins certain research facility scott mississippi 5 1002 license agreement dated february 1 1990 registrant licensor semillas deltacol ltd licensee regarding operations columbia 1003 license agreement dated march 5 1990 registrant licensor helena chemical company dba hyperformer seed company licensee 1004 license agreement dated march 16 1992 registrant monsanto company amended agreement modified terms license agreement dated october 11 1993 confidential treatment requested portions exhibit pursuant rule 24b2 securities exchange act 1934 17 1005 incentive bonus program16 1006 retirement plan company dated january 2 1992 amendment 1 plan dated april 30 1992 amendment 2 plan dated december 20 1992 amendment 3 plan dated october 6 1994 15 1007 agreement educo inc southwide dated june 1 1975 relating employersponsored college scholarships medical expense plan children certain employees registrant 1008 supplemental executive retirement plan dated may 22 1992 effective january 1 1992 16 1009 tax sharing agreement dated may 24 1993 southwide registrant 1010 1993 stock option plan registrant adopted june 11 1993 16 1011 asset purchase agreement delta pine land company cargill inc dated may 2 1994 8 1012 herbicidetolerant cotton license agreement dated august 22 1994 company ei dupont de nemours company confidential treatment requested portions exhibit pursuant rule 24b2 securities exchange act 19347 1013 1994 saving plan registrant adopted april 1 1994 amendment 1 dated may 1 1994 56 1014 50000000 revolving credit agreement registrant nations bank dated november 15 1995 5 1015 hartz cotton acquisition agreement dated february 2 1996 among monsanto company monsanto hartz cotton inc hartz cotton delta pine land company paymaster technology corp ptc 3 1016 trademark license agreement dated february 2 1996 monsanto company 3 1017 registration rights agreement company monsanto dated february 2 1996 3 1018 temporary services agreement dated february 2 1996 monsanto company ptc 3 1019 research facility lease option purchase dated february 2 1996 monsanto ptc 3 1020 greenhouse lease dated february 2 1996 monsanto ptc 3 1021 research agreement dated february 2 1996 monsanto ptc 3 1022 partnership agreement dated february 2 1996 company monsanto3 1023 marketing services agreement dated february 2 1996 company monsanto dm partners 3 1024 bollgard gene license seed services agreement dated february 2 1996 monsanto dm partners company 3 1025 roundup ready gene license seed services agreement dated february 2 1996 monsanto dm partners company 3 1026 option agreement dated february 2 1996 monsanto company 36 1027 agreement dpl companies sure grow companies sure grow shareholders sure grow principals dated may 20 1996 9 1028 delta pine land company 1995 longterm incentive plan adopted february 6 1996 610 1029 amendment agreements dated december 8 1999 monsanto company registrant dm partners partnership monsanto dpl paymaster technology corp 12 1030 dm international operating agreement march 10 1995 delta pine land company wholly owned subsidiary dpl international technology corp monsanto company 13 1101 statement computation earnings per share 11 2101 subsidiaries registrant 11 2301 consent independent public accountants 11 1 incorporated reference registration statement form s1 file 3361568 filed june 29 1993 except otherwise noted herein 2 incorporated reference form 8k filed may 14 1998 3 incorporated reference form 8k filed february 19 1996 4 incorporated reference form 8a filed september 3 1996 5 incorporated reference form 10k filed november 22 1995 6 represents management contract compensatory plan 7 incorporated reference form 10q filed july 14 1995 8 incorporated reference form 8k filed may 16 1994 9 incorporated reference form 8k filed june 4 1996 10 incorporated reference form 10k filed november 27 1996 11 filed herewith 12 incorporated reference form 8k filed may 18 2000 13 incorporated reference 8k filed september 14 2000 exhibit 1101 exhibit 2101 subsidiaries registrant subsidiary place incorporation atled corporation usa dm international llc usa dm partners usa dpl argentina inc usa dpl china inc usa dpl china pte ltd singapore dpl investing corp usa dpl investments inc usa dpl mexico inc usa deltapine paraguay inc usa dpl south africa inc usa dpl international technology corp usa delta pine land international ltd virgin islands delta pine de mexico sa de cv mexico deltapine australia pty limited australia greenfield seed company usa hebei ji dai cottonseed technology company ltd china paymaster technology corp usa turk deltapine inc usa sure grow seed inc usa ellis brothers seed inc usa arizona processing inc usa mississippi seed inc usa dpl semillas limitada costa rica cdm mandyu srl argentina delta pine land hellas monoprosopi epe greece dpl brasil ltda brazil anhui dai cottonseed technology company ltd china sg seed inc name changed november 17 1998 usa dpl technology holding corp dm brasil ltda brazil mdm maeda deltapine monsanto algodao ltda brazil exhibit 2301 consent independent public accountants independent public accountants hereby consent incorporation report dated october 18 2000 included form 10k delta pine lands previously filed registration statement file 33321049 arthur andersen llp memphis tennessee november 22 2000 item 14 exhibits financial statement schedules reports form 8k 1 financial statements following consolidated financial statements delta pine land company subsidiaries submitted response part ii item 8 report independent public accountants consolidated statements income three years period ended august 31 2001 consolidated balance sheets august 31 2000 2001 consolidated statements cash flows three years period ended august 31 2001 consolidated statements changes stockholders equity three years period ended august 31 2001 notes consolidated financial statements 2 financial statement schedule following financial statement schedule delta pine land company subsidiaries submitted response part iv item 14 report independent public accountants65 schedule ii consolidated valuation qualifying accounts66 schedules omitted required applicable data included financial statements 3 results shareholder vote result shareholder vote submitted response part item 4 page 13 4 exhibits annual report delta pine land company filed herewith listed page 67 5 reports form 8k reports form 8k filed quarter ended august 31 2001 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized november 26 2001 delta pine land company registrant jon e jacoby november 26 2001 jon e jacoby chairman board pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated report independent public accountants delta pine land company audited accordance auditing standards generally accepted united states financial statements delta pine land company included form 10k audits made purpose forming opinion basic financial statements taken whole schedule listed index part iv item 14a2 responsibility companys management presented purposes complying securities exchange commissions rules part basic financial statements schedule subjected auditing procedures applied audit basic financial statements opinion fairly states material respects financial data required set forth therein relation basic financial statements taken whole arthur andersen llp memphis tennessee october 26 2001 schedule ii delta pine land company subsidiaries consolidated valuation qualifying accounts write uncollectible accounts net recoveries b amount charged cumulative translation adjustment fluctuations nonus dollar denominated reserves c disposal andor writeoff inventory reserves excess planting seed inventory realignment companys product line index exhibits annual report form 10k year ended august 31 2001 delta pine land company exhibits1 description 201 agreement plan merger dated may 8 1998 monsanto company delta pine land company 2 202 termination option agreement dated may 8 1998 monsanto company delta pine land company 2 301 restated certificate incorporation registrant dated june 11 1993 302 amended restated bylaws registrant dated april 26 1993 401 certificate designation convertible preferred stock delta pine land company 3 402 specimen certificate representing common stock par value 10 per share 403 letter registrant john hancock mutual life insurance company regarding certain registration rights dated june 28 1993 404 rights agreement dated august 13 1996 delta pine land company harris trust savings bank including form right certificate related form election purchase exhibit summary rights purchase preferred shares exhibit b 4 405 amendment 1 rights agreement dated may 8 1998 delta pine land company harris trust savings bank 2 406 amendment 2 rights agreement dated may 8 1998 delta pine land company harris trust savings bank 14 407 certificate designations rights privileges shares junior participating preferred stock created august 13 1996 filed pursuant section 151 delaware general corporation law 4 1005 incentive bonus program 16 1006 retirement plan company dated january 2 1992 amendment 1 plan dated april 30 1992 amendment 2 plan dated december 20 1992 amendment 3 plan dated october 6 1994 15 1008 supplemental executive retirement plan dated may 22 1992 effective january 1 1992 16 1010 1993 stock option plan registrant adopted june 11 1993 16 1011 asset purchase agreement delta pine land company cargill inc dated may 2 1994 8 1013 1994 saving plan registrant adopted april 1 1994 amendment 1 dated may 1 1994 56 1015 hartz cotton acquisition agreement dated february 2 1996 among monsanto company monsanto hartz cotton inc hartz cotton delta pine land company paymaster technology corp ptc 3 1016 trademark license agreement dated february 2 1996 monsanto company 3 1017 registration rights agreement company monsanto dated february 2 1996 3 1018 temporary services agreement dated february 2 1996 monsanto company ptc 3 1019 research facility lease option purchase dated february 2 1996 monsanto ptc 3 1020 greenhouse lease dated february 2 1996 monsanto ptc 3 1021 research agreement dated february 2 1996 monsanto ptc 3 1022 partnership agreement dated february 2 1996 company monsanto3 1023 marketing services agreement dated february 2 1996 company monsanto dm partners 3 1024 bollgard gene license seed services agreement dated february 2 1996 monsanto dm partners company 3 1025 roundup ready gene license seed services agreement dated february 2 1996 monsanto dm partners company 3 1026 option agreement dated february 2 1996 monsanto company 36 1027 agreement dpl companies sure grow companies sure grow shareholders sure grow principals dated may 20 1996 9 1028 delta pine land company 1995 longterm incentive plan adopted february 6 1996 610 1029 amendment agreements dated december 8 1999 monsanto company registrant dm partners partnership monsanto dpl paymaster technology corp 12 1030 dm international operating agreement march 10 1995 delta pine land company wholly owned subsidiary dpl international technology corp monsanto company 13 1031 bollgardrii gene license seed services agreement 11 1032 roundup readyrsoybean license seed services agreement amended restated licensee incentive agreement 11 1033 bollgardrgene license agreement republic mexico 11 1034 roundup readyrlicense agreement republic south africa 11 1035 glyphosatetolerant cotton agreement australia 11 2101 subsidiaries registrant 11 2301 consent independent public accountants 11 1 incorporated reference registration statement form s1 file 3361568 filed june 29 1993 except otherwise noted herein 2 incorporated reference form 8k filed may 14 1998 3 incorporated reference form 8k file 00014136 filed february 19 1996 4 incorporated reference form 8a file 00021293 filed september 3 1996 5 incorporated reference form 10k file 0021788 filed november 22 1995 6 represents management contract compensatory plan 7 incorporated reference form 10q file 00021788 filed july 14 1995 8 incorporated reference form 8k filed may 16 1994 9 incorporated reference form 8k file 00021788 filed june 4 10 incorporated reference form 10k file 00114136 filed november 27 1996 11 filed herewith 12 incorporated reference form 8k filed may 18 2000 13 incorporated reference form 8k filed september 14 2000 14 incorporated reference form 10k filed november 24 1998 exhibit 1031 bollgardr ii gene license seed services agreement made day december 2000 monsanto company subsidiary pharmacia corporation place business 800 north lindbergh boulevard st louis missouri 63167 delta pine land company place business one cotton row scott mississippi 38772 section 1 background 11 monsanto dm partners dpl entered bollgardr gene license pertaining commercialization certain monsanto technology united states 12 monsanto developed present intention continue develop technology useful production genetically modified cotton plants exhibiting resistance lepidopteran insects also possesses certain knowhow germplasm relating cotton plants monsanto developed line cotton known event 15985 contains two lepidopteranactive genes marketed bollgardr ii cotton two lepidopteranactive genes first gene subsequent gene 13 july 1998 monsanto delivered dpl pollen event 15985 dpl proceeded increase seed event introgress two lepidopteranactive genes various cotton varieties including stacking roundup ready gene commercialized parties 14 dpl option acquire license subsequent genes bollgardr gene license monsanto desires dpl license section 2 interpretation 21 definitions agreement unless context otherwise requires capitalized terms shall meaning set forth bollgardr gene license present 211 term roundup readyr gene means dna molecule including regulatory sequences replicate thereof supplied monsanto inserted cotton results increased tolerance glyphosate 212 term event 15985 means line transgenic cotton containing two lepidopteranactive genes monsanto seeking governmental approvals date first written 213 term bollgardr gene license means bollgardr gene license seed services agreement monsanto dm partners dpl dated february 2 1996 amended december 8 1999 may amended accordance terms 214 term cost goods respect licensed commercial seed means sum costs required acquire prepare particular lot amount seed costs shall calculated accordance generally accepted accounting principles direct indirect costs fuzzy seed field inspection quality assurance transportation seed storage fuzzy seed processing fuzzy seed delinted seed treatments package costs including bags labels labor storage bagged seed 215 term cotton planting seed means cotton seed intended produced conditioned suitable planting produce commercial cotton crop section 3 terms conditions 31 prescribed section 34a bollgardr gene license monsanto hereby licenses subsequent gene contained event 15985 terms conditions bollgardr gene license pertain first gene except differences explicitly stated herein dpl 32 exhibit contains licensed patent rights relevant event 15985 trademark bollgard shall applied follows bollgard ii shorthand designation used documents shall bgii 33 monsanto hereby agrees pay dpl cost goods including warehousing costs seed derived event 15985 meets purity standard set forth section 32 development plan bollgardr gene license produced acres winter nurseries ii produced field plantings amount agreed upon writing monsanto dpl agreement unreasonably withheld delayed either monsanto dpl provided absence mutual agreement amount shall seed produced field plantings acres payment shall made monsanto event 15985 seed covered reimbursement provision sold cotton planting seed governmental approval subsequent gene obtained ii used produce cotton planting seed may later sold provided event monsanto obtains governmental approval subsequent gene thereafter dpl sells seed cotton planting seed dpl shall refund monsanto payments received dpl section 33 respect seed thus sold used provided however provision shall require dpl retain seed beyond sell seed cotton planting seed meet dpls applicable quality assurance standards seed subject reimbursement provisions section 33 shall considered licensed commercial seed subject terms governing licensed commercial seed 34 incorporation exhibits exhibit incorporated herein made part hereto witness whereof agreement executed duly authorized representatives parties herein delta pine land company title monsanto company title exhibit licensed patent rights add bag label add bag label add bag label add bag label add bag label add bag label add bag label add bag label add bag label add bag label serial number issue soon serial number issue soon exhibit 1032 roundup readyr soybean license seed services agreement made monsanto company delta pine land company regarding nonexclusive license certain patent rights proprietary technology monsanto company use producing soybean plants tolerance glyphosate herbicide based mutual consideration parties recited parties agree covenant set forth section 1background parties 101 monsanto corporation organized existing laws state delaware principal offices 800 n lindbergh boulevard st louis mo 63167 102 licensee corporation organized existing laws delaware principal offices 100 main street scott ms 38772 103 monsanto certain rights relating biological materials including technical information knowhow relating among things transformed plants seeds useful making soybean varieties exhibiting tolerance glyphosate herbicide rights patents andor patent applications covering biological material 104 licensee possesses knowledge legal access knowhow technical information germplasm expertise regarding development production marketing soybean varieties 105 licensee interested commercialization soybean varieties exhibiting herbicide tolerance licensee seeks obtain limited license monsantos proprietary rights monsanto desires grant license upon terms conditions provided herein terms conditions shall include either royalty grower agreement provided grower fee grower agreement provided 106 licensee monsanto parties roundup readyr soybean license seed services agreement effective february 12 1997 may amended time licensee commercializing herbicide tolerant soybeans parties wish terminate prior agreement replace agreement section 2definitions purposes agreement following words phrases shall following meanings 201 term affiliates shall mean respect entity directly indirectly whollyowned common owner whollyowns entity 202 term biological materials shall mean biological material germplasm data obtained produced made monsanto relating gene expression soybeans disclosed licensee monsanto pursuant agreement 203 term commercial tolerance means tolerance field conditions 15 poundsacre acid equivalent glyphosate includes one hundred percent 100 safety margin ie twice target use rate soybeans containing gene shall satisfy criteria commercial tolerance plants sprayed rates exhibit significant differences 95 confidence level control plants mean yield verified protocol set forth exhibit e 204 term effective date effective date agreement shall mean september 1 2001 205 term fiscal year shall mean twelvemonth period ending august 31 eg fiscal year 2002 12 month period ends august 31 2002 206 term genes means dna molecule received monsanto replicate thereof inserted soybeans results increased tolerance glyphosate 207 term glyphosate means herbicidally effective form nphosphonomethylglycine including salt thereof 5enolpyruvyl3shikimate phosphate synthase inhibitor 208 term grower agreement shall mean agreement monsanto soybean grower form provided monsanto time 209 term grower fee shall mean per unit fee charged soybean grower terms grower agreement time monsanto may elected license growers pursuant subsection 310c 210 term licensed patent rights shall mean patents patent applications listed exhibit b may amended monsanto time add additional patents patent applications patents maturing applications maturing applications divisionals continuations continuationsinpart applications territory reissues extensions foregoing 211 term licensed commercial seed means licenseebrand seed soybean identified brands listed subsection 302 incorporates gene traditional breeding licensee another licensee monsanto transgenic soybean germplasm supplied monsanto using transgenic soybean line 403 212 term licensee shall mean delta pine land company organized existing laws state delaware whollyowned affiliates 213 term netgrower fee shall mean grower fee less grower rebate licensed commercial seed provide monsanto directly growers andor ii licensee rebate licensed commercial seed provided monsanto directly licensee 214 term netroyalty shall mean royalty less grower rebate licensed commercial seed provided monsanto directly growers andor ii licensee rebate licensed commercial seed provided monsanto directly licensee 215 term nonmonsanto herbicide tolerance gene shall mean dna molecule naturallyoccurring soybeans providing herbicide tolerance source monsanto purposes definition dna molecule shall considered naturallyoccurring soybeans exists soybean plant high enough frequency provide herbicide tolerance without selection andor produced result tissue culture selection mutagenesis genetic engineering using recombinant dna techniques vitro vivo modification plant 216 term monsanto shall mean monsanto company organized existing laws state delaware offices 800 n lindbergh boulevard st louis missouri 63167 217 term monsanto knowhow shall mean knowledge information possession monsanto effective date relating gene expression soybeans reasonably needed commercialization licensed commercial seed 218 term monsanto patent rights means patents patent applications listed exhibit patents granted issued pursuant foregoing territory extensions continuations continuationsinpart reissues divisions thereof patent applications patents hereafter filed granted issued relating directly gene whollyowned monsanto 219 term royalty shall mean fee determined annually solely monsanto provided subsection 402 payable monsanto licensee provided subsection 310b 220 term roundupr herbicide means glyphosate formulation sold monsanto registered use soybeans includes roundupr herbicide brand name brand name designated monsanto licensee time 221 term roundup readyr trademark agreement means agreement monsanto licensee use roundup readyr trademark attached hereto exhibit c 222 term roundup readyr soybean seed services fee shall mean fee paid licensee subsection 401 described exhibit g 223 term soybeans means glycine max varieties marketed high enhanced modified oil high enhanced modified carbohydrate high enhanced modified protein containing compositional attribute distinguishes variety industrystandard commodity soybeans 224 term territory shall mean united states america 225 term third partyies shall mean person organization firm company partnership entity monsanto licensee respective affiliates 226 term unit means licensee prices per weight basis quantity soybean seed weighing fifty 50 pounds b licensee prices seed count basis 160000 soybean seeds monsanto notify licensee change seed count used determine unit seed count basis annually section 3conveyance rights 301 license grant monsanto hereby grants licensee hereby accepts subject terms conditions agreement right without right sublicense otherwise transfer nonexclusive license terriitory monsanto patent rights monsanto knowhow biological materials licensed patent rights develop produce produced sell via licensees distribution system licensed commercial seed soybean growers licensed monsanto purchase use licensed commercial seed without right sublicense subject provisions agreement including limited provisions section 3 hereof b event licensee desires produce seed licensed commercial seed outside territory subsequent sale territory licensee must obtain prior written approval monsanto 302 distribution licensed commercial seed respect sales licensed commercial seed hereunder territory licensee shall distribute andor sell licensed commercial seed branded solely following trademarks trade name exclusively owned used licensee deltapine suregrow paymaster dpl licensee may establish new trade name sell licensed commercial seed provided new trade name exclusively owned licensee trade name acquired directly indirectly third party financial indebtedness monsanto licensee shall use trademark third party connection sales licensed commercial seed trademarks associated nongenetically engineered traits present licensed commercial seed trademarks associated seed treatments stsr trademark logo connection licensed commercial seed containing trait approved monsanto provided subsection 306 b pursuant subsection 301a licensee may give sell otherwise transfer licensed commercial seeds except 1 planting seed growers directly licensed monsanto sole use producing commercial grain crop andor b retail dealers distributors resale retail dealers retail sale growers directly licensed monsanto growers sole use producing commercial grain crop 2 crushing nonreproductive use oil mills subject agreements prohibiting use planting order give licensee opportunity sell excess quantities licensed commercial seeds wholesale licensee may sell licensed commercial seeds another monsantos licensees wholesale transactions 1 brokered corn states hybrid service llc des moines iowa 2 brokered another brokerage company approved monsanto 3 sold directly another monsanto licensee first identifying licensee obtaining monsantos prior written consent sale c licensee shall permitted supply specific varieties licensed commercial seed territory third parties subsequent production andor sale third party long time supplying seed variety third party licensee monsanto patent rights licensed patent rights development production sale soybean seed exhibits commercial tolerance glyphosate herbicide licensee supply specific varieties third parties licensee shall responsible payment royalties due subsection 310 b units varieties transferred third parties ii collection transfer monsanto grower fees due connection transfers varieties third parties monsanto provided notice option use grower fee approach subsection 310c licensee may comply responsibility requiring part contract third party third party pay royalties directly monsanto collect transfer grower fees directly monsanto provided third party agreement designates monsanto third party beneficiary agreement enforceable monsanto licensee shall notify monsanto company companies employee contacts therewith licensee would like monsanto consider licensees glyphosatetolerant seed technology monsanto permission licensees make known licensee companies licensed monsanto sell glyphosatetolerant soybean seed may desire purchasesource soybean seedgermplasm containing gene licensee e notwithstanding provisions subparagraphs 302c 302d monsanto shall obligation grant license either monsanto patent rights licensed patent rights development production sale soybean seed exhibits commercial tolerance glyphosate herbicide third party obligation require suggest third party may obtain license procure licensee transgenic soybean seedgermplasm exhibits commercial tolerance glyphosate herbicide f licensee shall sell contract license third party including licensees subject monsanto technology soybean variety within scope either monsanto patent rights licensed patent rights unless seed soybean variety sold licensee distributor customers growers licensed grower agreement 303 marking licensed commercial seed conjunction use grower agreement subject subsection 303b licensee shall conspicuously display directly packages containing licensed commercial seed sold transferred permitted third party growers customers following notice seeds covered us patents 4940835 5188642 5352605 5530196 5633435 5717084 5728925 5804425 purchase seeds conveys license said patents use seeds license must first obtained monsanto seeds used way b monsanto reserves right amend otherwise specify substitute notice subsection 303a licensee agrees promptly implement use amended substituted notice may specified monsanto time 304 trademark usage agreed roundup readyr trademark another trademark owned monsanto shall licensed licensee nonexclusive basis pursuant roundup readyr trademark agreement parties shall execute said trademark license agreement set forth exhibit c upon execution agreement licensee shall conspicuously display said trademark accompanying logo packages promotional literature containing relating licensed commercial seed occurrence said trademark shall accompanied following footnote roundup readyr registered trademark used license monsanto company b upon notice licensee monsanto substitute another trademark used licensee place monsantoowned trademark use pursuant terms subsection 304a upon notice monsanto licensee shall promptly cease use trademark commence use substitute trademark monsanto shall notify licensee may 1 prior fiscal year substitute trademark first used licensee shall permitted continue use current trademark period time exceed one fiscal year notice exhaust inventory seed packaging materials containing trademark discontinued c event monsanto longer require use roundup readyr trademark gene licensees soybeans licensee shall notified shall terminate use roundup readyr trademark event licensee shall legally permissible permitted continue use current trademark period time exceed one fiscal year notice exhaust inventory seed packaging materials containing trademark discontinued event monsanto terminate roundup readyr trademark agreement permitted therein without cause licensees obligation display said trademark pursuant subsection 304a shall waived 305 licenses license granted agreement monsanto patent rights patent right monsanto knowhow biological materials licensed patent rights implication otherwise make made use sell offer sell import dna genes transgenic glycine max cells glycine max plants glycine max seed produced licensee use monsanto knowhow biological materials b license granted agreement monsanto patent rights patent right monsanto knowhow biological materials licensed patent rights implication otherwise make made use sell offer sell import licensed commercial seed produced direct transformation monsanto knowhow biological materials progeny without prior express written authorization monsanto c license granted agreement monsanto patent rights patent right monsanto knowhow biological materials licensed patent rights implication otherwise make made use sell offer sell import licensed commercial seed contains gene naturallyoccurring soybeans licensed gene results increased tolerance herbicide licensee shall without prior written consent monsanto modify gene ii modify use regulatory sequence contained gene iii insert cross licensed commercial seed nonmonsanto herbicide tolerance gene exhibits inplanta activity exception nonmonsanto herbicide tolerance genes express trait resistance acetolactate synthase als inhibiting herbicide compounds trademarked stsr without prejudice remedy available terms agreement event gene regulatory sequence modified ii gene nonnaturally occurring soybeans sourced party monsanto inserted crossed licensed commercial seed licensee shall defend indemnify hold monsanto employees directors officers agents harmless loss cost liability expense including court costs reasonable fees attorneys professionals incurred claim arising alleged arise licensed commercial seed containing modified gene modified regulatory sequence nonnaturally occurring gene e indemnification subsection 305d shall apply claim monsanto infringement patent owned thirdparty patentee insofar claim arises solely licensees use transgenic soybean germplasm supplied monsanto using transgenic soybean line 403 extent claim specifically alleges patent infringement based claim licensees use transgenic soybean germplasm supplied monsanto using transgenic soybean line 403 infringing upon patent rights third party f license granted licensee monsanto country outside territory g license granted agreement proprietary germplasm monsanto affiliates provided herein 306 herbicide use herbicide tolerance genes licensee directly indirectly uses glyphosate containing herbicide epsp synthase inhibitor herbicide connection soybean crop produced licensed commercial seed herbicide shall roundupr herbicide labeled use roundup readyr soybeans glyphosate epsp synthase inhibitor herbicide may used licensee plants produced licensed commercial seed provision shall limit use herbicides glyphosate soybean plants b licensee agrees commercialize variety licensed commercial seed carries one nonmonsanto herbicide tolerance genes except licensee shall permitted commercialize varieties licensed commercial seed contain trait resistance als inhibiting herbicidal compounds trademarked stsr provided licensee responsible secure rights necessary commercialize said varieties example e du pont de nemours co corporation state delaware principal place business 1007 market street wilmington delaware 19898 licensee may source soybean germplasm contains trait resistance acetolactate synthase als inhibiting herbicidal compounds trademarked stsr available supplier monsanto must approve varieties licensed commercial seed contain trait resistance acetolactate synthase als inhibiting herbicidal compounds defined exhibit e prior commercialization licensee avoidance doubt understood licensee shall comply subsection 306 respect stacked lines 307 product specification promotion licensee shall commercialize germplasmseed produced using monsanto knowhow biological materials planting seed without written authorization monsanto set forth herein b prior marketing new variety licensed commercial seed tolerant glyphosate licensee shall disclose monsanto sufficient field evaluation data variety demonstrate reasonable satisfaction monsanto variety exhibits commercial tolerance acceptable agronomic performance according procedures set forth exhibit e monsanto shall approve disapprove marketing subject variety licensed commercial seed writing within thirty 30 days receipt data pursuant subsection 307 c event monsanto authorized marketing variety licensed commercial seed authorization subject variety shall continue unless subject variety fail exhibit commercial tolerance licensee shall include roundup readyr trademark logo positioning statements taglines reasonably provided monsanto promotional materials licensed commercial seed e event data described subsection 307 previously supplied monsanto authorized licensee soybean varieties containing gene monsanto shall inform licensee upon written request licensee shall supply data previously supplied monsanto 308 licensees marketing responsibilities monsanto licensee shall meet time determine following services shall provided licensee upon written request monsanto licensee shall perform following activities provide skill personnel equipment facilities supplies including may requested monsanto providing grower agreement growers required administer grower agreement form supplied monsanto time responsibilities subsections 308 309 shall performed efficient safe timely manner licensees location accordance reasonable instructions provided monsanto time responsibilities set forth subsections 308 309 may reasonably amended monsanto time b require written agreements distributors authorized licensee resell licensed commercial seed event licensee sells licensed commerical seed directly dealers resale written agreements dealers addendum existing agreements inclusion future agreements distributors dealers carry activities set forth exhibit f licensee shall use commercially reasonable efforts distributors dealers comply requirements obligate distributors require dealers resell licensed commercial seed comply requirements licensee shall permit distributors convey transfer licensed commercial seed third party distribution distributor agreement third party obligating third party terms set forth exhibit f monsanto may reasonably change time c licensee shall obligate distributor dealer licensee sells licensed commercial seed shall obligate distributors obligate dealers resell licensed commercial seed supply copies grower agreement growers behalf monsanto execution grower remit licensee grower agreements dealer distributor shall retain copy grower agreement provide copy grower growers authorized representative designated licensee representative shall forward monsanto third party designated monsanto keep appropriate complete records respect matters covered subsection 308 period least three 3 years date record made licensee shall make records available monsanto information reasonable times shall provide copies thereof requested monsanto without charge e utilize distributors event licensee sells licensed commercial seed directly dealers licensed commercial seed shall require distributors utilize retailers licensed commercial seed entities monsanto notified dpl writing previously breached covenants set forth exhibit f similar covenants monsanto licenses monsanto may inform licensee entities monsanto reasonably believes licensee may considering using breach activities set forth exhibit f event dealer distributor licensed commercial seed breaches pertinent obligations set forth exhibit f involved dealer distributor cure breach within thirty 30 days licensee shall cause distributor case distributors retail dealer election either terminate agreement dealer distributor modify agreement involved dealer distributor longer involved sale licensed commercial seed f handle consultation monsanto complaints regarding performance licensed commercial seed g provide information extent licensee makes sales directly growers regarding volumes licensed commercial seed purchased names addresses purchasers licensed commercial seed ensure grower agreements executed h permit monsanto use names addresses purchasers licensed commercial seed disclosed pursuant subsection 308a direct marketing licensed commercial seed provided however monsanto shall disclose names addresses purchasers licensed commercial seed third party competitor licensee including affiliate monsanto shall take reasonable action use separate personnel handle information personnel directly involved marketing licensed commercial seed monsanto affiliates 309 additional responsibilities licensee shall responsible production packaging distribution sale licensed commercial seed b licensee shall handle initial stages customer inquiries complaints regarding performance licensed commercial seed licensee shall document complaints provide product performance report within thirty 30 days close fiscal year monsanto shall right participate responses farmer complaints sole discretion c licensee shall conduct technical training meetings seed company salaried employees dealers may appropriate discretion training materials provided directly monsanto must approved writing monsanto prior use licensee distributorsdealers licensee shall conduct meetings may provided grower education plan mutually agreed upon monsanto licensee explain growers benefits licensed commercial seed e licensee shall cooperate monsanto implementation marketing programs developed licensed commercial seed monsanto licensee shall also participate monsanto conducting marketing research may include customer surveys targeted growers f licensee shall provide monsanto quarterly reports dates specified monsanto form designated monsanto licensed commercial seed including seed production forecast sales forecast remainder current fiscal year seed production forecast sales forecast upcoming fiscal year report shall specify source germplasm third party supply sales forecast report shall also include forecast actual sales total units maturity group current fiscal year upcoming fiscal year information shall subject section 10 g licensee shall provide monsanto performance data variety licensed commercial seed compared conventional varieties monsanto shall permitted pool data collected licensed commercial seed similar data licensees use pooled data sales promotion provided monsanto shall disclose information obtained licensee relating specifically particular licensee varieties licensed commercial seed without licensees express consent h licensee shall invite monsanto representatives participate annual sales meetings extent participation meetings requested monsanto part communication plan communicate information licensed commercial seed including market positioning grower follow assess licensed commercial seed performance compliance grower agreement licensee shall cooperate monsanto educate growers purchasing licensed commercial seed regarding terms conditions grower agreement licensee shall cooperate educate growers licensed commercial seed used solely planting single commercial crop shall supplied person entity planting growers shall save crop produced licensed commercial seed replanting supply saved seed anyone replanting 310 grower agreement royalty label license monsanto shall license growers purchase licensed commercial seed terms grower agreement shall determined monsanto licensee shall sell transfer allow distributors dealers transfer licensed commercial seed third party planting unless third party licensed monsanto b unless monsanto given notice subsection 310c election license growers purchase licensed commercial seed subject payment grower fee licensee shall pay royalty monsanto net number units replants returns licensed commercial seed transferred growers net number units otherwise transferred third parties use planting seed net number units less number units planted foundation seed research precommercial production blocks 40 acres planted behalf licensee seed multiplication licensee shall price entire line licensed commercial seed either weight basis seed count basis c upon two 2 months written notice licensee later july 1 calendar year effective commencement next fiscal year monsanto shall right license growers purchase licensed commercial seed subject payment grower fee grower fee shall determined monsanto made election growers pay applicable grower fee licensed commercial seed monsanto decide revert back royalty approach contemplated subsection 310b monsanto shall provide licensee three months notice effect later july 1 calendar year effective commencement next fiscal year license granted herein licensee remain full force effect whether royalty approach grower fee approach effect 311 new soybean line monsanto grants licensee license new soybean line used producing soybeans tolerant glyphosate herbicide notifies licensee writing monsantos intention withdraw gene licensee agrees withdraw market licensed commercial seed produced using transgenic soybean line 403 3 years less monsanto shall notify licensee withdraw licensed commercial seed market provided subsection 311 unless monsanto affiliates withdraw extent legally able monsanto requires licensees territory withdraw market seed produced using transgenic soybean line 403 section 4payments reports record retention 401 roundup ready r soybean seed services fees consideration carrying activities set forth section 3 monsanto shall pay licensee roundup readyr soybean seed services fee set forth exhibit g unit royalty grower fee collected remitted provided however purposes calculating roundup readyr soybean seed services fee due licensee applicable royalty grower fee prior offsets rebates set forth subsections 213 214 shall exceed six dollars 600 per unit seed services fees shall due payable licensee units licensed commercial seed transferred growers unless signed grower agreement completed purchase report units returned applicable due date monsanto another party designated monsanto unless extended agreement parties roundup readyr seed services fee shall discontinued payment fiscal year ending august 31 2007 notwithstanding monsanto decides continue provide industrywide roundup readyr soybean seed services fees licensees fiscal years 2008 thereafter monsanto shall offer licensee industrywide terms earn industrywide roundup readyr soybean seed service fees sales licensed commercial seed 402 royalty notification within ten 10 days effective date year 2001 march 1 year thereafter monsanto shall notify licensee plans royalty grower fee subsequent fiscal year eg march 2002 2003 fiscal year notice subsection 402a shall obligate monsanto charge royalty grower fee b within ten 10 days effective date year 2001 july 1 year thereafter monsanto shall notify licensee amount royalty grower fee subsequent crop year royalty grower fee included notice given pursuant subsection 402b shall effective subsequent fiscal year shall continue effective future fiscal years thereafter notice given pursuant subsection 402b changes royalty grower fee future year 403 reports payments licensee shall submit monsanto four periodic reports fiscal year format specified monsanto report summarizes royalties grower fees transfers sales licensed commercial seed distributors event dpl sells licensed commercial seed dealers prior period subject fiscal year total net number units licensed commercial seed sold licensee shall submitted quarterly specified monsanto reports shall contain specific information licensed commercial seed sold previous period reasonably determined monsanto additionally first report every fiscal year shall include information whether licensee pricing licensed commercial seed weight basis seed count basis licensee shall submit monsanto final report september 15th immediately preceding fiscal year summarizes royalties grower fees transfers sales licensed commercial seed distributors event dpl sells licensed commercial seed dealers minus units wholesaled licensed third party seed companies last quarter fiscal year entire fiscal year including information purchaser total number units licensed commercial seed sold licensee less returns offset licensed commercial seed sold replant acres approved writing monsanto b later september 25 licensee shall remit monsanto royalties grower fees royalty grower fee remitted september 25th shall include total royalty grower fee immediately preceding fiscal year payment due monsanto subject reporting period written report shall state 404 records retention licensee shall keep records showing amount licensed commercial seed sold otherwise transferred third parties licensee agrees permit books records examined time extent necessary verify reports provided subsection 403 confidential examination made monsantos discretion either precision ag services inc ii independent auditing firm appointed expense monsanto firm shall reasonably acceptable licensee information disclosed audit shall considered confidential information subject section 10 records shall kept examination thereof shall limited period time three 3 fiscal years immediately preceding request examination 405 payment seed services fees monsanto within fortyfive days monsantos receipt royalty grower fee set forth subsection 403 monsanto shall pay licensee roundup readyr soybean seed services fee pursuant subsection 401 406 methods payment monsanto hereunder shall either made wire transfer monsantos account citibank na 399 park avenue new york ny 10043 aba 021000089 account number 30424808 account name monsanto agriculture main another account united states monsanto may subsequently designate time notice licensee shall provide written notice wire transfer monsanto ii made check sent mail monsanto company po box 14247 st louis missouri 631504247 another location united states monsanto may subsequently designate time notice licensee iii made check sent reputable courier service bank america formerly nationsbank 4th floor lockbox area 14247 800 market street st louis mo 63101 another location united states monsanto may subsequently designate time notice licensee b payment licensee hereunder shall either made wire transfer licensees account bank america charlotte north carolina 28255 aba 053000196 account number 0653234203 account name delta pine land company another account united states licensee may subsequently designate time notice monsanto shall provide written notice wire transfer licensee ii made check sent delta pine land company 100 main street scott ms 38772 another location united states licensee may subsequently designate time notice monsanto 407 late payments except set forth subsection 403a licensee monsanto fails pay due date amount payable agreement either monsanto licensee respectively without prejudice subsections agreement amount shall bear interest compounded quarterly due date payment made full judgment annual rate four 4 percentage points prime interest rate offered citibank day payment due paid provided however rate longer subject ascertained monsanto may written notice licensee designate reasonably equivalent interest rate 408 nonmonetary consideration sales licensee shall accept solicit nonmonetary consideration sale licensed commercial seed section 5cooperation parties 501 development information time period agreement licensee shall keep monsanto reasonably informed development work carried licensee respect licensed commercial seed 502 monsanto field evaluations time period agreement licensee shall permit properly qualified authorized representatives monsanto reasonable access field evaluation new varieties licensed commercial seed personnel involved development new varieties licensed commercial seed sole purpose verifying licensee compliance provisions agreement 503 confidentiality disclosures made pursuant preceding provisions section 5 shall subject confidentiality provisions section 10 504 contact points promptly effective date monsanto licensee shall nominate individual principal point contact parties purposes cooperation undertaken pursuant section 5 section 6regulatory approval product performance product quality 601 regulatory approvals decision seek regulatory approval use gene licensed commercial seed shall made monsanto b monsanto sole judgment shall seek regulatory approval use gene licensed commercial seed monsanto shall sole responsibility seeking necessary andor appropriate regulatory approvals andor product registrations licensed commercial seed costs securing approvals andor registrations shall borne solely monsanto c licensee shall solely responsible registration licensed commercial seed territory varietal registration required 602 product quality licensee shall sell licensed commercial seed unless meets quality control standards provided exhibit e may reasonably modified time monsanto provided monsanto shall simultaneously make modification quality control standards applicable monsanto affiliates extent highly permissible quality control standards applicable licensees gene territory monsanto shall provide licensee commercially reasonable notice modifications prior modifications becoming effective licensee shall maintain testing records lot licensed commercial seed period three 3 years final sale seed lot licensed commercial seed licensee shall retain samples licensed commercial seed compliance federal state laws regulations test results inspection records quality assurance quality control documentation shall available monsanto upon request monsanto shall right audit licensees quality control program take test subsamples samples retained licensee b monsanto shall make information materials available monsanto possession legally able transfer licensee ii monsantos judgment reasonably needed licensee confirm licensed commercial seed plans sell meet quality control standards set forth exhibit e information andor materials shall provided licensee price higher price monsanto makes information andor materials available licensees monsantos roundup readyr technology use soybeans section 7patents 701 patent procurement monsanto shall exclusive right apply seek issuance maintain abandon monsanto patent rights 702 patent enforcement licensee shall give prompt notice monsanto infringement claim infringement monsanto patent rights licensed patent rights within subject matter agreement may come attention b monsanto shall exclusive right obligation institute conduct legal action third party infringers monsanto patent rights enter settlement agreements may deemed appropriate monsanto shall receive full benefits action takes pursuant subsection 702b c licensee shall cooperate monsanto commercially reasonable efforts control growersaved seed embodying gene protect intellectual property rights roundup readyr soybean products licensee obtained obtains license monsanto cooperation shall include without limitation providing information regarding whether suspected infringer customer licensee subject licensed commercial seed joining monsanto suit suspected infringer cases determined licensee appropriate actions licensee may assert rights plant variety protection act suspected infringer assist abatement sales grower saved seed 703 monsanto ownership monsanto knowhow genes monsanto patent rights shall remain property monsanto 704 licensed patent rights licensed patent rights shall remain property respective owner effective date agreement 705 licensee ownership licensee knowhow licensee germplasm shall remain property licensee 706 grantback licensee agrees grant hereby grants monsanto options nonexclusive royaltybearing licenses territory use soybeans right grant sublicenses seed company licensees growercustomers patent territory owned licensee licensed right grant sublicenses absence license licensee would infringed production use sale licensed commercial seed territory b licensee agrees grant hereby grants monsanto options nonexclusive royaltyfree licenses territory use soybeans right sublicense seed company licensees growercustomers improvement term improvement used subsection means invention discovery made licensee course activities agreement territory invention discovery made direct result licensees use monsanto technology improvement shall include specific soybean varieties cultivars c licenses shall terms conditions deemed commercially reasonable customary field agricultural biotechnology licensee shall required provide monsanto biological material terms license options licenses shall terminate upon later expiration date agreement ii date five 5 years earlier termination agreement licenses resulting exercises option shall life subject patent rights subject earlier termination accordance terms nonbreaching party event material breach opposite party options subsection 706 exercised monsanto time term option written notice exercise licensee e upon notice exercise option subsection 706 monsanto licensee shall negotiate good faith terms license despite good faith negotiations monsanto licensee cannot reach agreement terms license determination license terms dispute shall submitted arbitration pursuant provisions set forth appendix g requested either monsanto licensee section 8warranties liabilities 801 representations warranties monsanto represents warrants owner licensee monsanto patent rights licensed patent rights extent required grant rights contained herein b previously granted grant third party term agreement rights licenses monsanto patent rights licensed patent rights conflict rights granted licensee herein 802 warranties except express warranties subsection 801 monsanto makes representations warranties express implied either fact operation law regarding monsanto patent rights licensed patent rights monsanto knowhow biological materials including without limitation validity scope monsanto patent rights licensed patent rights b licensed commercial seed biological materials including without limitation performance merchantability fitness particular purpose noninfringement licensed commercial seed biological material third party property rights 803 product performance claims monsanto licensee recognize satisfactory handling claims product performance paramount importance success sales licensed commercial seed accordingly parties shall cooperate handling resolution claims follows party receives complaint regarding licensed commercial seed use roundupr herbicide licensed commercial seed shall immediately inform party b parties shall make preliminary investigation determination whether complaint result licensed commercial seed eg quality performance gene express representation warranty made dpl ii rounduprherbicide eg quality application andor gene eg quality performance express representation warranty made monsanto iii unknown causes c complaint wholly due causes described subsection 803bi responsibility handling complaint shall dpls dpl shall keep monsanto reasonably apprised handling complaint shall defend indemnify hold monsanto harmless loss cost liability including court costs reasonable fees attorneys professionals incurred claim growers purchase licensed commercial seed distributors growers may make claims complaint wholly due causes described subsections 803bii responsibility handling complaint shall monsantos monsanto shall keep dpl reasonably apprised handling complaint shall defend indemnify hold dpl harmless loss cost liability including court costs reasonable fees attorneys professionals incurred claim growers purchase licensed commercial seed distributors growers may make claims e course responding handling complaint neither party shall disparage party partys product 804 indemnification except extent caused breach monsanto warranties subsection 801 licensee shall defend indemnify hold monsanto employees directors officers agents harmless loss cost liability expense including court costs reasonable fees attorneys professionals incurred claim arising alleged arise manufacture use distribution sale licensed commercial seed licensee provided however licensee shall sole control defense ii monsanto shall provide notice promptly licensee actual threatened claim monsanto becomes aware shall cooperate reasonably requested defense claim b indemnification subsection 804a shall apply claim monsanto infringement patent owned thirdparty patentee insofar claim arises licensees use transgenic soybean germplasm supplied monsanto using transgenic soybean line 403 extent claim specifically alleges patent infringement based claim licensees use transgenic soybean germplasm supplied monsanto using transgenic soybean line 403 infringing upon patent rights third party 805 limited liability neither party shall liable loss profits loss business interruption business indirect special consequential damages kind suffered party breach hereof whether based contract tort claims otherwise even party advised possibility loss section 9term termination 901 term agreement shall begin effective date agreement shall end december 31 2012 subject provisions section 9 subsection 1106 agreement nonterminable either party 902 termination agreement breach either party ie monsanto licensee may terminate agreement upon least thirty 30 days written notice party commit material breach obligations default provisions agreement party breach failed cure breach default within thirty 30 day notice period ii breach default cannot cured within thirty 30 day period party breach taken reasonable steps cure breach default breach default cured within thirty 30 day period party breach shall notify nonbreaching party steps taken toward curing default breach plans totally cure default breach soon reasonably possible party breach fails provide notice nonbreaching party shall free terminate immediate effect notice party breach b notwithstanding partys right terminate agreement result noncured material breach party nonbreaching party shall prevented seeking remedy may available equity including specific performance part party breach 903 insolvency either party ie monsanto licensee may terminate agreement time party makes assignment benefit creditors admits writing inability generally pay generally paying debts become due b decree order relief entered party bankruptcy reorganization compromise arrangement insolvency readjustment debt dissolution liquidation similar law c party petitions applies tribunal consents appointment taking possession trustee receiver custodian liquidator similar official party substantial part assets commences voluntary case bankruptcy law jurisdiction petition application filed proceedings commenced party act indicates approval thereof consent thereto acquiescence therein order judgment decree entered appointing trustee receiver custodian liquidator similar official approving petition proceedings order relief order judgment decree remains unstayed effect sixty 60 days e order judgment decree entered proceedings party decreeing dissolution party order judgment decree remains unstayed effect sixty 60 days 904 regulatory approval public acceptability monsanto shall right terminate agreement giving thirty 30 days written notice licensee monsantos reasonable business judgment requirements attain maintain regulatory approval public acceptance territory necessary countries prohibitive provided monsanto shall terminate agreement subsection 904 unless monsanto simultaneously terminates sales territory roundup readyr soybean seed monsanto affiliates extent legally possible terminates licenses third parties produce sell roundup readyr soybean seed territory event monsanto affiliates thereafter produce sell roundup readyr soybean seed territory andor enters new license authorizing third party monsanto shall offer license licensee substantially terms set forth agreement 905 lack sales monsanto shall right terminate agreement giving thirty 30 days written notice licensee fails two 2 consecutive fiscal years sell report least one thousand 1000 units licensed commercial seed 906 licensee shall right terminate agreement without cause giving ninety 90 days written notice monsanto time 907 effects terminationsurvival expiration termination agreement shall relieve parties obligation accruing prior upon expiration termination accordingly subsections 706 803 804 section 10 shall survive expiration termination agreement licensee shall relieved payment obligation may accrued prior expiration termination b upon early termination agreement licensee shall except case breach licensee termination subsection 904 entitled sell period twelve 12 months remaining inventories licensed commercial seed date licensee receives notice termination already possession licensee obligated contract take delivery sales shall accordance agreement parties shall continue obligated make applicable payments hereunder thereafter remaining licensed commercial seed materials information relating provided monsanto shall destroyed shall returned respectively destruction shall certified monsanto representative licensee section 10confidentiality 1001 confidential information anticipated necessary connection obligations agreement licensee monsanto disclose confidential information purposes agreement confidential information shall mean proprietary information including without limitation information related technical business intellectual property matters knowhow data intellectual property trade secrets germplasm biological physical materials including limited biological materials owned held either party agreement future disclosed either party connection agreement confidential information shall include proprietary information disclosed writing tangible form including samples materials disclosed orally confidential information shall summarized written form within thirty 30 days disclosing party copy provided recipient 1002 confidentiality limited use respect confidential information licensee monsanto agree follows understood recipient indicates party receiving confidential proprietary information disclosing party confidential information provided disclosed recipient shall remain property disclosing party shall maintained confidence recipient shall provided disclosed third parties recipient shall used except purposes contemplated agreement confidentiality limited use obligations respect confidential information shall terminate ten 10 years termination date agreement b notwithstanding provision contrary party may disclose confidential information party connection order court government body otherwise required compliance law regulations governmental body exchange market partys securities traded provided disclosing party provides party notice takes reasonable measures obtain confidential treatment thereof ii confidence recipients attorneys accountants banks financial sources advisors iii confidence connection sale proposed sale substantially business assets agreement relates long case entity disclosure made bound confidentiality terms consistent set forth herein 1003 exceptions obligations confidentiality limited use shall apply confidential information publicly available publication documented means later becomes likewise publicly available act fault recipient b already known recipient receipt disclosing party demonstrated recipients written records c made known recipient third party obtain directly indirectly disclosing party obligate recipient hold confidence independently developed recipient evidenced credible written research records recipients employees agents access disclosing partys confidential information specific information deemed within exclusions merely embraced general information falling within exclusions exceptions set forth subsection 1003 apply confidential information form germplasm biological physical materials 1004 disclosures personnel recipient agrees advise officers directors employees associates agents consultants affiliates become aware confidential information confidentiality limited use obligations agrees prior disclosure confidential information individuals entities make bound obligations confidentiality limited use stringency contained agreement 1005 return confidential information upon termination agreement originals copies confidential information written tangible form germplasm biological physical materials shall returned disclosing party recipient destroyed recipient provided shall require delivery destruction licensed commercial seed account incorporation therein gene monsanto knowhow biological materials one copy document may retained custody recipients legal counsel solely provide record disclosures made 1006 confidential status agreement terms agreement shall deemed confidential information shall dealt according confidentiality requirements section 10 except extent may required law regulation governmental body exchange market partys securities traded may appropriate prosecute defend claim pertaining agreement court arbitration proceeding neither party make public disclosures concerning terms agreement without obtaining prior written consent party consent shall unreasonably withheld b except provided section 1006 licensee shall disclose third party information concerning financial terms including limited royalty roundup readyr seed services fees understood monsanto right disclose general information royalties section 11miscellaneous 1101 notices notice communication required permitted given either party agreement shall given writing shall effective delivered hand reputable courier service five days mailing mailed registered certified mail postage prepaid return receipt requested addressed party following addresses address may designated notice pursuant subsection 1101 monsanto company 700 chesterfield pkwy north st louis missouri 63017 attention steve joehl director soybean licensing copy monsanto company 700 chesterfield pkwy north st louis missouri 63017 attention dennis r hoerner intellectual property counsel licensee delta pine land company 100 main street scott ms 38772 attention steve hawkins president copy lake tindall llp 127 south poplar street greenville mississippi 38701 attention jerome c hafter general counsel 1102 provisions contrary law performing agreement parties shall comply applicable laws regulations nothing agreement shall construed require violation law wherever conflict provisions agreement law shall prevail event affected provision agreement shall affected extent necessary bring within applicable law 1103 force majeure neither parties shall liable default delay performance obligation agreement caused following act god war riot fire explosion accident flood sabotage compliance governmental requests laws regulations orders actions national defense requirements event beyond reasonable control party labor trouble strike lockout injunction provided neither parties shall required settle labor dispute best judgment b party invoking subsection 1103 shall give party written notice full particulars force majeure event c monsanto licensee shall use reasonable efforts mitigate effects force majeure respective part 1104 relationship parties relationship monsanto licensee strictly one licensor licensee parties acknowledge agreement create joint venture partnership like various obligations imposed monsanto undertaken licensee agreement respect marketing promotion etc provided means permitting monsanto exercise control connection use monsanto trademarks licensed herein licensee shall always remain independent contractor performance agreement distributors dealers acquiring licensed commercial seed licensee shall always remain independent contractors considered agents either monsanto licensee provisions agreement shall construed authorizing reserving monsanto right exercise control direction operations activities officers employees agents licensee dealerdistributors acquiring licensed commercial seed licensee understood agreed entire control direction operations activities officers employees agents shall remain licensee neither party agreement shall authority employ person employee agent behalf party agreement purpose neither party agreement person performing duties engaging work request party shall deemed employee agent party agreement addition licensee dealerdistributors acquiring licensed commercial seed licensee shall act purport act commercial agent monsanto hereunder capacity implementation grower agreement 1105 use names monsanto may use licensees name promotional material identify licensee licensed produce sell licensed commercial seed provided use licensees name shall include statements comparing performance licensees products licensees based confidential information disclosed licensee 1106 assignabilitysuccessionchange control rights acquired herein licensee assignable transferable whole part assignment operation law otherwise third party event change control licensee shall promptly notify monsanto change control monsanto shall permitted terminate agreement subject provisions subsection 906 purposes subsection 1106 change control means change direct indirect power direct cause direction management policies licensee sale substantially germplasm assets licensee relate production licensed commercial seed b monsanto shall right assign agreement connection reorganization consolidation spinoff sale transfer substantially stock assets related portion business pertaining subject matter agreement either alone conjunction monsanto businesses part overall sale reorganization monsanto addition monsanto shall right assign respective rights obligations delegate performance hereunder whole part affiliates either event assignee shall agree writing bound terms agreement monsanto shall thereafter released obligations hereunder 1107 entire agreement amendments waiver agreement constitutes full understanding parties complete allocation risks complete exclusive statement terms conditions agreement relating subject matter hereof supersedes prior agreements whether written oral may exist parties respect thereto except otherwise specifically provided agreement conditions usage trade course dealing performance understanding agreement purporting modify vary explain supplement terms conditions agreement shall binding unless hereafter made writing signed party bound modification shall effected acknowledgment acceptance documents containing terms conditions variance addition set forth agreement waiver party respect breach default right remedy course dealing performance shall deemed constitute continuing waiver breach default right remedy unless waiver expressed writing signed party bound failure party exercise right shall deemed waiver right rights future 1108 choice law submission jurisdiction intention parties hereto questions respect construction agreement rights liabilities parties hereto shall determined accordance laws state delaware applicable business arrangements entered performed entirely within state delaware parties hereto irrevocably submit exclusive personal jurisdiction state federal court state missouri suit action legal proceeding relating agreement b agree claims respect suit action legal proceeding may heard determined enforced court c waive objection may hereafter venue court inconvenient forum 1109 export control notwithstanding provisions agreement licensee agrees make disclosure use monsanto knowhow confidential information monsanto furnished made known licensee pursuant agreement except compliance laws regulations united states america including export administration regulations promulgated office export administration international trade administration united states department commerce particular licensee agrees export directly indirectly either technical data furnished made known licensee pursuant agreement ii direct product thereof iii commodity produced using technical data country countries validated license required unless validated license first obtained pursuant export administration regulations term direct product used defined mean immediate product including process services produced directly use technical data 1110 meet confer intention parties event dispute arises agreement parties shall first meet confer one another attempt negotiate resolution dispute without recourse litigation 1111 remedies except otherwise expressly stated agreement rights remedies party set forth herein respect failure comply terms agreement including without limitation rights full termination agreement exclusive exercise thereof shall constitute election remedies aggrieved party shall events entitled seek whatever additional remedies may available law equity 1112 fees except otherwise provided herein party shall bear legal fees incurred connection transactions contemplated hereby provided however party agreement seeks enforce rights agreement legal proceedings nonprevailing party shall pay reasonable costs expenses incurred prevailing party including without limitation reasonable attorneys fees determined tribunal proceedings pending 1113 headings herein convenience reference shall way affect interpretation agreement 1114 counterparts agreement may executed number counterparts effect parties signed document counterparts shall deemed original shall construed together shall constitute one instrument 1115 appendices appended appendices form integral part agreement 1116 termination prior agreement prior agreement referenced subsection 106 terminated effective date replaced corresponding provisions agreement amounts due prior agreement obligations liabilities result activities occurred effective date shall survive termination terms conditions designated surviving termination prior agreement shall also survive termination witness whereof parties hereto executed agreement monsanto company delta pine land company title director soybean licensing title date exhibit monsanto patent rights us patent application serial 06879814 filed july 7 1986 us patent 4940835 us patent application serial 08146621 filed october 28 1993 us patent 5352605 us patent application serial 08300029 filed september 2 1994 us patent 5530196 us patent application serial 07395155 filed august 17 1989 us patent 5164316 us patent application serial 07682049 filed april 8 1991 us patent 5196525 us patent application serial 07977600 filed november 17 1992 us patent 5322938 us patent application serial 08209752 filed march 9 1994 us patent 5359142 us patent application serial 08272900 filed july 11 1994 us patent 5424200 us patent application serial 08306063 filed september 13 1994 us patent 5633435 us patent application serial 07478794 filed february 12 1990 us patent 5188642 us patent application serial 833485 filed april 7 1997 us patent 5804425 exhibit b licensed patent rights us patent 4769061 issued september 6 1988 us patent 5094945 issued march 10 1992 us patent 5717084 issued february 10 1998 us patent 5728925 issued march 17 1998 exhibit c trademark license agreement made effective date roundup readyr soybean license seed services agreement exhibit monsanto company organized existing laws state delaware principal place business 800 north lindbergh boulevard st louis missouri 63167 hereinafter referred monsanto delta pine land company place business 100 main street scott ms 38772 hereinafter referred licensee witnesseth whereas monsanto owner roundup readyrtrademark us registered april 11 1995 reg 1889104 herbicidetolerant genes use production agricultural seed hereinafter trademark whereas licensee desires obtain license use trademark connection sale soybean seed containing herbicide tolerance genes supplied monsanto hereinafter goods sale governed roundup readyr soybean license seed services agreement parties even date herewith hereinafter license agreement therefore consideration mutual undertakings obligations herein contained parties agree follows 1 monsanto hereby grants licensee subject terms conditions herein contained nonexclusive royaltyfree license use trademark relation goods 2 licensee agrees use trademark goods packages goods produced packaged licensee strict compliance standards directions set forth license agreement agrees use trademark connection goods meet exceed monsantos standards order quality control assured licensee agrees obtain monsanto glyphosate tolerance genes used producing soybean seed designated trademark licensee agrees use trademark brand name trademark connection packaging promotion goods trademark provided however licensee may use previously established house mark company name andor trade dress licensee may use stsr trademark logo connection goods containing trait approved monsanto provided subsection 306b license agreement 3 monsanto shall right reasonable times inspect examine precision ag services inc third party auditors selected monsanto reasonably acceptable licensee approved licensee monsantos personnel methods processes containers materials used licensee producing goods licensee uses trademark request samples goods materials licensee agrees permit inspections examinations furnish samples information disclosed inspections examinations shall considered confidential information shall subject section 10 license agreement 4 licensee shall right refer trademark advertising promotional literature like well labels products sold trademark licensee agrees label advertisement piece material bearing mark shall conspicuously displayed shall keyed r footnote reading roundup readyr registered trademark used license monsanto company licensee agrees labels advertising materials trademark used supplied licensee monsanto must prior approval monsanto licensee agrees submit samples labels etc monsanto prior use 5 licensee acknowledges monsantos exclusive ownership right title interest trademark agrees licensees use trademark shall inure benefit monsanto licensee agrees way dispute impugn attack validity said trademark monsantos rights thereto 6 term agreement shall term set forth section 9 license agreement provided licensee may continue use trademark terms agreement connection sale licensed commercial seed permitted termination license agreement 7 time licensee use trademark goods produced accordance standards directions laid monsanto goods meeting quality standards set forth license agreement time licensee breaches provision agreement fails observe obligations hereunder license granted herein shall terminate thirty 30 days receipt written notice monsanto effect provided licensee cured breach default reasonable satisfaction monsanto taken commercially reasonable measures prevent repeated breaches future end said thirty 30 day period 8 agreement assignable otherwise transferable licensee operation law otherwise entity 9 licensee agrees notify monsanto immediately apparent infringement trademark monsanto shall take action regarding infringement deems sole discretion necessary desirable licensee agrees cooperate therein 10 monsanto maintain trademark registration 11 event licensee provide notice monsanto received written notice use trademark alleged infringe upon trademark right third party monsanto shall obligated either provide written waiver obligation use trademark pursuant provisions subsection 304 provide acceptable substitute ii assume defense indemnify hold harmless licensee monetary damages arising infringement thirdparty trademark rights insofar infringement claim arises solely licensees use trademark licensed hereunder witness whereof parties caused agreement executed duplicate duly authorized representatives effective date referred monsanto company delta pine land company licensee title director soybean licensing title exhibit reserved future use exhibit e variety performance quality assurance criteria variety performance yield varieties must yield commercially acceptable level commercially acceptable yields defined 97 average three commercial varieties selected agreed upon monsanto licensee included yield study licensee must submit monsanto data least eight yield trials conducted two year period time commercial candidates varieties must yield least 97 average three commercial varieties average yield calculated using mean yield trial eight trials conducted data must submitted variety may approved release specific geography least eight trials conducted data trials supports release geography evaluation conducted soon practical variety identified commercial candidate variety later year prior commercialization commercial candidate varieties may utilize performance data submitted licensee variety entity submitted sufficient data monsanto varieties licensed commercial seed containing gene trait resistance acetolactate synthase als inhibiting herbicidal compounds stsr commercial tolerance must demonstrated presence tank mix treatments include roundup ultramax rate 15 lb acid equivalent glyphosate per acre equal 52 ozacre roundupr ultramax herbicide plus labeled rates sulfonylurea herbicide compounds specified ei du pont de nemours co verification tolerance roundupr herbicide varieties meet described yield criteria must also demonstrate commercial tolerance roundupr herbicide commercial tolerance defined significant differences yield 95 confidence level spray applications field conditions roundupr ultramax herbicide another glyphosate herbicide specified monsanto rate 15 lbacre equivalent glyphosate acid equal 52 ozacre roundupr ultramax herbicide tolerance must verified small plots replicated minimum three times experiments conducted least three locations area adaptation variety evaluation conducted soon practical variety identified commercial candidate later year prior commercialization protocol utilized trials must approved writing monsanto monsantos sole discretion may require data demonstrating commercial tolerance acceptable yield performance independent seed testing research entity reasonably acceptable monsanto quality assurance criteria agronomic field inspection seed purity multiplications licensed commercial seed must meet genetic purity standards defined crop improvement association field inspection standards production acres licensed commercial seed shall inspected least twice growing season production acres licensed commercial seed must treated roundupr ultramax herbicide another glyphosate herbicide specified monsanto application made v1 v3 growth stage minimum rate 056 lb acid equivalent glyphosate per acre equal 20 ounces roundupr ultramax herbicide v4 v6 growth stage minimum 075 lb acid equivalent glyphosate per acre equal 26 ounces roundupr ultramax herbicide single application insure purity licensed commercial seed quality assurance programs state crop improvement association programs must prior written approval monsanto seed production fields licensed commercial seed must inspected state crop improvement association inspector trainedqualified third party inspectors trainedqualified company inspector approximately 7 17 days spraying roundupr herbicide determine percent licensed commercial seed exhibiting tolerance roundupr herbicide second inspection shall made r7 r8 growth stage least one pod reached mature pod color 95 pods reached mature pod color determine variety pubescence color genetic purity random check shall made one per 10 acres anything 100 acres one per 20 acres least 100 plants shall examined per check average reported least 98 plants field must express complete tolerance roundupr herbicide treatment monsanto shall access requested field inspection information period two years including year production terms shall communicated writing seed multiplication growers condition contract production seed multiplication contracts roundup ready soybean seed multiplication third party growers shall done written seed multiplication contracts shall contain provisions include quality assurance criteria met confirmation presence correct gene seed lots every seed lot licensed commercial seed must sample taken presence gene verified verification shall conducted independent seed testing laboratory seed companys testing laboratory prior written approval monsanto obtained testing shall conducted using commercially reasonable procedures supplied approved monsanto writing gene must confirmed lots licensed commercial seed 99 higher level costs cost associated quality program shall borne licensee shall maintain testing records lot licensed commercial seed period three years final selling licensed commercial seed licensee shall also retain two 2 pound larger sample lot licensed commercial seed one year sale licensed commercial seed growers test results shall available monsanto upon request records audit licensee shall maintain testing records lot licensed commercial seed period three 3 years final sale seed lot licensed commercial seed licensee shall also retain two 2 pound larger sample licensed commercial seed lot one 1 year last sale seed lot licensed commercial seed breeding records pedigrees test results inspection records quality assurance quality control documentation shall available audit upon request monsanto shall right audit licensees quality control program precision ag services inc third party auditors selected monsanto reasonably acceptable licensee approved licensee monsantos personnel monsanto shall permitted test subsamples samples retained licensee information disclosed audits shall considered confidential information shall subject section 10 license agreement exhibit f roundup readyr soybean dealerdistributor obligations licensee roundup readyr soybeans sold retail level farmers signed roundup readyr soybean grower agreement licensee roundup readyr soybeans sold licensee distributors dealers resold distributors dealers agree return roundup readyr soybean grower agreement purchase reports outlined roundup readyr soybean grower agreement prior purchase must signed grower forms provided monsanto orderinvoice forms provided licensee executed roundup readyr soybean grower agreement forwarded licensee distributors dealers provided licensee agreements distributors purchase report dealer must fill farmer name address phone number variety number units purchased return monsanto purchase reports forwarded monsanto distributors contract licensee dealers licensee later september 15 frequency noticed licensee grower signed roundup readyr soybean grower agreement dealer must give grower copy send one licensee distributors dealers shall knowingly sell licensed commercial seed third party resale without prior written approval licensee approval sale licensed commercial seed third party licensee monsanto resale shall require third party licensee monsanto compliance obligations roundup readyr soybean license agreement monsanto shall confirm written request licensee whether third party licensee monsanto compliance obligations exhibit g schedule seed services fees roundup readyr soybean seed services fees based upon units licensed commercial seed sold licensee distributors dealers resale growers signed roundup readyr soybean grower agreement sales reported monsanto designated agent format approved monsanto order qualify roundup readyr soybean seed services fees licensee shall submit timely quarterly sales reports ii remit timely payment royalties grower fees sales respect roundup readyr soybean seed service fees paid iii submit timely grower purchase reports direct sales growers andor sales licensees distributors including applicable grower name address monsanto grower license number units seed purchased submission report payment shall deemed timely received monsanto date due ten days following notice monsanto report payment received due date roundup readyr soybean seed services fee shall equal 10 netroyalty net grower fee received monsanto units licensed commercial seed sold licensee provided licensee met following requirements licensee includes trademarks logos positioning statements taglines supplied monsanto weed control system including roundup readyr soybeans roundupr herbicide brands specified monsanto seed catalogs promotional materials licensed commercial seed ii licensee carries education programs approved monsanto dealers distributors roundup readyr promotion offered monsanto iii glyphosatebased epsp synthase inhibitor herbicide licensee promotes along licensed commercial seed andor brand soybeans contains gene roundupr herbicide purposes schedule term promote shall include activities relating endorsement use glyphosate herbicide including limited advertising recommending farmers andor customers use glyphosate herbicide licensed commercial seed bundling licensed commercial seed herbicide product marketing activity directed increasing sales herbicide product use licensed commercial seed roundup readyr soybean seed services fees paid units royalty grower fee waived reimbursed otherwise retained monsanto process payment roundup readyr soybean seed services fees determined monsanto communicated annually exhibit h arbitration event monsanto licensee reach agreement concerning reasonable license terms including royalty pursuant subsection 706 determination license dispute shall made accordance commercial arbitration rules american arbitration association except herein modified composition arbitration panel arbitration panel shall include three 3 members appointed provided exhibit h members arbitration panel shall personal financial interest direct indirect monsanto licensee outcome deliberations provided shall constitute violation provision member panel publicly traded common stock one parties affiliates valued 10000 less b arbitration procedure upon notice either monsanto licensee services arbitration panel required provisions agreement arbitration panel shall formed described herein meet conduct arbitration chicago illinois time place selected majority vote arbitration panel upon input parties arbitration panel constituted shall conduct arbitration accordance rules hereinafter set forth except rules may modified purpose arbitration written consent monsanto licensee arbitrators shall consider pertinent evidence presented parties connection determination reasonable terms subject license including reasonable royalty terms subject technology 1 party desiring arbitration claimant shall notify party respondent written notice arbitration notice arbitration notice shall contain written statement claimants position subject matter arbitration notice shall transmitted overnight courier service transmitted facsimile means electronic data transmission shall confirmed overnight courier service 2 party shall appoint one person hear determine dispute within ten 10 days receipt arbitration notice claimant two persons chosen shall select third impartial arbitrator majority decision shall final conclusive upon parties arbitrators shall partners nationallyrecognized patent law firm experienced licensing technology agricultural biotechnology either party fails designate arbitrator within 20 days arbitration notice received arbitrator designated one party shall act sole arbitrator shall deemed single mutuallyapproved arbitrator resolve controversy arbitrators shall compensated services average normal hourly billing rate 3 claimant respondent substantial need discovery order prepare arbitration hearing parties shall attempt good faith agree minimum plan strictly necessary expeditious discovery parties fail reach agreement discovery shall allowed pursuant federal rules civil procedure arbitrators determine appropriate circumstances 4 request either party protect confidential information matter either party would normally reveal third parties arbitrators shall enter protective order form parties shall stipulate arbitrators shall determine suitable among things protective order shall stipulate arbitrators shall receive information designated confidential solely purposes assessing facts purposes making determination reasonable royalty shall otherwise use disclose information either event order shall entered award request either party shall enable either party obtain assistance court competent jurisdiction issue equitable orders enforce modify provisions protective order issued court 5 within thirty 30 days receipt arbitration notice respondent shall send claimant arbitration panel overnight courier service written statement respondent position subject matter arbitration 6 arbitration panel shall convene hearing purpose rendering decision sixtieth 60th day following receipt arbitration notice respondent close permitted discovery whichever date later hearing shall attended arbitrators representatives claimant respondent one person shall chosen claimant respondent speak hearing claimant respondent shall three 3 hours make oral presentation arbitration panel claimant shall make presentation first may reserve portion three 3 hours purpose rebuttal following respondents presentation oral presentation claimant respondent parties shall respond questions arbitrators hearing shall continue make available purpose arbitrators retired purpose deliberation decision arbitration panel shall made later five 5 days following hearing shall immediately transmitted claimant respondent facsimile means electronic data transmission confirmed overnight courier service 7 respondent fails submit written statement referred paragraph 5 hereinabove within time period required hereby either claimant respondent fails appear hearing referred paragraph 6 arbitration panel shall nevertheless proceed arbitration basis material submitted claimant oral presentation party attending hearing 8 written statements evidence submitted arbitrators pursuant paragraphs 1 5 oral presentations made supplemental written statement based information obtained permitted discovery submitted hearing pursuant paragraph 6 shall considered arbitration panel making decision arbitration panel shall determine authenticity materiality relevance evidence proffered weight accorded thereto shall bound rules governing admissibility evidence 9 arbitration panel may permit party submit additional written material relating subject matter arbitration written submissions pursuant paragraphs 1 5 8 hereof without consent claimant respondent 10 rulings determinations arbitration panel shall majority arbitrators shall issue detailed reasoned written decision respect determination reasonable royalty material terms subject technology determination arbitration panel shall final binding upon parties judgment thereon may entered court jurisdiction thereof provided however either party shall right within ten 10 days file arbitrators motion reconsider arbitrators thereupon shall reconsider issues raised said motion either confirm change majority decision shall final conclusive upon parties hereto costs motion reconsideration written opinion arbitrators shall borne moving party 11 party shall bear expenses connection preparation presentation case arbitration costs arbitration shall prorated parties based upon positions respective parties initiation arbitration hearing outcome arbitration example licensees offer end negotiations prior arbitration royalty rate three percent 3 monsantos counter proposal royalty rate one percent 1 arbitration decision reasonable royalty rate two percent 2 parties share expenses arbitration proceeding equally arbitration involves license terms royalty costs arbitration shall borne party requesting arbitration amended restated licensee incentive agreement made effective monsanto company delta pine land company based mutual consideration parties recited parties agree covenant set forth section 1background parties 101 monsanto company monsanto corporation state delaware principal offices 800 n lindbergh boulevard st louis missouri 63167 102 delta pine land company dpl corporation organized existing laws state delaware principal offices located 100 main street scott ms 38772 103 monsanto licensee parties one following technology licenses yieldgardrcorn license seed services agreement b roundup readyrcorn license seed services agreement c roundup readyrnk603 corn license seed services agreement rootworm protected corn license seed services agreement e roundup readyrsoybean license seed services agreement 104 monsanto licensee entered previous agreement entitled licensee incentive agreement signed parties replace previous agreement entirety 105 monsanto desires provide licensee additional financial incentives exploit technology licensed monsanto section 2definitions purposes agreement following words phrases shall following meanings 201 term affiliates used herein shall mean respect entity directly indirectly whollyowned whollyowns entity 202 term corn shall mean zea mays sweet corn popcorn varieties hybrids marketed high enhanced modified oil high enhanced modified protein high enhanced modified carbohydrate containing compositional attribute distinguishes variety hybrid industrystandard commodity field corn effective date 203 term effective date effective date agreement shall mean date upon duly authorized representatives monsanto licensee executed agreement 204 term fiscal year used herein shall mean twelvemonth period ending august 31st eg fiscal year 1997 12 month period ends august 31 1997 205 term grower fee shall mean per unit fee charged corn grower terms grower agreement 206 term herbicideresistant corn product used herein shall mean corn containing monsanto herbicideresistance corn gene nonmonsanto herbicideresistance corn gene 207 term herbicideresistant soybean product used herein shall mean soybean containing monsanto herbicideresistance soybean gene nonmonsanto herbicideresistance soybean gene 208 term insectprotected corn product used herein shall mean corn containing monsanto insectcontrol corn gene nonmonsanto insectcontrol corn gene controls lepidopteran insects 209 term crw protected corn product used herein shall mean corn containing monsanto crw insectcontrol corn gene nonmonsanto crw protected insectcontrol corn gene controls corn rootworms 210 term licensed crwprotected corn products used herein shall mean licensed corn products set forth agreement licensee monsanto entitled rootworm protected corn license seed services agreement 211 term licensed herbicideresistant corn products used herein shall mean licensed corn products set forth agreement licensee monsanto entitled roundup readyr corn license seed services agreement andor agreement licensee monsanto entitled roundup readyr nk603 corn license seed services agreement 212 term licensed herbicideresistant soybean products used herein shall mean licensed soybean products set forth agreement licensee monsanto entitled roundup readyr soybean license seed services agreement 213 term licensed insectprotected corn products used herein shall mean licensed corn products set forth agreement licensee monsanto entitled yieldgardr corn license seed services agreement 214 term monsanto herbicideresistance corn gene used herein means dna molecule received license monsanto results increased tolerance glyphosate 215 term monsanto insectcontrol gene used herein shall mean dna molecule received license monsanto results increased protection lepidopteran insect pests corn 216 term monsanto crw insectcontrol gene used herein shall mean dna molecule received license monsanto results increased protection corn rootworm insect pests 217 term monsanto herbicideresistance soybean gene used herein means dna molecule received license monsanto results increased tolerance glyphosate 218 term nonmonsanto herbicideresistance corn gene used herein means dna molecule naturallyoccurring corn source monsanto results increased tolerance glyphosate herbicide purposes definition dna molecule shall considered naturally occurring exists corn plant high enough frequency provide herbicide resistance without selection andor produced result tissue culture selection mutagenesis genetic engineering using recombinant dna techniques vitro vivo modification plant 219 term nonmonsanto insectcontrol gene used herein shall mean dna molecule naturallyoccurring corn encoding insect control protein lepidopteran source monsanto purposes definition dna molecule shall considered naturallyoccurring corn exists corn plant high enough frequency provide insect control without selection andor produced result tissue culture selection mutagenesis genetic engineering using recombinant dna techniques vitro vivo modification plant 220 term nonmonsanto crw insectcontrol gene used herein shall mean dna molecule naturallyoccurring corn encoding insect control protein corn rootworm source monsanto purposes definition dna molecule shall considered naturallyoccurring corn exists corn plant high enough frequency provide insect control without selection andor produced result tissue culture selection mutagenesis genetic engineering using recombinant dna techniques vitro vivo modification plant 221 term nonmonsanto herbicideresistance soybean gene used herein means dna molecule naturallyoccurring soybean source monsanto results increased tolerance glyphosate herbicide purposes definition dna molecule shall considered naturally occurring exists soybeans high enough frequency provide herbicide resistance without selection andor produced result tissue culture selection mutagenesis genetic engineering using recombinant dna techniques vitro vivo modification plant 222 term royalty used herein shall mean per unit fee collected licensee terms individual technology agreement 223 term soybean used herein means glycine max varieties marketed high enhanced modified oil high enhanced modified protein high enhanced modified carbohydrate containing compositional attribute distinguishes variety industrystandard commodity soybean effective date 224 term territory used herein shall mean united states america 225 term third party used herein shall mean person organization firm corporation partnership entity monsanto licensee respective affiliates 226 term units used herein shall mean case corn quantity approximately eighty thousand 80000 kernels sale quantity different 80000 kernels shall prorated basis 80000 kernels determine number units sold b case soybeans licensee prices per weight basis quantity soybean seed weighing fifty 50 pounds ii licensee prices seed count basis 160000 soybean seeds monsanto notify licensee change seed count used determine unit seed count basis annually 227 term accrued interest used herein shall mean interest compounded quarterly annual rate four 4 percentage points prime interest rate offered citibank date payment due section 3incentive requirements 301 licensee shall fully comply following requirements order qualify additional financial incentives set forth agreement licensee affiliates offers insectprotected corn product sale license licensee affiliates must enter yieldgardr corn license seed services agreement monsanto total units licensed insectprotected corn products sold licensed otherwise transferred licensee affiliates shall exceed seventy percent 70 aggregate insectprotected corn product sold licensed otherwise transferred licensee thirdparty requirement subsection 301a total units licensed insectprotected corn products sold licensed otherwise transferred licensee affiliates fiscal year exceed seventy percent 70 aggregate insectprotected corn products sold licensed wise transferred licensee affiliates third party shall met december 15 2001 b licensee affiliates offers herbicideresistant corn product sale license licensee affiliates must enter roundup readyrnk603 corn license seed services agreement monsanto total units licensed herbicideresistant corn products sold licensed otherwise transferred licensee affiliates shall exceed seventy percent 70 aggregate herbicideresistant corn products sold licensed otherwise transferred licensee affiliates thirdparty requirement subsection 301b total units licensed herbicideresistant corn product sold licensed wise transferred licensee affiliates fiscal year exceed seventy percent 70of aggregate herbicideresistant corn products sold licensed wise transferred licensee affiliates third party shall met december 15 2004 c licensee affiliates offers herbicideresistant soybean product sale license licensee affiliates must enter roundup readyr soybean license seed services agreement monsanto total units licensed herbicideresistant soybean products sold licensed otherwise transferred licensee affiliates shall exceed seventy percent 70 aggregate herbicideresistant soybean products sold licensed otherwise transferred licensee affiliates thirdparty requirement subsection 301c total units licensed herbicideresistant soybean products sold licensed wise transferred licensee affiliates fiscal year exceed seventy percent 70 aggregate herbicideresistant soybean products sold licensed wise transferred licensee affiliates third party shall met december 15 2000 licensee affiliates offers crw insectprotected corn product sale license licensee affiliates must enter crw insect control corn license seed services agreement monsanto total units licensed crw insectprotected corn products sold licensed otherwise transferred licensee affiliates shall exceed seventy percent 70 aggregate crw insectprotected corn product sold licensed otherwise transferred licensee thirdparty requirement subsection 301d total units licensed insectprotected corn products sold licensed otherwise transferred licensee affiliates fiscal year exceed seventy percent 70 aggregate insectprotected corn products sold licensed wise transferred licensee affiliates third party shall met december 15 2001 section 4incentive compensationreimbursement 401 subject provisions agreement monsanto shall compensate licensee follows monsanto shall waive onehalf payment otherwise due subsection 401a yieldgardr corn license seed services agreement roundup readyr corn license seed services agreement monsanto shall waive entire payment due subsection 401a rootworm protected corn license seed services agreement rootworm protected corn license seed services agreement executed returned monsanto may 1 2001 ii monsanto shall waive onehalf payment due subsection 401b yieldgardrcorn license seed services agreement roundup readyrnk603 corn license seed services agreement iii monsanto shall waive onehalf payment otherwise due subsection 401c yieldgardrcorn license seed services agreement roundup readyrnk603 corn license seed services agreement iv monsanto shall waive remainder payment otherwise due subsection 401d yieldgardrcorn license seed services agreement roundup readyrnk603 corn license seed services agreement b monsanto shall pay licensee additional incremental per unit seed services fee defined yieldgardr corn license seed services agreement amount five percent 5 provided however additional incremental per unit seed services fee shall exceed one dollar seventy five cents 175 c monsanto shall pay licensee additional incremental per unit seed services fee defined roundup readyr corn license seed services agreement roundup readyrnk603 corn license seed services agreement amount five percent 5 provided however additional incremental per unit seed services fee shall exceed one dollar 100 monsanto shall pay licensee additional incremental per unit seed services fee defined roundup readyr soybean license seed services agreement amount ten percent 10 provided however additional incremental per unit seed services fee shall exceed sixty cents 060 e monsanto shall pay licensee additional incremental per unit seed services fee defined rootworm protected corn license seed services agreement amount five percent 5 provided however additional incremental per unit seed services fee shall exceed two dollars fifty cents 250 402 event monsanto waive payment terms subsection 401a agreement make payment licensee terms subsection 401b licensee found compliance conditions subsection 301a relating insectprotected corn products december 15 2001 licensee shall reimburse monsanto payment amounts waived incremental seed services fees received prior december 15 2001 accrued interest date payment originally due incremental seed services fees received case may 403 event monsanto waive payment terms subsection 401a agreement make payment licensee terms subsection 401c licensee found compliance conditions subsection 301b relating herbicideresistant corn products december 15 2002 licensee shall reimburse monsanto payment amounts waived incremental seed services fees received prior december 15 2002 accrued interest date payment originally due incremental seed services fees received case may 404 event monsanto make payment licensee terms subsection 401d licensee found compliance conditions subsection 301c relating herbicideresistant soybean products december 15 2000 licensee shall reimburse monsanto incremental seed services fees received prior december 15 2000 accrued interest dates incremental seed services fees received case may 405 event monsanto increase payment terms subsection 401b agreement licensee found compliance conditions subsection 301a applicable fiscal year without prejudice remedy available monsanto licensee shall reimburse monsanto amount paid pursuant subsection 401b fiscal years conditions subsection 301a met accrued interest date payment fiscal year made monsanto 406 event monsanto increase payment terms subsection 401c agreement following applicable date set forth subsection 301b licensee found compliance conditions subsection 301b applicable fiscal year without prejudice remedy available monsanto licensee shall reimburse monsanto amount paid pursuant subsection 401c fiscal years conditions subsection 301b met accrued interest date payment fiscal year made monsanto 407 event monsanto increase payment terms subsection 401d agreement following applicable date set forth subsection 301c licensee found compliance conditions subsection 301c applicable fiscal year without prejudice remedy available monsanto licensee shall reimburse monsanto amount paid pursuant subsection 401d fiscal years conditions subsection 301c met accrued interest date payment fiscal year made monsanto 408 event monsanto increase payment terms subsection 401e agreement following applicable date set forth subsection 301d licensee found compliance conditions subsection 301d applicable fiscal year without prejudice remedy available monsanto licensee shall reimburse monsanto amount paid pursuant subsection 401e fiscal years conditions subsection 301d met accrued interest date payment fiscal year made monsanto 409 event monsanto decide increase grower fee royalty either yieldgardr corn roundup readyr corn mon tm corn roundup readyr soybean level per unit seed services fee otherwise payable monsanto licensee terms subsections 401bd would greater upper limit seed services fees set forth therein monsanto licensee shall meet discuss potential sharing additional grower fees royalties 410 monsanto fails pay due date amount payable agreement licensee sum paid licensee waived monsanto found reimbursable payable licensee monsanto without prejudice subsections agreement amount shall bear interest compounded quarterly due date payment made full judgment annual rate four 4 percentage points prime interest rate offered citibank day payment due paid section 5reports record retention 501 time licensee submits final report set forth applicable license agreements ie yieldgardr corn license seed services agreement roundup readyr corn license seed services agreement roundup readyr nk603 corn license seed services agreement rootworm protected corn license seed services agreement roundup readyr soybean license seed services agreement subject fiscal year licensee shall certify compliance conditions set forth 301 502 time licensee submits final report set forth applicable license agreements ie yieldgardr corn license seed services agreement roundup readyrcorn license seed services agreement roundup readyr nk603 corn license seed services agreement rootworm protected corn license seed services agreement roundup readyr soybean license seed services agreement licensee shall report total amounts respective herbicideresistant corn products herbicideresistant soybean products insectprotected corn products sold licensed otherwise transferred third party subject fiscal year 503 licensee shall keep records showing amount herbicideresistant corn products herbicideresistant soybean products insectprotected corn products crwprotected corn products sold licensed otherwise transferred third party fiscal year licensee agrees permit books records examined time extent necessary verify reports provided subsection 501 502 confidential examination made monsantos discretion either precision ag services inc b independent auditing firm appointed expense monsanto firm shall reasonably acceptable licensee records shall kept examination thereof shall limited period time three 3 fiscal years immediately preceding request examination 504 payment licensee hereunder shall either made wire transfer licensees account bank america charlotte north carolina 28255 aba 053000196 account number 0653234203 account name delta pine land company another account united states licensee may subsequently designate time notice monsanto shall provide written notice wire transfer licensee ii made check sent delta pine land company 100 main street scott mississippi 38772 another location united states licensee may subsequently designate time notice monsanto section 6term termination 601 term agreement shall begin effective date agreement shall end earlier first date upon licensee fails fully comply conditions set forth subsection 301 b either party terminates agreement terms subsection 6 c monsanto terminates agreement terms subsection 806 december 31 2007 602 either party ie monsanto licensee may terminate agreement upon least thirty 30 days written notice party commit material breach obligations default provisions agreement party breach failed cure breach default within thirty 30 day notice period b breach default cannot cured within thirty 30 day period party breach taken reasonable steps cure breach default breach default cannot cured within thirty 30 day period party breach shall notify nonbreaching party steps taken toward curing default breach plans totally cure default breach soon reasonably possible party breach fails provide notice nonbreaching party shall free terminate immediate effect notice party breach 603 notwithstanding partys right terminate agreement result noncured material breach party nonbreaching party shall prevented seeking remedy may available equity including specific performance part party breach 604 either party ie monsanto licensee may terminate agreement time party makes assignment benefit creditors admits writing inability generally pay generally paying debts become due b decree order relief entered party bankruptcy reorganization compromise arrangement insolvency readjustment debt dissolution liquidation similar law c party petitions applies tribunal consents appointment taking possession trustee receiver custodian liquidator similar official party substantial part assets commences voluntary case bankruptcy law jurisdiction petition application filed proceedings commenced party act indicates approval thereof consent thereto acquiescence therein order judgment decree entered appointing trustee receiver custodian liquidator similar official approving petition proceedings order relief order judgment decree remains unstayed effect sixty 60 days e order judgment decree entered proceedings party decreeing dissolution party order judgment decree remains unstayed effect sixty 60 days 605 expiration termination agreement shall relieve parties obligation accruing prior upon expiration termination accordingly subsections 603 604 section 7 shall survive expiration termination agreement licensee shall relieved payment obligation may accrued prior expiration termination section 7confidentiality 701 anticipated necessary connection obligations agreement licensee monsanto disclose confidential information purposes agreement confidential information shall mean proprietary information including without limitation information related technical business intellectual property matters knowhow data intellectual property trade secrets germplasm biological physical materials owned held either party agreement future disclosed either party connection agreement confidential information shall include proprietary information disclosed writing tangible form disclosed orally confidential information shall summarized written form within thirty 30 days disclosing party copy provided recipient 702 respect confidential information licensee monsanto agree follows understood recipient indicates party receiving confidential proprietary information disclosing party confidential information monsanto biological material provided disclosed recipient shall remain property disclosing party shall maintained confidence recipient shall provided disclosed third party recipient shall used except purposes contemplated agreement confidentiality limited use obligations respect confidential information shall terminate ten 10 years termination date agreement b notwithstanding provision contrary party may disclose confidential information party connection order court government body otherwise required compliance law regulations governmental body exchange market partys securities traded provided disclosing party provides party notice takes reasonable measures obtain confidential treatment thereof ii confidence recipients attorneys accountants banks financial sources advisors iii confidence connection sale proposed sale substantially business assets agreement relates long case entity disclosure made bound confidentiality terms consistent set forth herein 703 obligations confidentiality limited use shall apply confidential information publicly available publication documented means later becomes likewise publicly available act fault recipient b already known recipient receipt disclosing party demonstrated recipients written records c made known recipient third party obtain directly indirectly disclosing party obligate recipient hold confidence independently developed recipient evidenced credible written research records recipients employees agents access disclosing partys confidential information specific information deemed within exclusions merely embraced general information falling within exclusions exceptions set forth subsection 703 apply confidential information form germplasm biological physical materials 704 recipient agrees advise officers directors employees associates agents consultants affiliates become aware confidential information confidentiality limited use obligations agrees prior disclosure confidential information individuals entities make bound obligations confidentiality limited use stringency contained agreement 705 upon termination agreement originals copies confidential information written tangible form germplasm biological physical materials shall returned disclosing party recipient destroyed recipient one copy document may retained custody recipients legal counsel solely provide record disclosures made 706 terms agreement shall deemed confidential information shall dealt according confidentiality requirements section 7 except extent may required law regulation governmental body exchange market partys securities traded may appropriate prosecute defend claims pertaining agreement court arbitration proceeding neither party make public disclosures concerning specific terms agreement without obtaining prior written consent party consent shall unreasonably withheld section 8miscellaneous 801 notice communication required permitted given either party agreement shall given writing shall effective delivered hand reputable courier service five days mailing mailed registered certified mail postage prepaid return receipt requested addressed party following addresses address may designated notice pursuant subsection 801 monsanto company 700 chesterfield pkwy north chesterfield missouri 63017 attention stephen e joehl director soybean licensing copy monsanto company 700 chesterfield pkwy north chesterfield missouri 63017 attention dennis r hoerner intellectual property counsel licensee delta pine land company 100 main street scott mississippi 38772 attention steve hawkins president copy lake tindall llp 127 south poplar street greenville mississippi 38701 attention jerome c hafter esq 802 performing agreement parties shall comply applicable laws regulations nothing agreement shall construed require violation law wherever conflict provision agreement law shall prevail event affected provision agreement shall affected extent necessary bring within applicable law 803 neither parties shall liable default delay performance obligation agreement caused following act god war riot fire explosion accident flood sabotage compliance governmental requests laws regulations orders actions national defense requirements event beyond reasonable control party labor trouble strike lockout injunction provided neither parties shall required settle labor dispute best judgment b party invoking subsection 803 shall give party written notice full particulars force majeure event c monsanto licensee shall use reasonable efforts mitigate effects force majeure respective part 804 licensee affiliates dealerdistributors shall always remain independent contractors performance agreement provisions agreement shall construed authorizing reserving monsanto right exercise control direction operations activities officers employees agents licensee affiliates distributors connection agreement understood agreed entire control direction operations activities officers employees agents shall remain licensee neither party agreement shall authority employ person employee agent behalf party agreement purpose neither party agreement person performing duties engaging work request party shall deemed employee agent party agreement addition licensee affiliates dealerdistributors shall act purport act commercial agent monsanto hereunder capacity collection grower fee 805 neither party shall use name promotional materials advertising without prior written consent except specifically provided agreement related agreements 806 assignabilitysuccessionchange control rights acquired herein licensee assignable transferable whole part assignment operation law otherwise third party event change control licensee shall promptly notice monsanto change control monsanto shall permitted terminate agreement purposes section 806 change control means change direct indirect power direct cause direction management policies licensee sale substantially germplasm assets licensee relate production either herbicideresistant corn products herbicideresistant soybean products insectprotected corn products crw protected corn products b monsanto shall right assign agreement connection reorganization consolidation spinoff sale transfer substantially stock assets related portion business pertaining subject matter agreement either alone conjunction monsanto businesses part overall sale reorganization monsanto addition monsanto shall right assign respective rights obligations delegate performance hereunder whole part affiliates either event assignee shall agree writing bound terms agreement monsanto shall thereafter released obligations hereunder 807 agreement along yieldgardr corn license seed services agreement roundup readyr corn license seed services agreement roundup readyr nk603 corn license seed services agreement rootworm protected corn license seed services agreement roundup readyr soybean license seed services agreement monsanto licensee constitute full understanding parties complete allocation risks complete exclusive statement terms conditions agreement relating subject matter hereof supersede prior agreements whether written oral may exist parties respect thereto except otherwise specifically provided agreement conditions usage trade course dealing performance understanding agreement purporting modify vary explain supplement terms conditions agreement shall binding unless hereafter made writing signed party bound modification shall effected acknowledgment acceptance documents containing terms conditions variance addition set forth agreement waiver party respect breach default right remedy course dealing performance shall deemed constitute continuing waiver breach default right remedy unless waiver expressed writing signed party bound failure party exercise right shall deemed waiver right rights future 808 intention parties hereto questions respect construction agreement rights liabilities parties hereto shall determined accordance laws state missouri applicable business arrangements entered performed entirely within state missouri parties hereto irrevocably submit exclusive personal jurisdiction state federal court state missouri suit action legal proceeding relating agreement b agree claims respect suit action legal proceeding may heard determined enforced court c waive objection may hereafter venue court inconvenient forum 809 intention parties event dispute arises agreement parties shall first meet confer one another attempt negotiate resolution dispute without recourse litigation 810 except otherwise expressly stated agreement rights remedies party set forth herein respect failure comply terms agreement including without limitation rights full termination agreement exclusive exercise thereof shall constitute election remedies aggrieved party shall events entitled seek whatever additional remedies may available law equity 811 except otherwise provided herein party shall bear legal fees incurred connection transactions contemplated hereby provided however party agreement seeks enforce rights agreement legal proceedings otherwise nonprevailing party shall pay costs expenses incurred prevailing party including without limitation reasonable attorneys fees 812 headings herein convenience reference shall way affect interpretation agreement 813 agreement may executed number counterparts effect parties signed document counterparts shall deemed original shall construed together shall constitute one instrument witness whereof parties hereto executed agreement monsanto company delta pine land company licensee title director soybean licensing date exhibit 1033 bollgardr gene license agreement republic mexico agreement made day november 2000 monsanto company subsidiary pharmacia corporation place business 800 north lindbergh boulevard st louis missouri 63167 delta pine land company place business one cotton row scott mississippi 38772 section 1 background 11 monsanto developed present intention continue develop technology useful production genetically modified cotton plants exhibiting resistance lepidopteran insects also possesses certain knowhow germplasm relating cotton plants 12 monsanto dm partners dpl entered bollgardr gene license pertaining commercialization abovedescribed monsanto technology united states 13 simultaneously execution bollgardr gene license monsanto dpl entered option agreement monsanto granted dpl rights obtain exclusive licenses commercialize monsanto technology pertaining lepidopteran resistance certain countries outside united states 14 monsanto selling deltapine lepidopteranactive cultivars republic mexico agreement dpl dpls distributor might continue long governmental approvals republic mexico necessitate arrangement parties wish enter agreement meet monsantos obligations dpl option agreement set forth rights obligations parties apart supply cotton planting seed relevant sale either party deltapine lepidopteranactive cultivars republic mexico parties acknowledge supply agreement related cotton planting seed deltapine lepidopteranactive cultivars may supersede provisions agreement part section 2 interpretation 21 definitions agreement unless context otherwise requires 211 term average unit gross margin percentage respect particular class cotton planting seed means one minus quotient cost goods sold divided wholesale price per unit particular class averaged units particular class sold applicable fiscal year expressed percentage 212 term bt toxin means insecticidal protein derived bacillus thuringiensis active fragment modification deletion mutation thereof toxic lepidopteran insects 213 term backcross means cross hybrid either parents 214 term backcrosses backcrossing means system breeding whereby recurrent crosses made one 1 parents hybrid accompanied selection specific characteristic characteristics donated parent hybrid 215 term bollgardr gene license means bollgardr gene license seed services agreement monsanto dm partners dpl dated february 2 1996 amended december 8 1999 may amended accordance terms 216 term bollgardr gene trademark means trademark owned monsanto relating lepidopteranactive genes may bollgardr ingardr marked owned monsanto registered use lepidopteranactive genes 217 term bollgardr gene trademark license agreement means agreement attached hereto appendix 2 similar agreement parties licensing rights bollgardr gene trademark licensed country monsanto dpl 218 term class means type cotton planting seed categorized presence absence trait traits introduced using biotechnology monsanto another example class licensed commercial seed containing first lepidopteranactive gene another example licensed commercial seed containing first lepidopteranactive gene roundup readyr gene 219 term commercial development lepidopteranactive gene means evaluation lepidopteranactive gene dpl one deltapine cultivars andor third party third partys cultivars 2110 term commercial sale respect lepidopteranactive gene means sale transfer value cotton planting seed containing lepidopteranactive gene use producing commercial commodity cotton crop sale transfer testing seed multiplication behalf transferor 2111 term compensation period means respect lepidopteranactive gene period time pursuant subsection 63a dpl obligated pay royalty monsanto sale license commercial seed containing particular lepidopteranactive gene 2112 term cost goods sold respect particular nonlepidopteran resistant cotton seed licensed commercial seed means average sums costs required acquire prepare particular seed costs shall calculated accordance generally accepted accounting principles applied dpls inventory costing policies costs include direct indirect costs fuzzy seed field inspection quality assurance bulk seed handling storage processing conditioning delinting treating seed treatments packaging costs storage bagged seed plus cost dump seed less cull seed sales 2113 term cotton planting seed means cotton seed intended produced conditioned suitable planting produce commercial cotton crop 2114 term dm partners means partnership dpl monsanto created partnership agreement 2115 term dpl means delta pine land company delaware corporation principal place business one cotton row scott mississippi 38772 2116 term dpl foreign affiliate means corporation entity organized operation licensed country either dpl owns fifty percent 50 voting stock regard entity issue voting stock fifty percent 50 outstanding equity interests ii dpl prohibited local laws regulations owning fifty percent 50 voting stock equity interests entity dpl owns maximum amount voting stock equity interests permitted local laws regulations b dpl effectively controls contract otherwise 2117 term dpl technology means information data germplasm dpl develops produces makes obtains monsanto relating breeding development commercial varieties hybrids licensed commercial seed varieties hybrids cotton 2118 term date approval commercial sale respect lepidopteranactive gene means date monsanto first authorizes commercial sale dpl cotton seed specific deltapine lepidopteranactive cultivars containing lepidopteranactive gene licensed country 2119 term date first commercial licensing respect particular lepidopteranactive gene licensed country means first date monsanto dpl permitted section 311 sublicenses third party dpl foreign affiliate third party contract dpl testing seed multiplication right use specific cultivar licensed commercial seed containing particular lepidopteranactive gene use producing commercial commodity cotton crop licensed country stipulated date first commercial licensing first lepidopteranactive gene occurred 1996 2120 term deltapine cultivar means cultivar cotton produced germplasm dpl right use plant breeding purposes 2121 term deltapine lepidopteranactive cultivar means deltapine cultivar contains lepidopteranactive gene 2122 term effective date means date first written 2123 term first lepidopteranactive gene means gene encoding bt toxin contained cotton seed sold dpl united states effective date 2124 term fiscal year means twelve 12 month period beginning first day september ending last day following august 2125 term gene equivalency tests means field tests bioequivalency assays carried described appendix 5 equivalency test monsanto dpl may mutually agree substitute initial gene equivalency test 2126 term gene introgression schedule means schedule introgression one subsequent lepidopteranactive genes combinations one subsequent lepidopteranactive genes roundup readyr gene supplied monsanto varieties species gossypium hirsutum appropriate licensed country dpl owns right license third party commercialize licensed country introgression gene variety purposes agreement means introduction gene genetic sequence backcrossing conventional breeding methods cotton plants target variety gene genetic sequence expresses designated protein viable cotton plants term gene introgression schedule part 1 means part gene introgression schedule represents crossing selfing generations carried backcross breeding program gene introgression schedule part 2 means part gene introgression schedule represents schedule breeder foundation production seed increases well agronomic gene equivalency variety registration trials evaluations schedule given gene combination genes shall start first day may follows date applicable gene combination genes form transgenic event made available dpl embodied less 12 viable cotton seeds viable pollen cotton plants amount equivalent less pollen 100 flowers tested contain applicable gene combination genes monsanto contain unwanted unintended transgenic events provided gene combination genes made available dpl first day month march immediately preceding first day may dpl notified writing future genes available dpl begin gene introgression schedule subject subsequent lepidopteranactive gene applicable roundup readyr gene varieties dpl projects represent 50 dpls sales licensed country year 5 gene introgression schedule part 2 generation seed tested commercially reasonable efforts used protect purity material gene introgression schedule part 1 generation seed produced gene introgression schedule part 2 meet seed purity standard quality specifications applicable 1 gene introgression schedule bg ii unless modified provided herein gene introgression schedule first subsequent lepidopteranactive gene designated combination event 531 event 15985 shall consist following actions dpl gene introgression schedule part 1 year 1 may 1 1999 beginning gene introgression schedule april 30 2000 bc2f1 seed transformed versions varieties dpl projects represent less 50 dpls sales licensed country year 5 gene introgression schedule part 2 harvested year 2 april 30 2001 bc2f3 seed progeny rows transformed versions varieties dpl projected year 1 would represent less 50 dpls sales licensed country year 5 gene introgression schedule part 2 harvested gene introgression schedule part 2 year 3 april 30 2002 breeder seed increase transformed versions varieties dpl projected year 1 would represent less 50 dpls sales licensed country year 5 gene introgression schedule part 2 harvested year 4 april 30 2003 foundation seed increase transformed versions varieties dpl projected year 1 would represent less 50 dpls sales licensed country year 5 gene introgression schedule part 2 harvested year 5 april 30 2004 production seed varieties transformed subject gene combination quantity dpl projects represent less 10 dpls sales licensed country licensed commercial seed containing lepidopteranactive gene year 6 gene introgression schedule part 2 harvested year 6 may 1 2004april 30 2005 seed varieties transformed subject gene combination quantity sufficient satisfy less 10 dpls previous years sales licensed commercial seed containing lepidopteranactive gene licensed country available supply market licensed country 2 gene introgression schedule bg iirr unless modified provided herein gene introgression schedule combination described first subsequent lepidopteranactive gene first roundup readyr gene designated event 1445 shall consist following actions dpl gene introgression schedule part 1 year 1 may 1 2000 beginning gene introgression schedule april 30 2001 bc2f1 seed transformed versions varieties dpl projects represent less 50 dpls sales licensed country year 5 gene introgression schedule part 2 harvested year 2 april 30 2002 bc2f3 seed progeny rows transformed versions varieties dpl projected year 1 would represent less 50 dpls sales licensed country year 5 gene introgression schedule part 2 harvested gene introgression schedule part 2 year 3 april 30 2003 breeder seed increase transformed versions varieties dpl projected year 1 would represent less 50 dpls sales licensed country year 5 gene introgression schedule part 2 harvested year 4 april 30 2004 foundation seed increase transformed versions varieties dpl projected year 1 would represent less 50 dpls sales licensed country year 5 gene introgression schedule part 2 harvested year 5 april 30 2005 production seed varieties transformed subject gene combination quantity dpl projects represent less 10 dpls sales licensed country licensed commercial seed containing combination lepidopteranactive gene roundup readyr gene year 6 gene introgression schedule part 2 harvested year 6 may 1 2005april 30 2006 seed varieties transformed subject gene combination quantity sufficient satisfy less 10 dpls previous years sales licensed commercial seed containing combination lepidopteranactive gene roundup readyr gene licensed country available supply market licensed country foregoing notwithstanding introgression first subsequent lepidopteranactive gene first roundup readyr gene varieties recurrent parents nucotn 33b suregrow 125 respectively shall follow time sequence set forth gene introgression schedule bg ii dpl determine generation backcross selfed generations bc2f3 bc3f3 andor bc4f3 planted field progeny rows continued gene introgression schedule part 2 decision based genetics donor parent general agronomic acceptability current generation plants planting season gene introgression schedule part 2 dpl monsanto discuss determine mutual agreement gene introgression schedule part 2 delayed discontinued particular lepidopteranactive gene andor roundup readyr gene decision based current knowledge regulatory patent intellectual property issues agronomic commercial issues dpl shall provide monsanto annual reports progress applicable gene introgression schedule may 31 fiscal year monsanto shall right audit dpls records books processes compliance schedule dpl shall excused activities described gene introgression schedule part 2 combination genes including roundup readyr gene unless monsanto granted dpl license accordance option agreement use produce sell cotton planting seed containing subject roundup readyr gene licensed country prior commencement gene introgression schedule part 2 applicable gene introgression schedule shall amended time take consideration projected schedule governmental approval subject subsequent lepidopteranactive gene roundup readyr gene licensed country monsanto shall provide dpl annual reports february 1 fiscal year progress governmental approval gene combination gene introgression schedule dpl shall excused activities described gene introgression schedule part 2 gene combination monsanto provides written notice commercially reasonable judgment licensed commercial seed containing gene combination receive governmental approval sale year 5 gene introgression schedule part 2 dpl shall excused activities described gene introgression schedule long dpls performance prevented delayed events force majeure provided section 9 dpl unable secure reasonable opinion invalidity noninfringement intellectual property rights held third parties included licensed patent rights dpl may request monsanto shall make relevant information available dpls patent counsel confidential basis purpose rendering opinion subject appropriate gene introgression schedule set mutual agreement monsanto dpl new gene combination delivered dpl provided gene introgression schedule future gene combination patterned schedule set forth anything agreement contrary notwithstanding given year dpl shall required compliance ten 10 gene introgression schedules gene introgression schedule part 1 five 5 gene introgression schedules years 3 4 gene introgression schedule part 2 three 3 gene introgression schedules year 5 6 gene introgression schedule part 2 monsanto dpl shall mutually agree genes combinations genes shall designated advancement consistent limits number gene introgression schedules stipulated effective date dpl deemed current obligations respective gene introgression schedules respect described first subsequent lepidopteranactive gene combination first subsequent lepidopteranactive gene first roundup readyr gene 2127 term governmental approval respect licensed country respect particular lepidopteranactive gene means required official clearances written approvals commercial sale seed produce geneticallytransformed cotton plants containing lepidopteranactive gene obtained monsanto governmental agencies licensed country date authority regulate production use sale plants seed produced therefrom provided however shall require monsanto obtain approval agency respect issuance seed certificates phytosanitary certificates plant variety protection plant variety protection act approvals appropriate required shall responsibility dpl 2128 term improvement means invention discovery embodied licensed commercial seed use made dpl sublicensees course activities agreement licensed country invention discovery made direct result dpls use monsanto technology part public domain obtained dpl third party obligation confidentiality monsanto licenses granted herein would infringe monsanto patent right improvement shall include invention discovery related breeding selection specific deltapine lepidopteranactive cultivars 2129 term lepidopteranactive gene means dna molecule received monsanto replicate thereof encoding toxin whether bt toxin provides lepidopteran resistance 2130 term lepidopteran insects means insects order lepidoptera economic impact production cotton including limited cotton boll worms tobacco budworms pink boll worms 2131 term lepidopteran resistance means property cotton plants toxic lepidopteran insects due presence one heterologous gene sequences whether encoding bt toxin 2132 term license licenses means licenses granted dpl section 3 2133 term licensed commercial seed means cotton planting seed incorporates lepidopteranactive gene andor produced use monsanto technology 2134 term licensed country means republic mexico 2135 term licensed growers means entity licensed monsanto licensed patent rights sublicensed dpl permitted section 311 produce andor use monsanto technology production commercial cotton crop 2136 term licensed patent rights means monsanto patent rights patent rights others acquired licensed monsanto right sublicense term agreement license required dpls performance hereunder patent included within licensed patent rights listed appendix 1 appendix 1 shall amended written notice monsanto dpl whenever monsanto acquires additional licensed patent rights licenses take effect subsequent lepidopteranactive gene provided section 314 monsanto shall periodically notify dpl patent numbers included notice provided section 35b 2137 term market means one two groups growing regions within licensed country unless otherwise mutually agreed writing monsanto dpl markets licensed country shall consist following groups group1 1 states sinaloa sonora 2 northern area state baja california northern area state tamaulipas 3 states chihuahua coahuila durango southern area state baja california group2 4 states san luis potosi veracruz southern area state tamaulipas 5 states chiapas campeche michoacan states areas included areas described items 1 4 2138 term marketing services fees means fees compensation paid retailers andor distributors services granting licenses sublicenses use monsanto technology licensed growers andor collect license fees licensed growers unless otherwise mutually agreed monsanto dpl marketing services fees shall exceed sixteen percent 16 gross license fees use monsanto technology collected licensed growers 2139 term monsanto means monsanto company incorporated state delaware place business 800 north lindbergh boulevard st louis missouri 63167 2140 term monsanto patent rights means applicable exus patents patent applications owned monsanto right license dpl applicable us exus patents owned monsanto right license dpl license required permit dpl produce licensed commercial seed export sale licensed country patents granted issued pursuant foregoing extensions continuations continuationsinpart reissues divisions thereof 2141 term monsanto royalty percentage means seventy percent 70 however shall seventyfive percent 75 fiscal year except excused otherwise provided section 2126 provisions agreement dpl fails meet applicable requirements gene introgression schedule effect fiscal year cured failure within six 6 months end fiscal year monsanto royalty percentage particular fiscal year may also increased provisions sections 43c 45 2142 term monsanto technology means information data knowhow technology monsanto rights use lepidopteranactive gene cotton including limited information technology relating cells seeds cotton plants dna sequences probes therefor transformation methodology tissue cultures assays residue analyses regeneration selection procedures plant genetic constituents vectors useful transforming genetic constituents construction use vectors cotton registration approvals monsanto technology shall include information technology become part public domain fault dpl 2143 term net license fees means aggregate fees received monsanto andor dpl permitted sublicense licensed growers subsection 311 use monsanto technology licensed patent rights licensed growers purchased varieties deltapine lepidopteranactive cultivars less rebates refunds taxes income taxes marketing services fees ii interest received licensed growers financing fees either party 2144 term nonlepidopteranresistant cotton seed means cotton planting seed genetically engineered cause resistance lepidopteran insects 2145 term option agreement means option agreement monsanto dpl dated february 2 1996 amended december 8 1999 may amended accordance terms 2146 term partnership agreement means partnership agreement dpl monsanto dated february 2 1996 may amended accordance terms 2147 term recipient means party receives confidential information another party described section 8 2148 term recurrent parent means parent successive backcrosses made backcross breeding 2149 term roundup readyr gene means dna molecule including regulatory sequences replicate thereof supplied monsanto inserted cotton results increased tolerance glyphosate 2150 term royalty means compensation paid dpl monsanto consideration licenses equal applicable monsanto royalty percentage times royalty base 2151 term royalty base means fiscal year aggregate 1 net license fees collected dpl permitted section 311 units licensed commercial seed deltapine lepidopteranactive cultivars sold returned dpl 2 aggregate revenue earned dpl portion average unit gross margin percentage sales licensed country licensed commercial seed deltapine lepidopteranactive cultivars excess fiftyfive percent 55 b portion average unit gross margin percentage sales licensed country licensed commercial seed deltapine lepidopteranactive cultivars excess fiftyfive percent 55 excess average unit gross margin percentage dpls sales licensed country nonlepidopteran resistant cotton seed calculated separately class cotton planting seed sold dpl market licensed country fiscal year 2152 term seed purity standard means measured sampling procedures appendix 4 testing procedures appendix 3 subject cotton planting seed least 98 pure intended lepidopteran active genes roundup readyr gene stacked b total 1 unintended geneticallymodified traits standards thresholds required applicable laws regulations sale cotton planting seed licensed country including regulate unapproved transgenes ii may set mutual written agreement monsanto dpl least one year advance first fiscal year additional standards thresholds applicable 2153 term subsequent lepidopteranactive gene means lepidopteranactive gene first lepidopteranactive gene authorized monsanto commercial development licensed country understood subsequent lepidopteranactive gene may sold combination first lepidopteranactive gene intended effective date 2154 term technology means monsanto technology andor dpl technology appropriate 2155 term technology fee means fee set monsanto annually according section 64 charged dpl customers monsanto technology licensed commercial seed technology fee shall unit acreage basis may vary within licensed country different markets 2156 term unit means quantity delinted cotton planting seed weighing twentyfive 25 kilograms package sizes dpl may use licensed country provided however calculations involving units shall made terms quantity cotton planting seed contained packages relevant calculation provided calculations requiring quantities nondelinted cotton seed converted units delinted cotton planting seed conversion shall made basis dpls experience conversion nondelinted cotton seed delinted cotton planting seed averaged immediately preceding three 3 years 2157 term wholesale price respect particular nonlepidopteran resistant cotton seed licensed commercial seed means average price invoiced distributors applicable seed reselling growers less sales returns allowances discounts incentive payments event discount incentive licensed commercial seed contingent sales conventional class characterized absence traits introduced using biotechnology cotton planting seed discount incentive shall apportioned among particular licensed commercial seed conventional class based ratio average distributor price conventional class licensed commercial seed aggregate average distributor price conventional class licensed commercial seed order calculate wholesale price licensed commercial seed conventional class section 3 licenses 31 limited license produce sell licensed commercial seed monsanto hereby grants dpl hereby accepts subject terms conditions agreement exclusive right license licensed country licensed patent rights monsanto technology develop produce produced sell licensed commercial seed containing first lepidopteranactive gene licensed growers licensed country 32 license multiply licensed commercial seed rights granted dpl include exclusive right license multiply licensed commercial seed subsequent sale licensed growers directly third party contract growers selected dpl licensed country united states notice approval monsanto approval unreasonably delayed denied country outside licensed country dpl obtained necessary governmental approval carry activities reasonably necessary production sale licensed country licensed commercial seed 33 right sublicense dpl may upon written notice monsanto grant sublicense rights granted herein dpl foreign affiliate dpl may grant sublicenses rights granted herein except expressly permitted provisions agreement 34 prohibition modification genetic materials dpl shall modify lepidopteranactive gene modify use isolated regulatory control sequences contained lepidopteranactive gene physically isolated seed plant cell culture transferred monsanto dpl progeny seed plant cell culture purpose without prior written consent monsanto provided however prohibitions subsection shall apply modification use licensed country isolated regulatory control sequences isolated seed plant cell culture become part public domain licensed country fault dpl received third party obligation confidentiality monsanto b nothing subsection provides dpl license patent rights owned controlled monsanto except extent otherwise provided agreement used subsection material shall deemed become part public domain member public licensed country lawfully sell transfer material without restriction without breaching contractual obligation monsanto 35 conditions licenses partial consideration licenses dpl may insert line licensed commercial seed deltapine lepidopteranactive cultivars heterologous gene construct licensed dpl monsanto expressing trait naturally occurring cotton nonmonsanto cotton gene provided respect licensed commercial seed sold dpl licensed country contains nonmonsanto cotton gene stacked gene cotton seed 1 dpl shall sell licensed country stacked gene cotton seed unless dpl sold cotton planting seed containing nonmonsanto cotton gene united states america pursuant bollgardr gene license less two 2 crop years preceding year first commercial sale licensed country 2 stacked gene cotton seed must meet standards sale licensed country licensed commercial seed except traits imparted designated nonmonsanto cotton gene shall considered unintended geneticallymodified traits purposes subsection 2152b 3 dpl shall sole expense obtain required official clearances written approvals commercial sale seed containing nonmonsanto cotton gene governmental agencies licensed country date authority regulate production use sale seed licensed country dpl may request monsanto provide assistance obtain approvals monsanto provides assistance dpls request dpl shall reimburse monsanto reasonable expenses incurred providing requested assistance 4 monsanto shall right written notice dpl prohibit display bollgardr gene trademark packages containing stacked gene cotton seed provided event notice given section 36a notwithstanding dpl may sell stacked gene cotton seed packaging displaying bollgardr gene trademark 5 notwithstanding provisions subsection 131 dpl shall defend indemnify hold monsanto affiliates respective employees directors officers agents harmless loss cost liability expense including court costs reasonable fees attorneys professionals incurred claim cotton farmers purchased licensed commercial seed distributors farmers may make claims arising alleged arise performance stacked gene cotton seed plants grown stacked gene cotton seed unless failure performance proximately caused solely presence gene received monsanto stacked gene cotton seed provided issue causation dpl shall bear burden proof provided costs claims covered immediately preceding clause ie claims dpl meets burden proof shall prorated monsanto dpl monsantos respective percentage share costs claims shall based monsantos respective percentage share total net license revenues seed premiums instances technology license fees charged nonmonsanto cotton gene derived presence geneticallyengineered technology subject stacked gene cotton seed 6 fiscal year dpl making commercial sales stacked gene cotton seed licensed country addition complying provisions section 45 dpl shall available sale licensed country quantities class licensed commercial seed containing monsanto technology nonmonsanto cotton genes equal exceed quantities class licensed commercial seed sold dpl net returns licensed country immediately preceding fiscal year 7 fees compensation paid retailers andor distributors service granting licenses sublicenses growers relating technology embodied stacked gene cotton seed andor collect license fees growers stacked gene cotton seed specifically related particular technology shall apportioned based ratio aggregate royalties received monsanto andor dpl permitted sublicense licensed growers subsection 311 use monsanto technology licensed patent rights licensed growers ii aggregate net license revenues seed premiums value received subject technology provider instances technology license fees charged nonmonsanto cotton gene derived presence geneticallyengineered technology subject stacked gene cotton seed monsanto technology provided however event shall monsanto required pay bear amount fees compensation retailers andor distributors services excess monsanto would paid borne services agreement subject stacked gene cotton seed containing lepidopteran active gene technology provided monsanto dpl third party technology provider provide monsanto information reasonably necessary determine compliance subsection 35a7 dpl shall refund monsanto fees compensation paid monsanto retailers andor distributors excess amount paid provisions later one month following notice monsanto discrepancy error 8 costs acquiring preparing seed stacked gene cotton seed additive costs required acquire prepare licensed commercial seed contain nonmonsanto cotton gene shall excluded cost goods sold respect stacked gene cotton seed 9 prior dpls sale licensed country particular stacked gene cotton seed dpl third party provider nonmonsanto cotton gene stacked gene cotton seed dpl proposes sell shall meet monsanto address issues involving governmental regulations public acceptance stewardship licensed country genetic technology embodied stacked gene cotton seed cases bona fide disputes concerning sale terms conditions sale particular stacked gene cotton seed licensed country involving governmental regulations public acceptance stewardship licensed country genetic technology embodied stacked gene cotton seed dpl shall sell stacked gene cotton seed licensed country monsanto commercially reasonable judgment agreed sale agreement unreasonably withheld delayed 10 disputes parties concerning compliance section 35a shall settled according section 1011 option agreement arbitration needed shall private confidential b dpl shall applicable conspicuously display packages containing licensed commercial seed covered licensed patent rights invoices relating licensed commercial seed sold transferred third parties following notice meaning effect blanks appropriately filled using designations licensed patent rights seeds covered patents patent applications sublicense conveyed said patents use seeds solely purchase seeds sublicense said patents use seeds produce single cotton crop must also obtained monsanto commercial sa de cv 36 gene trademark dpl shall conspicuously display bollgardr gene trademark accompanying logo packages licensed commercial seed bollgardr gene trademark accompanying logo shall remain least relative size compared largest dpl trademark accompanying logo face seed package label monsanto dpl mutually determine commercially reasonable mutual agreement reached relative size licensed commercial seed sold bollgardr gene license united states b agreed bollgardr gene trademark shall licensed dpl use licensed country nonexclusive royaltyfree basis pursuant bollgardr gene trademark license agreement parties shall execute said bollgardr gene trademark license agreement following identification final graphic form bollgardr gene trademark applicable trademark monsanto form bollgardr gene trademark license licensed country shown appendix 2 c bollgardr gene trademark shall utilized manner specified bollgardr gene trademark license agreement advertising containing trademark tradename owned controlled dpl referring control lepidopteran insects lepidopteranactive gene shall use bollgardr gene trademark identify lepidopteranactive gene 37 limitations licenses sublicenses agreement construed including grant monsanto dpl license sublicense right make sell lepidopteranactive genes monsanto technology except expressly set forth herein b use lepidopteranactive genes monsanto technology purpose expressly set forth herein c grant sublicenses except expressly set forth herein 38 educational program discourage farmersaved seed dpl monsanto shall employ reasonable efforts continuing basis proactively educate appropriate government officials farmers organizations purchasers licensed commercial seed others nature limiteduse sublicense granted cotton farmers benefits purchasing licensed commercial seed annually disadvantages using farmersaved seed applicable legal restrictions 39 third party violations invalidity restrictions sublicense use licensed commercial seed purchasers purposes addition production single commercial commodity crop unless expressly authorized dpl shall considered breach agreement dpl licenses granted dpl shall revoked diminished otherwise affected event limitations restrictions sublicense purchasers found unenforceable whole part court competent jurisdiction licensed country 310 identification fields planted farmersaved seed dpl monsanto shall cooperate reasonable effort develop employ methods techniques employed commercially efficient manner identify fields cotton planted seed saved crop produced licensed commercial seed costs associated cooperative efforts develop employ methods techniques shall borne monsanto 311 discontinuation licensing growers monsanto monsantos option monsanto may discontinue granting licenses individual cotton growers licensed country particular segment market licensed country monsanto shall provide notice discontinuance later harvest last growing season monsanto grant licenses individual growers upon notice license granted subsection 31 shall include right sublicense individual cotton growers sell licensed commercial seed licensed country sublicensed growers 312 alternative lepidopteranactive genes monsanto shall right convert licenses nonexclusive grant licenses parties sell cotton planting seed containing lepidopteranactive gene licensed country beginning twentyfour 24 months date designated dpl written notice date dpl intends commence sale licensed country cotton planting seed containing one heterologous genes gene sequences source monsanto confer lepidopteran resistance nonmonsanto lepidopteranactive gene dpl shall give monsanto notice intent sell cotton planting seed licensed country greater thirtysix 36 months ii minimum period legally required obtain variety registration licensed country variety registration required licensed country prior first commercial sale cotton planting seed licensed country monsanto grants licenses party financial terms favorable licensee given dpl agreement monsanto shall amend agreement provide dpl financial terms licenses shall allow third party licensee sell products containing subject lepidopteranactive gene earlier twentyfour 24 months date dpl notified monsanto intends commence sale cotton planting seed containing nonmonsanto lepidopteranactive gene licensed country b event dpl fails provide notice required paragraph section dpl shall refund monsanto payments received monsanto section 7 agreement respect sales licensed cotton seed dpl made time notice effect plus interest provided section 73 313 sales monsanto effective date sales licensed country made monsanto dpls distributor long sales made terms written supply agreement monsanto subsidiary dpl subsidiary terms agreement conflict agreement shall supersede terms agreement 314 license subsequent lepidopteranactive genes licenses shall deemed include rights granted licensed commercial seed containing first lepidopteranactive gene licensed commercial seed containing one subsequent lepidopteranactive genes provided right shall effect time applicable governmental approvals acquired 315 terms nonexclusive licenses event permitted provisions agreement monsanto converts licenses nonexclusive licenses effective conversion provisions section 2141 notwithstanding subject subsection 315 c term monsanto royalty percentage shall mean seventy percent 70 b sections 312 43 45 shall effect c monsanto grants licenses develop produce produced sell multiply licensed commercial seed licensed country party financial terms favorable licensee granted dpl agreement monsanto shall amend agreement provide dpl financial terms section 4 development marketing activities parties 41 consultation monsanto dpl shall consult regularly throughout term agreement relative activities affecting development maintenance sales licensed commercial seed licensed country including limited monsantos plans progress development marketing monsanto technology dpls plans progress production field testing licensed commercial seed representatives monsanto dpl shall periodically meet mutually acceptable times discuss activities progress hereunder planning purposes monsanto dpl shall meet year september 30 plan activities following crop year licensed country 42 responsibilities parties shall monsantos responsibility 1 obtain maintain using commercially reasonable means governmental approvals first lepidopteranactive gene subsequent lepidopteranactive gene monsanto chooses register licensed country 2 determine appropriate marketing claims prices lepidopteranactive genes shall dpls responsibility determine appropriate marketing claims prices deltapine lepidopteranactive cultivars lepidopteranactive gene decisions best system licensing sublicensing licensed growers use monsanto technology exhibited licensed commercial seed including financing terms payment technology fees licensed growers best distribution system licensed commercial seed shall mutual agreed systems use licensed country effective date acceptable present time 43 variety availability dpl shall use commercially reasonable efforts develop license varieties cotton meet exceed performance competitive varieties marketed commercially licensed country one deltapine lepidopteranactive cultivars exhibits reasonably acceptable yield agronomic characteristics market licensed country dpl may required local law practice register one varieties sale licensed country thereafter using reasonable commercial efforts make deltapine lepidopteranactive cultivars available sale licensed country monsanto shall cooperate needed accomplish registration dpl shall make available seventy percent 70 dpls wholesale price seed licensed country commercially reasonable quantities seed deltapine lepidopteranactive cultivar monsanto use market development testing including demonstration trials b order provide objective test dpls compliance section 43a dpl shall conduct annual trials deltapine lepidopteranactive cultivars sold licensed country trials shall carried according protocol set forth appendix 6 may amended time mutual written agreement monsanto dpl representative competitive varieties used trials shall selected among cotton varieties sold commercially applicable market mutual agreement monsanto dpl consent agreement identification representative competitive varieties shall unreasonably withheld delayed either party c event annual trials conducted subsection 43b current previous fiscal years average yield deltapine lepidopteranactive cultivars sold applicable market equal exceed ninetytwo percent 92 average yield trials representative competitive varieties monsanto royalty percentage shall increased fiscal year five 5 percentage points licensed commercial seed sold relevant market event annual trials conducted section 43b four 4 consecutive years average yield deltapine lepidopteranactive cultivars sold applicable market equal exceed ninetytwo percent 92 average yield trials representative competitive varieties licenses shall become nonexclusive provisions section 43c shall effect prior fiscal year beginning september 1 2003 44 testing new varieties effective date dpl shall submit new varieties licensed commercial seed gene equivalency test dpl shall bear costs testing shall remit monsanto fees shown appendix 5 within sixty 60 days monsantos report dpl outcome assays performed monsanto 45 supply licensed commercial seed later february 1 fiscal year dpl shall deliver monsanto list inventory licensed commercial seed deltapine lepidopteranresistant cultivar licensed agreement qualified sold licensed country itemized class variety seed coat treatment option dpl exercise reasonable commercial judgment forecasts available sale licensed country next following fiscal year list shall prepared consultation monsanto accepts without change dpls inventory list either dpl fails meet amounts specified ii dpl cannot fill bona fide order class inventory cotton planting seed sold defined existing bona fide order received dpl distributor cannot filled dpl due lack sufficient inventory particular class fiscal year monsanto royalty percentage increased five 5 percentage points fiscal year alternatively within thirty 30 days delivery dpls forecast monsanto may request written notice dpl increase forecasted inventory licensed commercial seed particular deltapine lepidopteranresistant cultivars itemized class variety seed coat treatment option available sale licensed country next following fiscal year dpl shall use commercially reasonable efforts produce produced available sale licensed country next following fiscal year quantities cotton planting seed stated dpls forecast increased response requests monsanto delivered stated meeting seed purity standards provided 1 event dpl using commercially reasonable sales efforts sell portion inventory licensed commercial seed dpl produced available sale licensed country based request monsanto shall reimburse dpl within thirty 30 days delivery invoice delivered july 1 fiscal year licensed commercial seed made available sale monsantos request cost carrying unsold seed inventory twelve 12 months including limited storage costs b interest dpls current cost funds cost production conditioning packaging storage c expenses directly associated carrying seed inventory another fiscal year 2 respect licensed commercial seed produced made available sale monsantos request sold initial fiscal year sale becomes unsaleable next subsequent fiscal year despite dpls commercially reasonable sales efforts sold licensed country next subsequent fiscal year monsanto shall pay dpl within thirty 30 days delivery invoice delivered july 1 fiscal year amount equal dpls actual costs production conditioning packaging seed provided dpl sell seed subsequent fiscal year licensed country elsewhere permitted agreements dpl monsanto dpl shall reimburse monsanto amounts paid monsanto dpl net recovery costs realized dpl sales deduction carrying sales costs incurred dpl selling seed notwithstanding provisions section monsanto shall required pay dpl amounts specified section 45 increase inventory licensed commercial seed monsantos request sold defined initial next subsequent fiscal years monsanto shall pay carrying charges due section 45 licensed commercial seed carried initial fiscal year next 46 promotional activities parties agree neither may promote technology without consent owner shall unreasonably withheld delayed 47 protection deltapine lepidopteranactive cultivars dpl may sole discretion seek obtain variety protection deltapine lepidopteranactive cultivars licensed country extent protection available dpl may sole discretion institute actions infringers rights event monsanto learns suspected infringement dpls variety protection rights deltapine lepidopteranactive cultivar licensed country extent monsanto lawfully permitted monsanto shall notify dpl effect provide dpl evidence concerning suspected infringement monsantos possession dpl shall use reasonable efforts terminate infringement litigation otherwise nothing herein shall construed conferring monsanto right bring suit infringement dpls variety protection rights section 5 ownership technology 51 monsanto technology licensed patent rights monsanto technology shall remain property monsanto b licensed patent rights shall remain property owners effective date 52 dpl technology dpl technology shall remain property dpl 53 safety toxicology data dpl monsanto shall jointly safety toxicological data generated jointly development activities data solely developed either party shall solely owned respective party 54 efficacy data dpl monsanto shall jointly efficacy data jointly developed development activities data solely developed either party shall solely owned respective party 55 use data dpl monsanto shall permitted use jointlyowned safety toxicological efficacy data jointly developed development activities provided however use shall sole benefit third party section 6 compensation 61 compensation paid dpl time monsanto provides notice 311 monsanto shall collect compensation licenses produce commercial cotton crop licensed commercial seed directly licensed growers consideration dpls promises obligations contained herein including limited obligations section 42 monsanto shall remit dpl remainder net license fees deduction amount equal net license fees multiplied monsanto royalty percentage 62 compensation paid monsanto consideration rights licenses granted dpl pursuant subsections 31 32 dpl shall pay monsanto royalty fiscal year royalty due addition dpl hereby grants monsanto term agreement nonexclusive license improvements right sublicense conflict dpls exclusive rights agreement monsanto third party said license commercially reasonable terms country dpl licensed sell deltapine lepidopteranactive cultivars 63 compensation period respect lepidopteranactive gene dpls obligation pay royalty licensed country shall begin date first commercial licensing specific cultivar licensed commercial seed containing lepidopteranactive gene shall expire later fifteen years date first commercial licensing licensed country ii expiration lasttoexpire licensed patent rights one enforceable claims absence license monsanto would infringed making using selling licensed commercial seed containing lepidopteranactive gene licensed country iii date monsanto holds effective product registrations term effective product registrations means official clearances written approvals issued governmental agencies licensed country date authority regulate use lepidopteranactive gene necessary sale cotton seed containing lepidopteranactive gene licensed country effectively prevent third parties licensed monsanto selling seed containing lepidopteranactive gene licensed country product registrations held monsanto shall considered effective product registrations seed containing lepidopteranactive gene produced third parties licensed monsanto makes ten percent 10 cotton planting seed containing lepidopteranactive gene legally sold licensed country fiscal year monsanto may terminate compensation period earlier date notice dpl b upon expiration compensation period respect specific lepidopteranactive gene dpl shall permanent paidup license sell deltapine lepidopteranactive cultivars containing specific lepidopteranactive gene licensed country use deltapine lepidopteranactive cultivars progeny thereof purpose including introduce involved lepidopteranactive gene deltapine cultivars use licensed country involved lepidopteranactive gene genetic materials used specific lepidopteranactive gene deltapine cultivars provided however license provided either expressly implication patent owned third party monsanto patent right make use sell product contain specific lepidopteranactive gene compensation period ended time compensation period ends lepidopteranactive gene monsanto shall future responsibility dpl agreement respect specific deltapine lepidopteranactive cultivar deltapine cultivars derived therefrom use lepidopteranactive gene dpl shall cease using bollgardr gene trademark termination future responsibilities shall affect obligations accrued prior expiration period dpl shall assume full responsibility deltapine lepidopteranactive cultivars containing gene shall defend indemnify hold monsanto employees directors officers agents harmless loss cost liability expense including court costs reasonable fees attorneys professionals incurred claim arising way connected dpls use lepidopteranactive gene biological materials holds paidup license provided however dpl shall sole control defense negotiations relating settlement provided however dpl shall keep monsanto advised status claim negotiations settlement dpl could reasonably substantial direct financial impact monsanto shall require prior written approval monsanto shall unreasonably withheld ii obligation indemnify conditional monsanto notified dpl within thirty 30 days receipt monsanto performance claim subject indemnification iii monsanto desires counsel participate preparation defense trial settlement claim subject indemnification participation shall monsantos expense iv monsanto assumes defense claim dpl shall obligation defend indemnify monsanto respect claim v monsanto must promptly provide information possession reasonably requested dpl make available personnel monsanto depositions testimony consultations provide technical assistance reasonably requested dpl extent necessary defense asserted claim c provisions section 63b apply deltapine lepidopteranactive cultivars containing lepidopteranactive gene compensation period expired 64 technology fee event monsanto gives notice section 311 thereby grants dpl additional rights licensed country monsanto shall set technology fee licensed country option market within licensed country monsanto shall notify dpl 1 initial technology fees within sixty 60 days notice section 311 2 later following september 1 technology fees charged coming fiscal year notice sent monsanto technology fee shall remain set previous fiscal year section 7 business recordspayments 71 business records dpl monsanto shall keep records respect licensed country showing license fees due collected licensed growers amount prices licensed commercial seed sold otherwise transferred third parties showing results respective activities sections 35a 4 6 dpl monsanto agree submit books records examined time extent necessary verify reports provided section 7 confidential examination made national auditing firm appointed expense party requesting audit firm shall reasonably acceptable party event audit errors aggregate identified result payment audited party requesting party 25 percent amount paid audited party shall pay reasonable expense audit 72 reports payments march 1 august 1 fiscal year dpl shall submit monsanto market licensed country report sales licensed commercial seed market since recent previous report ii information necessary determine compliance section 35a including information third party technology provider genes added stacked gene cotton seed report sales shall include units invoiced collected variety licensed commercial seed calculation royalty due along basis calculation report dpl shall pay monsanto royalty due pursuant subsection 62 amounts necessary compliance provisions subsection 35a payment due monsanto particular market licensed country subject reporting period written report shall state b march 1 august 1 fiscal year monsanto shall submit dpl market licensed country report net license fees invoiced collected market since recent previous report shall include technology fee charged license country market licensed country report monsanto shall pay dpl share net license fees due pursuant subsection 61 fees collected since recent previous report payment due dpl particular market licensed country subject reporting period written report shall state c reports payments due pursuant section 7 shall sent dpl delta pine land company one cotton row scott mississippi 38772 attention president monsanto company 800 north lindbergh boulevard st louis missouri 63167 attention global product management cotton addresses may designated parties time 73 interest outstanding balances either party fails pay due date amount payable agreement without prejudice subsection 105 amount shall bear interest prime rate corporate loans large u money center commercial banks reported wall street journal said due date plus three percent 3 per annum due date payment made full judgment 74 offsetting payments either party may request parties meet person telephone video fifteen days prior due dates provided section 72 give reports due section 72 calculate net payment owed one party event offset report shall state part compensation due party offset amount due reporting party debtor party requested meeting section 74 party failed comply nextdue payment debtor party shall subject interest payments section 73 fifteen days party sent report debtor party made payment applicable section 8 confidentiality 81 nondisclosure confidential information neither dpl monsanto shall time period specified subsection 82 disclose person confidential technology confidential information disclosed party except prior written consent party provided subsection 83 provided however monsanto shall permitted disclose general information relating performance lepidopteranactive gene extent disclosure necessary desirable commercialization cotton seed containing lepidopteranactive gene licensed country provided monsanto shall permitted disclose information relating specifically deltapine cultivars b monsanto shall disclose confidential dpl pricing sales sensitive information competitor dpl 82 period confidentiality period referred subsection 81 shall period beginning date receipt confidential technology confidential information ending respect technology information ten 10 years thereafter 83 uses confidential information subject overriding provisions subsections 53 54 55 technology confidential information disclosed either dpl monsanto party may disclosed recipient directors officers employees agents contractors recipient extent reasonably necessary fulfillment recipients obligations agreement commercial exploitation cotton seed containing lepidopteranactive gene subject case recipients obligating person question hold confidential written agreement coincident scope term confidentiality obligation agreement person agreeing use except purposes disclosure made b disclosed recipient governmental authority regulatory body extent required law provided however recipient shall take reasonable measures ensure authority body keeps confidential use except purpose disclosure made provided party proposing disclose shall give prior notice intent party disclosed technology andor confidential information permit said party option contest said requirement seek confidential treatment technology information c disclosed court litigant extent disclosure ordered court governmental agency competent jurisdiction provided however recipient shall take reasonable measures ensure court litigants governmental agency keep confidential use except purpose disclosure made provided party proposing disclose shall give prior notice intent party disclosed technology andor confidential information permit said party option contest said requirement seek confidential treatment technology information used recipient purpose disclosed recipient person extent effective date thereafter becomes public knowledge fault recipient disclosed recipient third party matter right shown recipient written records known recipient prior disclosure section 9 force majeure 91 force majeure except regard payments required pursuant agreement party shall liable delay failure perform whole part reason contingencies beyond reasonable control force majeure whether herein specifically enumerated including among others acts god war acts war revolution civil commotion riots acts public enemies blockade embargo delays carriers car shortage fire explosion breakdown equipment strike chemical reversal reactions lockout labor dispute casualty accident earthquake epidemic flood cyclone tornado hurricane windstorm delays vendors reason law order proclamation regulation ordinance demand requisition requirement act governmental authority including limited governmental actions restricting preventing growing marketing licensed commercial seed provided however party affected shall promptly reasonably possible circumstances give written oral notice parties whenever contingency appears likely occur occurred shall use reasonable efforts overcome effects contingency promptly possible shall allow party access information may necessary desirable evaluate contingency party shall required resolve strike lockout labor problem manner alone deem proper advisable party affected event sort enumerated contemplated subsection 91 may suspend performance agreement period time equal duration event excusing performance time required overcome consequences event resume performance affected party shall complete performance required agreement soon practicable removal cessation cause delay reduction performance section 10 term termination 101 term agreement term agreement shall begin effective date shall extend dpl longer selling licensed commercial seed licensed country unless agreement terminated earlier pursuant provision section 10 102 termination monsanto shall right terminate agreement giving notice dpl bollgardr gene license terminated default monsanto dpl shall right terminate agreement giving notice monsanto bollgardr gene license terminated reason default dpl b monsanto shall right respect particular lepidopteranactive gene terminate agreement period two 2 consecutive years starting january 1 2001 total annual royalty revenue monsanto licensees use subject lepidopteranactive gene cotton less monsantos total annual royalty due third parties license agreements parties technology applied cotton monsanto shall notify dpl annual royalty revenue monsanto licensees less one hundred twentyfive percent 125 monsantos total annual royalty due said third parties event monsanto elects terminate agreement subsection 102b monsanto shall terminate also license agreements use subject lepidopteranactive gene licenseessublicensees ii allow dpl sublicenseeslicensees sell existing inventories cotton seed containing subject lepidopteranactive gene possession date notice termination obligated contract take delivery event monsanto elects terminate agreement subsection 102b provisions agreement shall remain force contractual purchase commitments fulfilled inventories exhausted c monsanto shall right option convert licenses nonexclusive grant licenses parties use lepidopteranactive genes related monsanto technology licensed country change control dpl occurs instance change control monsanto shall provide notice dpl exercise option convert licenses within six 6 months receipt notice dpl occurrence change control event monsanto sends notice dpl within six 6 month period monsanto may convert licenses nonexclusive unless subsequent change control occurs purpose subsection 102c control shall mean respect corporation direct indirect ownership sufficient shares voting stock corporation would enable holder thereof elect majority board directors corporation ii respect legal entity ownership interest therein excess 50 thereof dpl shall right terminate agreement providing written notice monsanto august 31 fiscal year effect august 31 fiscal year event dpl determines sole discretion sale licensed commercial seed licensed country meet dpls targets profitability return investment ii licensed patent rights monsanto technology licensed hereunder provide sufficient competitive advantage dpl two 2 fiscal years following effective date termination section 102d dpl shall sell monsanto affiliate monsanto quantities licensed commercial seed ordered monsanto exceed quantities necessary meet forecast set previous february 1 provisions section 45 solely resale licensed country dpls existing distribution system licensed commercial seed shall sold dpl monsanto dpls distributor price applicable licensed commercial seed sold dpl resale licensed country fiscal year ending effective date termination addition dpl shall receive monsanto payment first fiscal year following effective date termination equal net license fees collected units licensed commercial seed invoiced monsanto affiliates licensees licensed country respect quantity licensed commercial seed sold dpl section 102d multiplied 100 minus monsanto royalty percentage applicable fiscal year ending effective date termination second fiscal year following effective date termination equal net license fees collected units licensed commercial seed invoiced monsanto affiliates licensees licensed country respect quantity licensed commercial seed sold dpl section 102d multiplied 85 minus monsanto royalty percentage applicable fiscal year ending effective date termination event monsanto receives payment seed distributors licensed country shipment payment dpl seed shall made monsanto cash confirmed irrevocable letter credit received dpl prior shipment seed monsanto affiliate otherwise payment dpl seed shall made monsanto thirty 30 day net terms may mutually agreed upon writing payment said additional amounts shall due respect seed sold market dates set forth payments dpl share net license fees section 72 first second fiscal years following effective date termination section 102d dpl shall provide expense commercially reasonable level technical support relating sales licensed country licensed commercial seed sold monsanto pursuant section 102d provisions section 13 agreement shall remain effect respect seed sold dpl monsanto pursuant section 102d first fiscal year following effective date termination section 102d shall thereafter effect 103 breach obligations breach party material provisions agreement confidentiality obligations section 8 default upon payment obligations provided herein shall entitle parties give party breach default least ninety 90 days notice cure breach default breach default defaulting party cured within ninety 90 day period materiallyaffected party may terminate agreement giving notice party take effect immediately provided however breach default cured monsanto within ninety 90 day period dpl extent shall materially affected default may option giving notice monsanto terminate agreement ii terminate dpls obligations subsection 44 provisions agreement remain effect option selected dpl shall take effect immediately termination subsection 103 shall affect rights notifying party may agreement 104 default payment event dpl defaults payment due monsanto pursuant subsection 43d section 6 unless default caused default action monsanto fails cure default within thirty 30 days notice monsanto shall right terminate agreement giving notice dpl event monsanto defaults payment due dpl pursuant section 6 unless default caused default action dpl fails cure default within thirty 30 days notice dpl shall right terminate agreement giving notice monsanto 105 effect termination event agreement terminated entirety respect licensed country either dpl monsanto dpl shall lose rights licenses granted pursuant agreement respect licensed country provided however agreement terminated respect licensed country dpl account breach default monsanto dpl shall right sell licensed commercial seed possession dpl obligated contract take delivery licensed country 106 survival covenants notwithstanding termination agreement notice otherwise rights obligations conferred sections 6 7 8 11 12 13 14 respect events occurred prior termination shall survive termination section 11 warrantylimitations 111 monsanto warranties monsanto hereby warrants represents respect lepidopteranactive gene authorized monsanto commercial sale date approval commercial sale licensed country monsanto owner lepidopteranactive gene monsanto technology used development thereof ii owner licensee applicable licensed patent rights iii right license sublicense dpl lepidopteranactive gene licensed patent rights monsanto technology used development thereof use terms agreement 112 mutual warranties monsanto warrants dpl license agreement performance monsanto obligations hereunder contravene provision agreement contract binding upon monsanto b dpl warrants monsanto license agreement performance dpl obligations hereunder contravene provision agreement contract binding upon dpl 113 warranties expressly understood dpl monsanto make representations extend warranties either express implied assume responsibilities expressly provided herein respect performance merchantability fitness particular purpose lepidopteranactive genes related monsanto technology licensed commercial seed deltapine cultivars b scope validity patent licensed patent rights c lepidopteranactive gene related monsanto technology licensed commercial seed deltapine cultivars use thereof free infringement patents licensed patent rights section 12 patent infringement 121 utilization noninfringing technology monsantos opinion development production processing use export sale licensed commercial seed respect licensed country authorized commercial sale writing monsanto would infringe third party patent monsanto shall employ reasonable business efforts judgment access necessary license said third party additional cost dpl time said patent shall become part licensed patent rights monsanto alternative technology monsanto lawfully license use dpl obviates need said third party license monsanto cannot access reasonable cost results plants exhibit lepidopteran resistance greater levels plants produced licensed commercial seed containing previously authorized technology monsanto shall make alternative technology available dpl shall promptly utilize alternative technology avoid need third party license nothing agreement shall preclude dpl negotiating directly third party rights patents patent applications held third party provided however costs incurred dpl negotiating acquiring third party patent rights shall credited payments due monsanto dpl unless monsanto agrees credit writing 122 defense infringement claims subject limitations subsection 123 monsanto shall assume defense claim brought dpl third party infringement patent licensed country insofar claim arises solely dpls use licensed country transgenic cotton germplasm provided monsanto pursuant agreement dpl infringement claim except provided contrary section 12 shall assume legal costs expenses defending dpl infringement claim monsanto shall permitted conduct defense nationallyrecognized patent counsel litigation lawyers choice experienced patent law shall regularly keep dpl informed writing status progress suit dpl desires counsel participate preparation defense trial settlement dpl infringement claim participation shall dpls expense subject limitations subsection 122 123 monsanto shall indemnify dpl monetary damages andor costs actually awarded suit amounts paid settlement respect dpl infringement claim event dpl assumes defense dpl infringement claim monsanto shall obligation defend indemnify dpl respect dpl infringement claim b dpl infringement claim made third party license agreement available reasonable terms settle dpl infringement claim ii dpl accept proposed reasonable license agreement monsantos liability obligations defend indemnify dpl respect dpl infringement claim shall limited sum costs incurred damages attributable dpls activities prior availability license plus amount exceed royalties monetary payments would payable dpls activities availability license third party licensor license agreement accepted c obligation monsanto pursuant subsection 122 shall apply dpl notifies monsanto within ten 10 days receipt dpl notice alleged potential infringement thirdparty patent production use sale licensed commercial seed dpl infringement claim ii monsanto given exclusive control defense dpl infringement claim negotiations relating settlement provided however monsanto shall keep dpl advised status dpl infringement claim negotiations settlement monsanto reasonably could substantial direct financial impact dpl shall require prior written approval dpl shall unreasonably withheld provided purposes subsection 122cii settlement requires payment remaining indemnification amount subsection 123 thirdparty patent owner would require payment said third party continued development production use sale licensed commercial seed shall considered direct financial impact dpl iii dpl promptly provides attorneys defending action relevant information possession excluding information covered confidentiality obligations third parties reasonably requested monsanto reasonably makes available personnel dpl depositions testimony consultations provides technical assistance reasonably requested monsanto extent necessary conduct suit extent dpl power legal right event dpl infringement claim allegation infringement thirdparty patent licensed country reasonable license agreement third party available dpl shall upon written request monsanto promptly cease desist infringing activity dpl cease desist activity monsanto shall obligation defend indemnify dpl respect dpl infringement claim 123 limitation liability monsantos total liability time indemnification payments third parties patent infringement payments made settlement thereof costs associated defense dpl infringement claims shall cumulatively exceed total amount net license fees retained monsanto payment amount due dpl section 61 including fees retained monsanto sales licensed country prior effective date plus ii royalty paid monsanto dpl sales applicable licensed country 124 suspected infringement licensed patent rights event dpl learns suspected infringement licensed patent rights extent dpl lawfully permitted dpl shall notify monsanto effect provide monsanto evidence concerning suspected infringement dpls possession monsanto shall use reasonable efforts terminate infringement without litigation nothing herein shall construed conferring dpl right bring suit infringement licensed patent rights 125 effect invalidity licensed patent rights event claim licensed patent rights declared invalid unenforceable final judgment court competent jurisdiction licenses granted section 3 shall terminate force effect subject matter covered claim however subject provisions section 6 licenses shall continue respect remaining patent claims within licensed patent rights 126 suspected misappropriation monsanto technology event dpl learns suspected misappropriation third party gene candidate become lepidopteranactive gene monsanto technology furnished monsanto progeny thereof extent may lawfully dpl shall notify monsanto provide monsanto available information concerning suspected misappropriation cooperate monsanto terminate misappropriation andor obtain redress therefor expense monsanto section 13 claims vendee failure gene performance 131 procedure indemnities vendee claims event purchaser licensed commercial seed makes claim one parties breached warranty licensed commercial seed otherwise failed provide expected performance whether claim made governmental forum court communicating directly one parties distributor licensed commercial seed following shall apply neither party shall communicate purchaser hereinafter claimant alleged failure due technology party b party receiving notice claim action shall notify within fifteen days receipt party c case settlement party expects party share portion cost settlement parties shall first agreed settlement offer prior communication claimant including shall responsible portion settlement payment whether cash goods services alternatively agreement may include agreement refer issue responsibility arbitration provided subsection 131eiv parties shall jointly defend formal action claimant class claimants e parties shall indemnify costs defense damages awarded paid way settlement agreed upon provided subsection 131c together action costs result action following basis licensed commercial seed involved action failed meet seed purity standard deltapine cultivar cotton planting seed cause alleged failure regardless presence lepidopteranactive gene dpl shall indemnify monsanto one hundred percent action costs ii licensed commercial seed involved action also contained roundup readyr gene claimant used roundupr herbicide sourced monsanto plants grown licensed commercial seed roundupr herbicide shown defective defect cause alleged failure monsanto shall indemnify dpl one hundred percent action costs iii neither ii applies presence lepidopteranactive gene roundup readyr gene applicable failure performance either gene cause alleged failure licensed commercial seed monsanto shall responsible percentage action costs equal monsanto royalty percentage applicable sale licensed commercial seed led action dpl shall responsible balance action costs party indemnifies amount provided dpl shall responsibility action costs event breach express warranty monsanto agents gave rise cause action dpl agreed terms express warranty monsanto shall responsibility action costs event breach express warranty dpl agents gave rise cause action monsanto agreed terms express warranty iv monsanto dpl agree ii iii applies parties shall submit arbitration provided section 1011 option agreement issue cause alleged failure licensed commercial seed necessary liability party agreement following allocations provided section 131e provided arbitrator determines one ii iii applies also determines cause alleged failure allocated reasonable certainty among monsanto dpl percentage terms arbitrator may allocate action costs accordance finding concerning cause b arbitrator cannot determine cause alleged failure performance provisions section 131 monsanto shall responsible percentage action costs equal monsanto royalty percentage applicable sale licensed commercial seed led action dpl shall responsible balance action costs party indemnifies amount arbitrators shall power alter amend otherwise affect terms agreement f event information comes attention either monsanto dpl change conditions occurred reasonably necessitates modification performance warrantyies previously agreed upon parties party information shall notify party within sixty 60 days receipt information monsanto dpl shall act good faith reach agreement upon appropriate modifications performance warrantyies g event information reasonably verified comes either monsantos dpls attention time mutual agreement express performance warrantyies time receipt verification would reasonably convincing expert relevant field express performance warrantyies modified party information notify party information within sixty 60 days thereafter party withholding information shall solely liable costs claims arising alleged breach express performance warrantyies connection sales occurring 1 date dpl exercise reasonable commercial diligence could disseminated effective legallybinding modifications express performance warrantyies information known 2 date dpl exercise reasonable commercial diligence could disseminate effective legallybinding modifications performance warrantyies party withholding information shall indemnify hold party harmless damages liabilities arising claims extra expenses arising delay notifying party information 132 failure comply required procedures party breaches provisions section 131 respect claim claims purchasers licensed commercial seed party shall one hundred percent responsible costs settling defending claims damages awarded result actions involving claims 133 dpls indemnity vendees claims except expressly provided subsections 131 132 dpl shall defend indemnify hold monsanto employees directors officers agents harmless loss cost liability expense including court costs reasonable fees attorneys professionals incurred claim cotton farmers purchase distributors farmers may make claims arising way connected licensed commercial seed plant grown therefrom performance either provided however dpl shall sole control defense negotiations relating settlement provided however dpl shall keep monsanto advised status claim negotiations settlement dpl could reasonably substantial direct financial impact monsanto shall require prior written approval monsanto shall unreasonably withheld ii obligation indemnify conditional monsanto notified dpl within thirty 30 days receipt monsanto performance claim subject indemnification iii monsanto desires counsel participate preparation defense trial settlement claim subject indemnification participation shall monsantos expense iv monsanto assumes defense claim dpl shall obligation defend indemnify monsanto respect claim v monsanto must promptly provide information possession reasonably requested dpl make available personnel monsanto depositions testimony consultations provide technical assistance reasonably requested dpl extent necessary conduct suit section 14 general 141 assignment dpls rights obligations dpl shall right assign agreement connection reorganization consolidation spinoff sale transfer substantially stock assets related portion business pertaining subject matter agreement either alone conjunction dpl businesses part overall reorganization dpl assignee shall agree writing bound terms agreement dpl shall thereafter released obligations hereunder addition dpl shall right assign respective rights obligations delegate performance hereunder whole part one affiliates carries activities licensed agreement provided however dpl shall remain liable obligations affiliate hereunder except provided dpl shall operation law otherwise assign mortgage give security license rights hereunder shall dpl subcontract delegate ordinary course business obligations hereunder except otherwise provided agreement except written consent monsanto 142 assignment monsantos rights obligations monsanto shall right assign agreement connection reorganization consolidation spinoff sale transfer substantially stock assets related portion business pertaining subject matter agreement either alone conjunction monsanto businesses part overall reorganization monsanto assignee shall agree writing bound terms agreement monsanto shall thereafter released obligations hereunder addition monsanto shall right assign respective rights obligations delegate performance hereunder whole part affiliates provided however monsanto shall remain liable obligations hereunder except provided monsanto shall operation law otherwise assign mortgage give security license rights hereunder shall monsanto subcontract delegate ordinary course business obligations hereunder except otherwise provided agreement except written consent dpl 143 relation parties nothing agreement shall create deemed create partnership relationship principal agent among parties provision agreement intended benefit enforceable third party 144 integration contract agreement constitutes full understanding parties complete allocation risks complete exclusive statement terms conditions agreement relating subject matter hereof except provided section 313 prior agreements negotiations dealings understandings whether oral written regarding subject matter hereof hereby superseded merged agreement 145 waivers amendments agreement may amended superseded canceled renewed extended terms hereof may waived written instrument signed parties case waiver party waiving compliance except specific period action inaction provided herein delay part party exercising right power privilege hereunder shall operate waiver thereof shall waiver part party right power privilege single partial exercise right power privilege preclude exercise thereof exercise subsequent right power privilege except otherwise provided herein conditions usage trade course dealing performance understanding agreement purporting modify vary explain supplement terms conditions agreement except related agreements shall biding unless hereafter made writing signed party bound written amendment hereof executed parties modification shall effected acknowledgment acceptance forms documents containing terms conditions variance addition set forth agreement 146 headings section subsection headings contents particular sections subsections convenience way construed part agreement limitation scope particular section subsection refer 147 references sections subsections exhibits unless otherwise expressly stated sections subsections referred herein sections subsections agreement appendices referred herein appendices attached hereto 148 partial invalidity provision agreement held competent authority invalid unenforceable whole part agreement shall continue valid provisions thereof remainder affected provision provided however determination invalidity unenforceability substantially diminishes value agreement party parties shall promptly negotiate good faith modify agreement necessary make fair equitable parties fail agree upon modifications agreement resolve issue within ninety 90 days commencement negotiations either party may terminate agreement written notice given within thirty 30 days expiration said ninety 90 day period said termination take effect one year commencement negotiations 149 governing contract law agreement shall except provided subsection 1410 governed construed respects accordance laws state delaware rules conflicts law 1410 notices notice information required authorized agreement given party shall given writing shall deemed sufficiently given delivered hand transmitted express mail overnight courier service transmitted facsimile means electronic data transmission confirmed express mail overnight courier service following addresses party addresses notified subject parties party time dpl delta pine land company one cotton row scott mississippi 38772 attention president monsanto company 800 north lindbergh boulevard st louis missouri 63167 attention global product management cotton 1411 incorporation exhibits appendices incorporated herein made part hereto witness whereof agreement executed duly authorized representatives parties herein delta pine land company title monsanto company title appendix 1 licensed patent rights patent application appendix 2 bollgardr gene trademark license bollgardr trademark license mexico agreement made day november 2000 monsanto company corporation organized existing laws state delaware principal place business 800 north lindbergh boulevard st louis missouri 63167 hereinafter referred monsanto delta pine land company organized existing laws state delaware principal place business one cotton row scott mississippi 38772 hereinafter referred licensee witnesseth whereas monsanto owner trademark subject mexican trademark registrations 222783 313921 bollgardr genes hereinafter referred bollgardr trademark whereas monsanto licensee entered license agreement sale licensee cotton seed containing lepidopteranactive gene hereinafter referred license agreement whereas licensee desires obtain license use bollgardr trademark connection sale mexico transgenic cotton seed containing insect resistance genes licensed monsanto pursuant license agreement therefore consideration mutual undertakings obligations herein obtained parties agree follows 1 monsanto hereby grants licensee subject terms conditions herein contained nonexclusive royaltyfree license use bollgardr trademark relation cotton seed contains insect resistance genes produced pursuant license agreement hereinafter referred goods license shall assignable third party manner specified subsections 141 142 license agreement part parcel assignment license agreement 2 licensee agrees use bollgardrtrademark goods meet standards quality set license agreement 3 monsanto shall right reasonable times inspect examine methods processes containers used licensee bagging treating storing goods licensee uses bollgard trademark request samples goods containers licensee agrees permit inspections examinations furnish samples inspection examination shall sole purpose confirming quality goods meets standards set forth writing monsanto shall used competitive purpose whatsoever 4 licensee shall right use bollgardr trademark advertising promotional literature like well labels packaging containers like goods licensee agrees use bollgardr trademark shall accordance provisions section 36 license agreement agrees bollgardr trademark shall used r symbol shall keyed footnote registered trademark used license monsanto company licensee agrees submit monsanto representative samples labels packaging containers advertising promotional materials bollgardr trademark applied 5 licensee acknowledges monsantos exclusive ownership right title interest bollgardr trademark agrees licensees use bollgardr trademark shall inure benefit monsanto licensee agrees way dispute impugn attack validity said bollgardr trademark monsantos rights thereto 6 term agreement shall coextensive term license agreement unless sooner terminated accordance terms section 7 hereof 7 time licensee use bollgardr trademark goods produced accordance terms license agreement time licensee breaches provision agreement fails observe obligations hereunder license granted herein shall terminable upon written notice monsanto effect provided however licensee shall ninety 90 days receipt notice cure breach default 8 licensee agrees notify monsanto promptly apparent infringement bollgardr trademark monsanto take action regarding infringement deems sole discretion necessary desirable licensee agrees cooperate therein 9 monsanto agrees indemnify hold licensee harmless claims suits damages costs arising claim trademark infringement account licensees use bollgardr trademark provided however licensee shall promptly notify monsanto claim suit shall reasonably cooperate monsanto defense thereof witness whereof parties caused agreement executed duplicate duly authorized representatives date first set forth monsanto company witness title delta pine land company witness title appendix 3 quality specifications seed production licensed commercial seed must follow guidelines approved quality assurance program seed production fields licensed commercial seed must inspected state crop improvement association inspector trained qualified third party inspectors trained qualified dpl company inspectors presence lepidopteranactive gene licensed commercial seed lots must tested verify least 98 finished seed contains lepidopteranactive gene dpl must conduct tests seed lot using protocol approved monsanto data maintained dpls possession least three 3 years following last sale seed data shall promptly made available monsanto upon request breeder seed lots sampled tested verification presence intended events absence unintended events using monsanto approved assays tolerances term unintended event shall mean dna molecules vector constructs replicates thereof naturally occurring cotton intended present variety tolerances unintended events set forth definition seed purity standard seed offered sale unless meets appropriate threshold monsanto shall right audit dpls quality control program confidential examination made qualified third party reasonably acceptable dpl may take test subsamples samples retained dpl test results inspection records quality assurance quality control documentation shall available auditor upon request third party auditor may disclose dpls methods quality assurance shall report monsanto whether dpl compliance requirements seed purity standard costs associated quality assurance programs shall borne dpl appendix 4 procedure archivingstorage samples seed lots 11 purpose protocol focuses collection storage security file samples representing processed lots licensed commercial seed storage said samples satisfy pertinent state federal seed law requirements development historical data confirmation evaluation event customer inquiries legal claims confirm monsantos dpls legal rights andor obligations agreement 12 responsibility 1 dpls quality assurance department obtain representative sample every finished seed lot conditioning process sample taken automatic sampling device bagging station probed hand whichever appropriate divided representative portions per association official seed analysts rules testing seeds portion storage weigh approximately 15 pounds 2 samples labeled lot number variety class year grown date number bags per lot immediately sealed 4mil linear low density polyethylene bag laminated sarancoated 48 gauge polyester comparable container provide good moisture barrier 3 order preserve sample quality storage conditions commercially reasonable samples stored either airconditioned storage dry arid environments relative humidity temperature combined exceed 100 temperature expressed degrees fahrenheit 4 access samples restricted persons authorized dpl kept physically secure location 5 order safeguard samples natural disasters portion approximately 05 pounds every file sample kept another dpl location 6 samples stored period three 3 years creation lot prior expiration period claims legal proceedings commenced involve specific lot sample retained matter finally concluded 7 monsanto reserves right appoint qualified third party reasonably acceptable dpl conduct confidential audit dpls quality assurance activities assure trait purity maintained third party auditor may disclose dpls methods quality assurance shall report monsanto whether dpl compliance requirements appendix 5 gene equivalency tests objective ensure new deltapine lepidopteranactive cultivars hereafter appendix 5 referred new varieties meet minimum standard performance relative insecticidal protein expression background protocol designed purpose testing new varieties ensure express bt toxins level equal greater standard established monsanto new varieties tested representative locations throughout cotton growing areas target world areas protein expression determined laboratory bioassays location include standard varieties appropriate world area candidate varieties must meet exceed expression levels standard varieties standard varieties used trials shall selected mutual agreement monsanto dpl consent agreement identification standard varieties shall unreasonably withheld delayed either party experimental design new candidate varieties appropriate standards must planted six locations single row strip plots used row less 10 meters length plots areas uniform terms soil properties agronomic management plot management good agronomic management practices used appropriate site use infurrow maintenance insecticides needed plant growth regulators used appropriate sampling two plant parts sampled three times across varieties location plants first position white flower selected sampling first position white flower used reference point plant ten plants sampled per plot sampling date plants aberrant growth patterns crazy cotton sampled 10plant samples varietyplant part placed sample bag immediately placed ice samples frozen soon possible leaving field samples may stored short periods normal freezer prior shipping plant parts 1 terminal leaf 25 cm diameter 2 fruiting structure first two sampling times sampling times 1 2 collect first position squares located 2 nodes first position white flower third sampling time sampling time 3 collect first position boll immediately white flower sample times 1 10 14 days post first flower first flower point when12of varieties started blooming 2 two weeks post first sampling 3 four weeks post first sampling plant growth stage documentation third sampling time record following parameters plant sampled node first position white flower nodes white flower nawf ie terminal node upper node leaf greater 25cm diameter date sample shipment plant samples remain frozen times samples packed dry ice shipped overnight designated lab environmental data abnormal weather conditions recorded extremes temperature rainfall drought water logged soils etc record timing extent duration abnormal weather conditions also record unfavorable unusual management practices might cause stress excessive growth plants overunder irrigation much fertilizer herbicide damage etc efficacy standard meet minimum standard performance average expression across locations within plant part squares bolls within sampling time must statistically lower standard 95 confidence level criteria must met plant parttiming samples completing statistical analysis locations used blocks note terminal leaves collected used part efficacy standard samples used monitor expression foliar tissue monsanto reserves right include reasonable minimum level expression samples future varieties passed mentioned protocol two years world area may considered exempt additional gene equivalency trials approved sale licensed country based mutual agreement monsanto dpl agreement unreasonably withheld delayed commercial seed production commercial agronomic testing may started variety passes one year gene equivalency trials approval obtained monsanto writing commercial agronomic testing exceed whichever smaller 10000 acres one half percent total cotton acreage market costs associated gene equivalency trials shall borne dpl cost protein expression studies 3000 per entry 2001 season appendix 6 variety comparison protocol dpl conduct trials market fiscal year include dpl varieties containing lepidopteranactive gene sold market year trials least 4 replications 2 rows least 15 meters length check varietyies shall determined according section 43b fields managed agronomically pest control based best cultural practices maximizing return competitive variety data collected yield fiber properties trials summarized data presented monsanto thirty 30 days prior dates set section 72 data presented monsanto review trials valid lsds 005 included summary analysis compare dpl varieties control varietyies applicable seasons dpl must provide least two trials per fiscal year per market meet criterion data shall evaluated using analysis variance across years locations varieties lsd 005 threshold treatment mean separation 135 trials average lint yield 300 pounds per acre lsd threshold increase 5 every 100 pound increase average lint yield eg trial average lint yield 1000 pounds per acre considered valid lsd 005 less equal 170 ie 135 35 170 seed cotton weights lsds converted lint equivalents using gin turn 035 actual lint percentages available exhibit 1034 roundup readyr license agreement republic south africa agreement made day september 2001 monsanto company subsidiary pharmacia corporation place business 800 north lindbergh boulevard st louis missouri 63167 delta pine land company place business one cotton row scott mississippi 38772 section 1 background 11 monsanto developed present intention continue develop technology useful production genetically modified cotton plants exhibiting tolerance glyphosate also possesses certain knowhow germplasm relating cotton plants 12 monsanto dm partners dpl entered rr gene license pertaining commercialization abovedescribed monsanto technology united states 13 simultaneously execution rr gene license monsanto dpl entered option agreement monsanto granted dpl rights obtain nonexclusive licenses commercialize monsanto technology pertaining roundup readyr genes certain countries outside united states 14 parties wish enter agreement pursuant option agreement set forth rights obligations parties relevant sale deltapine roundup readyr cultivars republic south africa section 2 interpretation 21 definitions agreement unless context otherwise requires 211 term average unit gross margin percentage respect particular class cotton planting seed means one minus quotient cost goods sold divided wholesale price per unit particular class averaged units particular class sold applicable fiscal year expressed percentage 212 term bt toxin means insecticidal protein derived bacillus thuringiensis active fragment modification deletion mutation thereof toxic lepidopteran insects 213 term class means type cotton planting seed categorized presence absence trait traits introduced using biotechnology monsanto another example class licensed commercial seed containing lepidopteranactive gene another example licensed commercial seed containing lepidopteranactive gene roundup readyr gene 214 term combined product shall mean licensed commercial seed also contains lepidopteranactive gene 215 term commercial development roundup readyr gene means evaluation roundup readyrgene dpl one deltapine cultivars andor third party third partys cultivars 216 term commercial sale respect roundup readyr gene means sale transfer value cotton planting seed containing roundup readyr gene use producing commercial commodity cotton crop sale transfer testing seed multiplication behalf transferor 217 term compensation period means respect roundup readyr gene period time pursuant subsection 63a dpl obligated pay royalty monsanto sale license commercial seed containing particular roundup readyr gene 218 term cost goods sold respect particular nonglyphosate tolerant cotton seed licensed commercial seed means average sums costs required acquire prepare particular seed costs shall calculated accordance generally accepted accounting principles applied dpls inventory costing policies costs include direct indirect costs fuzzy seed field inspection quality assurance bulk seed handling storage processing conditioning delinting treating seed treatments packaging costs storage bagged seed plus cost dump seed less cull seed sales 219 term cotton planting seed means cotton seed intended produced conditioned suitable planting produce commercial cotton crop 2110 term dm partners means partnership dpl monsanto created partnership agreement 2111 term dpl means delta pine land company delaware corporation principal place business one cotton row scott mississippi 38772 2112 term dpl foreign affiliate means corporation entity organized operation licensed country either dpl owns fifty percent 50 voting stock regard entity issue voting stock fifty percent 50 outstanding equity interests ii dpl prohibited local laws regulations owning fifty percent 50 voting stock equity interests entity dpl owns maximum amount voting stock equity interests permitted local laws regulations b dpl effectively controls contract otherwise 2113 term dpl technology means information data germplasm dpl develops produces makes obtains rights monsanto relating breeding development commercial varieties hybrids licensed commercial seed varieties hybrids cotton property monsanto dpl technology include become part public domain fault monsanto 2114 term date approval commercial sale respect roundup readyr gene means date monsanto first authorizes commercial sale dpl cotton seed specific deltapine roundup readyr cultivars containing roundup readyr gene licensed country 2115 term date first commercial licensing respect particular roundup readyr gene licensed country means first date monsanto dpl according provisions subsection 33 311 sublicenses third party dpl foreign affiliate third party contract dpl testing seed multiplication right use specific cultivar licensed commercial seed containing particular roundup readyr gene use producing commercial commodity cotton crop licensed country 2116 term deltapine cultivar means cultivar cotton produced germplasm dpl right use plant breeding purposes 2117 term deltapine roundup readyrcultivar means deltapine cultivar contains roundup readyrgene 2118 term effective date means date first written 2119 term first roundup readyr gene means roundup readyr gene contained cotton seed derived cotton line denominated event 1445 2120 term fiscal year means twelve 12 month period beginning first day september ending last day following august 2121 term gene equivalency tests means field tests assays carried described appendix 5 equivalency test monsanto dpl may mutually agree substitute initial gene equivalency test 2122 term glyphosate means herbicidally effective form nphosphonomethylglycine including salt thereof epsp synthase inhibitor 2123 term governmental approval respect licensed country respect particular roundup readyr gene means required official clearances written approvals commercial sale seed produce geneticallytransformed cotton plants containing one obtained monsanto governmental agencies licensed country date authority regulate production use sale plants seed produced therefrom provided however shall require monsanto obtain approval agency respect issuance seed certificates phytosanitary certificates plant variety protection plant variety protection act governmental approval specific deltapine roundup readyr cultivar approvals appropriate required shall responsibility dpl 2124 term improvement means invention discovery embodied licensed commercial seed use made dpl sublicensees course activities agreement licensed country invention discovery made direct result dpls use monsanto technology part public domain obtained dpl third party obligation confidentiality monsanto licenses granted herein would infringe monsanto patent right improvement shall include invention discovery related breeding selection specific deltapine roundup readyr cultivars 2125 term lepidopteranactive gene means dna molecule received monsanto replicate thereof encoding toxin whether bt toxin provides lepidopteran resistance 2126 term lepidopteran insects means insects order lepidoptera economic impact production cotton including limited cotton boll worms tobacco budworms pink boll worms 2127 term lepidopteran resistance means property cotton plants toxic lepidopteran insects due presence one heterologous gene sequences whether encoding bt toxin 2128 term license licenses means licenses granted dpl section 3 2129 term licensed commercial seed means cotton planting seed incorporates first roundup readyr gene 2130 term licensed country means republic south africa rights obligations monsanto dpl hereunder apply licensed country 2131 term licensed growers means entity granted sublicense dpl according provisions subsection 33 licensed patent rights licensed monsanto permitted subsection 311 produce andor use monsanto technology production commercial cotton crop 2132 term licensed patent rights means monsanto patent rights patent rights others acquired licensed monsanto right sublicense term agreement license required dpls performance hereunder patent included within licensed patent rights listed appendix 1 appendix 1 shall amended written notice monsanto dpl whenever monsanto acquires additional licensed patent rights monsanto shall periodically notify dpl patent numbers included notice provided subsection 35b 2133 term marketing services fees means fees compensation paid retailers andor distributors services granting licenses sublicenses use monsanto technology licensed growers andor collect license fees licensed growers unless otherwise mutually agreed monsanto respective personnel south africa dpl respective personnel south africa marketing services fees shall exceed twelve percent 12 gross license fees use monsanto technology collected licensed growers 2134 term monsanto means monsanto company incorporated state delaware place business 800 north lindbergh boulevard st louis missouri 63167 2135 term monsanto patent rights means applicable exus patents patent applications owned monsanto right license dpl applicable us exus patents owned monsanto right license dpl license required permit dpl produce licensed commercial seed export sale licensed country patents granted issued pursuant foregoing extensions continuations continuationsinpart reissues divisions thereof 2136 term monsanto royalty percentage means percent 2137 term monsanto technology means information data knowhow technology monsanto rights use roundup readyr gene cotton including limited information technology relating cells seeds cotton plants dna sequences probes therefor transformation methodology tissue cultures assays residue analyses regeneration selection procedures plant genetic constituents vectors useful transforming genetic constituents construction use vectors cotton registration approvals monsanto technology shall include information technology become part public domain fault dpl 2138 term net license fees means aggregate fees use applicable roundup readyr gene received dpl monsanto according provisions subsection 311 use roundup readyr gene monsanto technology licensed patent rights licensed growers purchased licensed commercial seed less incentive rebates paid licensed growers weed resistance management data attributable either hectares growers planted licensed commercial seed units licensed commercial seed purchased taxes income taxes marketing services fees ii interest received licensed growers financing fees either party 2139 term nonglyphosate tolerant cotton seed means cotton planting seed genetically engineered exhibit tolerance glyphosate 2140 term nonmonsanto cotton gene shall meaning set forth subsection 35a 2141 term option agreement means option agreement monsanto dpl dated february 2 1996 amended december 8 1999 may amended accordance terms 2142 term partnership agreement means partnership agreement dpl monsanto dated february 2 1996 may amended accordance terms 2143 term recipient means party receives confidential information another party described section 8 2144 term roundup readyr genes means dna molecule including regulatory sequences replicate thereof supplied monsanto inserted cotton results increased tolerance glyphosate 2145 term roundup readyr gene trademark means trademark owned monsanto relating roundup readyr genes may roundup readyr marked owned monsanto registered use roundup readyr genes 2146 term rr gene license means roundup readyr gene license seed services agreement monsanto dm partners dpl dated february 2 1996 amended december 8 1999 may amended accordance terms 2147 term rr trademark license agreement means agreement attached hereto appendix 2 2148 term royalty means compensation paid dpl monsanto consideration licenses equal product monsanto royalty percentage times royalty base 2149 term royalty base means fiscal year aggregate 1 net license fees collected dpl according provisions subsection 33 units licensed commercial seed sold returned dpl 2 portion average unit gross margin percentage sales licensed country licensed commercial seed excess average unit gross margin percentage dpls sales licensed country nonglyphosate tolerant cotton seed calculated separately class cotton planting seed sold dpl licensed country fiscal year 2150 term seed purity standard means standards set forth measured sampling procedures appendix 4 testing procedures appendix 3 standards thresholds required applicable laws regulations sale cotton planting seed licensed country including regulate unapproved transgenes ii may set mutual written agreement monsanto dpl least one year advance first fiscal year additional standards thresholds applicable 2151 term stacked gene cotton seed shall meaning set forth subsection 35 2152 term subsequent roundup readyr gene means roundup readyr gene first roundup readyr gene authorized monsanto commercial development 2153 term technology means monsanto technology andor dpl technology appropriate 2154 term technology fee means fee set monsanto annually according subsection 64 charged dpl customers monsanto technology licensed commercial seed technology fee shall unit acreage basis 2155 term unit means quantity delinted cotton planting seed weighing twentyfive 25 kilograms package sizes dpl may use licensed country provided however calculations involving units shall made terms quantity cotton planting seed contained packages relevant calculation provided calculations requiring quantities nondelinted cotton seed converted units delinted cotton planting seed conversion shall made basis dpls experience conversion nondelinted cotton seed delinted cotton planting seed averaged immediately preceding three 3 years 2156 term wholesale price respect particular nonglyphosate tolerant cotton seed licensed commercial seed means average price invoiced distributors applicable seed reselling growers less sales returns allowances discounts incentive payments event discount incentive licensed commercial seed contingent sales conventional class characterized absence traits introduced using biotechnology cotton planting seed discount incentive shall apportioned among particular licensed commercial seed conventional class based ratio average distributor price conventional class licensed commercial seed aggregate average distributor price conventional class licensed commercial seed order calculate wholesale price licensed commercial seed conventional class section 3 licenses 31 limited license produce sell licensed commercial seed monsanto hereby grants dpl hereby accepts subject terms conditions agreement nonexclusive right license licensed country licensed patent rights monsanto technology develop produce produced sell licensed commercial seed licensed growers licensed country 32 license multiply licensed commercial seed rights granted dpl include nonexclusive right license multiply licensed commercial seed subsequent sale licensed growers directly third party contract growers selected dpl licensed country united states notice approval monsanto approval unreasonably delayed denied country outside licensed country dpl obtained necessary governmental approval carry activities reasonably necessary production sale licensed country licensed commercial seed 33 right obligation sublicense time monsanto notifies dpl written sublicenses longer required dpl shall grant written sublicenses third parties purchase licensed commercial seed purpose authorizing use licensed commercial seed produce commercial cotton crop using forms currently use licensed country forms monsanto may specify time fees charged collected dpl use roundup readyr gene licensed commercial seed shall specified monsanto time changes sublicense forms fees shall provided dpl later march 1 next growing season dpl shall use commercially reasonable efforts collect fees owed agreement event monsanto determines efforts reasonably diligent monsanto shall notify dpl shall assign monsanto right collect unpaid fees turn documentation related necessary collection effort b dpl may upon written notice monsanto grant sublicenses rights granted herein dpl foreign affiliate dpl may grant sublicenses rights granted herein except expressly permitted provisions agreement 34 prohibition modification genetic materials dpl shall modify use monsanto roundup readyr gene physically isolated seed plant cell culture transferred monsanto dpl progeny seed plant cell culture purpose without prior written consent monsanto provided however prohibitions subsection shall apply modification use license country isolated regulatory control sequences isolated seed plant cell culture become part public domain licensed country fault dpl received third party obligation confidentiality monsanto b nothing subsection provides dpl license patent rights owed controlled monsanto except extent otherwise provided agreement used subsection material shall deemed become part public domain member public licensed country lawfully sell transfer material without restriction without breaching contractual obligation monsanto 35 conditions licenses partial consideration licenses dpl may insert line licensed commercial seed deltapine roundup readyr cultivars heterologous gene construct licensed dpl monsanto expressing trait naturally occurring cotton nonmonsanto cotton gene dpl may sell licensed commercial seed produced stacked gene cotton seed licensed country following conditions met 1 dpl shall sell licensed country stacked gene cotton seed unless nonmonsanto cotton genes also approved commercial sale united states america import japan 2 stacked gene cotton seed must meet standards sale licensed country licensed commercial seed except traits imparted designated nonmonsanto cotton gene shall considered unintended genes purposes appendix 3 dpl shall sole expense obtain required official clearances written approvals commercial sale seed containing nonmonsanto cotton gene governmental agencies licensed country date authority regulate production use sale seed licensed country dpl may request monsanto provide assistance obtain approvals monsanto provides assistance dpls request dpl shall reimburse monsanto reasonable expenses incurred providing requested assistance 4 monsanto shall right written notice dpl prohibit display roundup readyr gene trademark packages containing stacked gene cotton seed provided event notice given subsection 36a notwithstanding dpl may sell stacked gene cotton seed packaging displaying roundup readyr gene trademark 5 notwithstanding provisions subsection 131 dpl shall defend indemnify hold monsanto affiliates respective employees directors officers agents harmless loss cost liability expense including court costs reasonable fees attorneys professionals incurred claim cotton farmers purchased licensed commercial seed distributors farmers may make claims arising alleged arise performance stacked gene cotton seed plants grown stacked gene cotton seed unless failure performance proximately caused solely presence gene received monsanto stacked gene cotton seed provided issue causation dpl shall bear burden proof provided costs claims covered immediately preceding clause ie claims dpl meets burden proof shall prorated monsanto dpl monsantos respective percentage share costs claims shall based monsantos respective percentage share total net license revenues seed premiums instances technology license fees charged nonmonsanto cotton gene derived presence geneticallyengineered technology subject stacked gene cotton seed 6 fiscal year dpl making commercial sales stacked gene cotton seed licensed country addition complying provisions subsection 45 dpl shall available sale licensed country quantities class licensed commercial seed containing monsanto technology nonmonsanto cotton genes equal exceed quantities class licensed commercial seed sold dpl net returns licensed country immediately preceding fiscal year 7 fees compensation paid retailers andor distributors service granting licenses sublicenses growers relating technology embodied stacked gene cotton seed andor collect license fees growers stacked gene cotton seed specifically related particular technology shall apportioned based ratio aggregate royalties received dpl andor monsanto according provisions subsections 33 311 use monsanto technology licensed patent rights licensed growers ii aggregate net license revenues seed premiums value received subject technology provider instances technology license fees charged nonmonsanto cotton gene derived presence geneticallyengineered technology subject stacked gene cotton seed monsanto technology provided however event shall monsanto required pay bear amount fees compensation retailers andor distributors services excess monsanto would paid borne services agreement subject stacked gene cotton seed containing roundup readyr gene technology provided monsanto dpl third party technology provider provide monsanto information reasonably necessary determine compliance subsection 35a7 dpl shall refund monsanto fees compensation paid monsanto retailers andor distributors excess amount paid provisions later one month following notice monsanto discrepancy error 8 costs acquiring preparing seed stacked gene cotton seed additive costs required acquire prepare licensed commercial seed contain nonmonsanto cotton gene shall excluded cost goods sold respect stacked gene cotton seed 9 prior dpls sale licensed country particular stacked gene cotton seed dpl third party provider nonmonsanto cotton gene stacked gene cotton seed dpl proposes sell shall meet monsanto address issues involving governmental regulations public acceptance stewardship licensed country genetic technology embodied stacked gene cotton seed cases bona fide disputes concerning sale terms conditions sale particular stacked gene cotton seed licensed country involving governmental regulations public acceptance stewardship licensed country genetic technology embodied stacked gene cotton seed dpl shall sell stacked gene cotton seed licensed country monsanto commercially reasonable judgment agreed sale agreement unreasonably withheld delayed 10 disputes parties concerning compliance subsection 35a shall settled according subsection 1011 option agreement arbitration needed shall private confidential b dpl shall applicable conspicuously display packages containing licensed commercial seed covered licensed patent rights invoices relating licensed commercial seed sold transferred third parties following notice meaning effect blanks appropriately filled using designations licensed patent rights seeds covered patents patent applications sublicense conveyed said patents use seeds solely purchase seeds sublicense said patents use seeds produce single cotton crop must also obtained dpl south africa inc c 36 gene trademarks dpl shall conspicuously display roundup readyr gene trademark accompanying logo packages licensed commercial seed roundup readyr gene trademark accompanying logo shall remain least relative size compared largest dpl trademark accompanying logo face seed package label monsanto dpl mutually determine commercially reasonable mutual agreement reached relative size licensed commercial seed sold rrr gene license united states agreed roundup readyr gene trademark shall licensed dpl nonexclusive royaltyfree basis pursuant rr trademark license agreement b licensed trademark shall utilized manner specified trademark license advertising containing trademark tradename owned controlled dpl referring licensed commercial seed shall use roundup readyr gene trademark identify roundup readyr gene breach either trademark licenses misuse applicable trademarks shall material breach agreement purposes subsection 103 shall subject penalty following conditions upon notice monsanto breach misuse licensee shall immediately cease misuse 37 limitations licenses sublicenses agreement construed including grant monsanto dpl license sublicense right make sell roundup readyr genes monsanto technology except expressly set forth herein b use roundup readyr genes monsanto technology purpose expressly set forth herein c grant sublicenses except expressly set forth herein 38 educational program discourage farmersaved seed dpl monsanto shall employ reasonable efforts continuing basis proactively educate appropriate government officials farmers organizations purchasers licensed commercial seed others nature limiteduse sublicense granted cotton farmers benefits purchasing licensed commercial seed annually disadvantages using farmersaved seed applicable legal restrictions 39 third party violations invalidity restrictions sublicense use licensed commercial seed purchasers purposes addition production single commercial commodity crop unless expressly authorized dpl shall considered breach agreement dpl however dpl shall sell licensed commercial seed purchasers time misuse purchaser cured licenses granted dpl shall revoked diminished otherwise affected event limitations restrictions sublicense purchasers found unenforceable whole part court competent jurisdiction licensed country 310 identification fields planted farmersaved seed dpl monsanto shall cooperate reasonable effort develop employ methods techniques employed commercially efficient manner identify fields cotton planted seed saved crop produced licensed commercial seed costs associated cooperative efforts develop employ methods techniques shall borne monsanto 311 discontinuation licensing growers dpl long sublicenses granted purchasers licensed commercial seed agreement pursuant section 33 either monsantos dpls option dpl may discontinue granting licenses individual cotton growers licensed country provided dpl similarly ceases licensing farmers use cotton planting seed containing monsantos lepidopteranactive gene stacked gene cotton seed provided notice provided dpl monsanto applicable march 1 year event sublicenses granted purchasers licensed commercial seed monsanto shall thereafter use commercially reasonable efforts license growers identified dpl monsanto dpl shall provide notice discontinue later harvest last growing season dpl may grant licenses individual growers upon notice license granted subsection 31 shall include right sell individual cotton growers licensed monsanto purchase use licensed commercial seed licensed country 312 product specification licensed commercial seed except provided dpl shall sell offer sell licensed commercial seed without express written consent monsanto even though licensee may evaluating agronomic performance new varieties licensee shall comply requirements set forth appendices 3 4 5 ensure subject licensed commercial seed meets standards set forth therein monsantos consent sell particular deltapine roundup readyr cultivars shall withheld unless demonstrated pursuant provisions appendices 3 4 5 requirements met shall otherwise withheld subject following sentence consent shall withheld withdrawn monsanto without liability licensee reasonable business judgment sales offer sell may result infringement thirdparty property rights based opinion patent counsel provided offer sales licensees monsanto discontinued similar fashion ii product complaints due identifiable product quality issues subject licensed commercial seed exercise commercially reasonable judgment likely measurably significant impact monsantos business monsanto gives notice dpl continues make sales roundup readyr cultivars without notice growers subsequently purchased deltapine roundup readyr cultivars observation identifiable quality issue notwithstanding provision agreement monsanto shall liability dpl matters regarding deltapine roundup readyr cultivars sold dpl shall indemnify hold monsanto harmless third party claim concerning deltapine roundup readyr cultivars sold monsanto shall apply provision respect identifiable quality issues substantially equally licensees licensed country 313 subsequent roundup readyr genes monsanto anticipates develop subsequent roundup readyr genes superior first roundup readyr gene one attributes event monsanto authorizes subsequent roundup readyr genes commercial development country world monsanto shall offer license subsequent roundup readyr genes dpl accordance terms conditions option agreement 314 favored license terms option agreement provide dpl certain rights related terms conditions agreement nothing agreement shall supercede otherwise effect terms option agreement regard section 4 development marketing activities parties 41 consultation monsanto dpl shall consult regularly throughout term agreement relative activities affecting development maintenance sales licensed commercial seed licensed country including limited monsantos plans progress development marketing monsanto technology dpls plans progress production field testing licensed commercial seed representatives monsanto dpl shall periodically meet mutually acceptable times discuss activities progress hereunder planning purposes monsanto dpl shall meet upon request either party year september 30 plan activities following crop year licensed country 42 responsibilities parties shall monsantos responsibility 1 obtain maintain using commercially reasonable means governmental approvals first roundup readyr gene subsequent roundup readyr gene monsanto chooses register licensed country 2 determine appropriate marketing claims fees roundup readyr genes 3 develop make available educational materials training meetings prospective licensed growers licensed country designed train use performance roundup readyr genes licensed commercial seed 4 develop replant policy crediting technology fees licensed growers shall dpls responsibility 1 comply conditions notified registrations approvals applicable activities agreement 2 determine appropriate marketing claims prices deltapine roundup readyr cultivars roundup readyr genes decisions best system licensing sublicensing licensed growers use monsanto technology exhibited licensed commercial seed including financing terms payment technology fees licensed growers best distribution system licensed commercial seed shall mutual agreed systems use licensed country effective date acceptable present time 43 testing new varieties effective date dpl shall submit new varieties licensed commercial seed gene equivalency test dpl shall bear costs testing 44 supply licensed commercial seed dpl shall use commercially reasonable efforts supply sufficient quantity cotton planting seed deltapine roundup readyr cultivars purchase licensed commercial growers term agreement 45 promotional activities parties agree neither may promote technology without consent owner shall unreasonably withheld delayed section 5 ownership technology 51 monsanto technology licensed patent rights monsanto technology shall remain property monsanto b licensed patent rights shall remain property owners effective date 52 dpl technology dpl technology shall remain property dpl 53 safety toxicology data dpl monsanto shall jointly safety toxicological data generated jointly development activities data solely developed either party shall solely owned respective party 54 efficacy data dpl monsanto shall jointly efficacy data jointly developed development activities data solely developed either party shall solely owned respective party 55 use data dpl monsanto shall permitted use jointlyowned safety toxicological efficacy data jointly developed development activities provided however use shall sole benefit third party section 6 compensation 61 compensation paid dpl time monsanto provides notice subsection 311 monsanto shall thereafter collect compensation licenses produce commercial cotton crop licensed commercial seed directly licensed growers consideration dpls promises obligations contained herein including limited obligations subsection 42 monsanto shall according provisions subsection 72 remit dpl sum 1 remainder net license fees deduction amount equal net license fees multiplied monsanto royalty percentage 62 compensation paid monsanto time monsanto provides notice subsection 311 consideration rights licenses granted dpl pursuant subsections 31 32 dpl shall according provisions subsection 72 pay monsanto royalty fiscal year royalty due addition dpl hereby grants monsanto term agreement nonexclusive license improvements right sublicense conflict dpls exclusive rights agreement monsanto third party said license commercially reasonable terms country dpl licensed sell deltapine roundup readyr cultivars 63 compensation period respect licensed commercial seed containing specific roundup readyr gene provided monsanto dpls obligation pay royalty licensed country shall begin date first commercial licensing specific cultivar licensed commercial seed containing roundup readyr gene shall expire later fifteen years date first commercial licensing licensed country roundup readyr gene ii expiration lasttoexpire licensed patent rights applicable roundup readyr gene one enforceable claims absence license monsanto would infringed making using selling licensed commercial seed containing roundup readyr gene licensed country iii date monsanto holds effective product registrations term effective product registrations means official clearances written approvals issued governmental agencies licensed country date authority regulate use roundup readyr gene necessary sale cotton seed containing roundup readyr gene licensed country effectively prevent third parties licensed monsanto selling seed containing roundup readyr gene licensed country product registrations held monsanto shall considered effective product registrations seed containing roundup readyr gene produced third parties licensed monsanto makes ten percent 10 cotton planting seed containing roundup readyr gene legally sold licensed country fiscal year monsanto may terminate compensation period earlier date notice dpl b upon expiration compensation period respect specific roundup readyr gene dpl shall permanent paidup license sell deltapine roundup readyr cultivars containing specific roundup readyr gene licensed country use deltapine roundup readyr cultivars progeny thereof purpose including introduce involved roundup ready gene deltapine cultivars use licensed country involved roundup ready gene genetic materials used specific roundup ready gene deltapine cultivars provided however license provided either expressly implication patent owned third party monsanto patent right make use sell product contain specific roundup ready gene compensation period ended time compensation period ends roundup ready gene monsanto shall future responsibility dpl agreement respect specific deltapine roundup ready cultivar deltapine cultivars derived therefrom use roundup ready gene dpl shall cease using roundup readyr gene trademark including limited payments might otherwise due section 6 termination future responsibilities shall affect obligations accrued prior expiration period dpl shall assume full responsibility deltapine roundup ready cultivars containing gene shall defend indemnify hold monsanto employees directors officers agents harmless loss cost liability expense including court costs reasonable fees attorneys professionals incurred claim arising way connected dpls use roundup ready gene biological materials holds paidup license provided however dpl shall sole control defense negotiations relating settlement provided however dpl shall keep monsanto advised status claim negotiations settlement dpl could reasonably substantial direct financial impact monsanto shall require prior written approval monsanto shall unreasonably withheld ii obligation indemnify conditional monsanto notified dpl within thirty 30 days receipt monsanto performance claim subject indemnification iii monsanto desires counsel participate preparation defense trial settlement claim subject indemnification participation shall monsantos expense iv monsanto assumes defense claim dpl shall obligation defend indemnify monsanto respect claim v monsanto must promptly provide information possession reasonably requested dpl make available personnel monsanto depositions testimony consultations provide technical assistance reasonably requested dpl extent necessary defense asserted claim c provisions subsection 63 apply deltapine roundup ready cultivars containing lepidopteranactive gene roundup readyr gene compensation period expired section 7 business recordspayments 71 business records dpl monsanto shall keep records respect licensed country showing license fees due collected licensed growers amount prices licensed commercial seed sold otherwise transferred third parties showing results respective activities subsections 35a 4 6 dpl monsanto agree submit books records examined time extent necessary verify reports provided section 7 confidential examination made national auditing firm appointed expense party requesting audit firm shall reasonably acceptable party event audit errors aggregate identified result payment audited party requesting party 25 percent amount paid audited party shall pay reasonable expense audit 72 reports payments december 15 march 31 fiscal year dpl shall submit monsanto report sales licensed commercial seed licensed country since recent previous report december 15 fiscal year dpl shall submit monsanto report information necessary determine compliance subsection 35 including information third party technology provider genes added stacked gene cotton seed report sales shall include units invoiced collected variety class licensed commercial seed calculation royalty due along basis calculation may 30 august 31 fiscal year dpl shall pay monsanto royalty due pursuant subsection 62 amounts necessary compliance provisions subsection 35a payment due monsanto subject payment period dpl shall state b monsanto taken licensing licensed growers provisions subsection 311 december 15 march 31 fiscal year monsanto shall submit dpl report net license fees invoiced collected licensed country since recent previous report shall include technology fee charged licensed country may 30 august 31 monsanto shall pay dpl share net license fees due pursuant subsection 61 fees collected since recent payment due dpl licensed country subject payment period monsanto shall state c reports due pursuant section 7 shall sent dpl south africa inc 24 bank street industrial area groblersdal 0470 republic south africa attention general manager monsanto company 800 north lindbergh boulevard st louis missouri 63167 attention global product management cotton addresses may designated parties time payments due monsanto shall paid monsanto shall time direct except provided herein amounts paid monsanto shall calculated us dollars using us dollar buying exchange rate dpls financial institution effect date payment due subsection 72b deductions shall made amount owed agreement onehalf amount related foreign exchange fees fax fees bank charges like transactional costs charged dpl appropriate documents evidencing supporting deduction shall provided time payment made e payments due monsanto agreement subject approval exchange control central bank republic south africa laws regulations may apply dpl shall use commercially reasonable efforts obtain approval monsanto shall provide assistance information needed obtain approval upon request dpl event lack governmental approval transmit payments hereunder dpl shall use commercially reasonable efforts place sums constituting payments due monsanto agreement interest bearing account benefit monsanto provided however event payments despite dpls commercially reasonable efforts placed interest bearing account interest thereon shall accrue 73 interest outstanding balances either party fails pay due date amount payable agreement except provided lack approval transmit funds subsection 72e without prejudice subsection 105 amount shall bear interest prime rate corporate loans large u money center commercial banks reported wall street journal said due date plus three percent 3 per annum due date payment made full judgment 74 offsetting payments either party may request parties meet person telephone video fifteen days prior due dates provided subsection 72 give reports due subsection 72 calculate net payment owed one party event offset report shall state part compensation due party offset amount due reporting party debtor party requested meeting subsection 74 party failed comply nextdue payment debtor party shall subject interest payments subsection 73 fifteen days party sent report debtor party made payment applicable section 8 confidentiality 81 nondisclosure confidential information neither dpl monsanto shall time period specified subsection 82 disclose person confidential technology confidential information disclosed party except prior written consent party provided subsection 83 provided however monsanto shall permitted disclose general information relating performance roundup ready gene extent disclosure necessary desirable commercialization cotton seed containing roundup ready gene licensed country provided monsanto shall permitted disclose information relating specifically deltapine cultivars b monsanto shall disclose confidential dpl pricing sales sensitive information competitor dpl 82 period confidentiality period referred subsection 81 shall period beginning date receipt confidential technology confidential information ending respect technology information ten 10 years thereafter 83 uses confidential information subject overriding provisions subsections 53 54 55 technology confidential information disclosed either dpl monsanto party may disclosed recipient directors officers employees agents contractors recipient extent reasonably necessary fulfillment recipients obligations agreement commercial exploitation cotton seed containing roundup ready gene subject case recipients obligating person question hold confidential written agreement coincident scope term confidentiality obligation agreement person agreeing use except purposes disclosure made b disclosed recipient governmental authority regulatory body extent required law provided however recipient shall take reasonable measures ensure authority body keeps confidential use except purpose disclosure made provided party proposing disclose shall give prior notice intent party disclosed technology andor confidential information permit said party option contest said requirement seek confidential treatment technology information c disclosed court litigant extent disclosure ordered court governmental agency competent jurisdiction provided however recipient shall take reasonable measures ensure court litigants governmental agency keep confidential use except purpose disclosure made provided party proposing disclose shall give prior notice intent party disclosed technology andor confidential information permit said party option contest said requirement seek confidential treatment technology information used recipient purpose disclosed recipient person extent effective date thereafter becomes public knowledge fault recipient disclosed recipient third party matter right shown recipient written records known recipient prior disclosure section 9 force majeure 91 force majeure except regard payments required pursuant agreement party shall liable delay failure perform whole part reason contingencies beyond reasonable control force majeure whether herein specifically enumerated including among others acts god war acts war revolution civil commotion riots acts public enemies blockade embargo delays carriers car shortage fire explosion breakdown equipment strike chemical reversal reactions lockout labor dispute casualty accident earthquake epidemic flood cyclone tornado hurricane windstorm delays vendors reason law order proclamation regulation ordinance demand requisition requirement act governmental authority including limited governmental actions restricting preventing growing marketing licensed commercial seed provided however party affected shall promptly reasonably possible circumstances give written oral notice parties whenever contingency appears likely occur occurred shall use reasonable efforts overcome effects contingency promptly possible shall allow party access information may necessary desirable evaluate contingency party shall required resolve strike lockout labor problem manner alone deem proper advisable party affected event sort enumerated contemplated subsection 91 may suspend performance agreement period time equal duration event excusing performance time required overcome consequences event resume performance affected party shall complete performance required agreement soon practicable removal cessation cause delay reduction performance section 10 term termination 101 term agreement term agreement shall begin effective date shall extend dpl longer selling licensed commercial seed licensed country unless agreement terminated earlier pursuant provision section 10 102 termination monsanto shall right respect particular roundup ready gene terminate agreement period two 2 consecutive years starting january 1 2001 total annual royalty revenue monsanto licensees use subject roundup ready gene cotton less monsantos total annual royalty due third parties license agreements parties technology applied cotton monsanto shall notify dpl annual royalty revenue monsanto licensees less one hundred twentyfive percent 125 monsantos total annual royalty due said third parties event monsanto elects terminate agreement subsection 102b monsanto shall terminate also license agreements use subject roundup ready gene licenseessublicensees ii allow dpl sublicenseeslicensees sell existing inventories cotton seed containing subject roundup ready gene possession date notice termination obligated contract take delivery event monsanto elects terminate agreement subsection 102b provisions agreement shall remain force contractual purchase commitments fulfilled inventories exhausted b monsanto shall right terminate agreement date three 3 years date monsanto receives governmental approvals sales cotton planting seed containing roundup readyr gene exhibits improved characteristics first roundup readyr gene c dpl shall right terminate agreement providing prior written notice monsanto june 30 fiscal year effect august 1 next fiscal year 103 breach obligations breach party material provisions agreement confidentiality obligations section 8 default upon payment obligations provided herein shall entitle parties give party breach default least ninety 90 days notice cure breach default breach default defaulting party cured within ninety 90 day period materiallyaffected party may terminate agreement giving notice party take effect immediately provided however breach default cured monsanto within ninety 90 day period dpl extent shall materially affected default may option giving notice monsanto terminate agreement ii terminate dpls obligations subsection45 provisions agreement remain effect option selected dpl shall take effect immediately termination subsection 103 shall affect rights notifying party may agreement law 104 default payment event dpl defaults payment due monsanto pursuant section 6 unless default caused default action monsanto provisions subsection 72e fails cure default within thirty 30 days notice monsanto shall right terminate agreement giving notice dpl event monsanto defaults payment due dpl pursuant section 6 provisions subsection 72e unless default caused default action dpl fails cure default within thirty 30 days notice dpl shall right terminate agreement giving notice monsanto 105 effect termination event agreement terminated entirety either dpl monsanto dpl shall lose rights licenses granted pursuant agreement provided however agreement terminated dpl account breach default monsanto dpl shall right sell licensed commercial seed possession dpl obligated contract take delivery licensed country 106 survival covenants notwithstanding termination agreement notice otherwise rights obligations conferred sections 6 7 8 11 12 13 14 respect events occurred prior termination shall survive termination section 11 warrantylimitations 111 monsanto warranties monsanto hereby warrants represents respect roundup readyr gene authorized monsanto commercial sale date approval commercial sale licensed country monsanto owner roundup readyr gene monsanto technology used development thereof ii owner licensee applicable licensed patent rights iii right license sublicense dpl roundup readyr gene licensed patent rights monsanto technology used development thereof use terms agreement 112 mutual warranties monsanto warrants dpl license agreement performance monsanto obligations hereunder contravene provision agreement contract binding upon monsanto b dpl warrants monsanto license agreement performance dpl obligations hereunder contravene provision agreement contract binding upon dpl 113 warranties expressly understood dpl monsanto make representations extend warranties either express implied assume responsibilities expressly provided herein respect performance merchantability fitness particular purpose roundup readyr gene related monsanto technology licensed commercial seed deltapine cultivars b scope validity patent licensed patent rights c roundup readyr gene related monsanto technology licensed commercial seed deltapine cultivars use thereof free infringement patents licensed patent rights section 12 patent infringement 121 utilization noninfringing technology monsantos opinion development production processing use export sale licensed commercial seed respect licensed country authorized commercial sale writing monsanto would infringe third party patent monsanto shall employ reasonable business efforts judgment access necessary license said third party additional cost dpl time said patent shall become part licensed patent rights monsanto alternative technology monsanto lawfully license use dpl obviates need said third party license monsanto cannot access reasonable cost results plants exhibit tolerance glyphosate greater levels plants produced licensed commercial seed containing previously authorized technology monsanto shall make alternative technology available dpl shall promptly utilize alternative technology avoid need third party license nothing agreement shall preclude dpl negotiating directly third party rights patents patent applications held third party provided however costs incurred dpl negotiating acquiring third party patent rights shall credited payments due monsanto dpl unless monsanto agrees credit writing 122 defense infringement claims subject limitations subsection 123 monsanto shall assume defense claim brought dpl third party infringement patent licensed country insofar claim arises solely dpls use licensed country transgenic cotton germplasm provided monsanto pursuant agreement dpl infringement claim except provided contrary section 12 shall assume legal costs expenses defending dpl infringement claim monsanto shall permitted conduct defense nationallyrecognized patent counsel litigation lawyers choice experienced patent law shall regularly keep dpl informed writing status progress suit dpl desires counsel participate preparation defense trial settlement dpl infringement claim participation shall dpls expense subject limitations subsection 122 123 monsanto shall indemnify dpl monetary damages andor costs actually awarded suit amounts paid settlement respect dpl infringement claim event dpl assumes defense dpl infringement claim monsanto shall obligation defend indemnify dpl respect dpl infringement claim b dpl infringement claim made third party license agreement available reasonable terms settle dpl infringement claim ii dpl accept proposed reasonable license agreement monsantos liability obligations defend indemnify dpl respect dpl infringement claim shall limited sum costs incurred damages attributable dpls activities prior availability license plus amount exceed royalties monetary payments would payable dpls activities availability license third party licensor license agreement accepted c obligation monsanto pursuant subsection 122 shall apply dpl notifies monsanto within twenty 20 days receipt dpl notice alleged potential infringement thirdparty patent production use sale licensed commercial seed dpl infringement claim monsanto acknowledges dpl properly notified monsanto claim infringement certain south african patents received phytogen inc ii monsanto given exclusive control defense dpl infringement claim negotiations relating settlement provided however monsanto shall keep dpl advised status dpl infringement claim negotiations settlement monsanto reasonably could substantial direct financial impact dpl shall require prior written approval dpl shall unreasonably withheld provided purposes subsection 122cii settlement requires payment remaining indemnification amount subsection 123 thirdparty patent owner would require payment said third party continued development production use sale licensed commercial seed shall considered direct financial impact dpl iii dpl promptly provides attorneys defending action relevant information possession excluding information covered confidentiality obligations third parties reasonably requested monsanto reasonably makes available personnel dpl depositions testimony consultations provides technical assistance reasonably requested monsanto extent necessary conduct suit extent dpl power legal right event dpl infringement claim allegation infringement thirdparty patent licensed country reasonable license agreement third party available dpl shall upon written request monsanto promptly cease desist infringing activity dpl cease desist activity monsanto shall obligation defend indemnify dpl respect dpl infringement claim 123 limitation liability monsantos total liability time indemnification payments dpl payment third parties patent infringement payments made settlement infringement claims dpl dpls costs associated defense dpl infringement claims shall cumulatively exceed total amount net license fees retained monsanto payment amount due dpl subsection 61 including fees retained monsanto sales licensed country prior effective date plus ii royalty paid monsanto dpl subsection 62 sales applicable licensed country 124 suspected infringement licensed patent rights event dpl learns suspected infringement licensed patent rights extent dpl lawfully permitted dpl shall notify monsanto effect provide monsanto evidence concerning suspected infringement dpls possession monsanto shall use reasonable efforts terminate infringement without litigation nothing herein shall construed conferring dpl right bring suit infringement licensed patent rights 125 effect invalidity licensed patent rights event claim licensed patent rights declared invalid unenforceable final judgment court competent jurisdiction licenses granted section 3 shall terminate force effect subject matter covered claim however subject provisions section 6 licenses shall continue respect remaining patent claims within licensed patent rights 126 suspected misappropriation monsanto technology event dpl learns suspected misappropriation third party gene candidate become roundup readyr gene monsanto technology furnished monsanto progeny thereof extent may lawfully dpl shall notify monsanto provide monsanto available information concerning suspected misappropriation cooperate monsanto terminate misappropriation andor obtain redress therefor expense monsanto section 13 claims vendee failure gene performance 131 procedure indemnities vendee claims event purchaser licensed commercial seed makes claim one parties breached warranty licensed commercial seed otherwise failed provide expected performance whether claim made governmental forum court communicating directly one parties distributor licensed commercial seed following shall apply neither party shall communicate purchaser hereinafter claimant alleged failure due technology party b party receiving notice claim action shall notify within fifteen days receipt party c case settlement party expects party share portion cost settlement parties shall first agreed settlement offer prior communication claimant including shall responsible portion settlement payment whether cash goods services alternatively agreement may include agreement refer issue responsibility arbitration provided subsection 131eiv parties shall jointly defend formal action claimant class claimants e parties shall indemnify costs defense damages awarded paid way settlement agreed upon provided subsection 131c together action costs result action following basis licensed commercial seed involved action failed meet seed purity standard due fault monsanto deltapine cultivar cotton planting seed cause alleged failure due fault roundup readyr gene dpl shall indemnify monsanto one hundred percent action costs provided dpl shall responsibility action cost event breach express warranty monsanto agents gave rise cause action dpl agreed writing terms express warranty ii claimant used rounduprherbicide sourced monsanto plants grown licensed commercial seed roundupr herbicide shown defective defect cause alleged failure monsanto shall indemnify dpl one hundred percent action costs iii neither ii applies roundup readyrgene applicable lepidopteran active gene cause alleged failure licensed commercial seed monsanto shall responsible percentage action costs equal monsanto royalty percentage applicable sale licensed commercial seed led action dpl shall responsible balance action costs party indemnifies amount provided monsanto shall responsibility share action costs event breach express warranty dpl agents gave rise cause action monsanto agreed writing terms express warranty iv monsanto dpl agree ii iii applies parties shall submit arbitration provided subsection 1011 option agreement issue cause alleged failure licensed commercial seed necessary liability party agreement following allocations provided subsection 131e provided arbitrator determines one ii iii applies also determines cause alleged failure allocated reasonable certainty among monsanto dpl percentage terms arbitrator may allocate action costs accordance finding concerning cause b arbitrator cannot determine cause alleged failure performance provisions subsection 131 monsanto shall responsible percentage action costs equal monsanto royalty percentage applicable sale licensed commercial seed led action dpl shall responsible balance action costs party indemnifies amount arbitrators shall power alter amend otherwise affect terms agreement f event information comes attention either monsanto dpl change conditions occurred reasonably necessitates modification performance warrantyies previously agreed upon parties party information shall notify party within sixty 60 days receipt information monsanto dpl shall act good faith reach agreement upon appropriate modifications performance warrantyies 132 failure comply required procedures party breaches provisions subsection 131 respect claim claims purchasers licensed commercial seed party shall one hundred percent responsible costs settling defending claims damages awarded result actions involving claims 133 dpls indemnity vendees claims except expressly provided subsections 131 132 dpl shall defend indemnify hold monsanto employees directors officers agents harmless loss cost liability expense including court costs reasonable fees attorneys professionals incurred claim cotton farmers purchase distributors farmers may make claims arising way connected licensed commercial seed plant grown therefrom performance either provided however dpl shall sole control defense negotiations relating settlement provided however dpl shall keep monsanto advised status claim negotiations settlement dpl could reasonably substantial direct financial impact monsanto shall require prior written approval monsanto shall unreasonably withheld ii obligation indemnify conditional monsanto notified dpl within twenty 20 days receipt monsanto performance claim subject indemnification iii monsanto desires counsel participate preparation defense trial settlement claim subject indemnification participation shall monsantos expense iv monsanto assumes defense claim dpl shall obligation defend indemnify monsanto respect claim v monsanto must promptly provide information possession reasonably requested dpl make available personnel monsanto depositions testimony consultations provide technical assistance reasonably requested dpl extent necessary conduct suit section 14 general 141 assignment dpls rights obligations dpl shall right assign agreement connection reorganization consolidation spinoff sale transfer substantially stock assets related portion business pertaining subject matter agreement either alone conjunction dpl businesses assignee shall agree writing bound terms agreement dpl shall thereafter released obligations hereunder addition dpl shall right assign respective rights obligations delegate performance hereunder whole part one affiliates carries activities licensed agreement provided however dpl shall remain liable obligations affiliate hereunder except provided dpl shall operation law otherwise assign mortgage give security license rights hereunder shall dpl subcontract delegate ordinary course business obligations hereunder except otherwise provided agreement except written consent monsanto 142 assignment monsantos rights obligations monsanto shall right assign agreement connection reorganization consolidation spinoff sale transfer substantially stock assets related portion business pertaining subject matter agreement either alone conjunction monsanto businesses assignee shall agree writing bound terms agreement monsanto shall thereafter released obligations hereunder addition monsanto shall right assign respective rights obligations delegate performance hereunder whole part affiliates provided however monsanto shall remain liable obligations hereunder except provided monsanto shall operation law otherwise assign mortgage give security license rights hereunder shall monsanto subcontract delegate ordinary course business obligations hereunder except otherwise provided agreement except written consent dpl 143 relation parties nothing agreement shall create deemed create partnership relationship principal agent among parties provision agreement intended benefit enforceable third party 144 integration contract agreement constitutes full understanding parties complete allocation risks complete exclusive statement terms conditions agreement relating subject matter hereof except provided option agreement prior agreements negotiations dealings understandings whether oral written regarding subject matter hereof hereby superseded merged agreement 145 waivers amendments agreement may amended superseded canceled renewed extended terms hereof may waived written instrument signed parties case waiver party waiving compliance except specific period action inaction provided herein delay part party exercising right power privilege hereunder shall operate waiver thereof shall waiver part party right power privilege single partial exercise right power privilege preclude exercise thereof exercise subsequent right power privilege except otherwise provided herein conditions usage trade course dealing performance understanding agreement purporting modify vary explain supplement terms conditions agreement except related agreements shall binding unless hereafter made writing signed party bound written amendment hereof executed parties modification shall effected acknowledgment acceptance forms documents containing terms conditions variance addition set forth agreement 146 headings section subsection headings contents particular sections subsections convenience way construed part agreement limitation scope particular section subsection refer 147 references sections subsections appendices unless otherwise expressly stated sections subsections referred herein sections subsections agreement appendices referred herein appendices attached hereto 148 partial invalidity provision agreement held competent authority invalid unenforceable whole part agreement shall continue valid provisions thereof remainder affected provision provided however determination invalidity unenforceability substantially diminishes value agreement party parties shall promptly negotiate good faith modify agreement necessary make fair equitable parties fail agree upon modifications agreement resolve issue within ninety 90 days commencement negotiations either party may terminate agreement written notice given within thirty 30 days expiration said ninety 90 day period said termination take effect one year commencement negotiations 149 governing contract law agreement shall except provided subsection 1410 governed construed respects accordance laws state delaware rules conflicts law 1410 notices notice information required authorized agreement given party shall given writing shall deemed sufficiently given delivered hand transmitted express mail overnight courier service transmitted facsimile means electronic data transmission confirmed express mail overnight courier service following addresses party addresses notified subject parties party time dpl delta pine land company one cotton row scott mississippi 38772 attention president monsanto company 800 north lindbergh boulevard st louis missouri 63167 attention global product management cotton 1411 incorporation appendices incorporated herein made part hereto witness whereof agreement executed duly authorized representatives parties herein delta pine land company title monsanto company title appendix 1 licensed patent rights patent appendix 2 rr trademark license agreement made day september 2001 monsanto company corporation organized existing laws state delaware principal place business 800 north lindbergh boulevard st louis missouri 63167 hereinafter referred monsanto delta pine land company organized existing laws delaware principal place business 100 main street scott mississippi 38772 hereinafter dpl witnesseth whereas monsanto owner trademark subject south african trademark registrations 9700354 9700355 roundup readyr genes seeds containing hereinafter referred rr trademark whereas dpl desires obtain license use rr trademark connection sale transgenic cotton seed derived roundup readyr event licensed monsanto pursuant license glyphosatetolerant cotton seed services agreement license agreement therefore consideration mutual undertakings obligations herein obtained parties agree follows 1 monsanto hereby grants dpl subject terms conditions herein contained nonexclusive royaltyfree license use rr trademark relation cotton seed derived roundup readyr event produced pursuant license agreement hereinafter referred goods license shall assignable third party manner allowed license agreement part parcel assignment license agreement 2 dpl agrees use rr trademark goods meet derived roundup readyr event defined license agreement 3 monsanto shall right reasonable times inspect examine methods processes containers used dpl bagging treating storing goods dpl uses rr trademark request samples goods containers dpl agrees permit inspections examinations furnish samples inspection examination shall sole purpose confirming quality goods meets standards set forth writing monsanto shall used competitive purpose whatsoever 4 dpl shall right use rr trademark advertising promotional literature like well labels packaging containers like goods dpl agrees use rr trademark shall accordance provisions section 36 license agreement agrees rr trademark shall used r symbol shall keyed footnote registered trademark used license monsanto company dpl agrees submit monsanto representative sample labels packaging containers advertising promotional materials rr trademark applied 5 dpl acknowledges monsantos exclusive ownership right title interest rr trademark agrees dpls use rr trademark shall inure benefit monsanto dpl agrees way dispute impugn attack validity said rr trademark monsantos rights thereto 6 dpl agrees engage conduct take action result diminution value rr trademark including without limitation using rr trademark close proximity another brand monsanto owner using rr trademark noun generic term product service manner uninflected adjective failing give express attribution monsanto provided paragraph 4 failing give proper notice registered status rr trademark failure observe foregoing shall considered misuse rr trademark 7 term agreement shall coextensive term license agreement unless sooner terminated accordance terms section 8 hereof capitalized terms used herein defined herein shall meanings set forth license agreement 8 time dpl use rr trademark goods produced accordance terms license agreement time dpl breaches provision agreement fails observe obligations hereunder license granted herein shall terminable upon written notice monsanto effect provided however dpl shall ninety 90 days receipt notice cure breach default 9 dpl agrees notify monsanto promptly apparent infringement rr trademark monsanto take action regarding infringement deems sole discretion necessary desirable dpl agrees cooperate therein 10 monsanto agrees indemnify hold harmless claims suits damages costs arising claim trademark infringement account dpls use rr trademark provided however dpl shall promptly notify monsanto claim suit shall reasonably cooperate monsanto defense thereof witness whereof parties caused agreement executed duplicate duly authorized representatives date first set forth monsanto company witness title witness delta pine land company title appendix 3 roundup readyr quality assurance criteria multiplications licensed commercial seed must meet genetic purity standards comply applicable seed laws licensed country breeder seed lots sampled tested verification presence intended events absence unintended events using monsanto approved assays laboratories tolerances term unintended event shall mean dna molecules vector constructs replicates thereof naturally occurring cotton intended present variety current standards least 98 seed lot commercial seed contain commercially approved genes interest using 95 confidence level every seed lot one seed lot shall exceed 2000 bags seed licensed commercial seed must sample taken stored using procedures appendix 4 presence monsanto roundup readyr gene verified verification shall conducted independent seed testing laboratory dpls testing laboratory testing shall conducted using procedures supplied approved writing monsanto reserves right dna verification lot including retained samples b adventitious amounts commercially approved unintended genes allowed commercial lots seed dpls responsibility define acceptable adventitious amounts based knowledge industry compliance applicable laws commercially approved means accepted applicable governmental agencies unrestricted sale example cotton variety labeled contain roundup ready cotton seed contain 98 roundup ready event 1445 may contain 1 bollgard event 531 events 1445 531 commercially approved us c seed lots tested nonapproved genes 01 threshold 95 confidence level history knowledge presence potential nonapproved genes dpls research program seed production fields determine seed lots tested traits testing program breeding history documented dpl seed lots testing positive nonapproved gene sold monsanto notified writing whenever nonapproved gene detected nonapproved means accepted applicable governmental agencies unrestricted sale examples nonapproved monsanto genes roundup ready event 1698 bollgard event 757 production fields licensed commercial seed must treated rounduptm herbicide brand monsanto may specify time 075 lb acid equivalent glyphosate per acre 24 fluid ounces single application must made 1 4leaf stage development rounduptm herbicide applications may made within label guidelines representative sample least 33 seed production fields licensed commercial seed must inspected qualified inspectors approximately 5 14 days first spraying roundupr herbicide determine percent licensed commercial seed exhibiting tolerance roundupr herbicide representative sample defined least one field inspection future lot commercial seed production random check shall made one per 10 acres fields less 100 acres otherwise one per 20 acres least 100 plants shall examined per check average reported least 98 plants field must exhibit complete tolerance roundupr herbicide treatment exhibiting vegetative injury symptoms monsanto shall access upon request field inspection information cost associated quality program shall borne dpl shall maintain testing records lot licensed commercial seed three 3 years sale licensed commercial seed test results inspection records quality assurance quality control documentation shall available monsanto upon request monsanto shall right audit dpls quality control program take test subsamples samples retained dpl appendix 4 procedure archivingstorage samples seed lots 11 purpose protocol focuses collection storage security file samples representing processed lots licensed commercial seed storage said samples satisfy pertinent legal requirements development historical data confirmation evaluation event customer inquiries legal claims confirm monsantos dpls legal rights andor obligations agreement 12 responsibility 1 dpls quality assurance department obtain representative sample every finished seed lot conditioning process sample taken automatic sampling device bagging station probed hand whichever appropriate divided representative portions per association official seed analysts rules testing seeds portion storage weigh approximately 15 pounds 2 samples labeled lot number variety class year grown date number bags per lot immediately sealed linen bag comparable container provide good moisture barrier 3 order preserve sample quality storage conditions commercially reasonable samples stored either airconditioned storage dry arid environments relative humidity temperature combined exceed 100 temperature expressed degrees fahrenheit 4 access samples restricted persons authorized dpl kept physically secure location 5 samples stored period three 3 years last sale seed lot prior expiration period claims legal proceedings commenced involve specific lot sample retained matter finally concluded appendix 5 gene equivalency test commercial herbicidetolerance protocol roundup readyr cotton purpose determine tolerance candidate dpl roundup readyrcultivars applications roundupr herbicide treatments 1 candidate cotton line sprayed glyphosate 2 candidate cotton line sprayed roundup monsanto glyphosate brands notified monsanto 075 lb acid equivalentacre 26 ounces per acre four different timings topical application 1 leaf stage topical application 4 leaf stage 5th leaf reaches size quarter post directed ten days 4 leaf application direct spray base plants minimizing foliar contact post directed twenty days 4 leaf application direct spray base plants minimizing foliar contact design randomized complete block design plots minimum four 4 rows wide ten 10 meters long four 4 replications spray four 4 rows treatment harvest center two 2 rows plots weed free use appropriate commercial herbicide program superimpose roundupr herbicide described treatments program due seed size variability planter settings must adjusted andor early season stand thinning must accomplished provide uniform plant population among lines use appropriate agronomic practices maximize yield minimum two 2 locations within area adaptation variety republic south africa per year two years must completed data requirements yield endofseason plant map data must collected meet following criteria 1 yield lint yield averaged across locations sprayed treatment must least 98 yield unsprayed treatment 95 confidence level 2 dpl shall submit monsanto summary results show whether candidate variety met criteria specified test parameters addition dpl shall certify writing monsanto dpl roundup readyr cultivar tested conditions met criteria two 2 consecutive years unrestricted sales made commercial seed production commercial agronomic testing may started candidate variety tested one 1 year met criteria varieties passed two 2 years commercial herbicidetolerance trials described technical equivalent australia united states required pass one 1 year trials republic south africa exhibit 1035 glyphosatetolerant cotton agreement australia agreement made 3rd day july 2001 among monsanto company monsanto principal place business 800 north lindbergh boulevard st louis missouri 63167 deltapine australia pty limited dpa principal place business 60 maitland street narrabri nsw australia 2390 delta pine land company delta one cotton row scott mississippi 38772 section 1 background 11 monsanto developed present intention continue develop technology useful production genetically modified cotton plants exhibiting tolerance glyphosate also possesses certain knowhow germplasm relating cotton plants 12 dpa developing cotton varieties containing monsanto technology australian cotton seed market 13 monsanto dpa interested entering arrangement dpa could produce sell licensed commercial seed cotton farmers licensed monsanto use licensed commercial seed section 2 interpretation 21 definitions agreement unless context otherwise requires 211 term affiliate means entity controls controlled common control another company control defined owning fifty percent 50 voting shares controlled entity 212 term average gross margin percentage respect particular class cotton planting seed means one minus quotient cost goods sold divided wholesale price per unit particular class averaged units particular class sold applicable year expressed percentage 213 term bt toxin means insecticidal protein derived bacillus thuringiensis active fragment modification deletion mutation thereof toxic lepidopteran insects 214 term backcross means cross hybrid either parents 215 terms backcrosses backcrossing means system breeding whereby recurrent crosses made one 1 parents hybrid accompanied selection specific characteristic characteristics 216 term class means type cotton planting seed categorized presence absence trait traits introduced using biotechnology monsanto another example class licensed commercial seed derived solely first roundup readyr event another example licensed commercial seed derived first roundup readyr event containing monsanto bt gene 217 term commercial development roundup readyr event means evaluation dpa progeny roundup readyr event dpa cultivars andor third party third partys cultivars 218 term commercial herbicide tolerance means property cotton plants sustain economically significant damage evidenced meeting standards set forth appendix tested according procedure appendix 219 term commercial sale respect licensed commercial seed means sale transfer value licensed commercial seed use producing commercial commodity cotton crop sale transfer testing seed multiplication behalf transferor 2110 term compensation period means period time pursuant subsection 62 monsanto obligated pay seed services fee dpa licensed commercial seed derived roundup readyr event 2111 term cost goods sold respect particular dpa cultivar means average sums costs required acquire prepare particular seed costs shall calculated accordance generally accepted accounting principles applied dpas inventory costing policies costs include direct indirect costs fuzzy seed field inspection quality assurance bulk seed handling storage processing conditioning delinting treating seed treatments packaging costs storage bagged seed plus cost dump seed less cull seed sales 2112 term cotton planting seed means cotton seed intended produced conditioned suitable planting produce commercial cotton crop 2113 term dpa means deltapine australia pty limited company organized existing laws australia principal place business 60 maitland street narrabri nsw australia 2390 2114 term dpa cultivar means cultivar cotton produced germplasm dpa right use plant breeding purposes 2115 term dpa roundup readyr cultivar means dpa cultivar derived roundup readyr event contains monsanto roundup readyr gene 2116 term dpa technology means information data germplasm dpa develops produces makes obtains rights monsanto relating breeding development commercial varieties hybrids licensed commercial seed varieties hybrids cotton property monsanto dpa technology include become part public domain fault monsanto 2117 term date approval commercial sale respect roundup readyr event means date monsanto first authorizes commercial sale dpa cotton seed specific dpa roundup readyr cultivars derived roundup readyr event 2118 term date first commercial licensing means first date monsanto licenses third party third party contract dpa testing seed multiplication right use licensed commercial seed derived pertinent roundup readyr event use producing commercial commodity cotton crop territory 2119 term date governmental approval respect roundup readyr event means date official clearances written approvals commercial sale seed produce geneticallytransformed cotton plants derived roundup readyr event obtained monsanto state federal governmental agencies date authority regulate production use sale plants seed produced therefrom provided however shall require monsanto obtain approval agency respect issuance seed certificates phytosanitary certificates plant variety protection plant breeders rights act 1994 approvals appropriate required shall responsibility dpa 2120 term delta means delta pine land company organized existing laws delaware principal place business one cotton row scott mississippi 38772 2121 term distinctive nomenclature means nomenclature words combinations letters symbols identifies seed containing monsanto roundup readyr gene 2122 term distribution payments mean payments made monsanto distributors andor retailers assistance implementing licensing process described subsection 46 hereof provided however event distribution payments distributor retailer exceed twenty percent 20 roundup readyr grower agreement fees due monsanto distributor retailer roundup readyr grower agreements excess amount may deducted calculation net license revenue without agreement dpa 2123 term effective date means date first written 2124 term first roundup readyr event means roundup readyr event denominated event 1445 undergone commercial development dpa prior effective date obtained governmental approval 2125 term glyphosate means herbicidally effective form nphosphonomethylglycine including salt thereof epsp synthase inhibitor 2126 term governmental approval means required official clearances written approvals commercial sale seed derived particular roundup readyr event produce geneticallytransformed cotton plants obtained monsanto governmental agencies territory date authority regulate production use sale plants seed produced therefrom provided however shall require monsanto obtain approval agency respect issuance seed certificates phytosanitary certificates plant variety protection plant variety protection act approvals appropriate required shall responsibility dpa 2127 term improvement means invention discovery embodied licensed commercial seed use made dpa sublicensees course activities agreement territory invention discovery made direct result dpas use monsanto technology 1 part public domain obtained dpa third party obligation confidentiality monsanto 2 licenses granted herein would infringe monsanto patent right improvement shall include invention discovery related breeding selection specific dpa roundup readyr cultivars 2128 term lepidopteran insects means helicoverpa punctigera helicoverpa armigra 2129 term license licenses means licenses granted dpa section 3 2130 term licensed commercial seed means cotton seed dpa cultivar sold dpa derived roundup readyr event incorporates monsanto roundup readyr gene 2131 term licensed patent rights means australian patents 591087 monsanto patent rights additional patent rights others may included licensed patent rights monsanto written notice dpa licensed patent rights shall include patent rights acquired monsanto prior effective date term agreement license required dpas performance hereunder monsanto shall periodically notify dpa relevant patent rights newly acquired monsanto 2132 term monsanto means monsanto company incorporated state delaware place business 800 north lindbergh boulevard st louis missouri 63167 2133 term monsanto bt gene means dna molecule received monsanto replicate thereof encoding bt toxin contained genome sexually viable cotton plant received monsanto commercial development authorized monsanto 2134 term monsanto patent rights shall mean australian patents owned monsanto extensions thereof 2135 term monsanto roundup readyr gene means dna molecule including regulatory sequences replicate thereof inserted cotton results increased tolerance glyphosate supplied monsanto 2136 intentionally omitted 2137 term monsanto royalty percentage means seventy percent 70 b monsantos election event thirty percent 30 dpas unit sales herbicidetolerant cotton planting seed comprise nonmonsanto herbicide tolerance gene eightyfive percent 85 year term agreement dpa sells territory cotton seed contains nonmonsanto herbicide tolerance gene without consent monsanto 2138 term monsanto technology means information data knowhow technology including biological material commercial herbicide tolerance cotton owned licensed monsanto including limited information technology relating cells seeds cotton plants monsanto roundup readyr genes dna sequences probes therefor transformation methodology tissue cultures assays residue analyses regeneration selection procedures plant genetic constituents vectors useful transforming genetic constituents construction use vectors epsp synthase role plants registration approvals therefor monsanto technology include become part public domain fault dpa 2139 term net license revenue means total amount roundup readyr grower agreement fees plus interest charged monsanto paid growers relative roundup readyr grower agreement fees less incentive rebates paid growers weed resistance management data distribution payments attributable either hectares growers planted licensed commercial seed units licensed commercial seed purchased used growers applicable period payments pursuant section 6 determined whichever applicable 2140 term nongeneticallymodified means applied plant line cultivar genome subject plants altered mutagenesis introduction recombinant gene means 2141 term nonmonsanto cotton genes shall meaning set forth subsection 34a 2142 term nonmonsanto herbicidetolerance gene means dna molecule replicate thereof nonnaturallyoccurring cotton present cotton results tolerance commercially available herbicide either prepared dpa provided dpa third party 2143 term option agreement means option agreement monsanto delta dated february 2 1996 amended december 8 1999 may amended accordance terms 2144 term rr trademark means trademark owned monsanto relating roundup readyr events 2145 term rr seed services fee means compensation earned dpa consideration selling licensed commercial seed derived roundup readyr event licensed cotton farmers equal net license revenue multiplied rr seed services percentage less amount equal applicable monsanto royalty percentage times total revenue earned dpa increased average gross margin percentage licensed commercial seed cotton seed tolerant glyphosate calculated according following formula rrssf nlr x rrssp nlr x rrssp x gst mrp x dpatr mrp x dpatr x gst rrssf rr seed services fee nlr net license revenue rrssp rr seed services percentage mrp monsanto royalty percentage dpatr total revenue received dpa increased average gross margin percentage licensed commercial seed cotton seed tolerant glyphosate gst goods services tax rate 2146 term rr seed services percentage means percentage equal one hundred percent 100 less monsanto royalty percentage applicable sales licensed commercial seed derived roundup readyr event 2147 term recipient means party receives confidential information another party described section 8 2148 term recurrent parent means parent successive backcrosses made backcross breeding 2149 term roundupr herbicide means glyphosate formulation sold monsanto registered use cotton includes roundupr herbicide brand name brand name glyphosate formulation monsanto may expressly license farmer use combination licensed commercial seed 2150 term roundup readyr event means line cotton made resistant glyphosate insertion one heterologous genes impart property plants line selected monsanto governmental approval 2151 term roundup readyr grower agreements means contracts entered monsanto cotton farmers territory use roundup readyr event including growers chosen dpa production licensed commercial seed terms roundup readyr grower agreement shall solely within discretion monsanto 2152 term roundup readyr grower agreement fees means license fees due monsanto cotton farmers territory use licensed commercial seed including use seed production future sales cotton planting seed roundup readyr grower agreement fee shall set fee per unit per unit cotton area planted farmer licensed commercial seed 2153 term roundup readyr trademark license agreement means agreement attached hereto appendix 2154 term stacked gene cotton meaning set forth subsection 34a 2155 term subsequent roundup readyr event means roundup readyr event first roundup readyr event authorized monsanto commercial development 2156 term subsidiary subsidiaries mean companyies fifty percent 50 voting stock owned directly indirectly party hereto 2157 term technology means monsanto technology andor dpa technology appropriate 2158 term territory means country australia unless expressly provided contrary herein rights obligations monsanto dpa hereunder apply territory 2159 term unit means quantity delinted cotton seed weighing twentyfive 25 kilograms package sizes dpa may use future provided however calculations involving units shall made terms quantity cotton seed contained packages relevant calculation provided calculations requiring quantities nondelinted cotton seed converted units delinted cotton seed conversion shall made basis dpas experience conversion nondelinted cotton seed delinted cotton seed averaged immediately preceding three 3 years 2160 term varietal name means word combination words combination letters example dpa identifies dpa cultivar 2161 term varietal number means number identifies dpa cultivar 2162 term wholesale price respect particular dpa cultivar means average price invoiced distributors applicable seed reselling growers less sales returns allowances discounts incentive payments event discount incentive licensed commercial seed contingent sales conventional class characterized absence traits introduced using biotechnology cotton planting seed discount incentive shall apportioned among particular licensed commercial seed conventional class based ratio average distributor price conventional class licensed commercial seed aggregate average distributor price conventional class licensed commercial seed order calculate wholesale price licensed commercial seed conventional class 22 statutory references reference agreement statute provision statute shall construed reference statute provision exists effective date section 3 licenses 31 limited license sell licensed commercial seed monsanto hereby grants dpa hereby accepts subject terms conditions agreement right without right transfer except provided subsection 141 nonexclusive license including license licensed patent rights develop produce produced sell licensed commercial seed derived first roundup readyr event cotton farmers licensed monsanto use territory 32 license multiply licensed commercial seed rights granted dpa include right multiply licensed commercial seed derived first roundup readyr event subsequent sale licensed cotton farmers directly third party contract growers selected dpa territory licensed monsanto notice approval monsanto approval unreasonably delayed denied outside territory dpa obtained necessary governmental approvals carry activities reasonably necessary production sale territory licensed commercial seed dpa shall report monsanto names addresses contract growers preferred resellers number hectares planted seed production monsanto may provide license agreements preferred resellers execution license agreements shall provide contract growers pay roundup readyr grower agreement fee applicable shipped seed notice monsanto later june 1 dpa shall enter agreement production licensed commercial seed following season contract growers failed execute license monsanto failed pay roundup readyr grower agreement fee applicable seed purchased contract grower 33 prohibition modification genetic materials dpa shall modify monsanto roundup readyr gene modify use isolated regulatory control sequences contained monsanto roundup readyr gene physically isolated seed plant cell culture transferred monsanto delta dpa progeny seed plant cell culture purpose without prior written consent monsanto provided however prohibitions subsection shall apply modification use territory isolated regulatory control sequences isolated seed plant cell culture become part public domain territory fault dpa received third party obligation confidentiality monsanto b nothing subsection provides dpa license patent rights owned controlled monsanto except extent otherwise provided agreement used subsection material shall deemed become part public domain member public territory lawfully sell transfer material without restriction without breaching contractual obligation monsanto 34 conditions license partial consideration licenses dpa may insert dpa roundup readyr cultivar heterologous gene construct licensed dpa monsanto expressing trait naturally occurring cotton nonmonsanto cotton gene provided following conditions met continue met respect licensed commercial seed sold dpa territory contains nonmonsanto cotton gene stacked gene cotton seed 1 dpa shall sell territory stacked gene cotton seed unless nonmonsanto cotton gene also approved commercial sale united states america import japan 2 stacked gene cotton seed must meet standards sale territory licensed commercial seed 3 dpa shall sole expense obtain required official clearances written approvals commercial sale seed containing nonmonsanto cotton gene governmental agencies territory date authority regulate production use sale seed territory dpa may request monsanto provide assistance obtain approvals monsanto provides assistance dpas request dpa shall reimburse monsanto reasonable expenses incurred providing requested assistance 4 monsanto shall right written notice dpa prohibit display rr trademark packages containing stacked gene cotton seed provided event notice given section 35 notwithstanding dpa may sell stacked gene cotton seed packaging displaying rr trademark 5 notwithstanding provisions section 13 dpa shall defend indemnify hold monsanto affiliates respective employees directors officers agents harmless loss cost liability expense including court costs reasonable fees attorneys professionals incurred claim cotton farmers purchased licensed commercial seed distributors farmers may make claims arising alleged arise performance stacked gene cotton seed plants grown stacked gene cotton seed unless failure performance proximately caused solely presence gene received monsanto stacked gene cotton seed provided issue causation dpa shall bear burden proof provided costs claims covered immediately preceding clause ie claims dpa meets burden proof shall prorated monsanto dpa monsantos respective percentage share costs claims shall based monsantos respective percentage share total net license revenues seed premiums instances technology license fees charged nonmonsanto cotton gene derived presence geneticallyengineered technology subject stacked gene cotton seed 6 year dpa making commercial sales stacked gene cotton seed territory addition complying provisions section 45 dpa shall available sale territory quantities class licensed commercial seed containing monsanto technology nonmonsanto cotton genes equal exceed quantities class licensed commercial seed sold dpa net returns territory immediately preceding year 7 fees compensation paid retailers andor distributors service granting licenses sublicenses growers relating technology embodied stacked gene cotton seed andor collect license fees growers stacked gene cotton seed specifically related particular technology shall apportioned based ratio aggregate payments received monsanto roundup readyr grower agreements ii aggregate net license revenues seed premiums value received subject technology provider instances technology license fees charged nonmonsanto cotton gene derived presence geneticallyengineered technology subject stacked gene cotton seed monsanto technology provided however event shall monsanto required pay bear amount fees compensation retailers andor distributors services excess monsanto would paid borne services agreement subject stacked gene cotton seed containing monsanto roundup readyr gene technology provided monsanto dpa third party technology provider provide monsanto information reasonably necessary determine compliance subsection 34 dpa shall promptly refund monsanto fees compensation paid monsanto retailers andor distributors excess amount paid provisions later one month following notice monsanto discrepancy error 8 costs acquiring preparing seed stacked gene cotton seed additive costs required acquire prepare licensed commercial seed contain nonmonsanto cotton gene shall excluded cost goods sold respect stacked gene cotton seed 9 prior dpas sale territory particular stacked gene cotton seed dpa third party provider nonmonsanto cotton gene stacked gene cotton seed dpa proposes sell shall meet monsanto address issues involving patent infringement issues governmental regulations public acceptance stewardship territory genetic technology embodied stacked gene cotton seed cases bona fide disputes concerning sale terms conditions sale particular stacked gene cotton seed territory involving patent infringement issues governmental regulations public acceptance stewardship territory genetic technology embodied stacked gene cotton seed dpa shall sell stacked gene cotton seed territory monsanto commercially reasonable judgment agreed sale agreement unreasonably delayed 10 disputes parties concerning compliance section 34a shall settled according subsection 1412 arbitration needed shall private confidential also monsanto shall provide consent sell specific stacked gene cotton seed monsanto permitted licensee sell stacked gene cotton seed territory terms possible monsanto given permission event less favorable terms consent subsection 34a shall construed include license patents rights owned controlled monsanto including might infringed making using selling nonmonsanto cotton gene b dpa shall use distinctive nomenclature relating indicating herbicide tolerance dpa cultivars contain nonmonsanto herbicidetolerance gene similar used dpa roundup readyr cultivars dpa may use varietal name varietal number chooses accordance australian law long violate previous sentence c long monsanto patent rights effect dpa shall conspicuously display packages containing licensed commercial seed invoices relating licensed commercial seed sold transferred third parties following notice meaning effect blanks appropriately filled seeds covered australian patents license conveyed said patents use seeds solely purchase seeds license said patents use seeds produce single cotton crop must also obtained monsanto company e dpa shall use commercially reasonable efforts comply require writing third party contractors comply laws rules regulations court orders whether federal state knows reasonably know applicable activities respect licensed commercial seed 35 rr trademark dpa shall conspicuously display rr trademark accompanying logo packages licensed commercial seed derived roundup readyr event initial use rr trademark accompanying logo alteration size location rr trademark accompanying logo shall require written approval monsanto b agreed rr trademark shall licensed dpa nonexclusive royaltyfree basis pursuant rr trademark license agreement c rr trademark shall utilized solely manner specified roundup readyr trademark license agreement provided however size rr trademark shall reasonable relation overall size package shall smaller largest representation dpa trademark appearing package dpa shall submit promotional material includes rr trademark monsanto approval shall publish use material approval granted provided approval shall deemed granted notice disapproval sent monsanto within seven 7 days receipt material 36 limitations license agreement construed including grant monsanto dpa license sublicense right make sell monsanto roundup readyr genes monsanto technology b use monsanto roundup readyr genes roundup readyr events monsanto technology purpose expressly set forth herein 37 educational program discourage farmersaved seed dpa shall employ reasonable efforts continuing basis proactively educate purchasers licensed commercial seed nature limiteduse license granted cotton farmers monsanto benefits purchasing licensed commercial seed annually disadvantages using farmersaved seed applicable legal restrictions 38 third party violations invalidity restrictions license use licensed commercial seed purchasers purposes addition production single commercial commodity crop unless expressly authorized dpa shall considered breach agreement license granted dpa shall revoked diminished otherwise affected event limitations restrictions license purchasers found unenforceable whole part court competent jurisdiction 39 identification fields planted farmersaved seed dpa monsanto shall cooperate reasonable effort develop employ methods techniques employed commercially efficient manner identify fields cotton planted seed saved crop produced licensed commercial seed otherwise derived licensed commercial seed unlicensed manner costs associated cooperative efforts develop employ methods techniques shall borne monsanto 310 subsequent roundup readyrevents monsanto anticipates develop subsequent roundup readyr events superior first roundup readyr event one attributes event monsanto authorizes subsequent roundup readyr event commercial development country world monsanto shall provide subsequent roundup readyr event dpa substantially time third party seed company providing seed subsequent roundup readyr event performing backcrossing dpa cultivars subsequent roundup readyr event deltas rights concerning license sell cotton planting seed derived subsequent roundup readyr event governed option agreement b dpa shall discontinue selling dpa roundup readyr cultivars derived first roundup readyr event later three 3 years date governmental approval subsequent roundup readyr event c without limiting rights dpa might arising breach monsantos obligation section 310a event breach causes delay dpas first sale dpa roundup readyr cultivar derived subsequent roundup readyr event monsanto shall delay sales licensee subsequent roundup readyr event one year dpa agrees delay sales dpa roundup readyr cultivar derived subsequent roundup readyr event monsanto obligation another licensee territory delay sales required delay sales 311 approval commercial sale notwithstanding provision agreement dpa shall sell offer sell cotton planting seed dpa roundup readyr cultivar without prior express written consent monsanto required exhibit even though dpa may evaluating agronomic performance dpa roundup readyr cultivar dpa shall comply requirements set forth appendices b e ensure subject dpa roundup readyr cultivar licensed commercial seed meets standards set forth therein monsantos consent sell particular dpa roundup readyr cultivars shall withheld unless demonstrated according provisions appendices e requirements met shall otherwise withheld subject provisions subsections 311b c monsanto shall apply standards appendices b e licensees roundup readyr event territory b consent sell licensed commercial seed may withheld withdrawn monsanto without liability licensee reasonable business judgment sales offer sell may result infringement thirdparty property rights based opinion patent counsel provided offers sales licensees monsanto discontinued similar fashion event monsanto gives notice withdrawal consent dpa makes sales licensed commercial seed subject notice notwithstanding provision agreement monsanto shall liability dpa matters regarding licensed commercial seed sold dpa shall indemnify hold monsanto harmless third party claim concerning licensed commercial seed sold c monsantos reasonable business judgment sales offers sell particular dpa roundup readyr cultivars may result product complaints due identifiable quality issues exercise commercially reasonable judgment likely measurably significant impact monsantos business related roundup readyr grower agreements monsanto gives notice dpa continues make sales dpa roundup readyr cultivars without notice growers subsequently purchase dpa roundup readyr cultivars observation identifiable quality issue notwithstanding provision agreement monsanto shall liability dpa matters regarding dpa roundup readyr cultivars sold dpa shall indemnify hold monsanto harmless third party claim concerning dpa roundup readyr cultivars sold monsanto shall apply provision respect identifiable quality issues substantially equally licensees territory section 4 development marketing activities 41 development licensed commercial seed derived roundup readyr events monsanto shall cooperate dpa development activities directed introgression monsanto roundup readyr genes dpa cultivars using roundup readyr events dpa shall cooperate monsanto development activities directed introgression monsanto roundup readyr genes dpa cultivars using roundup readyr events 42 consultation field trials monsanto dpa shall consult regularly throughout term agreement relative activities affecting development maintenance sales licensed commercial seed including limited dpas plans progress production field testing licensed commercial seed prior planting year dpa shall monsantos request dpas expense supply monsanto locations sizes responsible party conducting field trials along types data collected trial trials shall reasonable size total hectares used trials shall reasonable representatives monsanto dpa shall periodically meet mutually acceptable times discuss activities progress hereunder b planning purposes monsanto dpa shall meet request either party plan activities following season 43 management committee either partys request monsanto dpa shall appoint representative management committee monsanto dpa make representatives available meetings committee meet less frequently every six 6 months b committee review scientific data produced relevant authorities evaluate track forecast efficacy roundup readyr event c committee formulate recommend dpa procedures production field testing licensed commercial seed parties agree rules governing means committee meet chair meetings party may appoint alternate members committee reason one nominees cannot attend e committee may 1 meet telephone hookup audio visual means allows parties heard seen heard time 2 make recommendations resolution andor information circulated marked indicate agreement disagreement signed member f committee advisory 44 timing development activities monsanto determined limited introduction appropriate cotton planting seed derived first roundup readyr event monsanto notified dpa monsanto provide licenses growers planting eighty thousand 80000 hectares cotton planting seed 2001 monsanto may significantly change limit planting without consent dpa unless limitation imposed governmental action order b event circumstances indicate limitation plantings cotton planting seed derived first roundup readyr event appropriate future years monsanto shall notify dpa limitations later february 28 year limitation would apply monsanto may significantly change limit planting without consent dpa unless limitation imposed governmental action order 45 production meet market demand subject terms subsection 32 44 dpa shall obligated use reasonable business efforts available sale sufficient quantity licensed commercial seed satisfy reasonably foreseeable market demand licensed commercial seed including licensed commercial seed also contains monsanto bt genes provided subsection 34a 46 marketing activities monsanto provided shall continue provide following marketing licensing services support commercialization licensed commercial seed granting roundup readyrgrower agreements cotton farmers b development forms roundup readyrgrower agreements process enforce terms licenses c development implementation procedures cotton farmers enter roundup readyr grower agreements entering roundup readyr grower agreements cotton farmers either using monsanto employees contracting retailers monsantos instructions e invoicing collection roundup readyr grower agreement fees due agreements provided unless extenuating circumstances growers competitive pressures cotton technology monsanto shall set due date payment roundup readyr grower agreement fees later february 28 unless monsanto shall first obtained agreement dpa f communication license process license limitations cotton ginners delinters g development implementation programs create demand roundup readyrgrower agreements including advertising merchandising promotions h development implementation distributor retailer programs roundup readyr grower agreements copy program shall delivered dpa writing less thirty 30 days prior proposed implementation development replant policy roundup readyr grower agreements written copy policy shall delivered dpa september 30th first year commercial sale amended later july 31st first year apply j training dpa personnel use gene check field test kit solely purpose using test kit dpas seed multiplication program l management assumption cost collecting roundup readyr grower agreements fees monsanto shall ensure payments due dpa paid dpa 47 additional services monsanto dpa shall consult ongoing basis concerning following services support commercialization licensed commercial seed shall provided monsanto development lists retailers acting monsantos instructions entering roundup readyr grower agreements monsanto shall promptly notify dpa changes lists extent legally permitted reason change b development implementation distributor retailer contracts required implement licensing process c development implementation compensation programs offered distributors retailers implementation licensing process subject provisions set forth definition distribution payments 48 services provided dpa consultation dpa monsanto shall provide dpa terms conditions deemed necessary effect process granting roundup readyr grower agreements described subsections 46 47 hereof terms conditions dpa shall include agreements distributors retailers involved process terms conditions shall include requirement relative monsanto product first roundup readyr event 49 grower license program roundup readyr grower agreement fee subject governmental action restricts amount licensed commercial seed sold territory monsanto shall implement commercially reasonable marketing structure reasonably affords cotton farmers territory opportunity use licensed commercial seed provided however monsanto shall obligated license cotton farmers credit worthy likely comply terms grower license monsanto shall use commercially reasonable efforts collect fees owed licensed commercial growers sublicenses event debt remains uncollected one 1 year dpa determines efforts collect reasonably diligent dpa shall notify monsanto shall assign dpa right collect debt turn documentation related necessary collection effort dpa successful collection debt assigned monsanto dpa shall remit onehalf 12of collected amount monsanto within fifteen 15 days section 5 ownership technology 51 monsanto technology licensed patent rights monsanto technology shall remain property monsanto b licensed patent rights shall remain property owners effective date 52 dpa technology dpa technology shall remain property dpa 53 safety toxicology data dpa monsanto shall jointly safety toxicological data generated jointly joint development activities data solely developed either party shall solely owned respective party 54 efficacy data dpa monsanto shall jointly efficacy data produced joint development activities data solely developed either party shall solely owned respective party 55 use data dpa monsanto shall permitted use jointlyowned safety toxicological efficacy data produced joint development activities provided however use shall sole benefit third party section 6 payments 61 compensation paid toby dpa consideration dpa producing selling licensed commercial seed cotton farmers licensed monsanto purchase use seed monsanto shall pay dpa rr seed services fee sales licensed commercial seed less portion would due roundup readyr grower agreement fees yet received monsanto clarification credit risk respect roundup readyr grower agreement fees shared parties proportion share fees subject provisions subsection 49 62 compensation period respect roundup readyr event monsantos obligation pay dpa rr seed services fee described subsection 61 shall begin date first commercial licensing licensed commercial seed shall end upon termination agreement provisions section 10 b dpa hereby grants monsanto royaltybearing nonexclusive license patents improvements country dpa affiliate dpa licensed sell licensed commercial seed license monsanto shall terms conditions deemed commercially reasonable customary field agricultural biotechnology shall life relevant patents 63 favored licensee terms option agreement provide delta certain rights related terms conditions agreement nothing agreement shall supercede otherwise affect terms option agreement regard section 7 business recordspayments 71 business records dpa shall keep records showing amount licensed commercial seed sold otherwise transferred third parties cost goods wholesale prices dpa roundup readyr cultivars along calculations average gross margin percentage class cotton planting seed sold dpa agrees permit books records examined time extent necessary verify reports provided section 7 confidential examination made independent national firm chartered accountants appointed expense monsanto firm shall reasonably acceptable dpa b monsanto shall keep records showing amount net license revenue licensing cotton farmers territory monsanto agrees permit books records examined time extent necessary verify reports provided section 7 confidential examination made independent national firm chartered accountants appointed expense dpa firm shall reasonably acceptable monsanto 72 reports payments monsanto shall submit dpa thirtieth day date monsanto requires payment distributorsretailers year report summarizes payment due previous twelve 12 months includes list licensed growers purchased dpa roundup readyr cultivars amount purchased annual report monsanto shall pay dpa applicable rr seed services fee due pursuant subsection 61 payment due dpa subject reporting period written report shall state necessary due untimely reports andor payments distributorsretailers andor licensed farmers followup report payment dpa shall made monsanto every two 2 months thereafter b dpa shall submit monsanto 1 september 30th report provides calculation amount due monsanto refund overpayments rr seed services fees due average gross margin percentage values determined calculation set forth definition rr seed services fees previous twelve 12 months 2 december 31 report provides totals variety shipments dpa roundup readyr cultivars whether sold otherwise transferred within previous twelve 12 months report due september 30th dpa shall remit payment due plus interest calculated according section 73 period beginning receipt applicable overpayment monsanto date payment refund payment due monsanto 1 subject reporting period written report shall state necessary due payment dates distributorsretailers individual growers followup report payment monsanto shall made every two 2 months thereafter c time term agreement monsanto shall amend manner collects rr grower agreement fee distributorsretailers andor cotton farmers single annual installment shall report modification collection policy dpa make reports payments dpa manner consistent outlined subsection 72a reports payments due pursuant section 7 shall sent dpa deltapine australia pty limited 60 maitland street narrabri nsw australia 2390 attention general manager monsanto company 800 north lindbergh boulevard st louis missouri 63167 usa attention global product management cotton addresses bank accounts party may specify 73 interest outstanding balances monsanto dpa fails pay due date amount payable agreement without prejudice subsection 104 amount shall bear interest prime rate corporate loans large u money center commercial banks reported wall street journal said due date due date payment made full judgment section 8 confidentiality 81 nondisclosure confidential information neither dpa monsanto shall time period specified subsection 82 disclose person confidential technology confidential information disclosed another party except prior written consent involved party parties provided subsection 83 provided however monsanto shall permitted disclose general information relating performance monsanto roundup readyr gene extent disclosure necessary desirable commercialization cotton seed derived roundup readyr event monsanto shall permitted disclose information relating specifically dpa cultivars b monsanto shall disclose confidential dpa pricing sales sensitive information competitor dpa person whatsoever monsanto shall take reasonable action use separate personnel handle dpa sensitive commercial information personnel access commercial information competitor dpa however nothing clause shall prevent monsanto disclosing dpa provides third party roundup readyr event 82 period confidentiality period referred subsection 81 shall period beginning date receipt confidential technology confidential information ending respect technology information ten 10 years thereafter 83 uses confidential information technology confidential information disclosed either dpa monsanto party may disclosed recipient directors officers employees agents contractors recipient extent reasonably necessary fulfillment recipients obligations agreement commercial exploitation licensed commercial seed subject case recipients obligating person question hold confidential written agreement coincident scope term confidentiality obligation agreement person agreeing use except purposes disclosure made b disclosed recipient governmental authority regulatory body extent required law provided however recipient shall take reasonable measures ensure authority body keeps confidential use except purpose disclosure made provided party proposing disclose shall give prior notice intent party disclosed technology andor confidential information permit said party option contest said requirement seek confidential treatment technology information required disclose information disclose information minimum extent requirement c disclosed court litigant extent disclosure ordered court government agency competent jurisdiction provided however recipient shall take reasonable measures ensure court litigants government agency keep confidential use except purpose disclosure made provided party proposing disclose shall give prior notice intent party disclosed technology andor confidential information permit said party option contest said requirement seek confidential treatment technology information required disclose information disclose information minimum extent requirement used recipient purpose disclosed recipient person extent effective date thereafter becomes public knowledge fault recipient disclosed recipient third party matter right shown recipient known recipient prior disclosure written records section 9 force majeure 91 force majeure except regard payments required pursuant agreement neither party shall liable delay failure perform whole part reason contingencies beyond reasonable control force majeure whether herein specifically enumerated including among others acts god war acts war revolution civil commotion riots acts public enemies blockade embargo delays carriers car shortage fire explosion breakdown equipment strike chemical reversal reactions lockout labor dispute casualty accident earthquake epidemic flood cyclone tornado hurricane windstorm delays vendors reason law order proclamation regulation ordinance demand requisition requirement act governmental authority including limited government actions restricting preventing growing licensed commercial seed areas dpa historically produced seed provided however party affected shall promptly reasonably possible circumstances give written oral notice parties whenever contingency appears likely occur occurred shall use reasonable efforts overcome effects contingency promptly possible shall allow party access information may necessary desirable evaluate contingency party shall required resolve strike lockout labor problem manner alone deem proper advisable party affected event sort enumerated contemplated subsection 91 may suspend performance agreement period time equal duration event excusing performance time required overcome consequences event resume performance affected party shall complete performance required agreement soon practicable removal cessation cause delay reduction performance section 10 term termination 101 term agreement term agreement shall begin effective date shall extend expiry licensed patent rights thereafter 1 legal sales cotton planting seed containing first roundup readyr gene entity licensed monsanto sales comprise ten percent 10 total sales cotton planting seed containing first roundup readyr gene 2 net license revenue essentially zero whichever first unless agreement terminated earlier pursuant provision section 10 102 termination monsanto shall right compensation period first roundup readyr event terminate agreement period two 2 consecutive years starting january 1 2003 total annual royalty revenue monsanto licensees use roundup readyr events less monsantos total annual royalty due third parties license agreements parties use technology needed commercialize licensed commercial seed territory monsanto shall notify dpa annual royalty revenue monsanto licensees within territory less one hundred twentyfive percent 125 monsantos total annual royalty due said third parties event monsanto elects terminate agreement subsection 102c prior expiry licensed patent rights monsanto shall terminate also license agreements use roundup readyr events licenseessublicensees ii allow dpa sublicenseeslicensees sell existing inventories cotton seed derived roundup readyr events possession date notice termination obligated contract take delivery event monsanto elects terminate agreement subsection 102c provisions agreement shall remain force contractual purchase commitments fulfilled inventories exhausted monsanto subsequently elects reenter cotton seed market first roundup readyr event monsanto shall offer license dpa terms offered licensees time event monsanto elects terminate agreement subsection 102c expiry licensed patent rights dpa shall paidup license sell dpa roundup readyr cultivars provided obligations without limitation monsanto respect dpa roundup readyr cultivars shall terminate dpa shall thereafter indemnify monsanto according terms set subsection 106 b dpa shall right terminate agreement giving prior written notice monsanto less twelve 12 months c expiry monsanto patent rights dpa may cease selling dpa roundup readyr cultivars giving notice monsanto later beginning planting season dpa arrange production licensed commercial seed thereafter obligations agreement except 1 respect events occurred prior termination 2 obligation sell seed dpa roundup readyr cultivars fifteen 15 years effective date two 2 years notice monsanto whichever later upon receipt notice obligations without limitation monsanto respect dpa roundup readyr cultivars shall terminate 103 breach obligations breach party material provisions agreement confidentiality obligations section 8 default upon payment obligations provided herein shall entitle party give party breach default least ninety 90 days notice cure breach default breach default defaulting party cured within ninety 90 day period materiallyaffected party may terminate agreement giving notice party take effect immediately termination subsection 103 shall affect rights notifying party may agreement 104 default payment event dpa monsanto defaults payment due party pursuant section 6 fails cure default within sixty 60 days notice dpa monsanto case may nondefaulting party shall right terminate agreement giving fourteen 14 days notice party 105 change control dpa agreement shall terminate upon change control delta however agreement may terminated monsanto delta sells fifty percent 50 stock dpa sells substantially dpas cotton seed business nonaffiliate third party case independent sale delta unless monsanto consents change control dpa monsanto agrees unreasonably withhold consent provided shall deemed unreasonable withhold consent newly controlling entity competitor market weed control agricultural biotechnology 106 effect termination event agreement terminated pursuant provisions subsections 102b 103 104 105 either dpa monsanto dpa shall lose rights licenses granted pursuant agreement provided however agreement terminated dpa account breach default monsanto dpa shall right sell licensed commercial seed possession dpa obligated contract take delivery agreement terminated provisions subsection 101 dpa shall paidup license sell dpa roundup readyr cultivars provided obligations without limitation monsanto respect dpa roundup readyr cultivars shall terminate dpa shall thereafter defend indemnify hold monsanto respective employees directors officers agents harmless loss cost liability expense including court costs reasonable fees attorneys professionals incurred claim relating arising dpa roundup readyr cultivars sold termination agreement provided however dpa shall sole control defense negotiations relating settlement provided however dpa shall keep monsanto advised status claim negotiations settlement dpa could reasonably substantial direct financial impact monsanto shall require prior written approval monsanto shall unreasonably withheld ii obligation indemnify conditional monsanto notified dpa within twenty 20 days receipt monsanto performance claim subject indemnification iii monsanto desires counsel participate preparation defense trial settlement claim subject indemnification participation shall monsantos expense iv monsanto assumes defense claim dpa shall obligation defend indemnify monsanto respect claim v monsanto must promptly provide information possession reasonably requested dpa make available personnel monsanto depositions testimony consultations provide technical assistance reasonably requested dpa extent necessary conduct suit 107 survival covenants notwithstanding termination agreement pursuant provisions subsections 103 104 105 rights obligations conferred respect events occurred prior termination sections 6 7 8 11 12 13 14 shall survive termination dpas obligations subsections 102a 106 shall continue long dpa sublicensee possession sells dpa roundup readyr cultivars section 11 warrantylimitations 111 monsanto warranties monsanto hereby warrants represents respect first roundup readyr event authorized monsanto commercial sale date approval commercial sale monsanto owner roundup readyrevent monsanto technology used development thereof b owner licensee monsanto patent rights c right license sublicense dpa roundup readyr event licensed patent rights monsanto technology used development thereof use terms agreement effective date first roundup readyrgene received necessary governmental approvals monsanto warrants represents effective date patents issued territory would infringed making using selling licensed commercial seed date supplied information supplied governmental agencies order obtain governmental approvals believed using commercially reasonable efforts inquiry substantially materially correct 112 dpa warranty dpa hereby warrants represents dpa shall sell licensed commercial seed fails meet standards set forth appendices b e dpa shall keep lot samples license commercial seed sold dpa accordance appendices b c 113 mutual warranties dpa monsanto warrant party agreement performance dpa monsanto obligations hereunder contravene provision agreement contract binding upon either dpa monsanto 114 warranties expressly understood dpa monsanto make representations extend warranties either express implied assume responsibilities expressly provided herein respect performance merchantability fitness particular purpose roundup readyr events monsanto roundup readyrgenes monsanto technology licensed commercial seed dpa roundup readyrcultivars b scope validity patent licensed patent rights c monsanto roundup readyr genes monsanto technology licensed commercial seed dpa roundup readyr cultivars use thereof free infringement patents licensed patent rights 115 limitation liability without prejudice provisions sections 11 12 13 parties agree event liability monsanto dpa arising connection breach express implied warranty condition respect monsanto roundup readyr genes monsanto technology licensed commercial seed dpa roundup readyr cultivars condition warranty implied legislation permit monsanto dpas liability limited stated subsection 115 shall election relevant party limited condition relates goods replacement goods supply equivalent goods condition relates services supply services payment cost services supplied section 12 patent infringement 121 infringement defense indemnification subject limitations subsection 122 monsanto shall assume defense claim brought dpa third party infringement australian patent insofar claim arises solely dpas use roundup readyr event provided monsanto pursuant agreement dpa infringement claim except provided contrary section 12 shall assume legal costs expenses defending dpa infringement claim monsanto shall permitted conduct defense nationallyrecognized patent counsel litigation lawyers choice experienced patent law shall regularly keep dpa informed writing status progress suit dpa desires counsel participate preparation defense trial settlement dpa infringement claim participation shall dpas expense subject limitations subsection 122 monsanto shall indemnify dpa monetary damages andor costs actually awarded suit amounts paid settlement respect dpa infringement claim event dpa assumes defense dpa infringement claim monsanto shall obligation defend indemnify dpa respect dpa infringement claim b dpa infringement claim made third party license agreement available reasonable terms settle dpa infringement claim ii dpa accept proposed reasonable license agreement monsanto shall obligation defend indemnify dpa respect dpa infringement claim provided however monsanto would right terminate agreement solely cause c obligation monsanto pursuant subsection 121 shall apply dpa notifies monsanto within twenty 20 days receipt dpa notice alleged potential infringement thirdparty australian patent production use sale roundup readyr event ten 10 days receipt complaint court document comprising dpa infringement claim within scope subsection 121a whichever earlier ii monsanto given exclusive control defense dpa infringement claim negotiations relating settlement provided however monsanto shall keep dpa advised status dpa infringement claim negotiations settlement monsanto reasonably could substantial direct financial impact dpa shall require prior written approval dpa shall unreasonably withheld provided purposes subsection 121cii settlement requires payment remaining indemnification amount subsection 122 thirdparty australian patent owner would require payment said third party continued development production use sale licensed commercial seed shall considered direct financial impact dpa iiidpa promptly provides information possession reasonably requested monsanto makes available personnel dpa depositions testimony consultations provides technical assistance reasonably requested monsanto extent necessary conduct suit e event dpa infringement claim allegation infringement thirdparty australian patent reasonable license agreement third party available dpa shall upon written request monsanto promptly cease desist infringing activity dpa cease desist activity monsanto shall obligation defend indemnify dpa respect dpa infringement claim 122 limitation liability monsantos total liability time indemnification payments third parties patent infringement payments made settlement thereof costs associated defense dpa infringement claims shall cumulatively exceed total amount net license revenue retained monsanto payment rr seed services fees time claim filed 123 suspected infringement licensed patent rights event dpa learns suspected infringement licensed patent rights extent dpa lawfully permitted dpa shall notify monsanto effect provide monsanto evidence concerning suspected infringement dpas possession monsanto dpa shall use reasonable efforts terminate infringement without litigation nothing herein shall construed conferring dpa right bring suit infringement licensed patent rights 124 effect invalidity licensed patent rights event claim licensed patent rights declared invalid unenforceable final judgment court competent jurisdiction license granted section 3 shall terminate force effect subject matter covered claim however subject provisions section 6 license shall continue respect remaining patent claims within licensed patent rights section 13 claims vendees failure gene performance 131 procedure indemnities vendee claims event purchaser licensed commercial seed makes claim one parties breached warranty licensed commercial seed otherwise failed provide expected performance whether claim made governmental forum court communicating directly one parties distributor licensed commercial seed allegation fault following shall apply neither party shall communicate purchaser hereinafter claimant alleged failure due technology party b party receiving notice claim action shall notify matters issues claims communicated claimant within fifteen 15 days receipt party c parties shall first attempt good faith reach agreement writing settlement offer prior communication claimant including shall responsible portion settlement payment whether cash goods services alternatively agreement may include agreement refer issue responsibility arbitration provided subsection eiv within ninety 90 days notice specified paragraph b parties reached agreement 1 whether settlement offer made 2 amount thereof 3 proportionate liability settlement amount paid parties either party shall free make settlement claimant sole judgment deems appropriate settlement cash releases dpa monsanto potential liability claim action claim action involving matter nonsettling party would settlement one hundred percent 100 responsibility subsections 131ei eii eiii appropriate party shall reimburse settling party portion settlement amount equal share net license revenue hectares subject claim settlement amount greater net license revenue hectares subject claim settling party desires party pay portion excess amount may submit claim arbitration provided subsection 1412b provided event arbitrator may apportion fault accordance determination nonsettling party responsible subsections 131ei eii eiii appropriate may apportion fault nonsettling party percentage greater case monsanto royalty percentage case dpa percentage equal 100 minus monsanto royalty percentage parties shall jointly defend formal action claimant class claimants e parties shall indemnify costs defense damages awarded paid way settlement agreed upon provided subsection 131a together action costs result action following basis dpa breach warranty section 112 warranty given claimant dpa without monsantos agreement governmental requirement fault monsanto respect licensed commercial seed involved action breach primary cause claimed loss dpa agrees dpa cultivar cotton planting seed cause alleged failure dpa shall indemnify monsanto one hundred percent action costs ii claimant used roundupr herbicide sourced monsanto plants grown licensed commercial seed roundupr herbicide shown defective defect cause alleged failure monsanto breach warranty section 111 warranty given claimant monsanto without dpas agreement governmental requirement fault dpa breach primary cause claimed loss monsanto shall indemnify dpa one hundred percent action costs iii neither ii applies failure performance either monsanto roundup readyr gene monsanto bt gene primary cause alleged failure licensed commercial seed monsanto shall responsible percentage action costs equal monsanto royalty percentage applicable sale licensed commercial seed led action dpa shall responsible balance action costs party indemnifies amount iv one subsections ii iii applies parties shall submit arbitration provided section 1412b issue cause alleged failure licensed commercial seed necessary liability party agreement following allocations provided section 131e provided 1 arbitrator determines one ii iii applies also determines cause alleged failure allocated reasonable certainty among monsanto dpa percentage terms arbitrator may allocate action costs accordance finding concerning cause 2 arbitrator cannot determine cause alleged failure performance provisions section 131 monsanto shall responsible percentage action costs equal monsanto royalty percentage applicable sale licensed commercial seed led action dpa shall responsible balance action costs party indemnifies amount arbitrators shall power alter amend otherwise affect terms agreement 132 failure comply required procedures party materially breaches provisions subsection 131 respect claim claims purchasers licensed commercial seed party shall one hundred percent responsible costs settling defending claims damages awarded result actions involving claims 133 dpas indemnity vendees claims except expressly provided subsections 131 132 dpa shall defend indemnify hold monsanto respective employees directors officers agents harmless loss cost liability expense including court costs reasonable fees attorneys professionals incurred claim cotton farmers purchase licensed commercial seed distributors farmers may make claims arising alleged arise failure plants grown licensed commercial seed dpa roundup readyr cultivars exhibit tolerance glyphosate licensed commercial seed contain monsanto roundup readyr gene licensed commercial seed time shipped dpa fails meet roundup readyr quality assurance criteria set forth appendix b case may provided however dpa shall sole control defense negotiations relating settlement provided however dpa shall keep monsanto advised status claim negotiations settlement dpa could reasonably substantial direct financial impact monsanto shall require prior written approval monsanto shall unreasonably withheld ii obligation indemnify conditional monsanto notified dpa within twenty 20 days receipt monsanto performance claim subject indemnification iii monsanto desires counsel participate preparation defense trial settlement claim subject indemnification participation shall monsantos expense iv monsanto assumes defense claim dpa shall obligation defend indemnify monsanto respect claim v monsanto must promptly provide information possession reasonably requested dpa make available personnel monsanto depositions testimony consultations provide technical assistance reasonably requested dpa extent necessary conduct suit section 14 general 141 assignment dpas rights obligations rights obligations agreement pertaining dpa personal dpa shall operation law otherwise except provided section 105 assign mortgage pledge security license rights hereunder shall dpa subcontract delegate ordinary course business obligations hereunder except otherwise provided agreement nonaffiliate delta except prior written consent monsanto provided however dpa may assign agreement rights obligations thereunder affiliate delta 142 assignment monsantos rights obligations rights obligations agreement pertaining monsanto personal monsanto shall operation law otherwise assign mortgage pledge security rights hereunder shall monsanto subcontract otherwise delegate ordinary course business obligations hereunder except otherwise provided agreement nonaffiliate except prior written consent dpa provided however monsanto may assign agreement rights obligations thereunder affiliate 143 relation parties nothing agreement shall create deemed create partnership relationship principal agent among parties except provided subsection 141 142 party signatory hereto shall considered beneficiary provision agreement 144 integration contract agreement constitutes full understanding parties complete allocation risks complete exclusive statement terms conditions agreement relating subject matter hereof territory prior agreements negotiations dealings understandings whether oral written regarding subject matter territory hereof hereby superseded merged agreement granted fulfillment option held dpa respect grant license first roundup readyr event territory otherwise nothing agreement amends supercedes terms option agreement 145 waivers amendments agreement may amended superseded canceled renewed extended terms hereof may waived written instrument signed parties case waiver party parties waiving compliance except specific period action inaction provided herein delay part party exercising right power privilege hereunder shall operate waiver thereof shall waiver part party right power privilege single partial exercise right power privilege preclude exercise thereof exercise subsequent right power privilege except otherwise provided herein conditions usage trade course dealing performance understanding agreement purporting modify vary explain supplement terms conditions agreement shall binding unless hereafter made writing signed party bound written amendment hereof executed parties modification shall effected acknowledgment acceptance forms documents containing terms conditions variance addition set forth agreement 146 headings section subsection headings contents particular sections subsections convenience way construed part agreement limitation scope particular section subsection refer 147 references sections subsections appendices unless otherwise expressly stated sections subsections referred herein sections subsections agreement appendices referred herein appendices attached hereto 148 partial invalidity provision agreement held competent authority invalid unenforceable whole part agreement shall continue valid provisions thereof remainder affected provision 149 governing contract law agreement shall except provided subsection 1410 governed construed respects accordance laws state delaware rules conflicts law 1410 governing patent law question arising agreement validity construction effect patent shall decided accordance australian patents act 1411 notices notice information required authorized agreement given party others shall given writing shall deemed sufficiently given delivered hand transmitted express mail overnight courier service transmitted facsimile means electronic data transmission confirmed express mail overnight courier service following addresses parties addresses notified parties one 1 parties time delta pine land company one cotton row scott ms 38772 attention president dpa deltapine australia pty limited 60 maitland street narrabri nsw australia 2390 attention general manager monsanto company 800 north lindbergh boulevard st louis missouri 63167 usa attention global product management cotton 1412 dispute resolution claim dispute difference controversy parties relating issues involving patent rights arising relating agreement cannot settled mutual understanding parties dispute shall submitted within thirty 30 days dispute panel consisting senior executive nominated party panel shall meet use reasonable efforts resolve said dispute b dispute cannot resolved within thirty 30 days submission panel party may invoke following arbitration rights dispute shall referred arbitration rules american arbitration association aaa extent rules inconsistent provisions subsection 1412 judgment upon award arbitrators may entered court jurisdiction thereof application may made court judicial confirmation award order enforcement case may demand arbitration shall made within reasonable time dispute question arisen event shall made date institution legal equitable proceedings based dispute question would barred applicable statue limitations ii independent arbitration panel shall consist three 3 independent arbitrators one 1 shall appointed party involved dispute event one 1 party designate arbitrator party may request executive secretary aaa designate arbitrator party two 2 arbitrators thus appointed shall choose third arbitrator arbitration panel shall consist three 3 arbitrators provided however arbitrators selected parties involved dispute unable agree appointment additional arbitrator selected arbitrators may petition executive secretary aaa make appointment additional arbitrators iii place arbitration shall chicago illinois c pending resolution dispute party involved dispute shall make every reasonable effort minimize adverse economic consequences parties agreement would result delays caused attempts resolve dispute reasonable effort shall include without limitation continued performance relevant obligations reservation rights lieu termination nonperformance nothing section prohibits either party seeking interlocutory relief court competent jurisdiction party event alleged breach agreement requires urgent relief cannot adequately compensated damages 1413 guarantee delta hereby guarantees performance dpa hereunder long dpa remains affiliate delta 1414 incorporation appendices e inclusive incorporated herein made part hereto witness whereof agreement executed duly authorized representatives parties herein monsanto company delta pine land company title deltapine australia pty limited title appendix rr trademark license agreement made 3rd day july 2000 monsanto company corporation organized existing laws state delaware principal place business 800 north lindbergh boulevard st louis missouri 63167 hereinafter referred monsanto deltapine australia pty ltd organized existing laws australia principal place business 60 maitland street narrabri nsw australia 2390 hereinafter referred dpa witnesseth whereas monsanto owner trademark subject australian trademark registrations 603252 603253 roundup readyr genes hereinafter referred rr trademark whereas dpa desires obtain license use rr trademark connection sale transgenic cotton seed derived roundup readyr event licensed monsanto pursuant license glyphosatetolerant cotton seed services agreement license agreement therefore consideration mutual undertakings obligations herein obtained parties agree follows 1 monsanto hereby grants dpa subject terms conditions herein contained nonexclusive royaltyfree license use rr trademark relation cotton seed derived roundup readyr event produced pursuant license agreement hereinafter referred goods license shall assignable third party manner specified subsection 141 license agreement part parcel assignment license agreement 2 dpa agrees use rr trademark goods meet derived roundup readyr event defined license agreement 3 monsanto shall right reasonable times inspect examine methods processes containers used dpa bagging treating storing goods dpa uses rr trademark request samples goods containers dpa agrees permit inspections examinations furnish samples inspection examination shall sole purpose confirming quality goods meets standards set forth writing monsanto shall used competitive purpose whatsoever 4 dpa shall right use rr trademark advertising promotional literature like well labels packaging containers like goods dpa agrees use rr trademark shall accordance provisions section 35 license agreement agrees rr trademark shall used r symbol shall keyed footnote registered trademark used license monsanto company dpa agrees submit monsanto representative samples labels packaging containers advertising promotional materials rr trademark applied 5 dpa acknowledges monsantos exclusive ownership right title interest rr trademark agrees dpas use rr trademark shall inure benefit monsanto dpa agrees way dispute impugn attack validity said rr trademark monsantos rights thereto 6 dpa agrees engage conduct take action result diminution value rr trademark including without limitation using rr trademark close proximity another brand monsanto owner using rr trademark noun generic term product service manner uninflected adjective failing give express attribution monsanto provided paragraph 4 failing give proper notice registered status rr trademark failure observe foregoing shall considered misuse rr trademark 6 term agreement shall coextensive term license agreement unless sooner terminated accordance terms section 7 hereof capitalized terms used herein defined herein shall meanings set forth license agreement 7 time dpa use rr trademark goods produced accordance terms license agreement time dpa breaches provision agreement fails observe obligations hereunder license granted herein shall terminable upon written notice monsanto effect provided however dpa shall ninety 90 days receipt notice cure breach default 8 dpa agrees notify monsanto promptly apparent infringement rr trademark monsanto take action regarding infringement deems sole discretion necessary desirable dpa agrees cooperate therein 9 monsanto agrees indemnify hold dpa harmless claims suits damages costs arising claim trademark infringement account dpas use rr trademark provided however dpa shall promptly notify monsanto claim suit shall reasonably cooperate monsanto defense thereof witness whereof parties caused agreement executed duplicate duly authorized representatives date first set forth monsanto company witness title deltapine australia pty limited witness title appendix b roundup readyr quality assurance criteria multiplications licensed commercial seed must meet genetic purity standards comply applicable seed laws territory states breeder seed lots sampled tested verification presence intended events absence unintended events using monsanto approved assays laboratories tolerances term unintended event shall mean dna molecules vectors constructs replicates thereof naturally occurring cotton intended present variety current standards least 98 seed lot cotton planting seed contain commercially approved genes interest using 95 confidence level every seed lot one seed lot shall exceed twentyfive thousand kilograms 25000 kg seed licensed commercial seed must representative sample least one kilogram 1 kg taken stored using procedures appendix c presence monsanto roundup readyrgene verified verification shall conducted independent seed testing laboratory dpas laboratory prior written approval laboratory standards obtained monsanto testing shall conducted using procedures supplied approved writing monsanto reserves right dna verification lot including retained samples b adventitious amounts commercially approved unintended genes allowed cotton planting seed dpas responsibility define acceptable adventitious amounts based knowledge industry compliance applicable laws commercially approved means accepted applicable governmental agencies unrestricted sale monsanto insectresistant cotton line denominated 531 example commercially approved cotton line c seed lots dpa roundup readyrcultivar tested nonapproved genes 01 threshold 95 confidence level immediately prior first release third party multiplication produce cotton planting seed history knowledge presence potential nonapproved genes dpas research program dpas seed production fields determine seed lots tested traits testing program breeding history documented dpa seed lot testing positive nonapproved gene sold otherwise transferred commercial purposes monsanto notified writing whenever nonapproved gene detected nonapproved means accepted applicable governmental agencies unrestricted sale ensure purity production fields licensed commercial seed must treated monsantobranded glyphosate registered use roundup readyr cotton maximum label rate single application must made 1 4leaf stage development two applications may made latest application must made 1 4leaf stage development brand roundupr herbicide shall specified monsanto time representative sample least thirtythree percent 33 seed production fields licensed commercial seed must inspected approximately 5 14 days first spraying roundupr herbicide determine percent licensed commercial seed exhibiting tolerance roundupr herbicide least one field inspection must conducted variety licensed commercial seed production random check shall made one per 10 acres fields less 100 acres otherwise one per 20 acres least 100 plants shall examined per check average reported least 98 plants field must exhibit complete tolerance roundupr herbicide treatment using method specified monsanto brand specified monsanto exhibiting vegetative injury symptoms monsanto shall access upon request field inspection information costs associated quality program shall borne dpa shall maintain testing records lot licensed commercial seed three 3 years sale licensed commercial seed test results inspection records quality assurance quality control documentation shall available monsanto upon request monsanto shall right audit dpas quality control program take test subsamples samples retained dpa appendix c procedure archivingstorage samples seed lots 11a purpose protocol focuses collection storage security file samples representing processed lots licensed commercial seed storage said samples satisfy pertinent legal requirements development historical data confirmation evaluation event customer inquiries legal claims confirm monsantos dpas legal rights andor obligations license agreement 11b responsibility 1 dpas quality assurance department obtain representative sample every finished seed lot conditioning process sample taken automatic sampling device bagging station probed hand whichever appropriate divided representative portions per association official seed analysts rules testing seeds portion storage weigh least 1 kilogram 2 samples labeled lot number variety class year grown date number bags per lot immediately sealed 4mil linear low density polyethylene bag laminated sarancoated 48 gauge polyester comparable container provide good moisture barrier 3 order preserve seed quality samples stored either airconditioned storage dry arid environments relative humidity temperature exceed 100 4 access samples restricted authorized dpa personnel kept lock key 5 order safeguard samples natural disasters portion approximately 05 kilogram every file sample kept another dpa location 6 samples stored period three 3 years last sale seed lot prior expiration period claims legal proceedings commenced involve specific lot sample retained matter finally concluded appendix commercial herbicide tolerance trials purpose determine tolerance candidate dpa roundup readyrcultivars applications rounduprherbicide treatments 1 candidate rr cotton line sprayed glyphosate 2 candidate rr cotton line sprayed roundup readyr herbicide 15kg ha three different timings brand application rate roundupr herbicide monsanto may specify time topical application 4 leaf stage 5th true leaf unfolded post directed ten days 4 leaf application direct spray base plants minimizing foliar contact post directed twenty days 4 leaf application direct spray base plants minimizing foliar contact design randomized complete block design plots minimum four 4 rows wide ten 10 metres long four 4 replications spray four 4 rows treatment harvest centre two 2 row plots weed free use appropriate commercial herbicide program superimpose roundup treatments program due seed size variability planter settings must adjusted andor early season stand thinning must accomplished provide uniform plant population among lines use appropriate agronomic practices maximize yield minimum six 6 locations per year two years must completed data requirements yield endofseason plant map data must collected meet following criterion lint yield averaged across locations sprayed treatment must least 98 unsprayed 95 confidence level dpa shall submit monsanto summary results show whether candidate variety met criterion specified test parameters addition dpa shall certify writing monsanto dpa roundup readyr cultivar tested conditions met yield criterion two 2 consecutive years unrestricted sales made commercial seed production commercial agronomic testing started candidate variety tested one year met criterion commercial agronomic testing may exceed onehalf one percent 05 expected market area variety summary results certification shall submitted monsanto australia june 1 preceding season dpa proposes sell variety monsanto shall respond writing july 1 year whether results show whether candidate variety met yield criterion may sold appendix e agronomic criteria trials roundup readyr cotton responsibility dpa determine dpa roundup readyr cultivars candidates release commercial sale prior commercial release dpa provide written notice monsanto new variety tested using commercial standard applications roundup herbicide b dpa reasonably believes based testing performed product development program exercise commercially reasonable business judgment new variety agronomically suitable commercial release exhibit 2301 consent independent public accountants independent public accountants hereby consent incorporation report dated october 26 2001 included form 10k delta pine lands previously filed registration statement file 33321049 delta pine lands registration statement form s8 filed date form 10k arthur andersen llp memphis tennessee november 29 2001 item 14 principal accounting fees services information respect items set forth dpls proxy statement annual meeting stockholders held january 15 2004 filed commission pursuant regulation 14a later december 30 2003 incorporated herein reference part iv item 15item 14 principal accounting fees services information respect item set forth dpls proxy statement annual meeting stockholders held january 11 2005 filed commission pursuant regulation 14a later december 29 2004 incorporated herein reference part iv item 15item 14 principal accountant fees services information respect items set forth dpls proxy statement annual meeting stockholders held january 16 2006 filed commission pursuant regulation 14a later november 29 2005 incorporated herein reference part iv item 15item 14 principal accountant fees services information respect items set forth dpls proxy statement annual meeting stockholders filed commission pursuant regulation 14a securities exchange act 1934 later december 29 2006 incorporated herein reference part iv item 15item 14 exhibits financial statement schedules reports form 8k 1 financial statements following consolidated financial statements delta pine land company subsidiaries submitted response part ii item 8 report independent public accountants consolidated statements income three years period ended august 31 1996 consolidated balance sheets august 31 1995 1996 consolidated statements cash flows three years period ended august 31 1996 consolidated statements stockholders equity three years period ended august 31 1996 notes consolidated financial statements 2 financial statement schedule following financial statement schedule delta pine land company subsidiaries submitted response part iv item 14 report independent public accountants43 schedule ii consolidated valuation qualifying accounts44 schedules omitted required applicable data included financial statements 3 exhibits annual report delta pine land company filed herewith listed page 45 b 4 reports form 8k fourth quarter 1996 company filed following reports form 8k current report form 8k dated may 20 1996 filed june 4 1996 reporting information required reported item 2 acquisition disposition assets companys acquisition sure grow companies ii current report form 8ka dated may 20 1996 filed august 5 1996 reporting information required reported item 7a financial statements businesses acquired b pro forma financial information report included following financial statements sure grow companies combined accountants compilation report consolidated balance sheet may 31 1996 consolidated statement income nine months ended may 31 1996 consolidated statement cash flows nine months ended may 31 1996 independent auditors report combined balance sheets august 31 1995 june 30 1995 combined income statements years ended august 31 1995 june 30 1995 combined statements retained earnings years ended august 31 1995 june 30 1995 combined statements cash years ended august 31 1995 june 30 1995 notes financial statements independent auditors report combined balance sheets august 31 1994 june 30 1994 combined income statements years ended august 31 1994 june 301994 combined statements retained earnings years ended august 31 1994 june 30 1994 combined statements cash years ended august 31 1994 june 301994 notes financial statements report included following pro forma financial information delta pine land company pro forma consolidated balance sheets unaudited august 31 1995 may 31 1996 b delta pine land company consolidated statements operations unaudited years ended august 31 1993 1994 1995 nine months ended may 31 1996 c notes pro forma consolidated financial statements unaudited iii current report form 8k dated september 3 1996 filed september 3 1996 reporting information required reported item 5 events relating adoption shareholder rights plan signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized november 27 1996 delta pine land company registrant roger malkin roger malkin chairman board chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date roger malkin chairmand board roger malkin chief executive officer principal executive officer november 27 1996 w thomas jagodinski vice presidentfinance w thomas jagodinski treasurer principal financial accounting officer november 27 1996 namhai chua director november 27 1996 namhai chua jon em jacoby director november 27 1996 jon em jacoby joseph murphy director november 27 1996 joseph murphy stanley p roth director november 27 1996 stanley p roth rudi e scheidt director november 27 1996 rudi e scheidt report independent public accountants delta pine land company audited accordance generally accepted auditing standards financial statements delta pine land company included form 10k audits made purpose forming opinion basic financial statements taken whole schedules listed index part iv item 14a2 responsibility companys management presented purposes complying securities exchange commissions rules part basic financial statements schedule subjected auditing procedures applied audit basic financial statements opinion fairly states material respects financial data required set forth therein relation basic financial statements taken whole arthur andersen llp memphis tennessee october 11 1996 index exhibits annual report form 10k year ended august 31 1996 delta pine land company exhibits1 description 301 certificate incorporation registrant dated september 20 1978 amended certificate amendment dated october 23 1978 certificate ownership dated june 19 1985 certificate amendment dated june 18 1986 certificate change address registered agent dated february 14 1986 certificate change address registered agent dated october 27 1989 302 restated certificate incorporation registrant dated june 11 1993 303 amended restated bylaws registrant dated april 26 1993 304 certificate designation convertible preferred stock delta pine land company3 401 specimen certificate representing common stock par value 10 per share 402 letter registrant john hancock mutual life insurance company regarding certain registration rights dated june 28 1993 403 rights agreement dated august 13 1996 delta pine land company harris trust savings bank including form right certificate related form election purchase exhibit summary rights purchase preferred shares exhibit b4 404 certificate designations rights privileges shares junior participating preferred stock created august 13 1996 filed pursuant section 151 delaware general corporation law4 1001 lease dated march 25 1995 registrant lessee prudential insurance company america prudential lessor regarding approximately 2500acre farm certain grain bins certain research facility scott mississippi2 1002 license agreement dated february 1 1990 registrant licensor semillas deltacol ltd licensee regarding operations columbia 1003 license agreement dated march 5 1990 registrant licensor helena chemical company dba hyperformer seed company licensee 1004 license agreement dated march 16 1992 registrant monsanto company amended agreement modified terms license agreement dated october 11 1993 confidential treatment requested portions exhibit pursuant rule 24b2 securities exchange act 1934 17 1005 incentive bonus program15 1006 retirement plan company dated january 2 1992 amendment 1 plan dated april 30 1992 amendment 2 plan dated december 20 1992 amendment 3 plan dated october 6 199412 1007 agreement educo inc southwide dated june 1 1975 relating employersponsored college scholarships medical expense plan children certain employees registrant 1008 supplemental executive retirement plan dated may 22 1992 effective january 1 199215 1009 tax sharing agreement dated may 24 1993 southwide registrant 1010 1993 stock option plan registrant adopted june 11 199315 1011 asset purchase agreement delta pine land company cargill inc6 1012 herbicidetolerant cotton license agreement dated august 22 1994 company ei dupont de nemours company confidential treatment requested portions exhibit pursuant rule 24b2 securities exchange act 19347 1013 1994 saving plan registrant adopted april 1 1994 amendment 1 dated may 1 199425 1014 50000000 revolving credit agreement registrant nationsbank dated november 15 19952 1015 hartz cotton acquisition agreement dated february 2 1996 among monsanto company monsanto hartz cotton inc hartz cotton delta pine land company paymaster technology corp ptc3 1016 trademark license agreement dated february 2 1996 monsanto company3 1017 registration rights agreement company monsanto dated february 2 19963 1018 temporary services agreement dated february 2 1996 monsanto company ptc 3 1019 research facility lease option purchase dated february 2 1996 monsanto ptc3 1020 greenhouse lease dated february 2 1996 monsanto ptc 3 1021 research agreement dated february 2 1996 monsanto ptc3 1022 partnership agreement dated february 2 1996 company monsanto3 1023 marketing services agreement dated february 2 1996 company monsanto dm partners3 1024 bollgardtm gene license seed services agreement dated february 2 1996 monsanto dm partners company3 1025 roundup readyr gene license seed services agreement dated february 2 1996 monsanto dm partners company3 1026 option agreement dated february 2 1996 monsanto company35 1027 agreement dpl companies sure grow companies sure grow shareholders sure grow principals dated may 20 19968 1028 delta pine land company 1995 longterm incentive plan adopted february 6 199659 1101 statement computation earnings per share9 2101 subsidiaries registrant 9 2701 financial data schedule 9 1 incorporated reference registration statement form s1 file 3361568 filed june 29 1993except otherwise noted herein 2 incorporated reference form 10k filed november 22 1995 3 incorporated reference form 8k filed february 19 1996 4 incorporated reference form 8a filed september 3 1996 5 represents management contract compensatory plan 6 incorporated reference form 8k filed may 16 1994 7 incorporated reference form 10q filed july 14 1995 8 incorporated reference form 8k filed june 4 1996 9 filed herewithitem 14 exhibits financial statement schedules reports form 8k 1 financial statements following consolidated financial statements delta pine land company subsidiaries submitted response part ii item 8 report independent public accountants consolidated statements income three years period ended august 31 1997 consolidated balance sheets august 31 1996 1997 consolidated statements cash flows three years period ended august 31 1997 consolidated statements stockholders equity three years period ended august 31 1997 notes consolidated financial statements 2 financial statement schedule following financial statement schedule delta pine land company subsidiaries submitted response part iv item 14 report independent public accountants47 schedule ii consolidated valuation qualifying accounts48 schedules omitted required applicable data included financial statements 3 exhibits annual report delta pine land company filed herewith listed page 49 b 4 reports form 8k reports form 8k filed quarter ended august 31 1997 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized november 24 1997 delta pine land company registrant roger malkin roger malkin chairman board chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date roger malkin chairman board november 24 1997 roger malkin chief executive officer principal executive officer w thomas jagodinski vice presidentfinance november 24 1997 w thomas jagodinski treasurer principal financial accounting officer namhai chua director november 17 1997 namhai chua jon em jacoby director november 17 1997 jon em jacoby joseph murphy director november 18 1997 joseph murphy stanley p roth director november 17 1997 stanley p roth rudi e scheidt director november 18 1997 rudi e scheidt report independent public accountants delta pine land company audited accordance generally accepted auditing standards financial statements delta pine land company included form 10k audits made purpose forming opinion basic financial statements taken whole schedules listed index part iv item 14a2 responsibility companys management presented purposes complying securities exchange commissions rules part basic financial statements schedule subjected auditing procedures applied audit basic financial statements opinion fairly states material respects financial data required set forth therein relation basic financial statements taken whole arthur andersen llp memphis tennessee october 24 1997 schedule ii delta pine land company subsidiaries consolidated valuation qualifying accounts additions write uncollectible accounts net recoveries b primarily result companys sale corn sorghum operations c primarily disposal excess corn sorghum inventory reserve cotton seed result production cost optimization program e disposal corn sorghum inventory 1409 write cotton seed inventory 1829 index exhibits annual report form 10k year ended august 31 1997 delta pine land company exhibits1 description 301 certificate incorporation registrant dated september 20 1978 amended certificate amendment dated october 23 1978certificate ownership dated june 19 1985 certificate amendment dated june 18 1986 certificate change address registered agent dated february 14 1986 certificate change address registered agent dated october 27 1989 302 restated certificate incorporation registrant dated june 11 1993 303 amended restated bylaws registrant dated april 26 1993 304 certificate designationconvertible preferred stock delta pine land company3 401 specimen certificate representing common stock par value 10 per share 402 letter registrant john hancock mutual life insurance company regarding certain registration rights dated june 28 1993 403 rights agreement dated august 13 1996 delta pine land company harris trust savings bank including form right certificate related form election purchase exhibit summary rights purchase preferred shares exhibit b4 404 certificate designations rights privileges shares junior participating preferred stock created august 13 1996 filed pursuant section 151 delaware general corporation law4 1001 lease dated march 25 1995 registrant lessee prudential insurance company america prudential lessor regarding approximately 2500acre farm certain grain bins certain research facility scott mississippi2 1002 license agreement dated february 1 1990 registrant licensor semillas deltacol ltd licensee regarding operations columbia 1003 license agreement dated march 5 1990 registrant licensor helena chemical company dba hyperformer seed company licensee 1004 license agreement dated march 16 1992 registrant monsanto company amended agreement modified terms license agreement dated october 11 1993 confidential treatment requested portions exhibit pursuant rule 24b2 securities exchange act 1934 17 1005 incentive bonus program15 1006 retirement plan company dated january 2 1992 amendment no1 plan dated april 30 1992 amendment 2 plan dated december 201992and amendment no3 plan dated october 6 199412 1007 agreement educo inc southwide dated june 1 1975 relating employersponsored college scholarships medical expense plan children certain employees registrant 1008 supplemental executive retirement plan dated may 22 1992 effective january 1 199215 1009 tax sharing agreement dated may 24 1993 southwide registrant 1010 1993 stock option plan registrant adopted june 11 199315 1011 asset purchase agreement delta pine land company cargill inc6 1012 herbicidetolerant cotton license agreement dated august 22 1994 company ei dupont de nemours company confidential treatment requested portions exhibit pursuant rule 24b2 securities exchange act 19347 1013 1994 saving plan registrant adopted april 1 1994 amendment 1 dated may 1 199425 1014 50000000 revolving credit agreement registrant nations bank dated november 15 19952 1015 hartz cotton acquisition agreement dated february 2 1996 among monsanto company monsanto hartz cotton inc hartz cotdelta pine land company paymaster technology corpptc3 1016 trademark license agreement dated february 2 1996 monsanto company3 1017 registration rights agreement company monsanto dated february 2 19963 1018 temporary services agreement dated february 2 1996 monsanto company ptc 3 1019 research facility lease option purchase dated february 2 1996 monsanto ptc3 1020 greenhouse lease dated february 2 1996 monsanto ptc 3 1021 research agreement dated february 2 1996 monsanto ptc3 1022 partnership agreement dated february 2 1996 company monsanto3 1023 marketing services agreement dated february 2 1996 company monsanto dm partners3 1024 bollgardtmgene license seed services agreement dated february 2 1996 monsanto dm partners company3 1025 roundup readyr gene license seed services agreement dated february 2 1996 monsanto dm partners company3 1026 option agreement dated february 2 1996 monsanto company35 1027 agreement dpl companies sure grow companies sure grow shareholders sure grow principals dated may 20 19968 1028 delta pine land company 1995 longterm incentive plan adopted february 6 199659 1101 statement computation earnings per share10 2101 subsidiaries registrant 10 2301 consent independent public accountants10 2701 financial data schedule 10 exhibit 1101 computation earnings per share thousands except per share data exhibit 2101 subsidiaries registrant subsidiary place incorporation atled corporation usa dm international llc usa dm partners usa dpl argentina inc usa dpl china inc usa dpl china pte ltd singapore dpl investing corp usa dpl investments inc usa dpl mexico inc usa deltapine paraguay inc usa dpl south africa inc usa dpl international technology corp usa delta pine land international ltd virgin islands delta pine de mexico sa mexico deltapine australia pty limited australia greenfield seed company usa hebei ji dai cotton seed technology company ltd usa paymaster technology corp usa turk deltapine inc usa sure grow seed inc usa ellis brothers seed inc usa arizona processing inc usa mississippi seed inc usa exhibit 231 consent independent public accountants independent public accountants hereby consent incorporation report dated october 24 1997 included form 10k delta pine lands previously filed registration statement file 33321049 arthur andersen llp memphis tennessee november 24 1997 1 incorporated reference registration statement form s1 file 3361568 filed june 29 1993 except otherwise noted herein 3 incorporated reference form 8k filed february 19 1996 4 incorporated reference form 8a filed september 3 1996 1 incorporated reference registration statement form s1 file 3361568 filed june 29 1993 except otherwise noted herein 2 incorporated reference form 10k filed november 22 1995 5 represents management contract compensatory plan 7 incorporated reference form 10q filed july 14 1995 2 incorporated reference form 10k filed november 22 1995 3 incorporated reference form 8k filed february 19 1996 5 represents management contract compensatory plan 6 incorporated reference form 8k filed may 16 1994 7 incorporated reference form 10q filed july 14 1995 3 incorporated reference form 8k filed february 19 1996 5 represents management contract compensatory plan 8 incorporated reference form 8k filed june 4 1996 9 incorporated reference form 10k filed november 27 1996 10 filed herewithitem 14 controls procedures evaluation disclosure controls procedures dpls chief executive officer chief financial officer evaluated effectiveness design operation dpls disclosure controls procedures defined exchange act rule 13a14c date within 90 days filing date annual report based evaluation chief executive officer chief financial officer concluded dpls disclosure controls procedures effective ensure material information relating dpl dpls consolidated subsidiaries made known officers others within entities particularly period annual report prepared order allow timely decisions regarding required disclosure b changes internal controls significant changes dpls internal controls factors could significantly affect controls subsequent date evaluation item 15 item 7 managements discussion analysis financial condition results operations overview increased sales companys transgenic cotton varieties containing bollgard roundup ready gene technologies increased commercial sales dpl cotton varieties containing roundup ready gene technology major reasons dpl reported record sales despite fact acreage planted cotton us declined 128 million acres 1997 levels 138 million acres commodity prices cold wet weather areas drought conditions areas cotton planting season contributed reduction cotton acreage planted levels well initial usda company estimates furthermore substantial number acres abandoned technology fees assessed company sold sufficient quantities seed containing transgenic traits plant approximately 45 million acres 1998 versus approximately 25 million acres 1997 first year sales dpls china joint venture although impressive fell best case estimates 500000 acres 200000 actually planted even joint venture may report slight profit first full year operation export sales increased 115 million 1998 106 million 1997 1998 company recorded special nonrecurring pretax charges 22662000 relate additional inventory reserves lesser degree costs related evaluation various strategic alternatives culminated company entering merger agreement monsanto unprecedented level inventory reserves write offs result excess inventory quantities resulting 7 reduction acreage realignment companys product line furthermore companys domestic market share declined slightly company believes resulted second quarter recall certain varieties contained bollgard roundup ready technology accelerated shift transgenic products significantly complicates inventory management product line design require continued dedicated efforts effectively manage companys ever changing product line costs related merger primarily fees legal advice investment bankers professionals 1997 dpl announced program optimize production cost operating efficiencies included idling three less efficient delinting plants write assets whose value impaired result implementing plan plant consolidation costs relating implementation new process manufacturing system costs phase certain products company reduced existing domestic work force result plant closings offering early retirement program employees met certain uniformed criteria dm international llc venture formed 1995 dpl managing member monsanto plan introduce combination cottonseed international markets combining dpls acid delinting technology elite germplasm monsantos bollgard gene technology november 1995 dm international llc formed subsidiary dpl china pte ltd dpl china november 1996 dpl china concluded negotiations parties hebei province one major cotton producing regions peoples republic china form hebei ji dai cottonseed technology company ltd ji dai joint venture controlled dpl china june 1997 ji dai commenced construction new cottonseed conditioning storage facility hebei china terms joint venture agreement new facility completed december 1997 growing season joint venture harvested produced sufficient seed plant 500000 acres deltapine cottonseed varieties containing bollgard gene 1998 joint venture initial sales enough seed plant 200000 acres copmany anticipates carry inventory sold 1999 subsequent seasons december 1997 dm international llc announced joint venture centro integral agropecuaria ciagro distributor agricultural inputs argentine cotton region production sale genetically improved cottonseed new joint venture cdm mandiyu owned 60 dm international llc 40 ciagro cotton region comprised provinces chaco santiago del estero catamarca jujuy presently 25 million acres cotton requiring 21000 tons cotton planting seed per year new venture cdm mandiyu srl producing high quality cottonseed integrating ciagros local market distribution knowledge dpls cotton breeding production capabilities monsantos biotechnology expertise cdm mandiyu licensed sell dpl cotton varieties containing monsantos bollgard gene technology commercialization planned fiscal 1999 pending final approval certain argentine governmental agencies future plans include production sale roundup ready cottonseed varieties july 1998 dpl china anhui provincial seed corporation formed new joint venture anhui dai cotton seed technology company ltd located hefei anhui province china terms joint venture agreement newly formed entity produce condition sell acid delinted dpl varieties cottonseed contain monsantos bollgard gene fall 1998 company harvested sufficient seed plots anhui plant 350000 acres november 1998 dm international llc maeda administracao e participacoes ltda affiliate agropem agro pecuria maeda sa formed new joint venture minas gerais brazil new company mdm maeda deltapine monsanto algodao ltd produce condition sell aciddelinted dpl varieties cottonseed anticipated new company produce delint enough cottonseed 1999 plant 900000 acres newly formed company introduce transgenic cotton seed varieties bollgard roundup ready brazilian market soon government approvals obtained company reached agreement parties zimbabwe 1997 form joint venture provide high quality acid delinted seed farmers zimbabwe initially plant continue process sell locally developed owned varieties genetically transformed contain bollgard gene technology potentially technologies developed future introduction technologies locally developed germplasm expected provide large commercial growers well small communal growers significant economic advantage use technologies zimbabwean government refused approve joint venture contract without certain changes unacceptable dm international llc company believes government approval forthcoming although modifications current agreement may necessary negotiations ongoing companys delinting plants south africa argentina process foundation seed grown countries use southern hemisphere winter nurseries seed production programs accelerate introduction new varieties dpl raise least two crops per year taking advantage southern hemisphere growing season addition company introduced deltapine varieties contain bollgard south africa fall 1998 sales ongoing inventory sufficient plant 65000 acres available results operations dpls wholly owned australian subsidiary continue disappointing although company began selling seed containing bollgard gene ingardtm australia 1997 operating results product market share remain unacceptable levels company australian operations identifying smaller potential export markets companys products throughout southeast asia adaptability companys germplasm must evaluated sales made recent instability economies countries region make successful market development challenge net sales licensing fees 1998 dpls consolidated net sales licensing fees increased 50 1923 million 1997 sales 1832 million increase primarily result increased sales stripper cottonseed containing monsantos roundup ready gene b increased sales picker cottonseed containing bollgard roundup ready genes c commercial introduction soybean seed containing monsantos roundup ready gene increases partially offset lower sales picker cottonseed varieties resulting inclement weather planting season commodity prices usda estimated planted cotton acreage approximate 128 million acres 1998 decrease 72 1997 cotton acres planted 138 million soybean unit sales also increased 87 1997 due increased planted soybean acres market share gains companys varieties 1998 company monsanto changed method used calculate acres used billing purposes bollgard roundup ready gene technologies prior years farmers billed based stated planting rates within prescribed range particular geographic territory used purposes calculating number licensed acres therefore billable acres 1998 assumed planting rates established dpl monsanto seven specific territories farmers billed number acres could planted bag seed sold using predetermined territorial formula 1998 total transgenic seed sales comprised approximately 60 total domestic unit sales cottonseed compared 36 1997 roundup ready soybean units comprised 440 total units sold 1998 versus less 1 1997 international sales including exports increased 463 1998 218 million 149 million 1997 primarily initial sales derived hebei jai dai joint venture shiujiazhuang hebei peoples republic china although level sales companys first chinese joint venture initial estimates venture may report slight profit 1998 first full calendar year operation 1997 dpls consolidated net sales licensing fees increased 195 1832 million 1996 sales 1533 million increase primarily result increased bollgard seed sales licensing fees 1996 seed sales licensing fees received first sale commercial quantities roundup ready cottonseed domestic picker cottonseed unit sales decreased 45 domestic stripper cottonseed units increased 2796 due conversion high plains market despite 54 reduction total number cotton acres planted us 138 million 147 million net billable bollgard acres increased 24 million 1997 18 million 1996 net billable roundup ready acres 08 million 1997 soybean unit sales also increased 409 1996 primarily due increase planted acres resulted part cold wet weather early planting season cotton typically planted higher soybean prices causing shift planted acres soybean cotton international sales increased 149 million 1997 126 million 1996 primarily attributable licensing fees received sales australia mexico cottonseed varieties containing monsantos bollgard gene positive effects partly offset reduced export sales gross profit dpls consolidated gross profit special nonrecurring charges 536 million 1998 compared 555 million 1997 special pretax charges approximately 175 million recorded 1998 relate additional inventory reserves established provide excess inventory resulting 7 reduction planted cotton acres 1998 realignment companys product line seed new technologies b recall certain products meet companys quality standards gross margin expressed percentage sales special charges consistent 1998 1997 36 dpls consolidated gross profit special charges 555 million 1997 compared 558 million 1996 1997 company recorded special charges 115 million related earlier expected phase certain products reserves established production cost plant optimization program negative impact offset increased unit sales increased licensing fees gross margin expressed percentage sales special charges consistent 1997 1996 approximately 36 operating expenses 1998 companys total operating expenses increased planned 422 million special charges 348 million special charges 1997 286 million special charges 1996 international operating expenses expected increase 10 million 1999 due new international ventures general expansion domestic operating expenses expected increase 50 million research development expenses research development expenses increased 220 167 million 1998 137 million 1997 increase primarily related additional transgenic costs associated development evaluation new technologies transformation companys product line collaboration outside research providers research development expenses increased 398 137 million 1997 98 million 1996 increase primarily result additional transgenic costs associated evaluation new technologies transformation companys sure grow paymaster product lines increased technical service department costs increased varietal testing certain international markets expansion research programs related international activities selling expenses selling expenses increased 358 1998 150 million 111 1997 increase primarily due aggressive advertising promotional program expansion international sales marketing china selling expenses increased 181 111 million 1997 94 million 1996 increase primarily due expansion sales marketing departments paymaster division international division primarily australia general administrative expenses general administrative expenses essentially flat 1998 1997 general administrative expenses increased 74 101 million 1997 94 million 1996 increase primarily attributable expansion companys information systems department additional staff international paymaster divisions special charges unusual charges related acquisitions connection evaluation pursuit various strategic alternatives ultimately planned merger monsanto see item 1 company incurred 1998 approximately 51 million associated legal investment banker professional fees company also recorded additional inventory reserves discussed connection 1997 production cost optimization program company recorded special charge 190 million 115 million included cost sales 75 million included operating expenses charges include costs associated plan optimize operating efficiencies plant consolidation costs phase certain products write assets whose value impaired result plan lesser extent severance costs connection merger sure grow companies company recorded special charges approximately 17 million fiscal 1997 costs associated transaction including legal costs incurred connection u department justices review transaction interest expense interest expense increased 470 32 million 1998 22 million 1997 increase primarily due higher outstanding borrowings throughout year used finance international ventures higher inventory levels effects partially offset lower interest rates interest expense decreased 83 22 million 1997 24 million 1996 due primarily lower interest rates partially offset higher outstanding borrowings 1996 1997 1998 income included primarily gains sales fixed assets accounts payable discounts received early payments net income earnings per share net income applicable common shares decreased 740 1998 18 million 69 million 1997 decreased 883 1996 net income 152 million net income per share basic special charges 041 058 043 1996 1997 1998 respectively net income per share basic special charges 041 018 005 1996 1997 1998 respectively number shares deemed outstanding periods increased exercise stock option grants pursuant 1993 stock option plan 1995 longterm incentive plan furthermore effect stock splits included earnings per share calculations liquidity capital resources seasonal nature companys business significantly impacts cash flow working capital requirements company maintains credit facilities uses early payments customers uses cash operations fund working capital needs 17 years dpl borrowed shortterm basis meet seasonal working capital needs dpl purchases seed contract growers first second fiscal quarters seed conditioning treating packaging commence late first fiscal quarter continue third fiscal quarter seasonal borrowings normally commence first fiscal quarter peak third fiscal quarter loan repayments normally begin middle third fiscal quarter typically completed first fiscal quarter following year dpl also offers distributors dealers farmers financial incentives make early payments fiscal 1998 dpl received approximately 50 million early payments extent dpl attracts early payments customers bank borrowings credit facility reduced company records receivables licensing fees bollgard roundup ready seed sales seed shipped usually companys second third quarters company contracted billing collection activities bollgard roundup ready licensing fees monsanto september technology fees due time dpl receives payment monsanto dpl pays monsanto royalty bollgard roundup ready licensing fees april 1998 company entered syndicated credit facility existing lender two financial institutions provides aggregate borrowings 110 million agreement provides base commitment 55 million seasonal commitment 55 million base commitment longterm loan may borrowed upon time due april 1 2001 seasonal commitment working capital loan may drawn upon september 1 june 30 fiscal year expires april 1 2001 commitment offers variable fixed interest rate options requires company pay facility commitment fees comply certain financial covenants august 31 1998 company 90 million available borrowing base commitment addition lead lender approved 250 million credit line activated company needed financial covenants loan agreements require company maintain ratio total liabilities tangible net worth august 31 less equal 225 1 40 10 companys quarter ends b maintain fixed charge ratio end quarter greater equal 20 10 c maintain times tangible net worth less sum 40 million plus ii 50 net income losses determined last day fiscal year commencing august 31 1998 august 31 1998 companys ratio total liabilities tangible net worth exceeded permitted ratio financial institutions waived compliance covenant see note 4 notes consolidated financial statements capital expenditures 160 million 165 million 102 million fiscal 1996 1997 1998 respectively 1996 expenditures exclude acquisitions aggregated 22 million company anticipates domestic capital expenditures approximate 70 million 1999 excluding expected capital expenditures foreign joint ventures funded cash operations borrowings investments joint venture partners necessary capital expenditures 1999 international ventures expected range 60 million 80 million depending timing outcome projects cash provided operations early payments customers borrowings loan agreement sufficient meet companys 1999 working capital needs risks uncertainties time company may publish forwardlooking statements relating matters anticipated financial performance existing products technical developments new products research development activities preparation year 2000 issues similar matters private securities litigation reform act 1995 provides safe harbor forwardlooking statements order comply terms safe harbor company notes variety factors could cause companys actual results experience differ materially anticipated results expectations expressed companys forwardlooking statements risks uncertainties may affect operations performance development results companys business include noted elsewhere item following dpls contemplated merger monsanto subject shareholder approval well approval government agencies inability complete merger may material effect company however effect cannot known time demand dpls seed continue affected government programs importantly weather demand seed also influenced commodity prices demand crops enduses textiles animal feed food raw materials industrial use factors along weather influence cost availability seed subsequent seasons weather impacts crop yields commodity prices planting decisions farmers make regarding original planting commitments necessary replanting levels planting seed market highly competitive dpl varieties face competition number seed companies diversified chemical companies agricultural biotechnology companies governmental agencies academic scientific institutions number chemical biotechnology companies seed production andor distribution capabilities ensure market access new seed products companys seed products may encounter substantial competition technological advances others products new market entrants many companys competitors affiliated large diversified companies substantially greater resources company production distribution sale crop seed foreign markets may subject special risks including fluctuations foreign currency exchange rate controls expropriation nationalization agricultural economic tax regulatory policies foreign governments particular policies may affect international operations dpl include testing quarantine restrictions relating import export plants seed products availability lack thereof proprietary protection plant products addition united states government policies particularly affecting foreign trade investment may impact companys international operations overall profitability depend weather conditions government policies countries company sells products worldwide commodity prices companys ability successfully open new international markets companys ability successfully continue development high plains market technology partners ability obtain timely government approval maintain approval existing additional biotechnology products company working companys ability produce sufficient commercial quantities high quality planting seed products delay inability successfully complete projects may affect future profitability due varying levels agricultural social development international markets company operates factors within particular international markets targeted company international profitability growth may less stable predictable domestic profitability growth past implementation financial accounting standards sfas 130 reporting comprehensive income establishes new standards reporting comprehensive income components revenues expenses gains losses financial statements statement effective fiscal years beginning december 15 1997 company adopt disclosure requirements sfas 130 beginning fiscal 1999 sfas 131 disclosures segments enterprise related information establishes standards way public business enterprises report information operating segments annual financial statements requires enterprises report selected information operating segments interim financial reports issued shareholders statement effective financial statements periods beginning december 15 1997 company affected statement one line business sfas 132 employers disclosures pensions postretirement benefits revises employers disclosures pension postretirement benefit plans change measurement recognition plans statement effective fiscal years beginning december 15 1997 company adopt disclosure requirements sfas 132 beginning fiscal 1999 sfas 133 accounting derivative instruments hedging activities establishes accounting reporting standards derivative instruments including certain derivative instruments embedded contracts hedging activities statement effective fiscal quarters fiscal years beginning june 15 1999 company process determining effects adopting sfas 133 financial statements item 8item 7 managements discussion analysis financial condition results operations overview increased sales companys transgenic cotton varieties containing bollgard roundup ready gene technologies 80 total unit sales coupled increased sales australia china major reasons dpl reported record sales 2605 million 1923 million 1998 company sold us sufficient quantities seed containing transgenic traits plant approximately 67 million acres 1999 versus approximately 38 million acres 1998 domestic upland cotton acreage increased 142 million acres 1999 131 million acres 1998 even though cotton prices recent record lows since prices crops compete cotton acreage dpls primary territory corn soybeans also lower cotton acreage favorably affected soybean unit sales although 16 greater 1998 levels significantly onethird lower forecast since soybeans carry year inventory purchased meet demand materialize written net realizable value year end cottonseed sales companys joint venture china nearly doubled 1999 1998 levels venture sold enough seed plant 300000 acres 180000 acres 1998 addition companys australian subsidiarys sales doubled due sale transgenic products result reported first ever operating profit reduced pretax operating loss international operations 21 million 1999 30 million 1998 due uncertainty company planted acres 1999 companys uncertainty rate farmers would continue plant transgenic products compared conventional products company purchased additional quantities seed ensure adequate supply seed conventional transgenic varieties meet demand farmer customers accelerated shift transgenic cottonseed products complicates inventory management product line design coupled significantly less expected soybean sales resulted company recording inventory writeoffs 152 million excess normal levels excess portion separately stated component cost sales july 1999 company announced consolidation three divisional sales marketing staffs three divisional technical services staffs one corporate wide sales marketing team one corporate wide technical services team serve three brands deltapine suregrow paymaster approximately forty salaried positions eliminated generated severance pay relocation costs approximately 2 million recorded special charges future savings expected 4 million annually three divisional research programs combined single company wide program two new research programs launched companys effort invest resources believes best opportunity developing new products commercial introduction 1998 company recorded special nonrecurring pretax charges 22662000 relate additional inventory reserves lesser degree costs related evaluation various strategic alternatives ultimately resulted company entering merger agreement monsanto unprecedented level inventory reserves writeoffs result excess inventory quantities resulting 7 reduction acreage realignment companys product line furthermore companys domestic market share declined company believes resulted second quarter recall certain varieties meet quality standards contained bollgard roundup ready gene technologies accelerated shift transgenic products significantly complicates inventory management product line design require continued dedicated efforts effectively manage companys changing product line costs related merger primarily fees legal advice investment bankers professionals 1997 dpl announced program optimize production cost operating efficiencies included idling three less efficient delinting plants write assets whose value impaired result implementing plan plant consolidation costs relating implementation new process manufacturing system costs phase certain products company reduced existing domestic work force result plant closings offering early retirement program employees met certain criteria net sales licensing fees 1999 dpls consolidated net sales licensing fees increased 355 2605 million 1998 sales 1923 million increase primarily result increased sales upland picker cottonseed varieties contain either bollgard roundup ready genes b increased sales roundup ready soybeans c record sales reported australian subsidiary joint venture china 1999 transgenic cottonseed sales comprised approximately 80 total domestic unit sales cottonseed compared approximately 65 1998 roundup ready soybean units comprised approximately 64 total units sold 1999 compared 44 1998 international sales increased 265 million 1999 217 million 1998 due sales increases australia china resulted entities reporting profits 1999 effects increases partially offset decline export sales mexico caused reduction planted cotton acreage due inclement weather lower commodity prices 1998 dpls consolidated net sales licensing fees increased 50 1923 million 1997 sales 1832 million increase primarily result increased sales stripper cottonseed containing monsantos roundup ready gene b increased sales picker cottonseed containing bollgard roundup ready genes c commercial introduction soybean seed containing monsantos roundup ready gene increases partially offset lower sales picker cottonseed varieties resulting inclement weather planting season commodity prices usda estimated planted cotton acreage approximated 128 million acres 1998 subsequently revised 131 million decrease 1997 cotton acres planted 138 million soybean unit sales increased 87 1997 due increased planted soybean acres market share gains companys varieties 1998 company monsanto changed method used calculate acres used billing purposes bollgard roundup ready gene technologies prior years farmers billed based stated planting rates within prescribed range particular geographic territory used purposes calculating number licensed acres therefore billable acres 1998 assumed planting rates established dpl monsanto seven specific territories farmers billed number acres could planted bag seed sold using predetermined territorial formula 1998 total transgenic seed sales comprised approximately 65 total domestic unit sales cottonseed compared 36 1997 roundup ready soybean units comprised 440 total units sold 1998 versus less 1 1997 international sales including exports increased 463 1998 218 million 149 million 1997 primarily initial sales derived hebei jai dai joint venture shiujiazhuang hebei peoples republic china gross profit dpls consolidated gross profit special cotton soybean seed inventory writeoffs 152 million 752 million 1999 compared 536 million 1998 special pretax charges 152 million recorded 1999 relate writeoff excess cottonseed soybean seed cottonseed purchased ensure dpl ample supplies conventional transgenic cottonseed varieties since management uncertain ultimate sales mix 1999 season commodity prices corn cotton soybeans impact farmer planting decisions increased flexibility planting decisions farmers afforded freedom farm act coupled wide scale availability 1999 cottonseed varieties contained bollgard roundup ready genes available limited quantities varieties 1998 well introduction new varieties made forecasting degree certainty difficult company wanted prepared meet farmer demand purchased additional seed 1999 ensure adequate supplies conventional transgenic varieties soybean seed sales onethird less planned resultant excess inventory approximately 4 million written year end product line cotton soybeans continue realign varieties transgenic traits gross margin expressed percentage sales special inventory charges 35 1999 compared 36 1998 decline attributable increased sales transgenic cottonseed varieties carry lower gross margin compared conventional varieties since companys gross margin technology fees approximates 30 dpls consolidated gross profit special nonrecurring charges 536 million 1998 compared 555 million 1997 special pretax charges approximately 175 million recorded 1998 relate additional inventory reserves established provide excess inventory resulting 7 reduction planted cotton acres 1998 realignment companys product line seed new technologies b recall certain products meet companys quality standards gross margin expressed percentage sales special charges consistent 1998 1997 36 operating expenses operating expenses special charges increased 464 million 1999 422 million 1998 due part international joint ventures recurring operating expenses expected remain consistent 2000 1999 levels special charges related severance pay benefits 20 million resulting elimination divisional sales marketing divisional technical services staffs costs associated merger monsanto approximated 90 million included operating expenses charges addition inventory writeoffs noted earlier recorded cost sales 1998 companys total operating expenses increased planned 422 million special charges 348 million special charges 1997 research development expenses research development expenses increased 123 187 million 1999 167 million 1998 increase primarily attributable increased transgenic seed development activities additional variety trials seed testing increased cotton research activities argentina australia brazil china greece spain company expects increases research development expenses 2000 since plans start two new domestic cotton breeding programs research development expenses increased 220 167 million 1998 137 million 1997 increase primarily result additional transgenic costs associated development evaluation new technologies transformation companys product line collaboration outside research providers selling expenses selling expenses increased 70 161 million 1999 150 million 1998 increase related higher fees paid california department food agriculture seed sales marketing activities companys joint ventures argentina brazil increased advertising costs associated incentive program designed promote sale transgenic seed selling expenses increased 358 1998 150 million 111 1997 increase primarily due aggressive advertising promotional program expansion international sales marketing china general administrative expenses general administrative expenses increased 107 116 million 1999 105 million 1998 increase relates expenses related operations argentina brazil higher legal fees associated non us patents trademark variety registrations general administrative expenses essentially flat 1998 1997 special charges unusual charges related acquisitions company incurred approximately 90 million costs related planned merger monsanto costs primarily legal professional fees reserves established losses planned disposition certain assets may necessary close merger monsanto company also paid severance related benefits approximately 20 million approximately forty employees terminated august 1999 connection reorganization sales marketing technical services departments connection evaluation pursuit various strategic alternatives ultimately planned merger monsanto see item 1 company incurred 1998 approximately 51 million associated legal investment banker professional fees connection 1997 production cost optimization program company recorded special charge 190 million 115 million included cost sales 75 million included operating expenses charges include costs associated plan optimize operating efficiencies plant consolidation costs phase certain products write assets whose value impaired result plan lesser extent severance costs connection merger sure grow companies company recorded approximately 17 million fiscal 1997 costs associated transaction including legal costs incurred connection u department justices review transaction interest expense interest expense net interest income increased 81 35 million 1999 32 million 1998 attributable higher bank fees lower capitalized interest expense increased 470 32 million 1998 22 million 1997 increase primarily due higher outstanding borrowings throughout year used finance international ventures higher inventory levels effects partially offset lower interest rates incomeexpense 1999 company recorded losses disposition fixed assets nonrecurring charges 37 million 1997 1998 incomeexpense included primarily gains sales fixed assets accounts payable discounts received early payments net income earnings per share net income applicable common shares increased 75 million 1999 18 million 1998 69 million 1997 net income per share diluted special nonrecurring charges 018 004 017 1999 1998 1997 respectively net income per share diluted special nonrecurring charges 066 037 054 1999 1998 1997 respectively number shares deemed outstanding 409 million 408 million 401 million 1999 1998 1997 respectively liquidity capital resources seasonal nature companys business significantly impacts cash flow working capital requirements company maintains credit facilities uses early payments customers uses cash operations fund working capital needs 18 years dpl borrowed shortterm basis meet seasonal working capital needs united states dpl purchases seed contract growers first second fiscal quarters seed conditioning treating packaging commence late first fiscal quarter continue third fiscal quarter seasonal borrowings normally commence first fiscal quarter peak third fiscal quarter loan repayments normally begin middle third fiscal quarter typically completed first fiscal quarter following year dpl also offers customers financial incentives make early payments fiscal 1999 dpl received approximately 102 million early payments extent dpl attracts early payments customers bank borrowings credit facility reduced company records receivables licensing fees bollgard roundup ready seed sales seed shipped usually companys second third quarters company contracted billing collection activities bollgard roundup ready licensing fees monsanto september technology fees due time dpl receives payment monsanto dpl pays monsanto royalty bollgard roundup ready licensing fees april 1998 company entered syndicated credit facility existing lender two financial institutions provides aggregate borrowings 110 million agreement provides base commitment 55 million seasonal commitment 55 million base commitment longterm loan may borrowed upon time due april 1 2001 seasonal commitment working capital loan may drawn upon september 1 june 30 fiscal year expires april 1 2001 commitment offers variable fixed interest rate options requires company pay facility commitment fees comply certain financial covenants august 31 1999 company 380 million available borrowing base commitment addition lead lender approved 250 million credit line activated company needed april 15 1999 company activated previously approved 250 million additional seasonal credit facility available april 15 1999 september 1 1999 incurred interest rates comparable existing facility financial covenants loan agreements require company maintain ratio total liabilities tangible net worth august 31 less equal 225 1 40 10 companys quarter ends b maintain fixed charge ratio end quarter greater equal 20 10 c maintain times tangible net worth less sum 40 million plus ii 50 net income losses determined last day fiscal year commencing august 31 1998 august 31 1998 1999 companys ratio total liabilities tangible net worth exceeded permitted ratio financial institutions waived compliance covenant see note 4 notes consolidated financial statements item 8item 7 managements discussion analysis financial condition results operations overview increased sales companys transgenic cotton varieties containing bollgard roundup ready gene technologies 89 total domestic unit sales coupled increased sales australia greece major reasons dpl reported record sales 3012 million 2605 million 1999 company sold us sufficient quantities seed containing bollgard andor roundup ready gene technologies plant approximately 74 million acres 2000 versus approximately 67 million acres planted 1999 domestic upland cotton acreage planted increased 154 million acres 2000 142 million acres 1999 even though cotton prices recent record lows since prices crops compete cotton acreage dpls primary territory corn soybeans relatively even lower cotton acreage favorably affected december 20 1999 monsanto withdrew premerger notification filed pursuant hartscottrodino antitrust improvements act 1976 hsr act effectively terminating monsantos efforts gain government approval merger december 30 1999 company filed suit december 30 suit first judicial district bolivar county mississippi seeking among things payment 81 million termination fee due pursuant merger agreement compensatory damages 1 billion punitive damages amount proved trial monsantos breach contract january 2 2000 company monsanto reached agreement whereby company would withdraw december 30 suit monsanto would immediately pay 81 million january 3 2000 monsanto paid company termination fee 81 million required merger agreement january 18 2000 company refiled suit reinstating essentially allegations contained december 30 suit 81 million termination fee net related expenses separately presented special charges unusual income item net accompanying consolidated statements income july 1999 company announced consolidation three divisional sales marketing staffs three divisional technical services staffs one corporate wide sales marketing team one corporate wide technical services team serve three brands deltapine suregrow paymaster approximately forty salaried positions eliminated generated severance pay relocation costs approximately 2 million recorded special charges actual savings approximated 4 million fiscal 2000 three divisional research programs combined single companywide program two new research facilities launched companys effort invest resources believes best opportunity developing new products commercial introduction net sales licensing fees 2000 dpls consolidated net sales licensing fees increased 156 3012 million 1999 sales 2605 million increase primarily result increased sales upland picker cottonseed varieties contain either bollgard roundup ready gene technologies b increased sales roundup ready soybeans c increased sales reported australian subsidiary joint ventures china brazil successful sales efforts new distributor greece 2000 domestic transgenic cottonseed sales comprised approximately 89 total domestic unit sales cottonseed compared approximately 80 1999 roundup ready soybean units comprised approximately 80 total units sold 2000 compared 64 1999 international sales increased 310 million 2000 265 million 1999 due sales increases australia greece effects increases partially offset decline export sales certain smaller markets 1999 dpls consolidated net sales licensing fees increased 355 2605 million 1998 sales 1923 million increase primarily result increased sales cottonseed varieties contain either bollgard roundup ready gene technologies b increased sales roundup ready soybeans c record sales reported australian subsidiary joint ventures china 1999 transgenic cottonseed sales comprised approximately 80 total domestic unit sales cottonseed compared approximately 65 1998 roundup ready soybean units comprised approximately 64 total units sold 1999 compared 44 1998 international sales increased 265 million 1999 217 million 1998 due sales increases australia china resulted entities reporting profits 1999 effects increases partially offset decline export sales mexico caused reduction planted cotton acreage due inclement weather lower commodity prices gross profit dpls consolidated gross profit increased 994 million 2000 compared 752 million 1999 primarily attributable increased penetration transgenic cottonseed varieties us increased sales companys international segment discussed absence special charges 2000 compared special charges 152 million recorded 1999 discussed dpls consolidated gross profit special cotton soybean seed inventory writeoffs 152 million 752 million 1999 compared 536 million 1998 special pretax charges 152 million recorded 1999 relate writeoff excess cottonseed soybean seed cottonseed purchased ensure dpl ample supplies conventional transgenic cottonseed varieties since management uncertain ultimate sales mix 1999 season commodity prices corn cotton soybeans impact farmer planting decisions increased flexibility planting decisions farmers afforded freedom farm act coupled wide scale availability 1999 cottonseed varieties contained bollgard roundup ready genes available limited quantities varieties 1998 well introduction new varieties made forecasting degree certainty difficult company wanted prepared meet farmer demand purchased additional seed 1999 ensure adequate supplies conventional transgenic varieties soybean seed sales onethird less planned resultant excess inventory approximately 4 million written year end product lines cotton soybeans continue realign varieties transgenic traits gross margin expressed percentage sales special inventory charges 35 1999 compared 36 1998 decline attributable increased sales transgenic cottonseed varieties carry lower gross margin compared conventional varieties since companys gross margin technology fees approximates 30 operating expenses operating expenses special charges decreased 460 million 2000 464 million 1999 decrease primarily due savings resulted 1999 reorganization companys sales marketing technical service staffs partially offset higher research general administrative costs recurring operating expenses expected increase somewhat 2001 2000 levels 1999 special charges related severance pay benefits 20 million resulting elimination divisional sales marketing divisional technical services staffs costs associated ultimately terminated merger monsanto approximated 90 million included operating expenses charges addition inventory writeoffs noted earlier recorded cost sales research development expenses research development expenses change materially 2000 1999 levels since savings achieved 1999 consolidation offset cost new research programs company expects recurring research development costs 2001 remain consistent 2000 levels research development expenses increased 123 187 million 1999 167 million 1998 increase primarily attributable increased transgenic seed development activities additional variety trials seed testing increased cotton research activities argentina australia brazil china greece spain selling expenses selling expenses decreased 116 142 million 2000 161 million 1999 decrease primarily attributable companys 1999 reorganization sales marketing staff related synergies companys advertising promotional efforts selling expenses increased 70 161 million 1999 150 million 1998 increase related higher fees paid california department food agriculture seed sales made california sales marketing activities companys joint ventures argentina brazil increased advertising costs associated incentive program designed promote sale transgenic seed general administrative expenses general administrative expenses increased 127 131 million 2000 116 million 1999 increase primarily consists expenses related expansion companys operations argentina brazil increase insurance costs higher legal fees associated litigation discussed item 3 non us patents trademark variety registrations general administrative expenses increased 107 116 million 1999 105 million 1998 increase relates expenses related operations argentina brazil higher legal fees associated non us patents trademark variety registrations special charges unusual charges related acquisitions fiscal 2000 company reported unusual income item 81 million merger termination fee net related expenses paid monsanto dpl pursuant terms may 8 1998 merger agreement 1999 company incurred approximately 90 million costs related planned merger monsanto costs primarily legal professional fees reserves established losses planned disposition certain assets company also paid severance related benefits approximately 20 million approximately forty employees terminated august 1999 connection reorganization sales marketing technical services departments connection evaluation pursuit various strategic alternatives ultimately planned merger monsanto company incurred 1998 approximately 51 million associated legal investment banker professional fees interest incomeexpense company reported net interest income 09 million 2000 compared net interest expense 35 million 1999 due lower average borrowings resulting increase cash generated operating activities interest earned 81 million merger termination fee collected monsanto interest expense net interest income increased 81 35 million 1999 32 million 1998 attributable higher bank fees lower capitalized interest net income earnings per share net income applicable common shares increased 793 million 2000 75 million 1999 18 million 1998 net income per share diluted special nonrecurring charges 198 018 004 2000 1999 1998 respectively net income per share diluted special nonrecurring charges 090 066 037 2000 1999 1998 respectively number shares deemed outstanding 402 million 410 million 408 million 2000 1999 1998 respectively liquidity capital resources seasonal nature companys business significantly impacts cash flow working capital requirements company maintains credit facilities uses early payments customers uses cash operations fund working capital needs 18 years dpl borrowed shortterm basis meet seasonal working capital needs united states dpl purchases seed contract growers first second fiscal quarters seed conditioning treating packaging commence late first fiscal quarter continue third fiscal quarter seasonal borrowings normally commence first fiscal quarter peak third fiscal quarter loan repayments normally begin middle third fiscal quarter typically completed first fiscal quarter following year dpl also offers customers financial incentives make early payments extent dpl attracts early payments customers bank borrowings credit facility reduced company records receivables licensing fees bollgard roundup ready seed sales seed shipped usually companys second third quarters company contracted billing collection activities bollgard roundup ready licensing fees monsanto september technology fees due time dpl receives payment monsanto dpl pays monsanto royalty bollgard roundup ready licensing fees april 1998 company entered syndicated credit facility existing lender two financial institutions provides aggregate borrowings 110 million agreement provides base commitment 55 million seasonal commitment 55 million base commitment longterm loan may borrowed upon time due april 1 2001 seasonal commitment working capital loan may drawn upon september 1 june 30 fiscal year expires april 1 2001 commitment offers variable fixed interest rate options requires company pay facility commitment fees comply certain financial covenants august 31 2000 company 550 million available borrowing base commitment financial covenants loan agreements require company maintain ratio total liabilities tangible net worth august 31 less equal 225 1 40 10 companys quarter ends b maintain fixed charge coverage ratio end quarter greater equal 20 10 c maintain times tangible net worth less sum 40 million plus ii 50 net income losses determined last day fiscal year commencing august 31 1998 august 31 1999 companys ratio total liabilities tangible net worth exceeded permitted ratio time financial institutions waived compliance covenant august 31 2000 company compliance covenants see note 4 notes consolidated financial statements item 8item 7 managements discussion analysis financial condition results operations overview shift conventional cottonseed varieties transgenic varieties us continues overall domestic international cottonseed sales soybean business disappointment domestically despite low cotton fiber prices picker cotton seed unit sales increased per unit selling prices dpl continued successful execution international business plan evidenced 41 increase international revenues conversely soybean sales 2001 expectations 2000 sales due pricing decisions priced products higher two southern soybean market leaders lower sales resulted excess soybean seed higher expected inventory writeoffs due poor weather low cotton fiber prices number stripper cotton units sold fell 2001 expectations 2000 actual sales since revenue potential per acre farmers plant areas stripper cotton varieties grown significantly lower potential picker cotton grown elsewhere us commodity prices fall farmers either choose plant acreage plant less expensive conventional farmersaved seed august 2001 company announced plant closing reorganization corporate staff resulted company taking 63 million charge 30 million related asset write 33 million severance pay related benefits terminated essentially severance payments made fiscal year end changes made reduce excess plant capacity reduce production costs reduce corporate overhead eliminating positions realigning companys soybean breeding efforts company expects annual payroll savings approximate 20 million 2002 resulting charges litigation monsanto continues trial court acted pending motions parties discovery discussed item 3 footnotes financial statements company collected dpl filed lawsuit 81 million termination fee 2000 recorded net related expenses unusual item fiscal 2000 july 1999 company announced consolidation three divisional sales marketing staffs three divisional technical services staffs one companywide sales marketing team one companywide technical services team serve three brands deltapine suregrow paymaster approximately forty salaried positions eliminated generated severance pay relocation costs approximately 2 million recorded special charges actual savings approximated 4 million fiscal 2000 three divisional research programs combined single companywide program two new research facilities launched companys effort invest resources believes best opportunity developing new products commercial introduction outlook although cotton fiber prices continued decline 2001 cotton farmers planted cotton 2001 2000 due part low commodity prices potentially competing crops level government payments various farm programs present time expect domestic cotton acreage remain relatively flat 2002 reasons noted since 2002 represents last year freedom farm bill put effect 1996 houses congress presently working farm legislation presently expected go effect 2003 provisions bill yet final could fact affect domestic planted acreage cotton row crops expiration current farm bill total cotton acreage worldwide remained relatively consistent 80 million 85 million acres last several decades company continues expand exus presence forming new joint ventures working improve operating results existing exus operations tragic events september 11 2001 expected directly affect existing exus operations 2002 however companys five year business plan includes target markets pakistan 2004 uzbekistan 2003 presently unable ascertain effect recent events companys longer term growth markets company announced recent signing letters intent two parties china form two new ventures addition two existing ventures penetrate exus markets connection execution international business plans company remains optimistic ability execute domestic international growth strategies company also continues review evaluate alternative sources types technology could bring valuable products farmers agreements reached parties announcements made meantime company continues maintain cash position necessity regularly evaluated subsequent august 31 2001 company pursuant previously announced repurchase plan purchased open market approximately 200000 shares common stock increased quarterly dividend 005 per share 004 board reviews dividend policy quarterly assuming dividend rate maintained 2002 aggregate payments 77 million paid holders 385 million shares outstanding see risks uncertainties located item 7 net sales licensing fees 2001 dpls consolidated net sales licensing fees increased 15 3058 million 2000 sales 3012 million increase primarily result continued market penetration companys stacked gene products domestic segment b price increases domestic cotton segment c increased export sales mexico greece brazil increased sales companys joint ventures china brazil effects increases partially offset lower expected sales soybeans 2001 domestic transgenic cottonseed sales comprised approximately 91 total domestic unit sales cottonseed compared approximately 89 2000 international sales increased 439 million 2001 310 million 2000 due sales increases mexico greece china brazil 2001 soybean sales licensing fees decreased 34 2000 dpls consolidated net sales licensing fees increased 156 3012 million 1999 sales 2605 million increase primarily result increased sales upland picker cottonseed varieties contain either bollgard roundup ready gene technologies b increased sales roundup ready soybeans c increased international sales 2000 domestic transgenic cottonseed sales comprised approximately 89 total domestic unit sales cottonseed compared approximately 80 1999 roundup ready soybean units comprised approximately 80 total units sold 2000 compared 64 1999 international sales increased 310 million 2000 265 million 1999 due sales increases china australia greece effects increases partially offset decline export sales certain smaller markets gross profit dpls consolidated gross profit increased 1056 million 2001 compared 994 million 2000 increase primarily attributable continued penetration transgenic cottonseed varieties us price increase us market increased sales companys international segment discussed positive effects partly offset lower soybean margins dpls consolidated gross profit increased 994 million 2000 compared 752 million 1999 primarily attributable increased penetration transgenic cottonseed varieties us increased sales companys international segment discussed absence special charges 2000 compared special charges 152 million recorded 1999 operating expenses operating expenses special charges increased 476 million 2001 460 million 2000 increase primarily due higher general administrative research costs partially offset continued cost savings generated companys 1999 reorganization sales marketing staff related synergies companys advertising promotional efforts operating expenses special charges decreased 460 million 2000 464 million 1999 decrease primarily due savings resulted 1999 reorganization companys sales marketing technical service staffs partially offset higher research general administrative costs 1999 special charges related severance pay benefits 20 million resulting elimination divisional sales marketing divisional technical services staffs costs associated ultimately terminated merger monsanto approximated 90 million included operating expenses research development expenses research development expenses increased 66 199 million 2001 187 million 2000 increase primarily attributable additional breeding programs georgia texas advanced breeding programs evaluation new technologies additional international seed testing research development expenses change materially 2000 1999 levels since savings achieved 1999 consolidation offset cost new research programs selling expenses selling expenses decreased 93 129 million 2001 142 million 2000 selling expenses decreased 116 142 million 2000 161 million 1999 decreases primarily attributable companys previous reorganization sales marketing staff related synergies combining companys advertising promotional efforts general administrative expenses general administrative expenses increased 129 148 million 2001 131 million 2000 increase primarily consists increase property casualty health insurance costs general administrative expenses increased 127 131 million 2000 116 million 1999 increase primarily consists expenses related expansion companys operations argentina brazil increase insurance costs higher legal fees associated nonus patents trademark variety registrations special charges unusual item connection closing chandler arizona delinting facility august 31 2001 reduction domestic operations corporate staffs company recorded 63 million charge severance plant closing related costs associated actions 63 million 30 million related write fixed assets 33 million severance pay related benefits fiscal 2000 company reported unusual income item 81 million merger termination fee net related expenses paid monsanto dpl pursuant terms may 8 1998 merger agreement 1999 company incurred approximately 90 million costs related planned merger monsanto costs primarily legal professional fees reserves established losses planned disposition certain assets company also paid severance related benefits approximately 20 million approximately forty employees terminated august 1999 connection reorganization sales marketing technical services departments interest incomeexpense company reported net interest income 35 09 million 2001 2000 respectively compared net interest expense 35 million 1999 interest income primarily earned cash generated operating activities 81 million merger termination fee collected monsanto early 2000 net income earnings per share net income special charges applicable common shares 321 million 792 million 75 million 2001 2000 1999 respectively net income per share diluted special nonrecurring charges 081 198 018 2001 2000 1999 respectively net income per share diluted special nonrecurring charges 091 090 066 2001 2000 1999 respectively number shares deemed outstanding 401 million 402 million 410 million 2001 2000 1999 respectively liquidity capital resources seasonal nature companys business significantly impacts cash flow working capital requirements company maintained credit facilities used early payments customers cash operations fund working capital needs 18 years dpl borrowed shortterm basis meet seasonal working capital needs however cash generated operations 2000 2001 along collection merger termination fee used meet working capital needs 2001 lesser degree 2000 company currently evaluating potential uses cash purposes working capital needs one potential use acquisition funding alternative technologies could used enhance companys product portfolio ultimately companys longterm earnings potential another potential use repurchase open market companys shares pursuant previously announced share repurchase program subsequent august 31 2001 company repurchased approximately 200000 shares evaluation certain transactions currently considered brought conclusion perhaps resulting acquisitions company may reconsider potential uses remaining cash including repurchasing shares aggressively depending market considerations factors united states dpl purchases seed contract growers first second fiscal quarters seed conditioning treating packaging commence late first fiscal quarter continue third fiscal quarter seasonal cash needs normally begin increase first fiscal quarter cash needs peak third fiscal quarter cash generated loan repayments normally begin middle third fiscal quarter typically completed first fiscal quarter following year dpl also offers customers financial incentives make early payments extent dpl attracts early payments customers bank borrowings credit facility reduced united states company records accounts receivable licensing fees bollgard roundup ready seed sales seed shipped usually companys second third quarters company contracted billing collection activities bollgard roundup ready licensing fees monsanto september technology fees due time dpl managing partner dm partners receives payment monsanto dpl pays monsanto royalty bollgard roundup ready licensing fees result timing events accounts receivable accrued expenses generally peak year end april 1998 company entered syndicated credit facility existing lender two financial institutions provided aggregate borrowings 110 million agreement provided base commitment 55 million seasonal commitment 55 million base commitment longterm loan could borrowed upon time due april 1 2001 seasonal commitment working capital loan could drawn upon september 1 june 30 fiscal year commitment offered variable fixed interest rate options required company pay facility commitment fees comply certain financial covenants agreement expired april 1 2001 financial covenants loan agreements required company maintain ratio total liabilities tangible net worth august 31 less equal 225 1 40 10 companys quarter ends b maintain fixed charge coverage ratio end quarter greater equal 20 10 c maintain times tangible net worth less sum 40 million plus ii 50 net income losses determined last day fiscal year commencing august 31 1998 august 31 2001 company compliance covenants expired credit facility see note 4 notes consolidated financial statements item 8 dpl lenders currently negotiating replacement facility provide aggregate borrowings 100 million plus 25 million overline contain terms conditions similar 1998 facility capital expenditures 75 million 71 million 81 million fiscal 2001 2000 1999 respectively company anticipates capital expenditures expected approximate 90 million 2002 2001 company paid dividends aggregating 59 million approximately 015 per share november 2001 board increased quarterly dividend commencing first quarter 005 per share board reviews dividend policy quarterly however assuming present rate maintained throughout 2002 aggregate dividends approximate 77 million 2002 cash provided operations cash hand early payments customers borrowings loan agreement necessary sufficient meet companys 2002 working capital needs risks uncertainties time company may publish forwardlooking statements relating matters anticipated financial performance existing products technical developments new products new technologies research development activities similar matters private securities litigation reform act 1995 provides safe harbor forwardlooking statements order comply terms safe harbor company notes variety factors could cause companys actual results experience differ materially anticipated results expectations expressed companys forwardlooking statements risks uncertainties may affect operations performance development results companys business include noted elsewhere item filing following demand dpls seed affected government programs policies importantly weather demand seed also influenced commodity prices demand crops enduses textiles animal feed food raw materials industrial use factors along weather influence cost availability seed subsequent seasons weather impacts crop yields commodity prices planting decisions farmers make regarding original planting commitments necessary replanting levels planting seed market highly competitive dpl products face competition number seed companies diversified chemical companies agricultural biotechnology companies governmental agencies academic scientific institutions number chemical biotechnology companies seed production andor distribution capabilities ensure market access new seed products new technologies may compete bollgard roundup ready gene technologies companys seed products technologies contained therein may encounter substantial competition technological advances others products new market entrants many companys competitors affiliated large diversified companies substantially greater resources company production distribution sale crop seed foreign markets may subject special risks including fluctuations foreign currency exchange rate controls expropriation nationalization agricultural economic tax regulatory policies foreign governments particular policies may affect domestic international operations dpl include use acceptance products produced plants genetically modified testing quarantine restrictions relating import export plants seed products availability lack thereof proprietary protection plant products addition united states government policies particularly affecting foreign trade investment may impact companys international operations publicity related genetically modified organisms gmos products made plants contain gmos may effect companys sales future 2001 approximately 90 companys cottonseed sold contained either bollgard roundup ready gene technologies 86 companys soybean seed sales contained roundup ready gene technology although many farmers rapidly adopted technologies alleged concern finished products contain gmos could impact demand crops ultimately seed raised seed containing traits due varying levels agricultural social development international markets company operates factors within particular international markets targeted company international profitability growth may less stable predictable domestic profitability growth furthermore recent action taken us government including taken us military aftermath tragic events september 11 2001 may serve complicate companys ability execute long range exus business plans include future expansion uzbekistan 2003 pakistan 2004 overall profitability depend factors noted well weather conditions government policies countries company sells products operates worldwide commodity prices companys ability successfully open new international markets companys ability successfully continue development high plains market technology partners ability obtain timely government approval maintain approval existing additional biotechnology products company working companys ability produce sufficient commercial quantities high quality planting seed products delay inability successfully complete projects may affect future profitability recently issued financial accounting standards sfas 144 accounting impairment disposal longlived assets addresses financial accounting reporting impairment disposal longlived assets statement effective fiscal years beginning december 15 2001 interim periods within fiscal years early application encouraged therefore dpl must adopt statement later september 1 2002 management determined impact statement consolidated financial position results operations sfas 143 accounting asset retirement obligations addresses financial accounting reporting obligations associated retirement tangible longlived assets associated asset retirement costs statement effective fiscal years beginning june 15 2002 therefore dpl must adopt statement later september 1 2002 management determined impact statement consolidated financial position results operations sfas 142 goodwill intangible assets addresses financial accounting reporting acquired goodwill intangible assets amortization goodwill including goodwill recorded past business combinations cease upon adoption statement effective fiscal years beginning december 15 2001 however early application permitted entities fiscal years beginning march 15 2001 provided first interim financial statements issued previously effective september 1 2001 company adopted sfas 142 time goodwill amortization ceased fiscal 2002 goodwill amortization would approximately 366000 provisions statement require goodwill measured periodically impairment impact adoption companys consolidated financial position results operations related provisions yet determined sfas 141 business combinations requires business combinations initiated june 30 2001 accounted purchase method sfas 141 also sets forth guidelines applying purchase method accounting determination intangible assets including goodwill acquired business combination expands financial disclosures concerning business combinations consummated june 1 2001 management determined impact statement effect consolidated financial position results operations item 7aitem 7 managements discussion analysis financial condition results operations overview financial results fiscal year ended august 31 2003 adversely impacted decrease cotton acreage planted us report dated june 30 2003 united states department agriculture usda reported upland cotton acreage planted us expected 135 million acres 2003 137 million acres 2002 cottonproducing states east texas represents lucrative selling region cotton acreage declined almost 400000 acres believe acreage reduction occurred 2002 primarily driven market forces low cotton fiber prices relatively higher soybean corn prices late enactment 2002 farm bill 2003 believe inclement weather including excessive spring rains caused additional decrease acreage 2003 areas east texas crop destruct replant program claims also increased due heavy rains hail storms high winds various regions texas oklahoma kansas northern areas cotton belt east texas cottonseed planted crop destruct program farmer plants transgenic seed crop destroyed within sixty days planting monsanto field inspection may forgive waive technology fee affected acreage areas portion seed price may also refunded grower crop destruct crop replant program claims resulted higher rebates experienced 2002 negatively impacted financial results positive note able increase revenue 2003 2002 despite reduction cotton acres us revenue increase primarily due introduction higherpriced varieties shift sales singlegene transgenic varieties profitable stackedgene varieties increase soybean sales successfully introduced new cotton variety dp 555 bgrr 2003 priced premium cotton products usda reported dp 555 bgrr planted almost nine percent us cotton acres 2003 made popular cotton variety planted 2003 first year commercial launch likewise growers purchased stacked varieties 2003 compared 2002 stacked varieties contain monsantos bollgard roundup ready gene technologies carry higher fees single gene products soybean sales also increased 2003 due strong demand varieties performed well 2002 gross margin percentage essentially unchanged 2003 compared 2002 despite introduction higher priced products price increases among picker cottonseed product portfolio caused large part increased costs per unit cottonseed sold wet weather occurred 2002 harvest season severely limited amount seed able purchase growers midsouth forced ship seed western us australia resulted increases seed costs results operations international segment lower 2003 compared 2002 primarily due lower sales australia brazil greece slightly offset increase sales china planted acreage cotton australia declined 2003 due prolonged drought despite increase unit sales brazil revenues lower due weakness brazilian currency us dollar greece one profitable international markets sales lower 2003 compared 2002 due excess inventory levels greek distributor strategic transactions events august 2003 announced would begin packaging cottonseed varieties bags containing approximately 250000 seed 2004 selling season compared historically packaging cottonseed varieties 50pound bags pima acala varieties continue packaged 50pound bags intended simplify pricing production planning help standardize technology fees make inventory management distribution partners farmers precise switch seedcount packaging result variable bag weights january 2003 announced collaboration agreement dow agrosciences llc das develop test evaluate elite cotton varieties containing das insect resistance traits may commercialize varieties containing das insect resistance technology reach commercialization agreement das obtains us government regulatory approval commercialization agreement reached date may 2002 signed product development agreement syngenta whereby syngenta pay us development work including introgression testing evaluation syngentas insect resistance technology elite cotton germplasm may commercialize varieties containing syngentas insect resistance technology reach commercialization agreement syngenta obtains us government regulatory approval syngenta announced expects receive full us regulatory approval time 2005 season commercialization agreement reached date may 2002 established deltamax cotton llc limited liability company jointly owned verdia whollyowned subsidiary maxygen inc deltamax cotton llc formed create develop commercialize valueenhancing traits cottonseed market complement andor compete traits available today dpl verdia 50 deltamax cotton llc expect invest aggregate 20 million next five eight years fund portion deltamax cotton llc begun cotton plant transformation herbicide tolerance insect resistance traits matters respect suit pharmacia monsanto company parties remain discovery judge case retired year another judge assigned case originally scheduled trial january 2004 date fit within trial schedule newly assigned judge new trial date yet scheduled court ordered april 2004 factdiscovery deadline well deadlines date april 15 2005 pretrial statements due court therefore trial expected occur prior april 15 2005 september 12 2003 monsanto amended response lawsuit include four counterclaims us monsanto seeking unspecified damages counterclaims including 81 million paid monsanto dpl termination fee related expenses answered monsantos counterclaims believe liability continue vigorously pursue lawsuit defend monsantos counterclaims earnings 2003 fiscal year impacted legal expenses 021 per share year discovery pretrial activities intensified see item 3 discussion outlook future growth sales earnings dependent cotton acreage us around world b ability continue profitably expand international operations c successful development launch new technologies obtained third parties fee sharing arrangements beneficial us current fee sharing arrangements ability successfully develop launch technologies control developed deltamax cotton llc due market position us cotton acreage significant effect sales earnings although expect 2002 farm bill stabilize potentially increase us cotton acreage factors weather commodity prices near time farmers plant significant effect farmer planting decisions ultimately operating results previously announced expect provide 2004 earnings guidance later year current price cotton fiber levels reached several years cotton fiber prices continue increase maintain present levels us global cotton acres 2004 may increase however mentioned earlier factors must considered believe prudent estimate 2004 cotton plantings time furthermore still receiving production seed ultimate seed supply 2004 presently known internationally continue expand global reach seek improve operating results existing exus operations 2003 operating results international segment lower 2002 due several factors including drought australia currency issues brazil excess inventories greek distributor current prices cotton fiber remain constant planted cotton acreage may increase 2004 international markets including china presently importing large amounts raw cotton fiber spinning mills already seeing improvements argentina brazilian businesses due political economic stability compared 2003 addition continue focus converting conventional seed businesses outside us profitable transgenic products containing monsantos bollgard roundup ready products early determine whether businesses greece australia improve 2004 continue develop new businesses markets india pakistan portions africa continue review evaluate alternative sources types technology could bring valuable products farmers agreements reached parties announcements may made believe uniquely positioned rapidly introduce new technologies us exus cotton farmers due strength breadth breeding programs germplasm base technical services capabilities knowhow brand recognition market position share repurchase programdividend policy board directors approved common stock repurchase plan 50 million 2000 october 31 2003 dpl repurchased 1351000 shares aggregate purchase price 249 million current purchase program expect continue purchasing shares open market subject market price considerations currently quarterly dividend 010 per share board reviews dividend policy quarterly assuming dividend rate maintained 2004 aggregate payments 152 million holders 381 million common shares outstanding 04 million holder 11 million preferred shares outstanding see risks uncertainties located item 7 net sales licensing fees 2003 consolidated net sales licensing fees increased 91 2813 million 2002 sales 2578 million increase primarily result increase sales stacked gene products higher technology licensing fees charged b increase selling price seed introduction higherpriced cottonseed varieties primarily dp 555 bgrr c increase soybean seed sales increased approximately 26 2003 2002 2003 domestic transgenic cottonseed sales comprised approximately 96 total domestic unit sales cottonseed compared approximately 93 2002 offsetting increases lower international sales higher sales rebates associated distributor payments crop destruct crop replant programs decrease international sales mainly attributable decrease sales joint venture brazil due devaluation brazilian real decrease export sales greece due high inventory levels distributor lower sales australia due severe drought conditions offset increase sales joint ventures china 2002 consolidated net sales licensing fees decreased 157 2578 million 2001 sales 3058 million decrease mainly attributable reduction planted cotton acreage us reduced domestic sales 2254 million 2002 2619 million 2001 b reduction international sales 324 million 2002 439 million 2001 c loss market share caused primarily price increase inability fill demand certain roundup ready picker cotton varieties higher marketing program costs effects decreases partially offset increase soybean seed sales licensing fees increased approximately 10 2002 2001 sales transgenic cotton seed comprised approximately 93 total domestic cotton seed sales approximately 91 2001 gross profit consolidated gross profit increased 1023 million 2003 compared 925 million 2002 consolidated gross profit percentage consolidated net sales licensing fees 2003 constant 2002 36 price increases introduction higher priced varieties offset increase cottonseed cost caused higher raw materials costs freight related sourcing seed production western united states australia consolidated gross profit decreased 925 million 2002 compared 1056 million 2001 consolidated gross profit percentage consolidated net sales licensing fees increased 36 2002 35 2001 primarily attributable price increases certain cotton seed partially offset higher costs fuzzy seed operating expenses operating expenses special charges increased 447 million 2003 427 million 2002 increase primarily due increased compensation pension payroll related costs well higher insurance premiums professional fees operating expenses decreased 427 million 2002 476 million 2001 decrease mainly attributable cost savings realized plant closing staff reductions announced 2001 well reduced health insurance claims reduction discretionary bonus pool research development expenses research development expenses virtually unchanged prior year 183 million 2003 compared 181 million 2002 increase primarily attributable increased international research development activities research development expenses decreased 90 181 million 2002 199 million 2001 restructuring thirdparty research contracts well cost savings realized reorganization announced 2001 contributed decrease experienced 2002 selling expenses selling expenses increased 38 110 million 2003 106 million 2002 increase primarily attributable increase advertising expenditures related introduction new varieties selling expenses decreased 178 106 million 2002 129 million 2001 reorganization announced 2001 produced cost savings selling function reduction advertising expenditures general administrative expenses general administrative expenses increased 100 154 million 2003 140 million 2002 increase mainly related increases compensation pension costs well increase legal fees related licensing activities general administrative expenses decreased 53 140 million 2002 148 million 2001 decrease mainly attributable reduction health insurance claims decrease discretionary bonus pool offset higher legal costs primarily related structuring negotiating agreements access license new technologies special charges 2003 recorded 06 million charge associated additional expenses closing chandler arizona plant closing facility centre alabama 04 million charge associated reductions number employees whollyowned subsidiary australia joint venture hebei province peoples republic china special charges recorded 2002 2001 connection closing chandler arizona delinting facility reduction domestic operations corporate staffs recorded 63 million charge associated actions 63 million 30 million related write fixed assets 33 million severance pay related benefits interest incomeexpense net interest income decreased 11 million 2003 compared net interest income 12 million 2002 2003 interest income 15 million interest expense 04 million lower interest rates earned cash balances resulted lower interest earnings 2003 international interest expense decreased primarily due decrease interest rates incurred debt joint venture argentina net interest income decreased 12 million 2002 compared net interest income 35 million 2001 2002 interest income 23 million interest expense 11 million lower interest rates earned cash balances resulted lower interest earnings 2002 international interest expense increased primarily due increase interest rates incurred debt joint venture argentina net income earnings per share net income special charges applicable common shares 275 million 301 million 321 million 2003 2002 2001 respectively net income per share diluted special charges 070 076 081 2003 2002 2001 respectively net income per share diluted monsantopharmacia legal expenses special charges 093 084 095 2003 2002 2001 respectively legal expenses related suit pharmacia monsanto totaled 021 008 004 per diluted share 2003 2002 2001 respectively cost special charges 002 per share 2003 zero 2002 010 per share 2001 number shares used diluted earnings per share calculations 396 million 398 million 401 million 2003 2002 2001 respectively reconciliation net income legal expenses related monsantopharmacia litigation special charges nongaap measure net income gaap measure follows use nongaap financial measures filing disclose nongaap financial measures exclude legal costs associated dpl versus monsantopharmacia litigation special charges associated closing two us locations headcount reductions two international locations 2003 2001 plant closing staff reductions nongaap financial measures provided enhance users overall understanding current financial performance normal operations prospects future believe amounts excluded nongaap financial measures indicative core operating results dpl management uses nongaap financial measures analyzing dpls performance measures considered addition results prepared accordance gaap considered substitute superior gaap results nongaap financial measures included filing reconciled directly comparable gaap measures application critical accounting policies overview managements discussion analysis financial condition results operations read conjunction consolidated financial statements related notes appearing item 8 annual report form 10k fiscal year ended august 31 2003 preparation financial statements requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period identified accounting policies involve estimates assumptions believe critical understanding financial statements management discussed development selection critical accounting estimate audit committee board directors audit committee reviewed related disclosures since application accounting policies involves exercise judgment use estimates actual results could differ estimates revenue recognition revenues domestic seed sales recognized seed shipped revenues bollgard roundup ready licensing fees recognized seed shipped domestically licensing fees charged farmers bollgard roundup ready cottonseed based preestablished planting rates nine geographic regions consider estimated number seeds contained bag may vary variety location grown factors international export revenues recognized upon later seed shipped date letters credit instruments similar security provisions confirmed generally international export sales subject return generally international revenues sale planting seed less estimated reserves returns recognized seed shipped domestic seed products including containing bollgard roundup ready technologies subject return credit risk effects vary year annual level returns ultimately net sales influenced various factors principally commodity prices weather conditions occurring spring planting season third fourth quarters provide estimated returns sales occur extent actual returns differ estimates adjustments operating results recorded differences become known typically fourth quarter significant returns occur accounted fiscal year end therefore application estimate primarily affects quarterly information domestically promote cotton soybean seed directly farmers sell seed distributors dealers also offer various sales incentive programs seed participate programs related bollgard roundup ready technology fees offered monsanto generally programs farmer plants seed crop lost usually due inclement weather certain date portion price seed technology fees forgiven rebated farmer amount refund impact dpl depends number factors including whether farmer replant crop destroyed record monthly estimates account programs majority program rebates occur second third quarters essentially material claims programs occurred accounted fiscal year end provision damaged obsolete excess inventory year record provision related inventory based estimate seed pass quality assurance qa standards year end deemed excess based desired seed stock level particular variety dump seed fail qa standards based physical defects ie cut seed moisture content discoloration etc germination rates transgenic purities amount recorded inventory provision given year calculated based total quantity inventory passed qa standards fiscal year end seed expected deteriorate sold seed deemed excess establishing provision consider scrap value seed disposed initial estimate needed provision made beginning year recorded course year adjustments made monthly necessary see note 2 notes consolidated financial statements item 8 details inventory reserves deferred income taxes deferred income taxes estimated based upon temporary differences income losses report financial statements taxable income losses determined applicable tax laws estimate value deferred income taxes based existing tax rates laws expectations future earnings deferred income taxes applied composite statutory income tax rate 38 required evaluate likelihood ability generate sufficient future taxable income enable us realize value deferred tax assets judgment determine realize deferred tax assets valuation allowances recorded august 31 2003 recorded deferred tax assets approximately 55 million estimate deferred tax assets realized therefore recorded valuation allowances august 31 2003 use management judgment estimates estimating deferred taxes judgments estimates prove inadequate certain tax rates laws change financial results could materially adversely impacted future periods contingent liabilities liability contingent amount presently known may become known future result occurrence uncertain future event dpl estimates contingent liabilities based managements estimates probability outcomes ability estimate range exposure accounting standards require liability recorded management determines probable loss occurred loss reasonably estimated addition must probable loss confirmed future event part estimation process management required make assumptions matters nature highly uncertain assessment contingent liabilities including legal contingencies income tax liabilities involves use critical estimates assumptions judgments managements estimates based belief future events validate current assumptions regarding ultimate outcome exposures however assurance future events court decisions irs positions differ managements assessments whenever practicable management consults third party experts attorneys accountants claims administrators etc assist gathering evaluation information related contingent liabilities liquidity capital resources united states purchase seed contract growers first second fiscal quarters seed conditioning treating packaging commence late first fiscal quarter continue third fiscal quarter seasonal cash needs normally begin increase first fiscal quarter cash needs peak third fiscal quarter cash generated loan repayments applicable normally begin middle third fiscal quarter typically completed first fiscal quarter following year cases offer customers financial incentives make early payments extent attract early payments customers bank borrowings reduced us record revenue accounts receivable licensing fees bollgard roundup ready seed sales upon shipment usually second third quarters receivables seed sales generally due may july licensing fees due september time receive payment pay monsanto royalty bollgard roundup ready licensing fees recorded component cost sales result timing events licensing fees receivable royalties payable peak fiscal year end seasonal nature business significantly impacts cash flow working capital requirements historically maintained credit facilities used early payments customers cash operations fund working capital needs past borrowed shortterm basis meet seasonal working capital needs however fiscal 2002 fiscal 2003 used cash generated operations available cash meet working capital needs continue evaluate potential uses cash purposes working capital needs potential uses may acquisition funding alternative technologies deltamax cotton llc could used enhance product portfolio ultimately longterm earnings potential andor investment new markets outside us another potential use repurchase open market shares pursuant previously announced share repurchase program evaluation certain transactions currently considered completed may consider potential uses remaining cash including increasing dividend rate repurchasing shares aggressively depending market considerations factors april 1998 entered syndicated credit facility three lenders provided aggregate borrowings 110 million agreement provided base commitment 55 million seasonal commitment 55 million base commitment longterm loan could borrowed upon time due april 1 2001 seasonal commitment working capital loan could drawn upon september 1 june 30 fiscal year commitment offered variable fixed interest rate options required dpl pay facility commitment fees comply certain financial covenants agreement expired april 1 2001 dpl lenders discussions replacement facility provide aggregate borrowings sufficient meet working capital needs contain terms conditions similar 1998 facility capital expenditures 83 million 83 million 75 million fiscal 2003 2002 2001 respectively anticipate capital expenditures approximate 80 100 million 2004 fourth quarter board directors authorized quarterly dividend 010 per share paid september 15 2003 shareholders record august 29 2003 first quarter fiscal 2004 board directors authorized quarterly dividend 010 per share paid december 12 2003 shareholders record november 28 2003 board anticipates quarterly dividends 010 per share continue paid future however board directors reviews policy quarterly aggregate preferred common dividends approximate 156 million 2004 february 2000 board directors authorized program repurchase 50 million common stock shares repurchased program used provide option exercises conversion series convertible nonvoting preferred shares general corporate purposes august 31 2003 repurchased 1303000 shares aggregate purchase price approximately 238 million program year ended august 31 2003 purchased 310100 shares aggregate purchase price 61 million plan quarter ended august 31 2003 purchased 37100 shares aggregate price 09 million september 1 2003 october 31 2003 repurchased 48000 shares aggregate purchase price 11 million cash provided operations cash hand early payments customers borrowings loan agreement necessary sufficient meet companys 2004 working capital needs risks uncertainties time may publish forwardlooking statements relating matters anticipated financial performance existing products technical developments new products new technologies research development activities similar matters private securities litigation reform act 1995 provides safe harbor forwardlooking statements order comply terms safe harbor note variety factors could cause actual results experience differ materially anticipated results expectations expressed forwardlooking statements risks uncertainties may affect operations performance development results business include noted elsewhere filing following demand seed affected government programs policies weather demand seed also influenced commodity prices cost crop inputs demand crops enduses textiles animal feed cottonseed oil food raw materials industrial use factors along weather influence cost availability seed subsequent seasons weather impacts crop yields commodity prices planting decisions farmers make regarding original planting commitments necessary replanting levels planting seed market highly competitive products face competition number seed companies diversified chemical companies agricultural biotechnology companies governmental agencies academic scientific institutions number chemical biotechnology companies seed production andor distribution capabilities ensure market access new seed products new technologies may compete bollgard roundup ready gene technologies monsanto principal licensor technology currently engaged dispute resolution process monsanto see part item 3 seed products technologies contained therein may encounter substantial competition technological advances others products new market entrants many competitors affiliated large diversified companies substantially greater resources production distribution sale crop seed foreign markets may subject special risks including fluctuations foreign currency exchange rate controls expropriation nationalization agricultural economic tax regulatory policies foreign governments particular policies may affect domestic international operations include use acceptance products produced plants genetically modified testing quarantine restrictions relating import export plants seed products availability lack thereof proprietary protection plant products addition united states government policies particularly affecting foreign trade investment may impact international operations publicity related genetically modified organisms gmos products made plants contain gmos may effect sales future 2003 approximately 96 cottonseed sold united states contained either monsantos bollgard roundup ready gene technologies 94 soybean seed sales contained roundup ready gene technology although many farmers rapidly adopted technologies concern customers governmental entities finished products contain gmos could impact demand crops ultimately seed raised seed containing traits due varying levels agricultural social development international markets operate factors within particular international markets target international profitability growth may less stable predictable domestic profitability growth furthermore recent action taken us government including taken us military aftermath tragic events september 11 2001 war iraq conflicts major cotton producing nations may serve complicate ability execute long range exus business plans include future expansion uzbekistan pakistan india world health concerns infectious diseases also affect conduct international business overall profitability depend factors noted well weather conditions government policies countries sell products operate worldwide commodity prices ability successfully open new international markets ability develop high plains market technology partners ability obtain timely government approval maintain approval existing additional biotechnology products dpl working technology partners ability successfully defend challenges proprietary technologies licensed us ability produce sufficient commercial quantities high quality planting seed products delay inability successfully complete projects may affect future profitability recently issued financial accounting standards financial accounting standards board interpretation fin 46 consolidation variable interest entities interpretation arb 51 requires primary beneficiary variable interest entity vie consolidate vie certain circumstances fin 46 effective new vies created acquired january 31 2003 amended fasb staff position fin 466 effective date fasb interpretation 46 consolidation variable interest entities fin 46 effective variable interests vie created february 1 2003 end first interim annual period ending december 15 2003 second quarter fiscal 2004 february 28 2004 dpl determined impact statement financial position results operations item 7aitem 7 managements discussion analysis financial condition results operations overviewoutlook reported record revenues fiscal year ended august 31 2004 due strong sales newer cottonseed products us substantial increase soybean seed sales international sales 2003 licensing fees cottonseed sales also increased 2003 due trait fee price increases enacted monsanto higher unit sales stacked gene products coupled decline technology fee rebates 2004 crop destruct replant program claims 2004 much us cotton belt experienced excellent weather conditions planting much growing season favorable weather conditions resulted lower rebates experienced 2003 crop destruct program farmer plants transgenic seed crop destroyed within sixty days planting monsanto field inspection may forgive waive technology fee affected acreage us cottonseed business also benefited strong sales newer products including dp 555 bgrr dp 444 bgrr two popular varieties planted us 2004 dp 555 bgrr popular variety planted us 2003 2004 unit sales variety increased approximately 50 last year likewise dp 444 bgrr sales strong 2004 first year widescale commercial sales believe dp 444 bgrr sales could higher limited seed supply variety overall believe 2004 operating results diminished due reduction us cotton acreage 2003 profitable regions east texas march 31 2004 report issued united states department agriculture usda us cotton acreage forecast 144 million acres 2004 represented increase approximately 10 million acres 2003 however strong soybean commodity prices 2004 planting season resulted shift acres away cotton soybeans september 2004 usda issued another report reflected estimate us cotton plantings 137 million acres however report indicated acres lower areas east texas profitable us greater market share report also reflected increase cotton plantings 2003 texas less profit potential us lower market share market share stable slightly higher cotton growing regions east texas 2004 declined texas due part lack adequate supplies products best suited market 2004 financial results affected charge earnings related acquisition technology licenses occurred fourth quarter pretax earnings reduced 385 million due write acquired inprocess research development iprd related expenses charge reduced diluted earnings per share 061 fiscal year 2004 acquisition licenses key component strategic plan commercialize technologies multiple providers higher fee sharing percentages us currently financial results also benefited strong soybean seed sales substantial improvement international business 2003 soybean seed sales 2004 increased almost 25 2003 due improved product offerings well increase soybean plantings 2004 results operations international segment almost tripled 2003 due approximately 30 increase sales particular sales australia brazil colombia mexico south africa turkey increased significantly 2003 cotton fiber commodity prices generally higher planting 2004 2003 resulted increased cotton plantings many international markets addition improved product offerings price increases penetration transgenic products led improvement international results production costs related cottonseed sales higher year due higher raw materials costs freight related sourcing seed production western united states cases australia addition cost sales increased due increase provisions obsolete inventory normally higher percentage products produced midsouth inclement weather destroyed 2003 midsouth cottonseed production prompting us shift production areas year increased cottonseed costs partially offset effect increase cottonseed selling prices strategic transactions events august 24 2004 announced acquisition global licenses develop commercialize innovative insect resistance technology cotton syngenta crop protection ag syngenta addition obtained licenses wide range syngenta enabling technologies may used develop new products cottonseed soybean seed return licenses pay syngenta 468 million installments due primarily next three years licensed traits commercialized receive 70 net licensing revenues generated products first product commercialized agreements expected vipcot novel insect control trait depending timing regulatory approval expect limited quantity seed available sale early 2006 agreement provides us greater share licensing revenue today also control development commercialization decisions respect products syngenta responsible obtaining regulatory approval products us instructed dpl countries bear cost developing new varieties containing syngenta traits expect incur expenses approximately 35 million related 2005 see acquired inprocess research development located item 7 discussion january 2003 announced collaboration agreement dow agrosciences llc das develop test evaluate elite cotton varieties containing das insect resistant traits continuing work traits october 4 2004 das announced received full epa registration widestrike insect protection technology would introduce products subsidiary 2005 may commercialize varieties containing das insect resistance technology reach commercialization agreement date commercialization agreement reached may 2002 established deltamax cotton llc deltamax limited liability company jointly owned verdia inc verdia subsidiary maxygen inc july 2004 verdia acquired dupont believe brings potential additional investment capital strategic focus critical mass collaboration aimed developing valueadded traits cotton currently developing traits insectresistance glyphosate tolerance nematode resistance cotton currently transforming cotton plants insect resistance glyphosate tolerance traits expect invest 20 million next five eight years fund portion deltamax matters continuing pursue litigation monsanto company pharmacia october 13 2004 announced circuit court first judicial district bolivar county mississippi court issued two new orders first order related damage claims court granted monsantos motion partial summary judgment relating claim expectation benefit bargain damages ruling reversed ruling previous trial judge case ruled use benefit bargain damages measurement matter jury decide intend seek interlocutory review ruling mississippi supreme court experts calculated damages using several methods two result damage estimates several hundred million dollars billion dollars benefit bargin damages one methods second order related monsantos counterclaims case court granted motion compel production documents testimony witnesses relating monsantos counterclaims monsanto invoked privilege basis producing documents permitting witnesses answer questions depositions dpl also sought interlocutory review mississippi supreme court september 10 2004 discovery ruling relating documents monsanto claimed privileged original trial judge ordered monsanto produce new trial judge ordered dpl return point expect trial occur 2005 see part item 3 information may 20 2004 monsanto submitted arbitration american arbitration association two matters formal dispute resolution process panel senior executives since july 2003 arbitration filing monsanto seeking adjudication alleged right terminate bollgard roundup ready licenses companies monetary damages well items responded arbitration filing denied monsantos claims addition asserted counterclaims based issues submitted panel senior executives committed participating good faith resolution items arbitration process see part item 3 information outlook future growth sales earnings dependent cotton acreage us around world b ability continue profitably expand international operations c successful development launch syngenta insect resistance technology ability successfully develop launch technologies control developed deltamax cotton llc due market position us cotton acreage significant effect sales earnings previously announced expect provide 2005 earnings guidance later year commodity prices cotton soybeans corn depressed recently due high production 2004 crop factors current prices soybeans corn levels may result increase cotton plantings us 2005 2004 however factors must considered believe early estimate 2005 cotton plantings time expect adequate supplies seed popular cotton varieties 2005 plantings due favorable weather conditions midsouth seed production areas year due inclement weather soybean harvesting midsouth illinois soybean seed production areas supplies popular soybean varieties may limited however final cottonseed soybean seed supply amounts yet available processing quality assurance testing yet occurred 2005 product offerings internationally continue expand global reach seek improve operating results existing exus operations 2004 operating results improved significantly due increased sales international locations depending prices cotton fiber time plantings expect acreage many international locations remain constant 2004 addition already seen increase cotton acreage australia due increase rains drought conditions existed several years also expect see penetration transgenic products containing monsantos bollgard ii roundup ready technologies 2005 australia regulatory authorities approved monsantos bollgard ii increased area may planted versus monsantos original bollgard product addition expect penetration transgenics colombia recently approved large scale planting already seeing improvements businesses australia due introduction bollgard ii increased acreage brazil due penetration products however early accurately forecast international results 2005 plantings yet occurred markets continue develop new businesses markets india portions africa recently formed subsidiary deltapine india seed private ltd business activities india continue develop test varieties containing new technologies multiple sources developing products monsantos second generation traits bollgard ii roundup ready flex addition continue work syngentas vipcot traits products may commercialized quickly regulatory approval received monsanto syngenta traits introgressed elite cotton germplasm believe uniquely positioned rapidly introduce new technologies us exus cotton farmers due strength breadth breeding programs germplasm base technical services capabilities knowhow brand recognition market position share repurchase programdividend policy board directors approved common stock repurchase plan 50 million 2000 october 31 2004 dpl repurchased 1553200 shares aggregate purchase price 296 million current purchase program expect continue purchasing shares plan open market subject market price considerations currently quarterly dividend 012 per share board directors reviews dividend policy quarterly assuming dividend rate maintained 2005 aggregate payments 185 million holders 385 million common shares outstanding 05 million holder 11 million preferred shares outstanding addition board directors continues review uses companys cash position alternatives maximizing value shareholders see risks uncertainties located item 7 net sales licensing fees 2004 consolidated net sales licensing fees increased 107 3149 million 2003 sales 2845 million increase primarily driven following increase licensing fee revenues due lower payments crop loss replant programs increase licensing fees charged per bag increase sales stackedgene picker products b increase cottonseed prices higher sales higherpriced elite varieties c increase units soybean seed sold increase international revenues primarily incountry sales australia brazil turkey export sales mexico colombia australia brazil turkey sales increased due stronger demand products new product introductions colombia sales increased due recent approval transgenic varieties containing monsantos bollgard technology mexicos sales increase primarily attributable higher cotton acreage 2003 consolidated net sales licensing fees increased 94 2845 million 2002 sales 2600 million increase primarily result increase sales stacked gene products higher technology licensing fees charged b increase selling price seed introduction higherpriced cottonseed varieties primarily dp 555 bgrr c increase soybean seed sales increased approximately 26 2003 2002 2003 domestic transgenic cottonseed sales comprised approximately 96 total domestic unit sales cottonseed compared approximately 93 2002 offsetting increases lower international sales higher sales rebates associated distributor payments crop destruct crop replant programs decrease international sales mainly attributable decrease sales joint venture brazil due devaluation brazilian real decrease export sales greece due high inventory levels distributor lower sales australia due severe drought conditions offset increase sales joint ventures china gross profit consolidated gross profit increased 1090 million 2004 compared 1007 million 2003 consolidated gross profit percentage consolidated net sales licensing fees consistent prior year 35 revenue increase attributable adoption higher priced products offset lower margins soybean sales caused higher costs soybean raw materials increase cottonseed production costs provision damaged obsolete excess cottonseed inventory consolidated gross profit increased 1007 million 2003 compared 908 million 2002 consolidated gross profit percentage consolidated net sales licensing fees flat 2002 35 price increases introduction higher priced varieties partially offset increase cottonseed cost caused higher raw materials costs freight related sourcing seed production western united states australia operating expenses operating expenses increased 874 million 2004 440 million 2003 operating expenses 2004 include 385 million charge acquired inprocess research development transaction costs related acquisition technology licenses operating expenses 2003 included special charges 10 million excluding inprocess research development related transaction costs 2004 special charges recorded 2003 increase operating expenses 2004 versus 2003 approximately 60 million increase primarily relates higher research development costs associated new technologies increase general administrative expenses primarily related higher professional fees legal matters sarbanesoxley compliance operating expenses increased 440 million 2003 403 million 2002 operating expenses 2003 included special charges 10 million excluding special charges recorded 2003 increase primarily due increased compensation pension payroll related costs higher insurance premiums professional fees research development expenses research development expenses increased 102 184 million 2004 167 million 2003 increase primarily attributable increased costs working new technologies including addition new personnel positions increased testing program expenses research development expenses virtually unchanged prior year 167 million 2003 compared 164 million 2002 increase primarily attributable increased international research development activities consolidated statements income certain expenses historically classified research development operating expenses reclassified cost sales 2004 expenses well prior years reclassified consistency expenses relate certain activities performed technical services department sales transgenic varieties increased percentage net sales licensing fees past several years certain technical services department activities become related preparing seed sale research development activities expenses reclassified relate primarily increase seed quantities allow us offer certain varieties commercially latestage trials performed ensure varieties chosen offered commercially meet agronomic transgenic requirements thirdparty technology licenses amount expenses reclassified 2004 2003 2002 18 million 16 million 17 million respectively selling expenses selling expenses increased 64 117 million 2004 110 million 2003 increase primarily attributable higher advertising costs selling expenses increased 38 110 million 2003 106 million 2002 increase primarily attributable increase advertising expenditures related introduction new varieties general administrative expenses general administrative expenses increased 221 188 million 2004 154 million 2003 increase primarily related increase professional fees incurred mainly due legal matters sarbanesoxley compliance general administrative expenses increased 158 154 million 2003 133 million 2002 increase mainly related increases compensation pension costs well increase legal fees related licensing activities special charges special charges recorded 2004 2002 2003 recorded 06 million charge associated additional expenses closing chandler arizona plant closing facility centre alabama 04 million charge associated reductions number employees whollyowned subsidiary australia joint venture hebei province peoples republic china inprocess research development related transaction costs 2004 recorded 385 million charge associated writeoff acquired inprocess research development related transaction expenses related august 24 2004 acquisition global licenses develop commercialize syngenta insect resistance technology cottonseed see acquired inprocess research development located item 7 information interest income net interest income increased 15 million 2004 compared net interest income 11 million 2003 2004 interest income 19 million interest expense 04 million higher interest rates earned cash balances resulted higher interest earnings 2004 net interest income decreased 11 million 2003 compared net interest income 12 million 2002 2003 interest income 15 million interest expense 04 million lower interest rates earned cash balances resulted lower interest earnings 2003 international interest expense decreased primarily due decrease interest rates incurred debt joint venture argentina incomeexpense expense decreased 105 million 2004 compared 122 million 2003 decrease primarily attributable decreased legal expenses related suit pharmacia monsanto 2004 incurred 109 million 018 per diluted share related monsantopharmacia litigation expenses compared 130 million 021 per diluted share 2003 expense increased 122 million 2003 compared 72 million 2002 increase primarily attributable increased legal expenses related suit pharmacia monsanto partially offset foreign exchange income 2003 incurred 130 million 021 per diluted share related monsantopharmacia litigation expenses compared 47 million 008 per diluted share 2002 net income earnings per share net income applicable common shares 48 million 275 million 301 million 2004 2003 2002 respectively net income per share diluted 013 070 076 2004 2003 2002 respectively offbalance sheet arrangements currently utilize offbalance sheet arrangements contractual obligations amounts thousands certain obligations commitments make future payments contracts current estimates future payments obligations shown following table application critical accounting policies overview managements discussion analysis financial condition results operations read conjunction consolidated financial statements related notes appearing item 8 annual report form 10k fiscal year ended august 31 2004 preparation financial statements requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period identified accounting policies involve estimates assumptions believe critical understanding financial statements management discussed development selection critical accounting estimate audit committee board directors audit committee reviewed related disclosures since application accounting policies involves exercise judgment use estimates actual results could differ estimates revenue recognition revenues domestic seed sales recognized seed shipped revenues bollgard roundup ready licensing fees recognized seed shipped domestically licensing fees charged farmers bollgard roundup ready cottonseed based preestablished planting rates nine geographic regions years prior 2004 considered estimated number seed contained bag varied variety location grown factors effective year picker stripper cottonseed products sold bags containing approximately 250000 seed bulk boxes containing approximately 8000000 seed acala pima cottonseed products continue sold 50pound bags international export revenues recognized upon later seed shipped date letters credit instruments similar security provisions confirmed international export sales subject return except limited cases mexico colombia international revenues sale planting seed less estimated reserves returns recognized seed shipped except australia certain immaterial revenues recognized collected domestic seed products including containing bollgard roundup ready technologies subject return credit risk effects vary year annual level returns ultimately net sales influenced various factors principally commodity prices weather conditions occurring spring planting season third fourth quarters provide estimated returns sales occur extent actual returns differ estimates adjustments operating results recorded differences become known typically fourth quarter significant returns occur accounted fiscal year end therefore application estimate could affect quarterly information domestically promote cotton soybean seed directly farmers sell seed distributors dealers also offer various sales incentive programs seed participate programs related bollgard roundup ready technology fees offered monsanto programs farmer plants seed crop lost usually due inclement weather certain date portion price seed technology fees forgiven rebated farmer certain conditions met amount refund impact dpl depends number factors including whether farmer replant crop destroyed record monthly estimates account programs majority program rebates occur second third fourth quarters essentially material claims programs occurred accounted fiscal year end provision damaged obsolete excess inventory year record provision adjust reserves related inventory based estimate seed pass quality assurance qa standards year end deemed excess based desired seed stock level particular variety dump seed fail qa standards based physical defects ie cut seed moisture content discoloration etc germination rates transgenic purities amount recorded inventory provision given year calculated based total quantity inventory passed qa standards fiscal year end seed expected deteriorate sold seed deemed excess establishing provision consider scrap value seed disposed initial estimate needed provision made beginning year recorded course year adjustments changes estimates made monthly necessary see note 2 notes consolidated financial statements item 8 details inventory reserves deferred income taxes deferred income taxes estimated based upon temporary differences income losses report financial statements taxable income losses determined applicable tax laws estimate value deferred income taxes based existing tax rates laws expectations future earnings deferred income taxes applied composite statutory income tax rate 38 required evaluate likelihood ability generate sufficient future taxable income enable us realize value deferred tax assets judgment determine realize deferred tax assets valuation allowances recorded august 31 2004 recorded net deferred tax assets approximately 174 million primarily related capitalizing licenses syngenta income tax reporting purposes estimate deferred tax assets realized therefore recorded valuation allowances august 31 2004 use management judgment estimates estimating deferred taxes judgments estimates prove inadequate certain tax rates laws change financial results could materially adversely impacted future periods contingent liabilities liability contingent amount presently known may become known future result occurrence uncertain future event dpl estimates contingent liabilities based managements estimates probability outcomes ability estimate range exposure accounting standards require liability recorded management determines probable loss occurred loss reasonably estimated addition must probable loss confirmed future event part estimation process management required make assumptions matters nature highly uncertain assessment contingent liabilities including legal contingencies income tax liabilities involves use critical estimates assumptions judgments managements estimates based belief future events validate current assumptions regarding ultimate outcome exposures however assurance future events court decisions irs positions differ managements assessments whenever practicable management consults third party experts attorneys accountants claims administrators etc assist gathering evaluation information related contingent liabilities acquired inprocess research development august 2004 entered agreement syngenta purchase global licenses develop commercialize syngentas insect resistance genes known vip3a cry1ab cottonseed addition purchased licenses syngenta enabling technologies may useful developing valuable new products use cottonseed soybean seed return licenses dpl pay syngenta 468 million purchase price paid installments seven years fixed payments 376 million made primarily next three years 2008 dpl make certain decisions determine whether additional 92 million contingent payments made year ended august 31 2004 recorded charge approximately 38532000 related write acquired inprocess research development iprd related transaction costs approximately 36225000 purchase price represents fair value noncontingent payments related acquired iprd projects yet reached technological feasibility alternative future use accordingly amount immediately expensed consolidated statement income acquisition date remaining 2307000 charge incurred represents related transaction costs primarily professional fees assigned value technologies acquired follows vip3a 19113000 cry1ab 16812000 300000 vip3a cry1ab projects vipcot represent new technologies expected compete insect resistance technologies currently market including technologies currently contained varieties sold us vip3a cry1ab genes produce proteins toxic certain lepidopteran larvae principal cotton pests many cotton growing areas acquired vip3a gene provides novel mode action attacking larvae consume protein vipcot require development us including introgression elite germplasm estimate incur following costs complete projects 2005 3500000 2006 4000000 2007 4000000 2008 2000000 projects also require regulatory approval food drug administration fda us department agriculture usda us environmental protection agency epa commercialization begin syngenta responsible us regulatory approval syngenta advised us expect us regulatory approval obtained selected vip3a event 2007 prior planting season selected cry1ab event 2008 prior planting season regulatory approval process proceeds expected may begin limited introduction vip3a event 2006 cry1ab event 2008 commercialization begins owe syngenta royalty equal 30 net license fees received deduction certain expenses technologies retain remaining 70 net license fees assurance technologies result commercially viable products technologies developed time frame amounts estimated complete also assurance regulatory approval obtained products liquidity capital resources united states purchase seed contract growers first second fiscal quarters seed conditioning treating packaging commence late first fiscal quarter continue third fiscal quarter seasonal cash needs normally begin increase first fiscal quarter cash needs peak third fiscal quarter cash generated loan repayments applicable normally begin middle third fiscal quarter typically completed first fiscal quarter following year cases offer customers financial incentives make early payments extent attract early payments customers bank borrowings reduced us record revenue accounts receivable licensing fees bollgard roundup ready seed sales upon shipment usually second third fiscal quarters receivables seed sales generally become due may june licensing fees due september time receive payment pay monsanto royalty bollgard roundup ready licensing fees recorded component cost sales result timing events licensing fees receivable royalties payable peak fiscal year end august 31 seasonal nature business significantly impacts cash flow working capital requirements historically maintained credit facilities used early payments customers cash operations fund working capital needs past borrowed shortterm basis meet seasonal working capital needs however fiscal years 2004 2003 2002 used cash generated operations available cash meet working capital needs continue evaluate potential uses cash purposes working capital needs potential uses cash may acquisition funding alternative technologies addition deltamax syngenta could used enhance product portfolio ultimately longterm earnings potential andor investment new markets outside us another potential use repurchase open market shares pursuant previously announced share repurchase program currently considering potential uses remaining cash including increasing dividend rate repurchasing shares aggressively depending market considerations factors part analysis evaluating companys liquidity needs capital structure april 1998 entered syndicated credit facility three lenders provided aggregate borrowings 110 million agreement expired april 1 2001 discussions several potential lenders replacement facility capital expenditures 60 million 83 million 84 million fiscal 2004 2003 2002 respectively anticipate capital expenditures approximate 80 100 million 2005 annual dividends 046 027 020 per share paid 2004 2003 2002 respectively aggregate dividends paid common preferred shares 2004 2003 2002 181 million 106 million 79 million respectively july 14 2004 announced board directors declared 012 per share dividend fourth quarter fourth quarter dividend payable shareholders record august 31 2004 paid september 14 2004 first quarter fiscal 2005 board directors authorized quarterly dividend 012 per share paid december 14 2004 shareholders record november 30 2004 board anticipates quarterly dividends 012 per share continue paid future however board directors reviews policy quarterly aggregate preferred common stock dividends approximate 190 million 2005 february 2000 board directors authorized program repurchase 50 million common stock shares repurchased program used provide option exercises conversion series convertible nonvoting preferred shares general corporate purposes august 31 2004 repurchased 1553200 shares aggregate purchase price approximately 296 million program year ended august 31 2004 purchased 250200 shares aggregate purchase price 58 million plan quarter ended august 31 2004 purchased 107200 shares aggregate price 23 million cash provided operations cash hand early payments customers borrowings loan agreement necessary sufficient meet companys 2005 working capital needs risks uncertainties time may publish forwardlooking statements relating matters anticipated financial performance including earnings estimates discussed existing products technical developments new products new technologies research development activities similar matters private securities litigation reform act 1995 provides safe harbor forwardlooking statements order comply terms safe harbor note variety factors could cause actual results experience differ materially anticipated results expectations expressed forwardlooking statements risks uncertainties may affect operations performance development results business include noted elsewhere filing following demand seed affected government programs policies weather demand seed also influenced commodity prices cost crop inputs demand crops enduses textiles animal feed cottonseed oil food raw materials industrial use factors along weather influence cost availability seed subsequent seasons weather impacts crop yields commodity prices planting decisions farmers make regarding original planting commitments necessary replanting levels planting seed market highly competitive products face competition number seed companies diversified chemical companies agricultural biotechnology companies governmental agencies academic scientific institutions number chemical biotechnology companies seed production andor distribution capabilities ensure market access new seed products new technologies may compete bollgard roundup ready gene technologies monsanto principal licensor technology seed products technologies contained therein may encounter substantial competition technological advances others products new market entrants many competitors affiliated large diversified companies substantially greater resources currently engaged dispute resolution arbitration process monsanto principal licensor cotton technology arbitration monsanto seeking determination arbitrators right terminate certain agreements companies including bollgard roundup ready licenses addition currently engaged litigation monsanto january 18 suit concerning failed merger companies result litigationand process litigating may materially affect results businesssee part item 3 assurance new technologies deltamax syngenta technologies result commercially viable products technologies developed time frame amounts estimated complete also assurance regulatory approval obtained products production distribution sale crop seed foreign markets may subject special risks including fluctuations foreign currency exchange rate controls expropriation nationalization agricultural economic tax regulatory policies foreign governments shipping disruptions particular policies may affect domestic international operations include use acceptance products produced plants genetically modified testing quarantine restrictions relating import export plants seed products availability lack thereof proprietary protection plant products addition united states government policies particularly affecting foreign trade investment may impact international operations publicity related genetically modified organisms gmos products made plants contain gmos may effect sales future 2004 approximately 94 cottonseed sold united states contained either monsantos bollgard roundup ready gene technologies 95 soybean seed sales contained roundup ready gene technology although many farmers rapidly adopted technologies concern customers governmental entities finished products contain gmos could impact demand crops ultimately seed raised seed containing traits due varying levels agricultural social development international markets operate factors within particular international markets target international profitability growth may less stable predictable domestic profitability growth furthermore recent action taken us government including taken us military aftermath tragic events september 11 2001 war iraq conflicts major cotton producing nations may serve complicate ability execute long range exus business plans include future expansion uzbekistan pakistan india world health concerns infectious diseases also affect conduct international business overall profitability depend factors noted well weather conditions government policies countries sell products operate worldwide commodity prices ability successfully open new international markets ability develop texas high plains market technology partners ability obtain timely government approval maintain approval existing additional biotechnology products dpl working technology partners ability successfully defend challenges proprietary technologies licensed us ability produce sufficient commercial quantities high quality planting seed products delay inability successfully complete projects may affect future profitability addition earnings forecasts consider impact potential transactions related accounting factors may consideration company yet completed effect determined date particular filing recently issued financial accounting standards yet adopted none item 7aitem 7 managements discussion analysis financial condition results operations overviewoutlook reported record revenues second year row year ended august 31 2005 addition operating results core business highest companys ninety year history record results due higher sales domestic international segments 2005 domestic segment sales increased 18 2004 despite reduction soybean seed sales domestic licensing fees cottonseed sales increased 2004 due trait fee price increases enacted monsanto higher unit sales stacked gene products since recognize greater revenue profitability stacked gene products business benefited greatly farmers increased purchases products cottonseed products containing either insectresistant trait herbicide tolerant trait alone also saw substantial increase sales higher value products dp 555 bgrr dp 444 bgrr second consecutive year products two widely planted cottonseed varieties making almost onethird cotton acres planted us according usda according september 2005 usda report us cotton plantings increased 142 million acres 2005 compared 137 million acres 2004 normally increase cotton acres would enhance earnings generate additional unit sales however believe farmers decreased amount seeds planted per acre year therefore unit sales increased slightly soybean seed sales profitability 2005 lower 2004 diminished domestic results soybean seed results lower due shortage inventories primarily popular group v varieties due lack seed production caused inclement weather occurred 2004 harvest international operating income increased almost 60 sales increased 11 2005 compared prior year primarily due strong revenue growth due price increases higher unit sales australia brazil turkey increased export sales greece spain mexico many markets increased area planted cotton 2005 new product offerings markets resulted increased demand products china sales declined joint ventures due reduction cotton acres well strong competition local varieties strategic transactions events august 2004 announced acquisition global licenses develop commercialize innovative insect resistance technology cotton syngenta crop protection ag syngenta addition obtained licenses wide range syngenta enabling technologies may used develop new products cottonseed soybean seed return licenses pay syngenta 468 million installments due primarily next three years portion amount represents contingent payments licensed traits commercialized receive 70 net licensing revenues generated products recently decided focus development efforts dual insect stack combination syngenta traits expect combination vip3a cry1ab genes depending timing regulatory approval plan limited quantity seed containing traits available sale early 2008 expect commercialize dual insect traits glyphosate tolerance trait beginning 2009 subject regulatory approval expect incur incremental expenses approximately 30 million related development vipcot products 2006 see acquired inprocess research development located item 7 discussion january 2003 announced collaboration agreement dow agrosciences llc das develop test evaluate elite cotton varieties containing das insect resistant traits continuing work traits october 2004 das announced received full epa registration widestrike insect protection technology das commercialized first cottonseed products containing widestrike 2005 may commercialize varieties containing das insect resistance technology reach commercialization agreement date commercialization agreement reached may 2002 established deltamax cotton llc deltamax limited liability company jointly owned verdia inc verdia subsidiary maxygen inc july 2004 verdia acquired dupont believe brings potential additional investment capital strategic focus critical mass collaboration aimed developing valueadded traits cotton currently developing traits insectresistance glyphosate tolerance nematode resistance cotton currently transforming cotton plants insect resistance glyphosate tolerance traits expect invest 20 million next five eight years fund portion deltamax matters continuing rapidly develop new product offerings containing monsantos second generation traits bollgard ii roundup ready flex march 15 2005 monsanto announced obtained us regulatory clearance roundup ready flex cotton substantial seed production year new varieties containing traits planning commercially launch products 2006 anticipate commercializing ten new products containing bollgard ii roundup ready flex genes roundup ready flex genes alone 2006 expect sufficient seed varieties available sale plant one two million acres next season actual seed quantities available new products depend number factors including final raw material purchases quality assurance data addition continuing develop products containing syngentas vipcot technology expanded field testing vipcot products 2005 focusing efforts developing varieties containing dual insect genes syngenta plan limited commercial launch varieties 2008 depending full regulatory approval obtained addition joint venture verdia inc subsidiary dupont deltamax cotton llc continues development novel cotton traits areas glyphosate tolerance insect resistance continuing take steps enhance value returning excess cash shareholders may 24 2005 completed purchase 2374940 shares common stock pursuant modified dutch auction tender offer announced april 20 2005 shares purchased 2700 per share aggregate purchase price 64123380 2005 purchased aggregate 32 million shares common stock total purchase price 855 million includes shares purchased open market well shares repurchased dutch auction tender offer addition june 30 2005 board directors authorized new share repurchase program buy additional 50 million common stock timing amount repurchases depend market conditions legal restrictions factors october 20 2005 board declared first quarter 2006 dividend 015 per share payable december 14 2005 shareholders record november 30 2005 board continue consider alternatives uses excess cash including additional share repurchases increased dividends well options continue seek opportunities expand international business new markets including india parts africa subsidiary dpl india seed private ltd expanded research testing hybrid products throughout india 2005 addition recently started new cotton research program punjab region northern india results testing programs 2004 2005 shown many products competitive india terms yield fiber quality continue pursue litigation monsanto company pharmacia february 14 2005 mississippi supreme court granted petitions seeking interlocutory appeals two rulings issued circuit court first judicial district bolivar county mississippi circuit court appeals consolidated expect mississippi supreme court rule appeals 2006 rulings issued anticipate circuit court set trial date mississippi supreme court stayed proceedings circuit court pending resolution interlocutory appeals see part item 3 discussion separately arbitration monsanto series disputes relating parties bollgard roundup ready licenses related agreements arbitration conducted according rules american arbitration association discovery phase arbitration panel set august 2006 final hearing date see part item 3 information outlook future growth sales earnings dependent cotton acreage us around world b successful development launch varieties containing second generation traits monsanto bollgard ii roundup ready flex c ability continue develop commercialize varieties increased yield potential enhanced fiber qualities ability continue profitably expand international operations e successful development launch syngenta insect resistance technology f ability successfully develop launch technologies control developed deltamax cotton llc due market position us cotton acreage significant effect sales earnings previously announced expect provide 2006 earnings guidance later year commodity price cotton lower 2005 price levels 2004 anticipate 2005 cotton yields near record levels despite difficult weather conditions growing season hot dry weather harvest three hurricanes much us market believe early estimate 2006 cotton plantings time expect adequate supplies seed popular cotton varieties 2006 plantings despite impact inclement weather conditions harvest year due inclement weather soybean harvesting midsouth illinois soybean seed production areas supplies popular soybean varieties may limited however final cottonseed soybean seed supply amounts yet available processing quality assurance testing yet occurred 2006 product offerings internationally continue expand global reach seek improve operating results existing exus operations 2005 operating income improved significantly due increased sales international locations due strong brazilian real weaker cotton prices 2005 expect acreage 2006 several international locations reduced compared 2005 planting levels particular already seeing reduction cotton plantings brazil due strong brazilian real farmers experienced lower overall cotton yields 2005 due poor weather conditions growing season despite early indications lower sales brazil 2006 believe market holds great potential strong earnings future recent approval bollgard although bollgard gene approved planting recently received approval commercialize one bollgard cotton variety dp 90b brazilian regulations require variety approved prior commercial sale imported small amount dp 90b brazil intend planted produce commercial seed quantities sales 2007 beyond addition continue test additional bollgard varieties order obtain government approval sell also anticipate brazilian government approve monsantos roundup ready gene cotton roundup ready gene approved seek approval roundup ready varieties sale brazil currently working monsanto develop strategies commercialization bollgard roundup ready traits brazil order minimize farmer saved seed australia believe increased competition local products result lower demand products 2006 thus lower sales profitability cottonseed sales farmer plantings begun southern hemisphere markets occur spring summer 2006 countries northern hemisphere thus early accurately forecast international results 2006 continue develop new businesses markets india pakistan portions africa continue develop test varieties containing new technologies multiple sources developing products monsantos second generation traits bollgard ii roundup ready flex addition continue work syngentas vipcot traits products may commercialized quickly regulatory approval received monsanto syngenta traits introgressed elite cotton germplasm believe uniquely positioned rapidly introduce new technologies us exus cotton farmers due strength breadth breeding programs germplasm base technical services capabilities knowhow brand recognition market position share repurchase programdividend policy february 2000 board directors authorized program repurchase 50 million dpls common stock shares repurchased program used provide option exercises potential conversion dpls series convertible nonvoting preferred shares general corporate purposes august 31 2005 dpl repurchased 2229900 shares aggregate purchase price approximately 47505000 program 2005 dpl purchased 676700 shares aggregate purchase price 17928000 plan repurchase plan terminated replaced june 2005 plan discussed may 24 2005 dpl completed purchase 2374940 shares common stock pursuant modified dutch auction tender offer announced april 20 2005 new plan separately approved board directors shares purchased 2700 per share aggregate purchase price 64123380 company also incurred associated expenses approximately 675000 connection acquisition shares primarily related legal advisory services recorded component treasury stock june 30 2005 dpls board directors authorized new share repurchase program buy additional 50 million companys common stock expect repurchase shares plan time variety methods generally include open market purchases timing amount repurchases program depend market conditions legal restrictions factors adoption june 2005 repurchase program replaced february 2000 plan august 31 2005 dpl repurchased 110000 shares aggregate purchase price approximately 2807000 plan currently quarterly dividend 015 per share board directors reviews dividend policy quarterly assuming dividend rate maintained 2006 aggregate payments 217 million holders 361 million common shares outstanding 06 million holder 11 million preferred shares outstanding addition board directors continues review uses companys cash position alternatives maximizing value shareholders see risks uncertainties located item 7 results operations net sales licensing fees 2005 consolidated net sales licensing fees increased 170 3661 million 2004 sales 3128 million increase primarily driven following increase licensing fees charged per bag increase sales stackedgene picker products lower payments crop loss replant programs b increase cottonseed prices higher sales higherpriced elite varieties c slight increase cottonseed units sold increase international revenues primarily incountry sales australia brazil export sales mexico greece spain sales australia increased due introduction additional bollgard ii varieties increase area planted cotton sales brazil increased due stronger demand products higher prices mexicos sales increase primarily attributable increase demand stackedgene products higher cotton acreage increase greece spain due stronger sales distributors increase inventory levels 2004 consolidated net sales licensing fees increased 102 3128 million 2003 sales 2838 million increase primarily driven following increase licensing fee revenues due lower payments crop loss replant programs increase licensing fees charged per bag increase sales stackedgene picker products b increase cottonseed prices higher sales higherpriced elite varieties c increase units soybean seed sold increase international revenues primarily incountry sales australia brazil turkey export sales mexico colombia australia brazil turkey sales increased due stronger demand products new product introductions colombia sales increased due recent approval transgenic varieties containing monsantos bollgard technology mexicos sales increase primarily attributable higher cotton acreage gross profit consolidated gross profit increased 1320 million 2005 compared 1090 million 2004 consolidated gross profit percentage consolidated net sales licensing fees increased 361 current year 349 2004 revenue increase attributable price increases adoption higher priced products increased licensing fees partially offset lower margins soybean sales caused higher costs soybean raw materials well increase cottonseed production costs consolidated gross profit increased 1090 million 2004 compared 1007 million 2003 consolidated gross profit percentage consolidated net sales licensing fees decreased slightly 349 2004 355 2003 revenue increase attributable adoption higher priced products offset lower margins soybean sales caused higher costs soybean raw materials increase cottonseed production costs provision damaged obsolete excess cottonseed inventory operating expenses operating expenses decreased 603 million 2005 874 million 2004 decrease operating expenses 2005 versus 2004 approximately 271 million decrease primarily relates 385 million charge acquired inprocess research development costs related acquisition technology licenses included 2004 offset higher research development costs associated new research programs new technology testing higher general administrative costs primarily related higher professional fees legal matters sarbanesoxley compliance additional compensation costs operating expenses increased 874 million 2004 440 million 2003 operating expenses 2004 include 385 million charge acquired inprocess research development transaction costs related acquisition technology licenses operating expenses 2003 included special charges 10 million excluding inprocess research development related transaction costs 2004 special charges recorded 2003 increase operating expenses 2004 versus 2003 approximately 60 million increase primarily relates higher research development costs associated new technologies increase general administrative expenses primarily related higher professional fees research development expenses research development expenses increased 25 230 million 2005 184 million 2004 increase primarily attributable increased costs working new breeding programs new technologies bollgard ii roundup ready flex vipcot including addition new personnel increased testing program expenses related compensation costs research development expenses increased 102 184 million 2004 167 million 2003 increase primarily attributable increased costs working new technologies including addition new personnel increased testing program expenses selling expenses selling expenses increased 154 135 million 2005 117 million 2004 increase primarily attributable higher advertising promotional compensation costs selling expenses increased 64 117 million 2004 110 million 2003 increase primarily attributable higher advertising costs general administrative expenses general administrative expenses increased 266 238 million 2005 188 million 2004 increase primarily related increase professional fees incurred mainly due legal matters sarbanesoxley compliance additional compensation costs general administrative expenses increased 221 188 million 2004 154 million 2003 increase primarily related increase professional fees inprocess research development related transaction costs 2004 recorded 385 million charge associated writeoff acquired inprocess research development related transaction expenses related august 24 2004 acquisition global licenses develop commercialize syngenta insect resistance technology cottonseed see acquired inprocess research development located item 7 information interest income net interest income increased 22 million 2005 compared net interest income 15 million 2004 2005 interest income 33 million interest expense 11 million higher interest rates earned cash balances resulted higher interest income 2005 interest expense increased due note payable syngenta related 2004 acquired inprocess research development transaction net interest income increased 15 million 2004 compared net interest income 11 million 2003 2004 interest income 19 million interest expense 04 million higher interest rates earned cash balances resulted higher interest income 2004 incomeexpense expense decreased 43 million 2005 compared 105 million 2004 decrease primarily attributable decreased legal expenses related suit pharmacia monsanto 2005 incurred 43 million 007 per diluted share related monsantopharmacia litigation expenses compared 109 million 018 per diluted share 2004 2005 expenses decreased due mississippi supreme court staying proceedings pending resolution two matters see part item 3 information expense decreased 105 million 2004 compared 122 million 2003 decrease primarily attributable decreased legal expenses related suit pharmacia monsanto 2004 incurred 109 million 018 per diluted share related monsantopharmacia litigation expenses compared 130 million 021 per diluted share 2003 net income earnings per share net income applicable common shares 420 million 48 million 275 million 2005 2004 2003 respectively net income per share diluted 108 013 070 2005 2004 2003 respectively offbalance sheet arrangements currently utilize offbalance sheet arrangements contractual obligations amounts thousands certain obligations commitments make future payments contracts current estimates future payments obligations shown following table application critical accounting policies estimates overview managements discussion analysis financial condition results operations read conjunction consolidated financial statements related notes appearing item 8 annual report form 10k fiscal year ended august 31 2005 preparation financial statements requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period identified accounting policies involve estimates assumptions believe critical understanding financial statements management discussed development selection critical accounting estimate audit committee board directors audit committee reviewed related disclosures since application accounting policies involves exercise judgment use estimates actual results could differ estimates revenue recognition revenues domestic seed sales recognized seed shipped revenues bollgard ii roundup ready licensing fees recognized seed shipped domestically licensing fees charged farmers bollgard ii roundup ready cottonseed based preestablished planting rates nine geographic regions years prior 2004 considered estimated number seed contained bag varied variety location grown factors beginning 2004 picker stripper cottonseed products sold bags containing approximately 250000 seed bulk boxes containing approximately 8000000 seed acala pima cottonseed products continue sold 50pound bags international export revenues recognized upon later seed shipped date letters credit instruments similar security provisions confirmed international export sales subject return except limited cases mexico colombia international revenues sale planting seed less estimated reserves returns recognized seed shipped except australia certain immaterial revenues recognized collected domestic seed products including containing bollgard ii roundup ready technologies subject return credit risk effects vary year annual level returns ultimately net sales influenced various factors principally commodity prices weather conditions occurring spring planting season third fourth quarters provide estimated returns sales occur extent actual returns differ estimates adjustments operating results recorded differences become known typically fourth quarter significant returns occur accounted fiscal year end therefore application estimate could affect quarterly information domestically promote cotton soybean seed directly farmers sell seed distributors dealers also offer various sales incentive programs seed participate programs related bollgard ii roundup ready technology fees offered monsanto programs farmer plants seed crop lost usually due inclement weather certain date portion price seed technology fees forgiven rebated farmer certain conditions met amount refund impact dpl depends number factors including whether farmer replant crop destroyed record monthly estimates account programs majority program rebates occur second third fourth quarters essentially material claims programs occurred accounted fiscal year end provision damaged obsolete excess inventory year record provision adjust reserves related inventory based estimate seed pass quality assurance qa standards year end deemed excess based desired seed stock level particular variety dump seed fail qa standards based physical defects ie cut seed moisture content discoloration etc germination rates transgenic purities amount recorded inventory provision given year calculated based total quantity inventory passed qa standards fiscal year end seed expected deteriorate sold seed deemed excess establishing provision consider scrap value seed disposed initial estimate needed provision made beginning year recorded course year adjustments changes estimates made monthly necessary see note 2 notes consolidated financial statements part ii item 8 details inventory reserves deferred income taxes deferred income taxes estimated based upon temporary differences income loss report financial statements taxable income loss determined applicable tax laws estimate value deferred income taxes based existing tax rates laws expectations future earnings deferred income taxes applied composite statutory income tax rate approximately 38 required evaluate likelihood ability generate sufficient future taxable income enable us realize value deferred tax assets judgment determine realize deferred tax assets valuation allowances recorded august 31 2005 recorded net deferred tax assets approximately 171 million primarily related capitalizing licenses acquired syngenta 2004 income tax reporting purposes estimate deferred tax assets realized therefore recorded valuation allowances august 31 2005 use management judgment estimates estimating deferred taxes judgments estimates prove inadequate certain tax rates laws change financial results could materially adversely impacted future periods see note 8 notes consolidated financial statements part ii item 8 details income taxes contingent liabilities liability contingent amount presently known may become known future result occurrence uncertain future event dpl estimates contingent liabilities based managements estimates probability outcomes ability estimate range exposure accounting standards require liability recorded management determines probable loss occurred loss reasonably estimated addition must probable loss confirmed future event part estimation process management required make assumptions matters nature highly uncertain assessment contingent liabilities including legal contingencies income tax liabilities involves use critical estimates assumptions judgments managements estimates based belief future events validate current assumptions regarding ultimate outcome exposures however assurance future events court decisions irs positions differ managements assessments whenever practicable management consults third party experts attorneys accountants claims administrators etc assist gathering evaluation information related contingent liabilities acquired inprocess research development august 2004 entered agreement syngenta purchase global licenses develop commercialize syngentas insect resistance genes known vip3a cry1ab cottonseed addition purchased licenses syngenta enabling technologies may useful developing valuable new products use cottonseed soybean seed return licenses dpl pay syngenta 468 million purchase price paid installments seven years fixed payments 376 million made installments first quarter 2008 dpl make certain decisions determine whether additional 92 million contingent payments made year ended august 31 2004 recorded charge approximately 38532000 related write acquired inprocess research development iprd related transaction costs approximately 36225000 purchase price represents fair value noncontingent payments related acquired iprd projects yet reached technological feasibility alternative future use accordingly amount immediately expensed 2004 consolidated statement income acquisition date remaining 2307000 charge incurred represents related transaction costs primarily professional fees assigned value technologies acquired follows vip3a 19113000 cry1ab 16812000 300000 vip3a cry1ab projects vipcot represent new technologies expected compete insect resistance technologies currently market including technologies currently contained varieties sold us vip3a cry1ab genes produce proteins toxic certain lepidopteran larvae principal cotton pests many cotton growing areas acquired vip3a gene provides novel mode action attacking larvae consume protein vipcot require development us including introgression elite germplasm estimate incur following costs complete projects 2006 3000000 2007 4000000 2008 4000000 2009 2500000 projects also require regulatory approval food drug administration fda us department agriculture usda us environmental protection agency epa commercialization begin syngenta responsible us regulatory approval syngenta advised us expect us regulatory approval obtained selected vip3acry1ab combination events 2008 prior planting season regulatory approval process proceeds expected may begin limited introduction vip3acry1ab combination events 2008 commercialization begins owe syngenta royalty equal 30 net license fees received deduction certain expenses technologies retain remaining 70 net license fees assurance technologies result commercially viable products technologies developed time frame amounts estimated complete also assurance regulatory approval obtained products liquidity capital resources united states purchase seed contract growers first second fiscal quarters seed conditioning treating packaging commence late first fiscal quarter continue third fiscal quarter seasonal cash needs normally begin increase first fiscal quarter cash needs peak third fiscal quarter cash generated loan repayments applicable normally begin middle third fiscal quarter typically completed first fiscal quarter following year cases offer customers financial incentives make early payments extent attract early payments customers bank borrowings reduced us record revenue accounts receivable technology licensing fees transgenic seed sales upon shipment usually second third fiscal quarters receivables seed sales generally become due may june licensing fees due september time receive payment pay monsanto royalty bollgard ii roundup ready licensing fees recorded component cost sales result timing events licensing fees receivable royalties payable peak fiscal year end august 31 seasonal nature business significantly impacts cash flow working capital requirements historically maintained credit facilities used early payments customers cash operations fund working capital needs past borrowed shortterm basis meet seasonal working capital needs however since 2002 used cash generated operations available cash meet working capital needs continue evaluate potential uses cash purposes working capital needs may 24 2005 completed purchase 2374940 shares common stock pursuant modified dutch auction tender offer announced april 20 2005 shares purchased 2700 per share aggregate purchase price 64123380 potential uses cash future may acquisition funding alternative technologies addition deltamax syngenta could used enhance product portfolio ultimately longterm earnings potential andor investment new markets outside us india another potential use would repurchase shares pursuant recently announced 50 million share repurchase program currently considering potential uses cash including increasing dividend rate repurchasing additional shares depending market considerations factors part analysis continue evaluate companys liquidity needs capital structure april 15 2005 entered unsecured 75 million credit agreement credit agreement bank america na bank credit agreement provides unsecured revolving loans maximum aggregate amount outstanding 75 million plus letters credit outstanding prior execution credit agreement amount approximately 2 million total commitment 50 million represents seasonal commitment available october july year credit agreement expires july 31 2006 time outstanding amounts credit agreement would due payable subject companys right request oneyear extension banks acceptance request october 10 2005 company requested extension credit agreement negotiations regarding extension underway general borrowings credit agreement bear interest rate calculated according eurodollar rate plus 055 eurodollar rate generally 30day 60day 90day libor rate also required pay unused fees 0125 annually calculated dailyunused portion credit agreement primary financial covenant requires companys funded indebtedness credit agreement exceed 50 certain current longterm assets defined credit agreement determined last day fiscal quarter august 31 2005 loans outstanding credit agreement existing letters credit discussed capital expenditures 67 million 60 million 83 million years ended august 31 2005 2004 2003 respectively anticipate capital expenditures approximate 80 100 million 2006 annual dividends 051 046 027 per share paid 2005 2004 2003 respectively aggregate dividends paid common preferred shares 2005 2004 2003 196 million 181 million 106 million respectively november 2 2005 announced board directors declared 015 per share dividend first quarter 2006 first quarter dividend paid december 14 2005 shareholders record november 30 2005 board anticipates quarterly dividends 015 per share continue paid future however board directors reviews policy quarterly based quarterly dividend 015 per share 2006 aggregate preferred common stock dividends approximate 223 million 2006 company purchases common stock open market time depending market conditions factors shares repurchased may used provide option exercises conversion series convertible nonvoting preferred shares general corporate purposes september 1 2004 august 31 2005 company purchased approximately 32 million shares common stock aggregate purchase price 855 million includes shares purchased open market well shares repurchased dutch auction tender offer discussed cash provided operations cash hand early payments customers borrowings credit facility necessary sufficient meet companys 2006 working capital needs risks uncertainties various statements included herein constitute forwardlooking statements within meaning private securities litigation reform act 1995 forwardlooking statements based current expectations indicated words phrases anticipate estimate expect project believe remains optimistic currently envisions similar words phrases involve known unknown risks uncertainties factors may cause actual results performance achievements materially different future results performance achievements expressed implied forwardlooking statements forwardlooking statements include statements relating matters anticipated financial performance including earnings estimates discussed existing products technical developments new products new technologies research development activities similar matters forwardlooking statements based largely expectations subject number risks uncertainties many beyond control actual results could differ materially forwardlooking statements result among others changes competitive marketplace including introduction new products pricing changes competitors changes economy similar events undertake obligation publicly update revise forwardlooking statements whether result new information future events otherwise light risks uncertainties cannot assure forwardlooking information contained herein fact transpire risks uncertainties may affect operations performance development results business include noted elsewhere herein following demand seed affected government programs policies weather countries sell products operate demand seed also influenced commodity prices cost crop inputs demand crops enduses textiles animal feed cottonseed oil food raw materials industrial use weather impacts crop yields commodity prices planting decisions farmers make regarding original planting commitments necessary replanting levels factors also influence cost availability seed subsequent seasons planting seed market highly competitive products face competition number seed companies diversified crop protection product companies agricultural biotechnology companies governmental agencies academic scientific institutions addition several distributorscustomers also entered cotton planting seed business number crop protection product biotechnology companies seed production andor distribution capabilities ensure market access new seed products new technologies may compete bollgard ii roundup ready gene technologies monsanto principal licensor technology seed products technologies contained therein may encounter substantial competition technological advances others products new market entrants many competitors affiliated large diversified companies substantially greater resources currently engaged dispute resolution arbitration process monsanto principal licensor cotton technology competitor cotton planting seed business arbitration monsanto seeking determination arbitrators right terminate certain agreements companies including bollgard roundup ready licenses addition currently engaged litigation monsanto january 18 suit concerning failed merger companies result litigation process litigating may materially affect results business see part item 3 assurance new technologies deltamax syngenta technologies result commercially viable products technologies developed time frame amounts estimated complete development also assurance regulatory approval obtained products production distribution sale crop seed foreign markets may subject special risks including fluctuations foreign currency exchange rate controls expropriation nationalization agricultural economic tax regulatory policies foreign governments shipping disruptions particular policies may affect domestic international operations include use acceptance products produced plants genetically modified testing quarantine restrictions relating import export plants seed products availability lack thereof proprietary protection plant products absence lack enforcement intellectual property laws may lead counterfeit farmersaved seed negatively impacts sales addition united states government policies particularly affecting foreign trade investment may impact international operations publicity related genetically modified organisms gmos products made plants contain gmos may effect sales future 2005 approximately 95 cottonseed sold united states contained either monsantos bollgard ii roundup ready gene technologies 96 soybean seed sales contained roundup ready gene technology although many farmers rapidly adopted technologies concern customers governmental entities finished products contain gmos could impact demand crops ultimately seed raised seed containing traits addition regulatory approvals monsantos bollgard ii technologies expire 2006 monsanto responsible obtaining maintaining regulatory approvals planning seek reregistration bollgard ii assurance efforts successful due varying levels agricultural social development international markets operate factors within particular international markets target international profitability growth may less stable predictable domestic profitability growth furthermore recent action taken us government including taken us military aftermath tragic events september 11 2001 war iraq conflicts major cotton producing nations may serve complicate ability execute long range exus business plans include future expansion uzbekistan pakistan india world health concerns infectious diseases also affect conduct international business customers many markets including us benefit government subsidy programs farm security rural investment act 2002 expires january 1 2007 although bill includes 2007 cotton planting season future us farm subsidy programs uncertain various countries including brazil challenged may continue challenge appropriateness us farm subsidies world trade organization wto forums particular wto ruled brazils favor challenge certain us subsidies violate provisions wto clear extent us subsidies modified result ruling however event changes subsidies made may negatively impact us farmers us farm programs government subsidies wto rulings impacting programs may materially affect results business overall profitability depend factors noted well worldwide commodity prices ability successfully open new international markets ability penetrate texas high plains market technology partners ability obtain timely government approval maintain approval existing additional biotechnology products dpl working terms government approvals technology partners ability successfully defend challenges proprietary technologies licensed us ability produce sufficient commercial quantities high quality planting seed products delay inability successfully complete projects may affect future profitability addition earnings forecasts consider impact potential transactions related accounting factors may consideration company yet completed effect determined date particular filing recently issued financial accounting standards yet adopted may 2005 financial accounting standards board fasb issued statement financial accounting standards sfas 154 accounting changes error corrections replacement apb opinion 20 sfas 3 among changes sfas 154 requires voluntary change accounting principle applied retrospectively prior period financial statements presented based new accounting principle unless impracticable sfas 154 provides 1 change method depreciating amortizing longlived nonfinancial asset accounted change estimate prospectively effected change accounting principle 2 correction errors previously issued financial statements termed restatement sfas 154 effective accounting changes correction errors made fiscal years beginning december 15 2005 company expect adoption statement material impact dpls consolidated financial statements december 2004 fasb issued sfas 153 exchanges nonmonetary assets amendment apb opinion 29 accounting nonmonetary transactions statements amendments based principle exchanges nonmonetary assets measured based fair value assets exchanged sfas 153 eliminates narrow exception nonmonetary exchanges similar productive assets replaces broader exception exchanges nonmonetary assets commercial substance provisions statement effective fiscal periods beginning june 15 2005 company expect adoption statement material impact dpls consolidated financial statements november 2004 fasb issued sfas 151 inventory costs amendment arb 43 chapter 4 clarifies types costs expensed rather capitalized inventory statement also clarifies circumstances fixed overhead costs associated operating facilities involved inventory processing capitalized provisions sfas 151 effective fiscal years beginning june 15 2005 may impact certain inventory costs dpl incurs september 1 2005 company determined impact statement dpls consolidated financial position results operations sfas 123r sharebased payment issued december 2004 revision fasb 123 accounting stockbased compensation supersedes accounting principles board opinion 25 accounting stock issued employees related implementation guidance statement focuses primarily accounting transactions entity obtains employee services sharebased payment transactions sfas 123r requires public entity measure cost employee services received exchange award equity instruments based grantdate fair value award limited exceptions cost recognized period employee required provide service exchange award statement effective beginning first interim annual reporting period begins june 15 2005 statement apply awards granted required effective date awards modified repurchased cancelled date sfas 123r effective dpl first quarter fiscal year 2006 company yet made decisions adopt sfas 123r however pro forma net income effect using fair value method years ended august 31 2005 2004 2003 presented note 1 notes consolidated financial statements part ii item 8 pro forma compensation costs presented note 1 notes consolidated financial statemens part ii item 8 prior filings calculated using blackscholes option pricing model may indicative amounts expected future years dpl made decisions optionpricing model appropriate future awards company determined impact statement dpls consolidated financial position results operations item 7aitem 7 managements discussion analysis financial condition results operations overview 2006 revenues represented record company third consecutive year set record revenues driven 19 increase sales domestic segment 2006 2005 domestic sales increases driven volume increases higher unit sales stacked gene products higher trait fees due trait fee price increases enacted monsanto introduction additional premium seed treatments primarily avictatm complete pak syngenta since recognize greater revenue profitability stacked gene products business continued benefit greatly increased purchases products cottonseed products containing either insectresistant trait herbicidetolerant trait alone also saw increase sales higher value products dp 555 bgrr dp 444 bgrr dp 445 bgrr second consecutive year products widely planted cottonseed varieties making approximately onethird cotton acres planted united states according usda doane marketing research inc according september 2006 usda report united states cotton plantings increased 153 million acres 2006 compared 142 million acres 2005 approximately onehalf increase occurred areas east texas half occurred texas volume increases attributable areas east texas however 2006 growing season plagued early season cool wet conditions gave way record drought conditions across much cotton belt weather conditions attributed record crop loss replants farmer customers adversely affects profitability soybean seed sales profitability 2006 slightly higher 2005 primarily due higher prices offset lower sales units slightly higher costs international operations resulted loss operations 2006 due decreased volumes brazil australia mexico compared prior year lower cotton acreage led decline brazil competitive pressures negatively impacted sales australia regulatory issues mexico delayed ability import transgenic seed resulting lost sales strategic transactions events merger monsanto august 14 2006 signed 2006 merger agreement whereby monsanto acquire us 42 per share common stock total purchase price approximately 15 billion cash many strategic initiatives discussed involve technology may compete monsantos depending performance merger consummated cannot predict monsantos ultimate strategy regards competing technologies predict impact pending merger relationships current strategic partners acquisition syngentas global cottonseed assets may 2006 purchased selected assets syngentas global cottonseed business 70 million comprised certain cottonseed germplasm united states india certain countries certain equipment sublease buildings land syngenta india ltds research farm aurangabad india agreed make employment offers four employees syngenta india ltds cotton breeding program syngenta retained rights use two specific cotton lines transgenic trait development addition usual corporate warranties syngenta warranted specific exceptions exclusive ownership freedom use acquired products absence transgenes intended components acquired products see acquired inprocess research development located item 7 discussion acquisition technology licenses dupont june 30 2006 acquired licenses dupont duponts affiliates pioneer verdia optimum gat trait cotton soybeans optimum gat trait developed dupont provide farmers expanded weed control options help optimize yield herbicide tolerance technology makes plants tolerant glyphosate als herbicides including sulfonylurea herbicides previously dupont announced plans commercialize optimum gat pioneerr brand corn soybeans also secured significant outlicense agreements dupont pioneer subsidiary partners deltamax joint venture initially formed develop commercialize glyphosateonly tolerant cotton insect resistant cotton paid 205 million connection transaction technology fee sharing optimum gat technology essentially consistent existing terms deltamax collaboration agreement also reached agreement license soybean lines suitable planting southern soybean market involvement greenleaf genetics llc year ended august 31 2006 recorded charge 205 million related writeoff acquired iprd related transaction costs technologies yet reached technological feasibility alternative future use accordingly amount paid licenses expensed 2006 consolidated statement income acquisition date see acquired inprocess research development located item 7 discussion acquisition technology licenses syngenta august 2004 announced acquisition global licenses develop commercialize innovative insect resistance technology cotton syngenta crop protection ag syngenta addition obtained licenses wide range syngenta enabling technologies may used develop new products cottonseed soybean seed return licenses agreed pay syngenta 468 million installments due primarily first quarter 2008 date made 344 million payments including payment made october 2006 portion 468 million represents contingent payments licensed traits commercialized receive 70 net licensing revenues generated products fall 2005 decided focus development efforts dual gene insect resistance system rather single gene system expect dual gene system combination vip3a cry1ab genes result oneyear delay launch depending timing regulatory approval plan limited quantity seed containing traits available sale early 2008 expect commercialize dual insect traits glyphosate tolerance trait beginning 2009 subject regulatory approval expect incur incremental expenses approximately 40 million related development vipcot products 2007 see acquired inprocess research development located item 7 discussion collaboration agreement dow agrosciences llc january 2003 announced collaboration agreement dow agrosciences llc das develop test evaluate elite cotton varieties containing das insect resistant traits continuing work traits october 2004 das announced received full epa registration widestrike insect protection technology das commercialized first cottonseed products containing widestrike phytogentm germplasm 2005 may commercialize varieties containing das insect resistance technology reach commercialization agreement date commercialization agreement reached deltamax cotton llc may 2002 established deltamax limited liability company jointly owned verdia subsidiary maxygen inc july 2004 verdia acquired duponts subsidiary pioneer believe brings potential additional investment capital strategic focus critical mass collaboration aimed developing valueadded traits cotton currently developing traits insectresistance herbicide tolerance cotton currently transforming cotton plants insect resistance herbicide tolerance traits expect invest 20 million next five eight years fund portion deltamax matters continuing rapidly develop new product offerings containing monsantos second generation traits bollgard ii roundup ready flex sold 12 new products containing either bollgard ii roundup ready flex genes 2006 sold sufficient seed varieties 2006 plant approximately 700000 acres expect sufficient quantities available sale plant 3 35 million acres 2007 actual seed quantities available new products depend number factors including final raw material purchases quality assurance data addition continued develop products containing syngentas vipcot technology expanded field testing vipcot products 2006 focusing efforts developing varieties containing dual insect genes syngenta plan limited commercial launch varieties 2008 depending full regulatory approval obtained addition deltamax joint venture verdia continues development novel cotton traits areas herbicide tolerance insect resistance continue seek opportunities expand international business new markets including india parts africa december 29 2005 acquired vikkis agrotech pvt ltd vikkis indian cottonseed company whollyowned mauritian entity dpl mauritius ltd vikkis licenses monsantos bollgard ii technologies india well rights commercialize bt genes another party vikkis commercialized bollgard hybrids india 2006 subsidiary dpl india seed private ltd expanded research testing hybrid products throughout india 2006 addition recently started new cotton research program punjab region northern india results testing programs 2005 2006 shown many products competitive india terms yield fiber quality purchased 808000 shares common stock cost 198 million 2006 merger agreement monsanto precludes us making stock repurchases october 20 2006 board declared dividend 017 per share 2007 first quarter payable december 14 2006 shareholders record november 30 2006 outlook 2007 beyond future growth sales earnings dependent cotton acreage united states around world b successful development launch varieties containing second generation traits monsanto bollgard ii roundup ready flex c ability develop commercialize varieties increased yield potential enhanced fiber qualities ability profitably expand international operations e successful development launch syngenta insect resistance technology f ability successfully develop launch technologies developed deltamax due market position united states united states cotton acreage significant effect sales earnings respect development new technologies vipcot optimum gat technologies still development commercial launch technologies dependent many factors outside control example transgenic event selection must completed regulatory approval obtained genes introgressed germplasm historically experienced delays revise launch date estimates 2005 shifted dual gene strategy vipcot delay initial launch one year assuming milestones achieved presently expect commercialize optimum gat trait cotton varieties 2011 thereafter depending developmental regulatory timelines met even though risks transgenic product development high potential return continue develop technologies previously announced expect provide 2007 earnings guidance harvest complete 2007 united states cotton planting estimates made commodity price cotton lower 2006 price levels 2005 anticipate 2006 cotton yields near record levels despite difficult weather conditions growing season hot dry weather harvest much united states market believe early estimate 2007 cotton plantings time however current commodity prices hold spring planting time believe corn wheat soybeans fewer cotton acres could planted 2007 expect adequate supplies seed popular cotton varieties 2007 plantings despite impact inclement weather conditions harvest year due inclement weather soybean harvesting midsouth illinois soybean seed production areas supplies popular soybean varieties may limited however final cottonseed soybean seed supply amounts yet available processing quality assurance testing yet occurred 2007 product offerings internationally continue expand global reach seek improve operating results existing exunited states operations 2006 incurred operating loss international division due decreased sales international locations expect 2007 operating results slightly better increased sales anticipated brazil china mexico believe improvement cotton lint prices introduction transgenic traits brazil increase acres planted cotton help improve brazilian sales expect sell two varieties containing bollgard technology brazil 2007 also anticipate brazilian government approve monsantos roundup ready gene cotton roundup ready gene approved seek approval roundup ready varieties sale brazil china anticipate sales hybrid cotton seed one joint ventures increase revenues 2007 mexico regulatory issues resulted lower acres cotton planted 2006 reduced sales anticipate issues occur 2007 cotton acreage increase thereby improving sales mexico offsetting international sales increases anticipated sales reductions australia greece spain water restrictions competitive pressures causing reduction sales australia large carryover inventories seed purchased distributors greece spain reduce sales distributors 2007 carryover inventories partly result eu subsidy reforms putting pressure farmer input costs seed cottonseed sales farmer plantings begun southern hemisphere markets northern hemisphere occur spring summer 2007 thus early accurately forecast international results 2007 continue develop new businesses markets india pakistan portions africa continue develop test varieties containing new technologies multiple sources developing products monsantos second generation traits bollgard ii roundup ready flex addition continue work syngentas vipcot traits products may commercialized quickly regulatory approval received monsanto syngenta traits introgressed elite cotton germplasm believe uniquely positioned rapidly introduce new technologies united states exunited states cotton farmers due strength breadth breeding programs germplasm base technical services capabilities knowhow brand recognition market position share repurchase programdividend policy pursuant merger agreement executed monsanto precluded making future purchases outstanding shares increasing quarterly dividend rate 017 per share february 2000 board directors authorized program repurchase 50 million dpls common stock shares repurchased program used provide option exercises potential conversion dpls series convertible nonvoting preferred shares general corporate purposes august 31 2005 dpl repurchased 2229900 shares aggregate purchase price approximately 47505000 program repurchase plan terminated replaced june 2005 repurchase program discussed may 24 2005 completed purchase 2374940 shares common stock pursuant modified dutch auction tender offer announced april 20 2005 new plan separately approved board directors shares purchased 2700 per share aggregate purchase price 64123380 company also incurred associated expenses approximately 675000 connection acquisition shares primarily related legal advisory services recorded component treasury stock june 30 2005 board directors authorized new share repurchase program buy additional 50 million companys common stock adoption june 2005 repurchase program replaced february 2000 program august 31 2006 dpl repurchased 918494 shares aggregate purchase price approximately 226 million plan 2006 quarterly dividend 015 per share board directors reviews dividend policy quarterly increased dividend 017 per share 2007 first quarter assuming 017 dividend rate maintained 2007 aggregate payments 248 million holders 365 million common shares outstanding 07 million holder 11 million preferred shares outstanding addition board directors continues review uses companys cash position alternatives maximizing value shareholders see risks uncertainties located item 7 results operations net sales licensing fees 2006 consolidated net sales licensing fees increased 141 4176 million 2005 sales 3661 million domestic revenues increased prior year due increased cotton acreage resulted increase units sold addition higher technology fees per unit shift sales mix premiumpriced stackedtrait products premium seed treatment revenues partially offset increase rebates made crop loss replant programs contributed net increase historically earned fee sales thirdparty cottonseed treatments use recorded component net sales licensing fees invoiced customers premium seed treatments however beginning 2006 invoiced customers seed treatments recorded revenue done premium seed treatments past remit portion revenue manufacturer seed treatments recorded cost goods sold revenues premium seed treatments also higher due introduction avicta complete pak syngenta international revenues lower primarily south america australia mexico sales south america lower primarily due reduction cotton acreage brazil decrease sales australia due lower volumes resulting competitive pressures sales mexico lower due issues surrounding revision laws governing planting transgenic crops mexico delayed ability import certain transgenic varieties 2005 consolidated net sales licensing fees increased 170 3661 million 2004 sales 3128 million increase primarily driven following increase licensing fees charged per bag increase sales stackedgene picker products lower payments crop loss replant programs b increase cottonseed prices higher sales higherpriced elite varieties c slight increase cottonseed units sold increase international revenues primarily incountry sales australia brazil export sales mexico greece spain sales australia increased due introduction additional bollgard ii varieties increase area planted cotton sales brazil increased due stronger demand products higher prices mexicos sales increase primarily attributable increase demand stackedgene products higher cotton acreage increase greece spain due stronger sales distributors gross profit consolidated gross profit increased 1420 million 2006 compared 1320 million 2005 consolidated gross profit percentage consolidated net sales licensing fees decreased 340 current year 361 2005 gross profit margin percentage earn premium cottonseed treatments discussed lower traditionally earned cottonseed sales contributed decrease well higher payments crop loss replant programs due severe drought experienced throughout much cotton belt season higher cottonseed production costs negative impacts items gross profit percentage partially offset revenue increase attributable sales mix shift increased licensing fees consolidated gross profit increased 1320 million 2005 compared 1090 million 2004 consolidated gross profit percentage consolidated net sales licensing fees increased 361 2005 349 2004 revenue increase attributable price increases adoption higher priced products increased licensing fees partially offset lower margins soybean sales caused higher costs soybean raw materials well increase cottonseed production costs operating expenses operating expenses increased 395 million 998 million 2006 603 million 2005 increase primarily relates charges 276 million related writeoff acquired iprd related transaction costs related acquisition technology licenses dupont syngentas global cottonseed assets increased expenses 94 million prior year due higher professional services fees associated primarily various monsanto arbitration issues compensation costs primarily related increase stockbased compensation expense higher spending research development activities advertising also contributed increase operating expenses operating expenses decreased 603 million 2005 874 million 2004 decrease operating expenses 2005 versus 2004 approximately 271 million decrease primarily relates 385 million charge iprd costs related acquisition technology licenses included 2004 offset higher research development costs associated new research programs new technology testing higher general administrative costs primarily related higher professional fees legal matters sarbanesoxley compliance additional compensation costs research development expenses research development expenses increased 87 250 million 2006 230 million 2005 increase primarily attributable higher compensation costs including stockbased compensation also experienced higher costs due operation new greenhouses constructed prior year research development expenses increased 25 230 million 2005 184 million 2004 increase primarily attributable increased costs working new breeding programs new technologies bollgard ii roundup ready flex vipcot including addition new personnel increased testing program expenses related compensation costs selling expenses selling expenses increased 52 142 million 2006 135 million 2005 increase primarily attributable increase spending print television advertising increased compensation costs related stockbased compensation expense selling expenses increased 154 135 million 2005 117 million 2004 increase primarily attributable higher advertising promotional compensation costs general administrative expenses general administrative expenses increased 391 331 million 2006 238 million 2005 increase primarily related approximate 88 million increase professional fees related various arbitration proceedings monsanto 1998 merger litigation increase approximately 19 million related compensation costs eg stockbased compensation pension etc general administrative expenses increased 266 238 million 2005 188 million 2004 increase primarily related increase professional fees incurred mainly due legal matters sarbanesoxley compliance additional compensation costs inprocess research development related transaction costs 2006 recorded iprd charges 276 million associated june 30 2006 acquisition technology licenses dupont 205 million may 15 2006 acquisition syngentas global cottonseed assets 70 million also incurred approximately 100000 expenses related transactions primarily legal accounting fees 2004 recorded 385 million iprd charge related august 24 2004 acquisition global licenses develop commercialize syngenta insect resistance technology cottonseed see acquired inprocess research development located item 7 information transactions interest income net interest income 2006 remained flat 2005 22 million 2006 interest income 35 million versus 33 million 2005 interest expense 13 million versus 11 million 2005 reduction interest expense lower accretion debt discount syngenta note offset interest expense incurred borrowings line credit net interest income increased 22 million 2005 compared net interest income 15 million 2004 interest income 19 million interest expense 04 million higher interest rates earned cash balances resulted higher interest income 2005 interest expense increased due note payable syngenta related 2004 iprd transaction expense net expense increased 111 million 2006 compared 43 million 2005 increase primarily attributable costs incurred related 2006 monsanto merger offset lower 1998 merger litigation expenses incurred approximately 80 million 015 per diluted share related 2006 monsanto merger costs primarily consisted professional services fees incremental costs associated directly 2006 monsanto merger also incurred expenses approximately 30 million 006 per diluted share related 1998 merger litigation 2005 incurred expenses 43 million 007 per diluted share related 1998 merger litigation expense decreased 43 million 2005 compared 105 million 2004 decrease primarily attributable decreased legal expenses related 1998 merger litigation 2005 incurred expenses 43 million 007 per diluted share related 1998 merger litigation compared 109 million 018 per diluted share 2004 2005 expenses decreased due part mississippi supreme court staying proceedings pending resolution two matters see part 1 item 1 information related monsanto merger part item 3 information related 1998 merger litigation net income earnings per share net income applicable common shares 196 million 420 million 48 million 2006 2005 2004 respectively net income per share diluted 054 108 013 2006 2005 2004 respectively offbalance sheet arrangements currently utilize offbalance sheet arrangements contractual obligations amounts thousands certain obligations commitments make future payments contracts current estimates future payments obligations shown following table 1 longterm obligations comprised payments related syngenta transaction see acquired inprocess research development located item 7 information concerning noncontingent payments related syngenta transaction payments required research license contracts third parties 2 amount reported purchase obligations 2007 relates payments made cotton growers producers portion seed purchase first second quarters 2007 august 31 2006 open purchase contracts many cotton soybean growers producers conditioners may require us purchase minimum amounts cotton soybean seed meets quality assurance standards amount pay seed accept based market prices fluctuate amount seed accept unit prices pay cannot known seed delivered us occur first second quarters 2007 tested quality application critical accounting policies estimates overview managements discussion analysis financial condition results operations read conjunction consolidated financial statements related notes appearing item 8 annual report form 10k fiscal year ended august 31 2006 preparation financial statements requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period identified accounting policies involve estimates assumptions believe critical understanding financial statements management discussed development selection critical accounting estimate audit committee board directors audit committee reviewed related disclosures since application accounting policies involves exercise judgment use estimates actual results could differ estimates revenue recognition revenues domestic seed sales recognized seed shipped revenues bollgard ii roundup ready roundup ready flex licensing fees recognized seed shipped domestically licensing fees charged farmers bollgard ii roundup ready roundup ready flex cottonseed based preestablished planting rates nine geographic regions international export revenues recognized upon later seed shipped date letters credit instruments similar security provisions confirmed international export sales subject return except limited cases mexico colombia international revenues sale planting seed less estimated reserves returns recognized seed shipped except australia certain immaterial revenues recognized collected domestic seed products including containing bollgard ii roundup ready roundup ready flex technologies subject return credit risk effects vary year annual level returns ultimately net sales influenced various factors principally commodity prices weather conditions occurring spring planting season third fourth quarters provide estimated returns sales occur extent actual returns differ estimates adjustments operating results recorded differences become known typically fourth quarter significant returns occur accounted fiscal year end therefore application estimate could affect quarterly information domestically promote cotton soybean seed directly farmers sell seed distributors dealers also offer various sales incentive programs seed participate programs related bollgard ii roundup ready roundup ready flex technology fees offered monsanto programs farmer plants seed crop lost usually due inclement weather certain date portion certain circumstances price seed technology fees forgiven rebated farmer certain conditions met amount refund impact us depends number factors including whether farmer replant crop destroyed record monthly estimates account programs majority program rebates occur second third fourth quarters essentially material claims programs occurred accounted year end provision damaged obsolete excess inventory year record provision adjust reserves related inventory based estimate seed pass quality assurance qa standards year end deemed excess based desired seed stock level particular variety dump seed fail qa standards based physical defects ie cut seed moisture content discoloration etc germination rates transgenic purities amount recorded inventory provision given year calculated based total quantity inventory passed qa standards fiscal year end seed expected deteriorate sold seed deemed excess establishing provision consider scrap value seed disposed initial estimate needed provision made beginning year recorded course year adjustments changes estimates made monthly necessary see note 2 notes consolidated financial statements part ii item 8 details inventory reserves deferred income taxes deferred income taxes estimated based upon temporary differences income loss report financial statements taxable income loss determined applicable tax laws estimate value deferred income taxes based existing tax rates laws expectations future earnings deferred income taxes applied composite statutory income tax rate approximately 38 required evaluate likelihood ability generate sufficient future taxable income enable us realize value deferred tax assets judgment determine realize deferred tax assets valuation allowances recorded august 31 2006 recorded net deferred tax assets approximately 300 million primarily related capitalizing licenses acquired syngenta 2004 dupont 2006 acquisition syngentas global cottonseed assets 2006 income tax reporting purposes estimate generate sufficient future taxable income realize deferred tax assets therefore recorded valuation allowances august 31 2006 use management judgment estimates estimating deferred taxes judgments estimates prove inadequate certain tax rates laws change financial results could materially adversely impacted future periods see note 8 notes consolidated financial statements part ii item 8 details income taxes contingent liabilities liability contingent amount presently known may become known future result occurrence uncertain future event estimate contingent liabilities based managements estimates probability outcomes ability estimate range exposure accounting standards require liability recorded management determines probable loss occurred loss reasonably estimated addition must probable loss confirmed future event part estimation process management required make assumptions matters nature highly uncertain assessment contingent liabilities including legal contingencies income tax liabilities involves use critical estimates assumptions judgments managements estimates based belief future events validate current assumptions regarding ultimate outcome exposures however assurance future events court decisions internal revenue service positions differ managements assessments whenever practicable management consults third party experts attorneys accountants claims administrators etc assist gathering evaluation information related contingent liabilities acquired inprocess research development dupont technology licenses june 30 2006 acquired licenses dupont duponts affiliates pioneer verdia optimum gat trait cotton soybeans optimum gat trait developed dupont provide farmers expanded weed control options help optimize yield herbicide tolerance technology makes plants tolerant glyphosate als herbicides including sulfonylurea herbicides previously dupont announced plans commercialize optimum gat pioneerr brand corn soybeans also secured significant outlicense agreements dupont pioneer subsidiary partners deltamax joint venture initially formed develop commercialize glyphosateonly tolerance cotton paid 205 million connection transaction technology fee sharing optimum gat technology essentially consistent existing terms deltamax collaboration agreement also reached agreement license soybean lines suitable planting southern soybean market involvement greenleaf genetics llc year ended august 31 2006 recorded charge 205 million related writeoff acquired iprd related transaction costs technologies yet reached technological feasibility alternative future use accordingly amount paid licenses expensed 2006 consolidated statement income acquisition date optimum gat projects represent new technologies may compete herbicide tolerance technologies currently market including technologies currently contained cottonseed soybean seed varieties sold us estimate incur following costs complete projects 2007 300000 2008 11 million 2009 21 million 2010 500000 projects also require regulatory approval food drug administration fda united states department agriculture usda united states environmental protection agency epa commercialization begin regulatory approval process proceeds expected may begin limited introduction optimum gat technologies 2011 commercialization begins technology fee sharing optimum gat technology essentially consistent existing terms deltamax collaboration agreement assurance technologies result commercially viable products technologies developed time frame amounts estimated complete also assurance regulatory approval obtained products syngenta global cottonseed assets may 2006 purchased selected assets syngentas global cottonseed business 70 million comprised certain cottonseed germplasm united states india certain countries certain equipment sublease buildings land syngenta india ltds research farm aurangabad india agreed make employment offers four employees syngenta india ltds cotton breeding program syngenta retained rights use two specific cotton lines transgenic trait development addition usual corporate warranties syngenta warranted specific exceptions exclusive ownership freedom use acquired products absence transgenes intended components acquired products hybrid germplasm acquired india require regulatory approval country offered commercial sale germplasm acquired united states contains syngentas vipcot technology acquired license 2004 see also requires regulatory approval united states commercial sales begin therefore since assets alternative future use regulatory approvals obtained entire purchase price expensed 2006 consolidated statements income acquisition date writeoff acquired iprd assurance assets result commercially viable products regulatory approval obtained products syngenta technology licenses august 2004 entered agreement syngenta purchase global licenses develop commercialize syngentas insect resistance genes known vip3a cry1ab cottonseed addition purchased licenses syngenta enabling technologies may useful developing valuable new products use cottonseed soybean seed return licenses dpl pay syngenta 468 million purchase price paid installments seven years fixed payments 376 million made installments first quarter 2008 february 2008 dpl make certain decisions determine whether additional 92 million contingent payments made elect continue development syngenta insect resistance genes sygenta must refund 14 million us year ended august 31 2004 recorded charge approximately 385 million related writeoff acquired iprd related transaction costs approximately 362 million purchase price represents fair value noncontingent payments related acquired iprd projects yet reached technological feasibility alternative future use accordingly amount expensed 2004 consolidated statements income acquisition date remaining 23 million charge incurred represents related transaction costs primarily professional fees assigned value technologies acquired follows vip3a 191 million cry1ab 168 million 300000 vip3a cry1ab projects vipcot represent new technologies expected compete insect resistance technologies currently market including technologies currently contained varieties sold us vip3a cry1ab genes produce proteins toxic certain lepidopteran larvae principal cotton pests many cotton growing areas acquired vip3a gene provides novel mode action attacking larvae consume protein vipcot require development us including introgression elite germplasm estimate expense incurred following costs complete projects 2007 40 million 2008 45 million 2009 55 million 2010 40 million projects also require regulatory approval fda usda epa commercialization begin syngenta responsible united states regulatory approval syngenta advised us expect united states regulatory approval obtained selected vip3acry1ab combination events 2008 regulatory approval process proceeds expected may begin limited introduction vip3acry1ab combination events 2008 commercialization begins owe syngenta royalty equal 30 net license fees received deduction certain expenses technologies retain remaining 70 net license fees assurance technologies result commercially viable products technologies developed time frame amounts estimated complete also assurance regulatory approval obtained products liquidity capital resources united states purchase seed contract growers first second quarters seed conditioning treating packaging commence late first quarter continue third quarter seasonal cash needs normally begin increase first quarter cash needs peak third quarter cash generated loan repayments applicable normally begin middle third quarter typically completed first quarter following year cases offer customers financial incentives make early payments extent attract early payments customers bank borrowings reduced united states record revenue accounts receivable technology licensing fees transgenic seed sales upon shipment usually second third fiscal quarters receivables seed sales generally become due may june licensing fees due september time receive payment pay monsanto royalty bollgard ii roundup ready roundup ready flex licensing fees recorded component cost sales result timing events licensing fees receivable royalties payable peak fiscal year end august 31 seasonal nature business significantly impacts cash flow working capital requirements historically maintained credit facilities used early payments customers cash operations fund working capital needs past borrowed shortterm basis meet seasonal working capital needs 2002 2005 used cash generated operations available cash meet working capital needs 2006 utilized credit facility fund working capital needs addition early payments customers cash operations continue evaluate potential uses cash purposes working capital needs potential uses cash future may acquisition funding alternative technologies addition deltamax acquisition technology licenses dupont syngenta could used enhance product portfolio ultimately longterm earnings potential andor investment new markets outside united states india merger agreement restricts us authorizing recommending proposing entering agreement principle agreement respect merger consolidation business combination monsanto merger acquisition disposition assets except case acquisition disposition assets merger agreement prevent us subsidiaries acquiring disposing assets outside ordinary course business consistent past practice long aggregate amount assets acquired disposed exceed 10 million acquiring disposing assets ordinary course business consistent past practice however merger agreement prohibit us without monsantos prior written consent purchasing redeeming otherwise acquiring outstanding shares increasing quarterly dividend rate 017 per share april 15 2005 entered unsecured 75 million credit agreement credit agreement bank america na bank credit agreement provides unsecured revolving loans maximum aggregate amount outstanding 75 million plus letters credit outstanding prior execution credit agreement amount approximately 2 million total commitment 50 million represents seasonal commitment available october july year credit agreement set expire july 31 2006 however december 5 2005 pursuant companys request provided credit agreement company bank agreed extend credit agreement july 31 2007 time outstanding amounts credit agreement due payable subject companys right request additional oneyear extension banks acceptance request additionally option bank credit agreement terminated upon change control defined credit agreement general borrowings credit agreement bear interest rate calculated according eurodollar rate plus 055 eurodollar rate generally 30day 60day 90day libor rate also required pay unused fees 0125 annually calculated dailyunused portion credit agreement primary financial covenant requires companys funded indebtedness credit agreement exceed 50 certain current longterm assets defined credit agreement determined last day fiscal quarter year ended august 31 2006 maximum borrowed 45 million repaid august 31 2006 august 31 2006 loans outstanding credit agreement existing letters credit discussed capital expenditures 97 million 67 million 60 million years ended august 31 2006 2005 2004 respectively anticipate capital expenditures approximate 80 100 million 2007 annual dividends 060 051 046 per share paid 2006 2005 2004 respectively aggregate dividends paid common preferred shares 2006 2005 2004 222 million 196 million 181 million respectively october 24 2006 announced board directors declared 017 per share dividend first quarter 2007 first quarter dividend paid december 14 2006 shareholders record november 30 2006 board anticipates quarterly dividends 017 per share continue paid future however board directors reviews policy quarterly based quarterly dividend 017 per share 2007 aggregate preferred common stock dividends approximate 255 million 2007 purchased common stock open market time depending market conditions factors shares repurchased may used provide option exercises conversion series convertible nonvoting preferred shares general corporate purposes september 1 2005 august 31 2006 company purchased 808494 shares common stock aggregate purchase price 198 million cash provided operations cash hand early payments customers borrowings credit facility necessary sufficient meet 2007 working capital needs recently issued financial accounting standards sfas 154 accounting changes error corrections may 2005 financial accounting standards board fasb issued statement financial accounting standards sfas 154 accounting changes error corrections replacement apb opinion 20 sfas 3 among changes sfas 154 requires voluntary change accounting principle applied retrospectively prior period financial statements presented based new accounting principle unless impracticable sfas 154 provides 1 change method depreciating amortizing longlived nonfinancial asset accounted change estimate prospectively effected change accounting principle 2 correction errors previously issued financial statements termed restatement sfas 154 effective accounting changes correction errors made fiscal years beginning december 15 2005 therefore company adopted standard beginning september 2006 since standard applies voluntary changes accounting principles well may mandated standardsetting authorities possible estimate impact adoption standard financial position results operations sfas 157 fair value measurements september 2006 fasb issued sfas 157 fair value measurements statement defines fair value establishes framework measuring fair value accordance united states generally accepted accounting principles expands disclosures fair value measurements sfas 157 effective fiscal year begins november 15 2007 company adopt standard beginning september 2008 currently evaluating impact new standard financial position results operations sfas 158 employers accounting defined benefit pension postretirement benefits amendment fasb statements 87 88 106 132r september 2006 fasb issued sfas 158 employers accounting defined benefit pension postretirement benefits amendment fasb statements 87 88 106 132r statement requires employer defined benefit pension plan 1 recognize funded status benefit plan statement financial position 2 recognize component comprehensive income net tax gains losses prior service costs credits arise period recognized components net periodic benefit cost pursuant fasb statement 87 fasb statement 106 3 measure defined benefit plan assets obligations date employers fiscal yearend statement financial position 4 disclose notes financial statements additional information certain effects net periodic benefit cost next fiscal year arise delayed recognition gains losses prior service costs credits transition asset obligation adoption sfas 158 required end fiscal year ending december 15 2006 therefore company adopt standard august 31 2007 presently evaluating impact adopting sfas 158 financial position results operations fin 48 accounting uncertainty income taxes july 2006 fasb interpretation 48 accounting uncertainty income taxes fin 48 issued fin 48 clarifies accounting uncertainty income taxes recognized enterprises financial statements accordance fasb statement 109 accounting income taxes defining criterion individual tax position must meet order recognized financial statements fin 48 requires tax effects position recognized morelikelythannot sustained based solely technical merits reporting date fin 48 requires interest tax laws require paid underpayment taxes accrued difference amount claimed expected claimed return tax benefit recognized financial statements fin 48 also requires additional disclosures unrecognized tax benefits including reconciliation beginning ending balances fin 48 effective fiscal years beginning december 15 2006 therefore company expects implement fin 48 beginning september 1 2007 presently evaluating impact adopting fin 48 financial position results operations sab 108 considering effects prior year misstatements quantifying misstatements current year financial statements september 2006 staff securities exchange commission issued staff accounting bulletin 108 considering effects prior year misstatements quantifying misstatements current year financial statements sab 108 standard provides guidance approach companies must follow quantifying misstatements financial statements specifically sab 108 required companies apply two approaches evaluating materiality misstatements financial statements first sab 108 requires companies evaluate materiality using rollover approach companies quantify misstatement based amount error originating current year income statement ignoring effect correcting portion currentyear balance sheet misstatement originated prior years second sab 108 requires companies evaluate materiality using iron curtain approach companies quantify misstatement based effects correcting misstatement existing balance sheet end current year irrespective misstatements years origination sab 108 effective fiscal years ending november 15 2006 still evaluating impact adoption standard financial position results operations item 7aitem 7 managements discussion analysis financial condition results operations due successful introduction companys nucotn varieties contain monsantos bollgard technology company reported record sales earnings per share despite fact domestic unit sales cottonseed declined 145 acreage planted cotton us declined 164 1995 levels international sales cottonseed domestic soybean unit sales increased 55 35 respectively dpl completed formation staffing technical services department 30 full time employees compared 13 year ago dpl also completed acquisition hartz cotton inc monsanto february 1996 completed merger may 20 1996 stock exchange valued 70 million three companies sure grow seed inc known collectively sure grow hartz transaction accounted purchase dpl issued 450000 shares convertible seven years unless certain events occur series preferred stock dpl issued 15 million shares common stock shareholders three companies owned sure grow seed inc poolingofinterests transaction october 1995 epa completed initial registration bollgard technology subject expire january 1 2001 pending epas reevaluation insect resistance management plan monsanto dpl working additional genes part resistance management strategy company also bulking transgenic varieties insect resistant herbicide tolerant addition company began reorganization business among key operating units including deltapine paymaster includes stripper varieties acquired 1994 hartz varieties acquired 1996 sure grow international effective september 1 1996 unit responsible sales marketing research field agronomy operations quality assurance administration finance technical services transgenic product development provide services operating units december 1996 response shareholder interest increase companys visibility attractiveness diverse population investors dpl moved nasdaq listed shares new york stock exchange dpl continued implementation longterm international strategic plans well 1996 dpl completed construction two smaller yet cost efficient delinting plants one south africa argentina initially used provide winter nursery services northern hemisphere operations order accelerate bulk ultimately introduction new products taking advantage southern hemisphere growing season addition branches evaluate develop cottonseed business respective areas 1996 dpl terminated agreement former distributor australia assembled fully staffed sales marketing technical services teams dpl employees first time sold deltapine varieties australia 19961997 growing season rather relying distributor subsequent year end company sold limited quantities seed containing monsantos bt gene marketed ingardtm australia operating results australia remain unacceptable levels organizational changes add costs operation near term deltapine australia cotton varieties currently development along two new varieties recently introduced must perform well capture market share improve operating results dm international llc venture formed 1995 dpl monsanto plan introduce combination dpls acid delinting technology monsantos bollgard gene technology dpl managing member dm international november 1996 dm internationals subsidiary dpl china pte ltd concluded negotiations joint venture parties hebei province one major cotton producing regions peoples republic china joint venture controlled dpl china pte ltd company currently negotiating potential venture partners zimbabwe brazil columbia exploratory discussions potential partners india uzbekistan argentina prior joint venture negotiations turkey egypt reached impasse ceased export sales mexico greece increased significantly 1996 prior year levels company working closely monsanto developing plans export seed containing bollgard gene several countries international division strengthened adding international brand managers technical service personnel effectively develop international markets potential transgenic nontransgenic seed year ago company started major capital improvement program efficiently effectively process handle companys products program nearing completion additional projects expected cost 130 150 million 1997 underway major projects completed fiscal 1997 include new international administrative office building company headquarters scott mississippi purchase implementation fully integrated process manufacturing system process data functional areas company major computer hardware upgrade automated packaging equipment one location well precision electronic treating equipment three delinting plants 1998 spending expected return 50 70 million per year exclusive offshore investments financed part dpls technology joint venture partners feasible results operations following table sets forth selected income statement data company 1994 1995 restated sure grow merger expressed percentage net sales indicated periods net sales licensing fees 1996 dpls consolidated net sales licensing fees increased 550 1533 million 1995 sales 989 million increase primarily result bollgard licensing fees received first year commercial sales nucotn also increase soybean sales 35 increase commercialization fees 34 million 1996 12 million received 1995 effects positive developments partially offset 145 decrease domestic cottonseed unit sales resulting 164 reduction number cotton acres planted 140 million 167 million 1996 dynamics freedom farm bill coupled higher corn prices contributed decline cotton acreage international sales increased 126 million 1996 71 million 1995 sales mexico 1996 increased 18 million result mexican governments favorable agricultural policy toward cotton growth textile industry result north american free trade agreement 1996 sales greece increased 19 million due continued success dpls cotton varieties northern growing areas country sales turkey essentially unchanged 1995 levels dpls consolidated net sales licensing fees increased 228 989 million 1995 1994 net sales 806 million increase result higher demand cottonseed effect partially offset decrease corn sorghum sales due shift acreage cotton increase cottonseed units sold due primarily usda decrease 1995 cotton acreage set aside 0 11 previous year strong market prices cotton fiber resulted increase planted acreage 167 million 136 million cotton revenues also increased 1995 due higher commercialization fees related herbicide tolerant cotton licensing fees earned contract growers produced seed nucotn varieties soybean sales declined 10 million due lower average selling prices number units sold unchanged international sales increased 71 million 1995 29 million 1994 sales mexico greece increased 1995 sales australia turkey essentially unchanged 1994 levels dpl consolidated net sales licensing fees increased 38 806 million 1994 776 million 1993 increase sales primarily result increased cottonseed sales royalties although usda increased 1994 cotton acreage set aside 110 75 previous year due strong market prices cotton usda statistics indicated increase total cotton acres planted gross profit dpls consolidated gross profit increased 298 1996 558 million 430 million 1995 increase primarily attributable nucotn sales related bollgard licensing fees gross margin decreased 364 1996 435 1995 decline gross margin expressed percentage sales results recording bollgard licensing fees charged grower component sales net estimated distributor dealer commissions coupled recording 71 due dpls technology partner component cost sales residual 29 included gross profit dpls consolidated gross profit increased 324 1995 430 million 325 million 1994 gross margin increased 435 1995 403 1994 higher gross margin resulted higher levels cottonseed sales fewer sales crops resulted shift acreage cotton addition due higher volumes processed cost goods manufactured 1995 decreased 50 1994 dpls consolidated gross profit remained flat 325 million 1994 324 million 1993 gross margin decreased 403 1994 418 1993 result higher bulk seed treatment costs effect partially offset 65 selling price increase research development expenses research development expenses increased 477 98 million 1996 66 million 1995 increase research development costs primarily result addition hartz research program added technical service department costs additional transgenic costs balance attributable primarily international activities 1995 research development expenses increased 207 66 million 55 million 1994 initial expansion technical services department addition cotton research programs paymaster pima varieties increased emphasis international research activities paraguay australia contributed overall increase research expense increased research costs partially offset savings recognized termination hybrid cotton research sorghum research programs closure san joaquin cotton research facility research development expenses increased 196 1994 55 million 46 million 1993 1994 company formed transgenic product development team became responsible transgenic planting seed development including nucotn varieties herbicidetolerant products company strengthened technical service department gathers research data crops used provide farmers agronomic data selling expenses selling expenses increased 240 94 million 1996 76 million 1995 increase primarily due addition telemarketing department development maintenance farmer database formation andor expansion sales marketing departments australia paymaster international division 1995 selling expenses increased 308 76 million compared 58 million 1994 increase primarily due implementation new sales incentive program selling expenses 1994 increased slightly 58 million 57 million 1993 1994 company maintained aggressive marketing program holding costs relatively flat general administrative expenses general administrative expenses 1996 decreased 20 94 million compared 96 million 1995 general administrative expenses 1995 increased 178 96 million compared 81 million 1994 expected increase caused increased international business development activities higher depreciation expense reorganization paymaster business higher insurance costs general administrative expenses 1994 81 million 191 increase 1993 expenses 68 million increased costs primarily related costs publiclytraded company travel professional fees incurred develop international domestic markets additional administrative costs related australia mexico turkey unusual charges related acquisitions connection merger sure grow companies acquisition hartz cotton inc company recorded onetime charges approximately 14 million fiscal 1996 transaction costs primarily include expenses professional fees related acquisitions well legal costs incurred connection u department justices review sure grow transaction presented unusual charges related acquisitions accompanying consolidated statements income interest expense interest expense increased 200 24 million 1996 20 million 1995 due primarily higher average outstanding borrowings 1995 interest expense increased 429 20 million compared 14 million 1994 increase due primarily higher average outstanding borrowings higher interest rates interest expense decreased 333 14 million 1994 21 million 1993 1994 decrease resulted lower average outstanding borrowings throughout year may dpl acquired paymaster partially offset slightly higher interest rates experienced latter portion year 1996 income comprised primarily gains sales fixed assets accounts payable discounts received early payments 1995 company established additional reserves approximately 27 million remaining corn sorghum inventories also company sold certain corn sorghum assets recognized gain approximately 16 million addition company received insurance settlement approximately 11 million associated ice storm 1994 net income earnings per share net income applicable common shares increased 394 1996 152 million 109 million 1995 increased 949 1994 net income 78 million primary earnings per share 070 052 038 1996 1995 1994 respectively number shares deemed outstanding periods increased additional shares issued result stock options exercised pursuant 1993 stock option plan additional options granted pursuant 1995 longterm incentive plan liquidity capital resources seasonal nature companys business significantly impacts cash flow working capital requirements company maintains credit facilities uses early payments customers uses cash operations fund working capital needs 15 years dpl borrowed shortterm basis meet seasonal working capital needs dpl purchases seed contract growers first second fiscal quarters seed conditioning treating packaging commence late first fiscal quarter continue third fiscal quarter seasonal borrowings normally commence first fiscal quarter peak third fiscal quarter loan repayments normally begin middle third fiscal quarter typically completed early fourth fiscal quarter dpl also offers distributors dealers farmers financial incentives make early payments fiscal 1996 dpl received approximately 65 million early payments extent dpl attracts early payments customers bank borrowings credit facility reduced november 1995 company financial institution entered new loan agreement replaced existing facility new agreement replaced provided base commitment 150 million seasonal commitment 350 million march 1996 bank approved additional seasonal facility 150 million june 1996 base commitment increased 300 million seasonal commitment reduced 200 million accommodate anticipated changes borrowings related acquisition sure grow changes made additional seasonal facility base commitment longterm loan may borrowed upon time due january 1 1999 seasonal commitment additional seasonal commitment working capital loans may drawn upon september 1 june 30 fiscal year expire january 1 1999 commencing january 1997 january thereafter facilities renewable another three year term commitment offers variable fixed interest rate options requires company pay facility andor commitment fees comply certain financial covenants see note 4 notes consolidated financial statements capital expenditures 160 million 107 million 37 million fiscal 1996 1995 1994 respectively 1996 1994 expenditures exclude acquisitions aggregated 22 million 143 million respectively increases result company continuing facilitate growth traditional transgenic seed products investment strategy included commencement 1995 special 130 million upgrade dpls bulk seed stabilization storage handling processing facilities three cottonseed plants addition cottonseed processing plant acquired paymaster acquisition technologically upgraded projects planned 1997 including new fully integrated computer system new international administrative office building expansion facilities australia south africa management believes capital expenditures approximate 130 150 million 1997 excluding expected capital expenditures foreign joint ventures funded cash operations borrowings investments joint venture partners necessary cash provided operations early payments customers borrowings loan agreement sufficient meet companys 1997 working capital needs risks uncertainties time company may publish forwardlooking statements relating matters anticipated financial performance business products technical developments new products research development activities similar matters private securities litigation reform act 1995 provides safe harbor forwardlooking statements order comply terms safe harbor company notes variety factors could cause companys actual results experience differ materially anticipated results expectations expressed companys forwardlooking statements risks uncertainties may affect operations performance development results companys business include following domestic demand dpls seed continue affected programs various governments us government export enhancement programs importantly weather demand seed also influenced commodity prices demand crops enduses textiles animal feed food raw materials industrial use factors along weather influence cost availability seed subsequent seasons weather impacts crop yields commodity prices planting decisions farmers make regarding original planting commitments necessary replanting levels growth profitability depend weather conditions government policies countries company sells products commodity prices companys ability successfully open new international markets companys ability successfully develop texas high plains market dpls technology partners ability obtain timely government approval additional biotechnology products company working companys ability produce sufficient commercial quantities high quality planting seed products delay inability capitalize projects may affect future profitability due varying levels agricultural social development international markets dpl operates factors within particular international markets targeted company international profitability growth may take longer less stable domestic profitability past item 8item 7 managements discussion analysis financial condition results operations increased second year sales companys transgenic cotton varieties containing bollgard gene technology first commercial sales dpl cotton varieties containing roundup ready gene technology commencement conversion sales paymaster stripper varieties certified seed program direct sales company major causes dpl reporting record sales despite fact acreage planted cotton us declined 139 million acres 1996 levels 147 million acres cold wet weather cotton planting season contributed reduction cotton acreage planted well initial usda company estimates company sold sufficient quantities seed containing bollgard gene plant 25 million acres 100000 acres ultimately plowed replanted resulting final net billable bollgard acres 24 million 33 increase 1996 levels net billable roundup ready acres 1997 800000 international cotton seed sales domestic soybean unit sales also increased 18 41 respectively 1997 dpl announced program optimize production cost operating efficiencies include idling three less efficient delinting plants write assets whose value impaired result implementing plan plant consolidation costs relating implementation new process manufacturing system costs phase certain products two plants acquired 1996 sure grow merger scott mississippi delinting plant companys oldest least efficient plant idled company plans reduce domestic work force total 15 including affected plant closings offering early retirement program employees meet certain age years service criteria company expects production cost optimization plan full implementation fiscal 1998 result moderate savings 1998 9000000 savings fiscal 1999 annually thereafter dm international llc venture formed 1995 dpl managing member monsanto plan introduce combination dpls acid delinting technology monsantos bollgard gene technology november 1995 dm international llc formed subsidiary dpl china pte ltd dpl china november 1996 dpl china concluded negotiations parties hebei province one major cotton producing regions peoples republic china form hebei ji dai cotton seed technology company ltd ji dai joint venture controlled dpl china june 1997 ji dai commenced construction new cotton seed conditioning storage facility hebei china terms joint venture agreement new facility expected completed november 1997 growing season joint venture harvested sufficient seed assuming normal production runs produce seed sufficient plant 500000 acres bollgard cotton hebei 1998 company reached agreement parties zimbabwe form joint venture provide high quality acid delinted seed farmers zimbabwe initially plant continue process sell locally developed owned varieties genetically transformed contain bollgard gene technology potentially technologies developed future introduction technologies locally developed germplasm expected provide large commercial growers well small communal growers significant economic advantage dont use technologies project presently hold pending zimbabwean government approval company parties latin america negotiating form joint ventures process locally andor form distributorships import acid delinted cotton seed sale certain latin america countries initial plans call introduction dpl transgenic varieties already performed well countries well transformation locally developed germplasm varieties contain bollgard gene technology potentially new technologies ventures also evaluate suitability dpl germplasm developed southern hemisphere elsewhere companys recently completed delinting plants south africa argentina processed first time foundation seed grown countries seed exported us sale spring 1997 use southern hemisphere winter nurseries seed production programs dramatically accelerate introduction new varieties since dpl raise least two crops per year taking advantage southern hemisphere growing season locations company also evaluating local market opportunities companys cotton feasible soybean seed varieties results operations dpls wholly owned australian subsidiary continue disappointing although company began selling seed containing bollgard gene ingardtm australia 1997 operating results product market share remain unacceptable levels company australian operations identifying smaller potential export markets companys products throughout southeast asia adaptability companys germplasm must evaluated sales made recent instability economies countries region make successful market development challenge companys 1996 reorganization business among key operating units including deltapine paymaster includes stripper varieties acquired 1994 hartz varieties acquired 1996 sure grow international effect one year new structure created healthy competition among brands particularly sales research development areas 1997 companys total operating expenses increased 348 million special charges 286 million special charges 1996 238 million 1995 international operating expenses expected increase 40 million 1998 due new international ventures domestic operating expenses expected increase 50 million companys ability achieve 1998 domestic financial targets dependent total planted acres cotton number acres planted cotton seed containing bollgard roundup ready technologies either single gene construct stacked gene combination successful conversion stripper markets high plains additional soybean seed sales conventional roundup ready varieties major capital improvement program started 1994 efficiently effectively process handle companys products complete major projects completed fiscal 1997 include purchase implementation fully integrated process manufacturing system process data functional areas company major computer hardware upgrade 1997 another planned first quarter 1998 well precision electronic seed treating equipment three locations new international administrative office building company headquarters scott mississippi 1998 domestic capital investment expected return 75 million offshore investments financed part dpls technology joint venture partners expected range 60 million 80 million although range could change depending outcome timing various projects company currently addressing year 2000 computer software issues formulated plan resolve matters management believes companys applications operating systems software year 2000 compliant 2000 company expects material costs interruptions operations significant portion companys software replaced purchase computer software already year 2000 compliant net sales licensing fees 1997 dpls consolidated net sales licensing fees increased 195 1832 million 1996 sales 1533 million increase primarily result increased bollgard licensing fees 1996 licensing fees received first sale commercial quantities roundup ready cotton seed domestic picker cotton seed unit sales decreased 45 domestic stripper cotton seed units increased 2796 due conversion high plains market despite 54 reduction total number cotton acres planted us 139 million 147 million net billable bollgard acres increased 24 million 1997 18 million 1996 net billable roundup ready acres 08 million 1997 soybean unit sales also increased 409 1996 primarily due increase planted acres resulted part cold wet weather early planting season cotton typically planted higher soybean prices international sales increased 149 million 1997 126 million 1996 primarily attributable licensing fees received sales australia mexico dpls nucotn varieties containing monsantos bt gene positive effects partly offset reduced export sales 1996 consolidated net sales licensing fees increased 550 1533 million 1995 sales 989 million increase primarily result bollgard licensing fees received first year commercial sales nucotn also increase soybean sales 35 increase commercialization fees 34 million 1996 12 million received 1995 effects positive developments partially offset 145 decrease domestic cotton seed unit sales resulting 130 reduction number total cotton acres planted us 147 million 169 million 1996 dynamics freedom farm bill coupled higher corn prices contributed decline cotton acreage international sales increased 126 million 1996 71 million 1995 sales mexico 1996 increased 18 million result mexican governments favorable agricultural policy toward cotton growth textile industry result north american free trade agreement 1996 sales greece increased 19 million due continued success dpls cotton varieties northern growing areas country sales turkey essentially unchanged 1995 levels gross profit dpls consolidated gross profit special charges 555 million 1997 compared 558 million 1996 special charges 115 million recorded 1997 result optimization program discussed item 1 negative impact offset increased unit sales increased licensing fees gross margin expressed percentage sales special charges consistent 1997 1996 consolidated gross profit increased 298 1996 558 million 430 million 1995 increase primarily attributable nucotn sales related bollgard licensing fees gross margin decreased 364 1996 435 1995 decline gross margin results recording bollgard licensing fees charged grower component sales net estimated distributor dealer commissions coupled recording 71 due dpls technology partner component cost sales residual 29 included gross profit research development expenses research development expenses increased 398 137 million 1997 98 million 1996 increase primarily result additional transgenic costs associated evaluation new technologies transformation companys sure grow paymaster product lines increased technical service department costs increased varietal testing certain international markets expansion research programs related international activities research development expenses increased 485 98 million 1996 66 million 1995 increase research development costs primarily result addition hartz research program added technical service department costs additional transgenic costs increased international activities selling expenses selling expenses increased 181 111 million 1997 94 million 1996 increase primarily due expansion sales marketing departments paymaster division international division primarily australia selling expenses increased 240 94 million 1996 76 million 1995 increase primarily due addition telemarketing department development maintenance farmer database formation andor expansion sales marketing departments australia paymaster international division general administrative expenses general administrative expenses increased 74 101 million 1997 94 million 1996 increase primarily attributable expansion companys information systems department additional staff international paymaster divisions general administrative expenses 1996 decreased 20 94 million compared 96 million 1995 special charges unusual charges related acquisitions connection production cost optimization program discussed item 1 company recorded special charge 190 million 1997 115 million included cost sales 75 million included operating expenses charges include costs associated plan optimize operating efficiencies plant consolidation costs phase certain products write assets whose value impaired result plan lesser extent severance costs connection merger sure grow companies acquisition hartz cotton inc company recorded onetime charges approximately 17 million 14 million fiscal 1997 1996 respectively costs associated transactions including legal costs incurred connection u department justices review interest expense interest expense decreased 83 22 million 1997 24 million 1996 due primarily lower interest rates partially offset higher outstanding borrowings interest expense increased 200 24 million 1996 20 million 1995 due primarily higher average outstanding borrowings 1997 1996 income comprised primarily gains sales fixed assets accounts payable discounts received early payments 1995 company recorded special reserves approximately 27 million disposal remaining corn sorghum inventories recognized gain approximately 16 million sale certain corn sorghum assets net income earnings per share net income applicable common shares decreased 553 1997 68 million 152 million 1996 decreased 376 1995 net income 109 million primary earnings per share special charges 051 042 029 1997 1996 1995 respectively primary earnings per share special charges 018 039 029 1997 1996 1995 respectively number shares deemed outstanding periods increased additional stock option grants andor exercise options pursuant 1993 stock option plan 1995 longterm incentive plan furthermore effect stock splits november 20 1997 included earnings per share calculations liquidity capital resources seasonal nature companys business significantly impacts cash flow working capital requirements company maintains credit facilities uses early payments customers uses cash operations fund working capital needs 16 years dpl borrowed shortterm basis meet seasonal working capital needs dpl purchases seed contract growers first second fiscal quarters seed conditioning treating packaging commence late first fiscal quarter continue third fiscal quarter seasonal borrowings normally commence first fiscal quarter peak third fiscal quarter loan repayments normally begin middle third fiscal quarter typically completed first fiscal quarter following year dpl also offers distributors dealers farmers financial incentives make early payments fiscal 1997 dpl received approximately 40 million early payments extent dpl attracts early payments customers bank borrowings credit facility reduced company records receivables technology fees bollgard roundup ready seed sales seed shipped usually companys second third quarters company contracted billing collection activities bollgard roundup ready seed technology fees monsanto september technology fees due time dpl receives payment monsanto dpl pays monsanto royalty bollgard roundup ready technology fees company borrows funds financial institution meet working capital needs agreement provides core commitment 50 million seasonal commitment 25 million core commitment longterm loan may borrowed upon time due january 1 2000 seasonal commitment working capital loan may drawn upon september 1 june 30 fiscal year expires january 1 2000 commitment offers variable fixed interest rate options requires company pay facility commitment fees comply certain financial covenants august 31 1997 company 20634000 available borrowing facilities financial covenants loan agreements require company maintain minimum tangible net worth amount less 200 million increased 50 net income fiscal year 31095000 august 31 1997 b allow ratio total liabilities tangible net worth defined exceed 225 1 c maintain cash flow coverage ratio least 2 1 august 31 1997 companys ratio total liabilities tangible net worth exceeded permitted ratio financial institution waived compliance covenant see note 4 notes consolidated financial statements capital expenditures 171 million 160 million 107 million fiscal 1997 1996 1995 respectively increased due capital improvement program commenced 1995 1996 expenditures exclude acquisitions aggregated 22 million investment strategy included commencement 1995 special 130 million upgrade dpls bulk seed stabilization storage handling processing facilities three cotton seed plants addition cotton seed processing plant acquired paymaster acquisition technologically upgraded projects completed 1997 include new fully integrated computer system commencement construction seed storage conditioning delinting facilities china expansion facilities argentina south africa construction new international administrative office building management believes domestic capital expenditures approximate 75 million 1998 excluding expected capital expenditures foreign joint ventures funded cash operations borrowings investments joint venture partners necessary capital expenditures international ventures expected range 60 million 80 million depending timing outcome projects cash provided operations early payments customers borrowings loan agreement sufficient meet companys 1998 working capital needs company currently negotiating 110 million senior credit facility existing lender two participating institutions planned facility include 55 million core facility due 2001 55 million seasonal facility available september 1 june 30 year also due 2001 new agreement covenants pricing structures similar existing agreements risks uncertainties time company may publish forwardlooking statements relating matters anticipated financial performance existing products technical developments new products research development activities similar matters private securities litigation reform act 1995 provides safe harbor forwardlooking statements order comply terms safe harbor company notes variety factors could cause companys actual results experience differ materially anticipated results expectations expressed companys forwardlooking statements risks uncertainties may affect operations performance development results companys business include noted elsewhere item following domestic demand dpls seed continue affected government programs importantly weather demand seed also influenced commodity prices demand crops enduses textiles animal feed food raw materials industrial use factors along weather influence cost availability seed subsequent seasons weather impacts crop yields commodity prices planting decisions farmers make regarding original planting commitments necessary replanting levels planting seed market highly competitive dpl varieties face competition number seed companies diversified chemical companies agricultural biotechnology companies governmental agencies academic scientific institutions number chemical biotechnology companies seed production andor distribution capabilities ensure market access new seed products companys seed products may encounter substantial competition technological advances others products new market entrants many companys competitors affiliated large diversified companies substantially greater resources company overall profitability depend weather conditions government policies countries company sells products worldwide commodity prices companys ability successfully open new international markets companys ability successfully continue development high plains market technology partners ability obtain timely government approval maintain approval existing additional biotechnology products company working companys ability produce sufficient commercial quantities high quality planting seed products delay inability successfully complete projects may affect future profitability due varying levels agricultural social development international markets company operates factors within particular international markets targeted company international profitability growth may less stable domestic profitability growth past item 8item 7 managements discussion analysis financial condition results operations overview decrease planted cotton acreage us 2002 adversely impacted results fiscal year ended august 31 2002 report dated june 28 2002 united states department agriculture reported planted cotton acreage us expected total 144 million acres represented 8 drop previous years estimate 156 million acres however estimate actual planted cotton acreage 2002 ranges 135 140 million acres combined effect low cotton commodity prices relatively higher soybean corn prices along late enactment farm security rural investment act 2002 farm bill may 13 2002 resulted many growers planting cotton 2002 crop year late passage 2002 farm bill coupled lower cotton prices especially felt areas stripper cotton varieties grown revenue potential per acre stripper cotton varieties significantly lower potential picker cotton varieties farmers stripper areas used cost cutting measures including reduced seeding rates per acre planting conventional seed andor farmersaved seed earnings fiscal 2002 also negatively impacted crop destruct program claims significantly higher prior year due wet unusually cool conditions existed midsouth early growing season crop destruct program farmer plants transgenic seed crop destroyed within sixty days planting monsanto field inspection forgive waive technology fee affected acreage addition seed production problems early year related certain roundup ready cottonseed varieties reduced seed availability also affected 2002 earnings since unable fill demand certain varieties positive note able increase gross margin percentage fiscal 2002 compared fiscal 2001 principally due price increases certain cotton planting seed price increases coupled factors noted contributed reduction unit sales market share price increases partially offset higher costs fuzzy cotton seed raw material results international operations negatively affected lower planted acreage key cotton producing countries operate also felt impact farmers planting saved seed andor counterfeit seed china argentina soybean sales year exceeded 2001 sales 2002 expectations due primarily improved product performance 2001 competitive pricing marketing programs 2002 5 increase soybean acreage primary marketing area strategic transactions events may 2002 signed product development agreement syngenta whereby syngenta pay us development work including introgression testing evaluation syngentas insect resistance technology elite cotton germplasm appropriate testing indicates syngenta technology combined germplasm competitive commercialization agreement reached elite varieties containing syngentas technology could potentially available introduction growers early 2004 subject syngenta obtaining us government regulatory approval factors may 2002 established deltamax cotton llc limited liability company jointly owned verdia whollyowned subsidiary maxygen inc deltamax cotton llc formed create develop commercialize valueenhancing traits cottonseed market complement andor compete traits available today dpl verdia 50 deltamax cotton llc expect invest aggregate 20 million next five eight years fund portion deltamax cotton llc includes estimated expenses 25 million 2003 03 million 2002 may 2002 acquired 50 interest dm international llc pharmacia approximately 48 million pharmacia activated crosspurchase provision operating agreement dm international llc elected dm international llc redeem pharmacias 50 interest dm international llc rather dm international llc redeem interest june 2002 announced murray robinson would retire president chief executive officer effective august 31 2002 wt jagodinski named executive vice president effective june 1 2002 would succeed robinson president chief executive officer effective september 1 2002 addition rick greene dpl vice president business development named vice presidentfinance treasurer assistant secretary effective june 1 2002 effective september 1 2002 w jagodinski became member dpl board directors term last dpls 2003 annual meeting shareholders vote upon reelection addition board brings total number directors seven matters completed plant closing reorganization corporate staff announced august 2001 resulted us taking 63 million charge prior year essentially severance payments made end prior fiscal year changes made reduce plant capacity production costs corporate overhead eliminating positions realigning soybean breeding efforts respect suit pharmacia monsanto company parties remain discovery judge case ruled discovery depositions pretrial motions must completed september 2003 trial date set january 2004 earnings 2002 fiscal year impacted legal expenses 008 per share year discovery pretrial activities intensified discussed item 3 footnotes financial statements collected fiscal 2000 filed lawsuit 81 million termination fee recorded net related expenses unusual item outlook future growth sales earnings dependent cotton acreage us around world b ability continue profitably expand international operations c successful development launch new technologies obtained third parties fee sharing arrangements beneficial us current fee sharing arrangements ability successfully develop launch technologies control developed deltamax cotton llc due market position us cotton acreage significant effect sales earnings although expect 2002 farm bill stabilize potentially increase us cotton acreage factors weather commodity prices near time farmers plant significant effect farmer planting decisions ultimately operating results previously announced expect provide 2003 earnings guidance later year even though believe 2002 farm bill positive effect acreage early predict confidence level cotton acreage since farm bill one many elements farmer considers making planting decisions internationally continue expand global reach seek improve operating results existing exus operations 2002 planted cotton acreage declined many key international markets operate due low fiber prices fiscal 2002 acquired 50 interest dm international llc pharmacia strategic step make easier us introduce new technologies third parties become available gain regulatory approval countries joint ventures partially owned dm international llc operate continue develop new businesses markets india pakistan portions africa fourth quarter fiscal 2001 announced signed letters intent two parties china form two new joint ventures one hubei henan provinces however april 2002 china announced rules prohibiting new foreign investment seed companies intend sell genetically modified seed restrict ability nonchinese companies including us investing joint ventures however signed distribution agreement party henan province distributing seed fiscal 2003 joint venture hebei province ji dai expect continue expand business china existing joint ventures ji dai continue review evaluate alternative sources types technology could bring valuable products farmers agreements reached parties announcements made believe uniquely positioned rapidly introduce new technologies us exus cotton farmers due strength breadth breeding programs germplasm base technical services capabilities knowhow brand recognition market position share repurchase programdividend policy board directors previously approved common stock repurchase plan 50 million expect continue purchasing shares open market subject market price considerations currently quarterly dividend 005 per share board reviews dividend policy quarterly assuming dividend rate maintained 2003 aggregate payments 76 million holders 381 million common shares outstanding 02 million holder 11 million preferred shares outstanding see risks uncertainties located item 7 net sales licensing fees 2002 consolidated net sales licensing fees decreased 157 2578 million 2001 sales 3058 million decrease mainly attributable reduction planted cotton acreage us reduced domestic sales 2254 million 2002 2619 million 2001 b reduction international sales 324 million 2002 439 million 2001 c loss market share caused primarily price increase inability fill demand certain roundup ready picker cotton varieties higher marketing program costs effects decreases partially offset increase soybean seed sales licensing fees increased approximately 10 2002 2001 sales transgenic cotton seed comprised approximately 93 total domestic cotton seed sales approximately 91 2001 consolidated net sales licensing fees increased 15 3058 million 2000 sales 3012 million increase primarily result continued market penetration stacked gene products domestic segment b price increases domestic cotton segment c increased export sales mexico greece brazil increased sales joint ventures china brazil effects increases partially offset lower expected sales soybeans 2001 domestic transgenic cottonseed sales comprised approximately 91 total domestic unit sales cottonseed compared approximately 89 2000 international sales increased 439 million 2001 310 million 2000 due sales increases mexico greece china brazil 2001 soybean sales licensing fees decreased 34 2000 gross profit consolidated gross profit decreased 925 million 2002 compared 1056 million 2001 consolidated gross profit percentage consolidated net sales licensing fees increased 36 2002 35 2001 primarily attributable price increases certain cotton seed partially offset higher costs fuzzy seed consolidated gross profit increased 1056 million 2001 compared 994 million 2000 increase primarily attributable continued penetration transgenic cottonseed varieties us price increase us market increased sales international segment discussed positive effects partly offset lower soybean margins operating expenses operating expenses decreased 427 million 2002 476 million 2001 decrease mainly attributable cost savings realized plant closing staff reductions announced 2001 well reduced health insurance claims reduction discretionary bonus pool operating expenses special charges increased 476 million 2001 460 million 2000 increase primarily due higher general administrative research costs partially offset continued cost savings generated 1999 reorganization sales marketing staff related synergies advertising promotional efforts research development expenses research development expenses decreased 90 181 million 2002 199 million 2001 restructuring thirdparty research contracts well cost savings realized reorganization announced 2001 contributed decrease experienced 2002 research development expenses increased 66 199 million 2001 187 million 2000 increase primarily attributable additional breeding programs georgia texas advanced breeding programs evaluation new technologies additional international seed testing selling expenses selling expenses decreased 178 106 million 2002 129 million 2001 reorganization announced 2001 produced cost savings selling function reduction advertising expenditures selling expenses decreased 93 129 million 2001 142 million 2000 decrease primarily attributable previous reorganization sales marketing staff related synergies combining advertising promotional efforts general administrative expenses general administrative expenses decreased 53 140 million 2002 148 million 2001 decrease mainly attributable reduction health insurance claims decrease discretionary bonus pool offset higher legal costs primarily related structuring negotiating agreements access license new technologies general administrative expenses increased 129 148 million 2001 131 million 2000 increase primarily consisted increase property casualty health insurance costs special charges unusual item 2001 connection closing chandler arizona delinting facility reduction domestic operations corporate staffs recorded 63 million charge associated actions 63 million 30 million related write fixed assets 33 million severance pay related benefits special charges recorded 2002 fiscal 2000 reported unusual income item 81 million merger termination fee net related expenses paid monsanto us pursuant terms may 8 1998 merger agreement interest incomeexpense net interest income decreased 12 million 2002 compared net interest income 35 million 2001 2002 interest income 23 million interest expense 11 million lower interest rates earned cash resulted lower interest earnings 2002 international interest expense increased primarily due increase interest rates incurred debt joint venture argentina net interest income 35 09 million 2001 2000 respectively 2001 interest income 45 million interest expense 10 million 2000 interest income 26 million interest expense 17 million interest income primarily earned cash generated operating activities 81 million merger termination fee collected monsanto early 2000 net income earnings per share net income special charges unusual items applicable common shares 301 321 million 792 million 2002 2001 2000 respectively net income per share diluted special charges unusual items 076 081 198 2002 2001 2000 respectively net income per share diluted legal special charges unusual items 084 095 090 2002 2001 2000 respectively legal expenses related suit pharmacia monsanto totaled 008 per diluted share 2002 004 per diluted share 2001 cost 2001 reorganization 010 per share number shares used diluted earnings per share calculations 398 million 401 million 402 million 2002 2001 2000 respectively application critical accounting policies overview managements discussion analysis financial condition results operations read conjunction consolidated financial statements related notes appearing item 8 annual report form 10k preparation financial statements requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period identified accounting policies involve estimates assumptions believe critical understanding financial statements management discussed development selection critical accounting estimate audit committee board directors audit committee reviewed related disclosures since application accounting policies involves exercise judgment use estimates actual results could differ estimates revenue recognition discussed elsewhere document domestic seed products including containing bollgard roundup ready technologies subject return credit risk effects vary year annual level returns ultimately net sales influenced various factors principally commodity prices weather conditions occurring spring planting season third fourth quarters provide estimated returns sales occur extent actual returns differ estimates adjustments operating results recorded differences become known typically fourth quarter significant returns occur accounted fiscal year end therefore application estimate primarily affects quarterly information also offer various sales incentive programs seed participate programs related bollgard roundup ready technology fees offered monsanto generally programs farmer plants seed crop lost usually due weather certain date portion price seed technology fees forgiven rebated farmer amount refund impact dpl depends whether farmer replant crop destroyed record estimates monthly account events majority occur second third quarters essentially material claims programs occurred accounted fiscal year end provision damaged obsolete excess inventory year record provision related inventory based estimate seed pass quality assurance qa standards year end deemed excess based desired seed stock level particular variety dump seed fail qa standards based physical defects ie cut seed moisture content discoloration etc germination rates transgenic qualities amount recorded inventory provision given year calculated based total quantity inventory passed qa standards fiscal period end seed expected deteriorate sold seed deemed excess valued average cost inventory establishing provision consider scrap value seed disposed initial estimate needed provision made beginning year recorded ratably course year adjustments made monthly necessary see note 2 notes consolidated financial statements item 8 details inventory reserves deferred income taxes deferred income taxes estimated based upon temporary differences income losses report financial statements taxable income losses determined applicable tax laws estimate value deferred income taxes based upon existing tax rates laws expectations future earnings estimate composite statutory income tax rate approximately 38 required evaluate likelihood ability generate sufficient future taxable income enable us realize value deferred tax assets judgment determine realize deferred tax assets valuation allowances recorded august 31 2002 recorded deferred tax assets approximately 81 million estimate deferred tax assets realized therefore recorded valuation allowances august 31 2002 use management judgment estimates estimating deferred taxes judgments estimates prove inadequate certain tax rates laws change financial results could materially adversely impacted future periods liquidity capital resources united states purchase seed contract growers first second fiscal quarters seed conditioning treating packaging commence late first fiscal quarter continue third fiscal quarter seasonal cash needs normally begin increase first fiscal quarter cash needs peak third fiscal quarter cash generated loan repayments necessary normally begin middle third fiscal quarter typically completed first fiscal quarter following year cases offer customers financial incentives make early payments extent attract early payments customers bank borrowings reduced u record revenue accounts receivable licensing fees bollgard roundup ready seed sales upon shipment usually second third quarters receivables seed sales generally due may july september licensing fees due time receive payment pay monsanto royalty recorded component cost sales bollgard roundup ready licensing fees result timing events licensing fees receivable royalties payable peak fiscal year end seasonal nature business significantly impacts cash flow working capital requirements historically maintained credit facilities used early payments customers cash operations fund working capital needs past borrowed shortterm basis meet seasonal working capital needs however 2002 used cash generated operations available cash meet working capital needs continue evaluate potential uses cash purposes working capital needs one potential use acquisition funding alternative technologies deltamax cotton llc could used enhance product portfolio ultimately longterm earnings potential another potential use repurchase open market shares pursuant previously announced share repurchase program twelve months ended august 31 2002 repurchased 539200 shares cost approximately 996 million evaluation certain transactions currently considered brought conclusion may consider potential uses remaining cash including repurchasing shares aggressively depending market considerations factors april 1998 entered syndicated credit facility three lenders provided aggregate borrowings 110 million agreement provided base commitment 55 million seasonal commitment 55 million base commitment longterm loan could borrowed upon time due april 1 2001 seasonal commitment working capital loan could drawn upon september 1 june 30 fiscal year commitment offered variable fixed interest rate options required dpl pay facility commitment fees comply certain financial covenants agreement expired april 1 2001 dpl lenders negotiating replacement facility provide aggregate borrowings sufficient meet working capital needs contain terms conditions similar 1998 facility capital expenditures 83 million 75 million 71 million fiscal 2002 2001 2000 respectively anticipate capital expenditures approximate 80 100 million 2003 board directors anticipates quarterly dividends 005 per share continue paid future however board directors reviews policy quarterly aggregate preferred common dividends paid 2002 79 million approximate 78 million 2003 cash provided operations cash hand early payments customers borrowings loan agreement necessary sufficient meet companys 2003 working capital needs february 2000 board directors authorized program repurchase 50 million common stock shares repurchased program used provide option exercises conversion series convertible nonvoting preferred shares general corporate purposes august 31 2002 repurchased 992900 shares aggregate purchase price approximately 177 million program purchased 539200 shares aggregate purchase price 996 million plan year ended august 31 2002 september 1 2002 october 31 2002 repurchased 61400 shares aggregate purchase price 11 million risks uncertainties time may publish forwardlooking statements relating matters anticipated financial performance existing products technical developments new products new technologies research development activities similar matters private securities litigation reform act 1995 provides safe harbor forwardlooking statements order comply terms safe harbor note variety factors could cause actual results experience differ materially anticipated results expectations expressed forwardlooking statements risks uncertainties may affect operations performance development results business include noted elsewhere filing following demand seed affected government programs policies weather demand seed also influenced commodity prices demand crops enduses textiles animal feed cottonseed oil food raw materials industrial use factors along weather influence cost availability seed subsequent seasons weather impacts crop yields commodity prices planting decisions farmers make regarding original planting commitments necessary replanting levels planting seed market highly competitive products face competition number seed companies diversified chemical companies agricultural biotechnology companies governmental agencies academic scientific institutions number chemical biotechnology companies seed production andor distribution capabilities ensure market access new seed products new technologies may compete bollgard roundup ready gene technologies seed products technologies contained therein may encounter substantial competition technological advances others products new market entrants many competitors affiliated large diversified companies substantially greater resources production distribution sale crop seed foreign markets may subject special risks including fluctuations foreign currency exchange rate controls expropriation nationalization agricultural economic tax regulatory policies foreign governments particular policies may affect domestic international operations include use acceptance products produced plants genetically modified testing quarantine restrictions relating import export plants seed products availability lack thereof proprietary protection plant products addition united states government policies particularly affecting foreign trade investment may impact international operations publicity related genetically modified organisms gmos products made plants contain gmos may effect sales future 2002 approximately 93 cottonseed sold united states contained either monsantos bollgard roundup ready gene technologies 89 soybean seed sales contained roundup ready gene technology although many farmers rapidly adopted technologies concern customers governmental entities finished products contain gmos could impact demand crops ultimately seed raised seed containing traits due varying levels agricultural social development international markets operate factors within particular international markets target international profitability growth may less stable predictable domestic profitability growth furthermore recent action taken us government including taken us military aftermath tragic events september 11 2001 conflicts major cotton producing nations may serve complicate ability execute long range exus business plans include future expansion uzbekistan pakistan india overall profitability depend factors noted well weather conditions government policies countries sell products operate worldwide commodity prices ability successfully open new international markets ability successfully continue development high plains market technology partners ability obtain timely government approval maintain approval existing additional biotechnology products dpl working technology partners ability successfully defend challenges proprietary technologies licensed us ability produce sufficient commercial quantities high quality planting seed products delay inability successfully complete projects may affect future profitability recently issued financial accounting standards statement financial accounting standards sfas 145 accounting costs associated exit disposal activities addresses financial accounting reporting costs associated exit disposal activities statement effective exit disposal activities initiated december 31 2002 early application encouraged therefore must adopt statement later january 1 2003 determined impact statement consolidated financial position results operations sfas 144 accounting impairment disposal longlived assets addresses financial accounting reporting impairment disposal longlived assets statement effective fiscal years beginning december 15 2001 interim periods within fiscal years therefore adopted statement september 1 2002 adoption statement material impact consolidated financial position results operations sfas 143 accounting asset retirement obligations addresses financial accounting reporting obligations associated retirement tangible longlived assets associated asset retirement costs statement effective fiscal years beginning june 15 2002 therefore adopted statement september 1 2002 adoption statement material impact consolidated financial position results operations sfas 142 goodwill intangible assets addresses financial accounting reporting acquired goodwill intangible assets adopted sfas 142 effective september 1 2001 time goodwill amortization ceased fiscal 2002 goodwill amortization would approximately 160000 second quarter fiscal 2002 recorded goodwill attributable domestic segment tested impairment comparing fair value carrying value based initial impairment test management determined none goodwill recorded impaired sfas 141 business combinations requires business combinations initiated june 1 2001 accounted purchase method sfas 141 also sets forth guidelines applying purchase method accounting determination intangible assets including goodwill acquired business combination expands financial disclosures concerning business combinations consummated june 1 2001 impact statement effect consolidated financial position results operations item 7a nannannanitem 7a quantitative qualitative disclosures market risk company exposure relative fluctuations price soybean raw material inventory foreign currency fluctuations interest rate changes time company enters various agreements considered derivatives reduce commodity price risk year ended august 31 2001 derivative instruments used manage foreign currency interest rate risks company enter speculative hedges purchase hold derivative financial instruments trading purposes discussion companys accounting policies related derivative financial instruments included note 1 notes consolidated financial statements item 8item 7a quantitative qualitative disclosures market risk exposure relative fluctuations price soybean raw material inventory foreign currency fluctuations interest rate changes time enter various agreements considered derivatives reduce commodity price risk year ended august 31 2003 derivative instruments used manage foreign currency interest rate risks enter speculative hedges purchase hold derivative financial instruments trading purposes discussion accounting policies related derivative financial instruments included note 1 notes consolidated financial statements item 8item 7a quantitative qualitative disclosures market risk exposure relative fluctuations price soybean raw material inventory foreign currency fluctuations interest rate changes time enter various agreements considered derivatives reduce commodity price risk year ended august 31 2004 derivative instruments used manage foreign currency interest rate risks enter speculative hedges purchase hold derivative financial instruments trading purposes discussion accounting policies related derivative financial instruments included note 1 notes consolidated financial statements item 8item 7a quantitative qualitative disclosures market risk exposure relative fluctuations price soybean raw material inventory foreign currency fluctuations interest rate changes time enter various agreements considered derivatives reduce soybean commodity price risk year ended august 31 2005 derivative instruments used manage foreign currency interest rate risks enter speculative hedges purchase hold derivative financial instruments trading purposes discussion accounting policies related derivative financial instruments included note 1 notes consolidated financial statements part ii item 8item 7a quantitative qualitative disclosures market risk exposure relative fluctuations price soybean raw material inventory foreign currency fluctuations interest rate changes time enter various agreements considered derivatives reduce soybean commodity price risk year ended august 31 2006 derivative instruments used manage foreign currency interest rate risks enter speculative hedges purchase hold derivative financial instruments trading purposes discussion accounting policies related derivative financial instruments included note 1 notes consolidated financial statements part ii item 8nannanitem 7a quantitative qualitative disclosures market risk exposure relative fluctuations price soybean raw material inventory foreign currency fluctuations interest rate changes time enter various agreements considered derivatives reduce commodity price risk year ended august 31 2002 derivative instruments used manage foreign currency interest rate risks except specific instance one foreign subsidiaries entered foreign currency forward exchange contracts mitigate risk associated currency fluctuations foreign currency denominated debt enter speculative hedges purchase hold derivative financial instruments trading purposes discussion accounting policies related derivative financial instruments included note 1 notes consolidated financial statements item 8 item 8 consolidated financial statements supplementary data index financial statements pages following consolidated financial statements delta pine land company subsidiaries submitted response part ii item 8 report independent public accountants19 consolidated statements income three years period ended august 31 199820 consolidated balance sheets august 31 1997 199821 consolidated statements cash flows three years period ended august 31 199822 consolidated statements stockholders equity three years period ended august 31 199823 notes consolidated financial statements24 report independent public accountants delta pine land company audited accompanying consolidated balance sheets delta pine land company delaware corporation subsidiaries august 31 1997 1998 related consolidated statements income cash flows stockholders equity three years period ended august 31 1998 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position delta pine land company subsidiaries august 31 1997 1998 results operations cash flows three years period ended august 31 1998 conformity generally accepted accounting principles arthur andersen llp memphis tennessee october 16 1998 managements report company responsible preparing financial statements related information appearing report management believes financial statements present fairly companys financial position results operations cash flows conformity generally accepted accounting principles preparing financial statements company required include amounts based estimates judgments believes reasonable circumstances company maintains accounting systems designed provide reasonable assurance financial records reliable purposes preparing financial statements assets properly accounted safeguarded compliance systems controls reviewed executive management accounting staff limitations exist internal control system recognizing systems cost exceed benefits derived board directors pursues responsibility companys financial statements audit committee composed solely directors company officers employees audit committee meets least annually independent public accountants management independent public accountants direct access audit committee without presence management representatives delta pine land company subsidiaries consolidated statements income thousands except per share amounts accompanying notes integral part consolidated statements delta pine land company subsidiaries consolidated balance sheets august 31 thousands except per share amounts accompanying notes integral part consolidated balance sheets delta pine land company subsidiaries consolidated statements cash flows years ended august 31 thousands accompanying notes integral part consolidated statements delta pine land company consolidated statements stockholders equity years ended august 31 1996 1997 1998 thousands except share data accompanying notes integral part consolidated statements notes consolidated financial statements 1 summary significant accounting policies merger monsanto company may 8 1998 company entered merger agreement monsanto company monsanto pursuant company would merged monsanto agreement subject approval companys stockholders terms agreement companys stockholders would entitled receive 08625 shares monsantos common stock exchange share delta pine land stock hold connection evaluation various strategic alternatives including contemplated merger company 1998 incurred legal fees investment banker fees professional fees approximating 51 million included special charges unusual charges related acquisitions nature operations delta pine land company subsidiaries company dpl breed produce condition market cotton soybean planting seed connection seed operations company farms approximately 2600 acres largely production cotton soybean foundation seed company annual agreements various growers produce seed cotton soybeans growers plant seed purchased company follow quality assurance procedures required seed production grower adheres established company quality assurance standards throughout growing season seed meets company quality standards upon harvest company may obligated purchase specified minimum quantities seed prices equal commodity market price seed plus grower premium company conditions seed sale planting seed basis presentation accompanying financial statements include accounts delta pine land company subsidiaries reported results 1996 1997 include results operations arizona processing inc ellis brothers seed inc mississippi seed inc sure grow seed inc sure grow companies sure grow company merged may 1996 poolingofinterests transaction acquired companies fiscal year ending june 30 august 31 1996 fiscal year end acquired companies changed august 31 net loss twomonth transition period july 1 1996 august 31 1996 shown single line consolidated statements stockholders equity significant intercompany accounts transactions eliminated consolidation special charges 1997 dpl announced production cost optimization program aimed improve plant operating efficiencies company recorded 190 million charge fourth quarter estimated costs associated plan 115 million recorded component cost sales 75 million included special charges unusual charges related acquisitions special charge included costs associated idling three plants write fixed assets plant consolidation costs associated phase certain products 1996 company commenced commercial sale cottonseed containing monsantos bollgard gene 1997 company commenced commercial cottonseed sales containing monsantos roundup ready gene result inserting genes companys existing product line number stock keeping units increased significantly june 1997 company commenced review evaluation companys product line efficiency cottonseed delinting facilities determine steps could taken reduce overhead production costs reorganizing andor consolidating companys seed processing fewer number plants management determined reduction number existing varieties development planned future commercial launch would necessary number processing plants could similarly reduced therefore management elected discontinue offering certain products previously expected offered sale next several years ii accelerate planned discontinuance products iii reduce number rate introduction certain new varieties separately connection sure grow seed acquisition 1996 three additional delinting facilities added overall capacity company decision reduce overall stock keeping units decreased volume production three plants closed decreased efficiency increased cost inventory produced facilities june 1997 management board directors adopted formal plan reorganization determined certain products would phased anticipated period three years three delinting facilities would closed immediately based estimated future inventory levels needed company management established reserves certain excess obsolete varieties reduced certain varieties net realizable value due inefficient operations excess capacity discussed bought certain grower contracts varieties phased wrote value excess facilities accordance sfas 121 recorded charge employees affected closing excess facilities company continues use warehouse facilities situated adjacent delinting plants idled plants held meet future production needs arise year ended august 31 1997 components production cost optimization program consisted following items amounts 1998 company recorded special nonrecurring pretax charges 22662000 relate additional inventory reserves costs related evaluation various strategic alternatives culminated contemplated merger monsanto unprecedented level inventory reserves write offs result excess inventory quantities resulting 7 reduction acreage realignment companys product line accelerated shift transgenic products significantly complicates inventory management product line design require continued dedicated efforts effectively manage companys ever changing product line costs related merger primarily fees legal advice investment bankers professionals connection 1996 acquisitions sure grow companies hartz cotton inc see note 12 company recorded charges anticipated nonrecurring approximately 14 million 17 million transaction costs 1996 1997 respectively costs primarily include professional fees including costs related us department justice review sure grow acquisition included special charges unusual charges related acquisitions accompanying consolidated statements income cash equivalents cash equivalents include overnight repurchase agreements shortterm investments original maturity less three months property plant equipment property plant equipment stated cost depreciation amortization provided financial reporting purposes using straightline method estimated useful lives assets accelerated methods used income tax purposes estimated useful lives various classes property years follows land improvements 520 buildings improvements 1035 machinery equipment 315 germplasm 1015 breeder foundation seed 40 germplasm breeder foundation seed purchased part paymaster hartz acquisitions includes amounts specifically identified varieties breeding stocks amounts associated specific varieties amortized expected commercial life varieties breeding stocks amortized 40 years since revitalized time remain viable indefinitely revitalization intangible assets deferred charges intangible assets consist trademarks patents intangible assets amortized using straightline method 5 40 years excess cost net assets businesses acquired amortized using straightline method 40 years organization costs foreign ventures amortized five years foreign currency translation financial statements foreign operations local currency functional currency translated using exchange rates effect period end assets liabilities average exchange rates period results operations financial statements foreign entities highly inflationary economies translated though functional currency united states currency translation adjustments reported separate component stockholders equity gains losses foreign transactions included earnings income taxes company uses liability method accounting income taxes method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities measured using enacted tax rates laws fair value financial instruments fair value companys financial instruments august 31 1998 approximates carrying value revenue recognition domestic revenues sale planting seed less estimated reserves returns recognized seed shipped international revenues recognized upon later either seed shipped letters credit cleared revenues farm operations recognized time crops harvested sold costs incurred producing crops included inventory two events occur revenues commercialization agreements royalties recognized earned included net sales licensing fees revenues bollgard roundup ready licensing fees net estimated distributor dealer commissions recognized based number acres expected planted seed shipped recorded sales royalties due licensors technology recorded cost sales research development research development costs incurred breed produce experimental seed expensed costs incurred produce sufficient quantities planting seed needed commercialization carried inventory seed sold cotton lint byproducts seed production also carried inventory sold derivative financial instruments company uses futures option contracts soybean hedging program effectively fix cost significant portion soybeans contracts accounted settlement basis net amounts paid received contracts included cost soybeans open futures contracts underlying soybean inventory marked market company terminate contracts prior expiration amount deferred losses associated soybean hedging program august 31 1998 material company speculate derivatives impairment assets dpl assesses recoverability impairment intangible assets longlived assets whenever events changes circumstances indicate carrying amount may recoverable dpl determines unamortized balance recovered projected future operating cash flows sum expected future cash flows less carrying amount asset impairment loss recognized accordance sfas 121 accounting impairment longlived assets longlived assets disposed otherwise impairment loss recognized dpl continues amortize intangible assets based remaining estimated useful life use estimates preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts income expenses reporting period actual results could differ estimates reclassifications certain 1996 1997 balances reclassified conform 1998 presentation implementation financial accounting standards sfas 130 reporting comprehensive income establishes new standards reporting comprehensive income components revenues expenses gains losses financial statements statement effective fiscal years beginning december 15 1997 company adopt disclosure requirements sfas 130 beginning fiscal 1999 sfas 131 disclosures segments enterprise related information establishes standards way public business enterprises report information operating segments annual financial statements requires enterprises report selected information operating segments interim financial reports issued shareholders statement effective financial statements periods beginning december 15 1997 company affected statement one line business sfas 132 employers disclosures pensions postretirement benefits revises employers disclosures pension postretirement benefit plans change measurement recognition plans statement effective fiscal years beginning december 15 1997 company adopt disclosure requirements sfas 132 beginning fiscal 1999 sfas 133 accounting derivative instruments hedging activities establishes accounting reporting standards derivative instruments including certain derivative instruments embedded contracts hedging activities statement effective fiscal quarters fiscal years beginning june 15 1999 company process determining effects financial statements adopting sfas 133 2 inventories august 31 consisted following 1997 1998 finished goods 28114000 45121000 raw materials 16121000 14036000 growing crops 300000 586000 supplies 876000 676000 45411000 60419000 less reserves 2525000 9922000 42886000 50497000 substantially finished goods raw material inventory valued lower average cost market growing crops supplies recorded cost 3 property plant equipment property plant equipment august 31 consisted following 1997 1998 land improvements 4360000 4437000 buildings improvements 32425000 35849000 machinery equipment 32734000 38530000 germplasm 7500000 breeder foundation seed 2000000 construction progress 8276000 5650000 87295000 93966000 less accumulated depreciation 24273000 27126000 63022000 66840000 special charge described note 1 includes pretax charge 3500000 record asset impairments conjunction 1997 optimization program amounts reflected table 4 notes payable longterm debt company syndicated credit facility three financial institutions provide aggregate unsecured borrowings 110 million includes base commitment 55 million seasonal commitment 55 million base commitment longterm loan may borrowed upon time due april 1 2001 seasonal commitment working capital loan may drawn upon september 1 june 30 fiscal year expires may 1 2001 commitment offers variable fixed interest rate options requires company pay facility commitment fees comply certain financial covenants interest rate charged loan based libor plus 35 55 basis points depending achievement certain financial ratios combined average interest rate 61 60 1997 1998 respectively financial covenants require company maintain ratio total liabilities tangible net worth august 31 less equal 225 1 40 10 companys fiscal quarter ends b maintain fixed charge ratio end quarter greater equal 20 10 c maintain times tangible net worth less sum 40 million plus ii 50 net income losses determined last day fiscal year commencing august 31 1998 august 31 1998 companys ratio total liabilities tangible net worth 24 10 exceeds permitted ratio lenders waived compliance covenant 5 accrued expenses accrued expenses august 31 consisted following accrued special charges related optimization program included costs associated idling three plants plant consolidation costs associated certain terminated contracts full amount accrual used 1998 intended purposes 6 income taxes provisions income taxes years ended august 31 consisted following differences statutory federal income tax rate effective rate follows components deferred income taxes august 31 follows deferred tax assets 1997 1998 inventory 2368000 4259000 charitable contributions 403000 270000 intangibles 312000 298000 149000 3069000 4990000 deferred tax liabilities deferred inventory 393000 532000 property 2407000 4735000 intangibles 590000 648000 335000 4038000 5602000 net deferred income taxes 969000 612000 date companys foreign subsidiaries joint ventures generated taxable income reason taxes provided foreign operations 7 leases company leases real estate machinery equipment used operations substantially rent expense recorded cost sales company capital leases future minimum rental payments 1998 operating leases initial remaining noncancellable terms excess one year follows 1999 211000 2000 156000 2001 109000 2002 33000 2007 16000 rent expense including land rent approximated 1382000 2265000 3101000 1996 1997 1998 respectively 8 employee benefit plans defined benefit plan substantially fulltime employees covered noncontributory defined benefit plan benefits paid employees beneficiaries upon retirement death disability based final average compensation highest consecutive five years plan assets consist primarily us government securities common stock managed independent portfolio manager companys funding policy make contributions plan least equal minimum amounts required funded accordance provisions erisa effective january 15 1992 company adopted supplemental executive retirement plan serp pay supplemental pension benefits certain employees whose benefits plan decreased result certain changes made plan benefits serp paid addition benefits participants may receive plan paid company assets plan assets measurement plan serp assets obligations performed june 30 following sets forth plans serps funded status amounts recognized companys financial statements august 31 increase present value accumulated benefit obligation primarily result early retirement program put effect 1997 connection production cost optimization program september 1998 company made contribution 700000 plan serp 1997 1998 actuarial present value accumulated benefit obligation including vested benefits 516000 1997 588000 1998 516000 588000 plan assets fair value 239000 500000 projected benefit obligations service rendered date 516000 588000 plan assets excess projected benefit obligation 277000 88000 unrecognized prior service cost unrecognized net gain 5000 21000 unrecognized net obligation pension liability 272000 67000 actuarial present value projected benefit obligation plan serp determined using discount rate 75 1997 1998 assumed salary increases 4 1997 1998 expected longterm rate return assets 9 1997 1998 prior service cost amortized 15 years defined contribution plan dpl sponsors defined contribution plan section 401k internal revenue code covers substantially fulltime employees company option may elect make matching contributions plan matching contributions made 1996 1997 1998 9 major customers export sales foreign operations fiscal 1996 1997 1998 seed sales three customers related licensing fees ultimately billed farmers customers transgenic products comprised 10 total sales licensing fees approximate amount annual sales including technology fees customers follows customer 1996 1997 1998 22400000 27100000 23800000 b 16200000 26200000 27388000 c 27900000 31800000 44054000 international sales including export sales approximated 12600000 14900000 21770000 1996 1997 1998 respectively 10 related party transactions partner law firm represents company also stockholder serves corporate secretary company paid legal fees firm approximately 575000 645000 715000 1996 1997 1998 respectively dr chua member board directors company chairman management board directors ima also chairman board affiliate ima imagen together singapore bioinnovations pte ltd stic investments pte ltd ocbc wearnes walden investments pte ltd 20 stock dpl china pte ltd 1996 1997 institute molecular agrobiology ima owned national university singapore national science technology board singapore conducted contract research upon companys instruction related development certain technologies varietal crops cotton soybeans company paid approximately 230000 350000 260000 1996 1997 1998 respectively research projects 11 commitments contingencies october 26 1998 approximately 51 farmers filed arbitration claims company monsanto company monsanto state agencies mississippi texas complainants allege roundup ready seed marketed company failed perform anticipated resulting deformed missing bolls assert substantial yield losses 1998 crops company monsanto presently investigating claims determine cause causes problems alleged pursuant terms roundup ready gene license seed services agreement roundup ready agreement dpl monsanto assumed responsibility defense claims pursuant roundup ready agreement monsanto contractually obligated defend indemnify company claims arising failure roundup ready glyphosate tolerance gene dpl right indemnification monsanto however claims involving defective varietal characteristics separate addition failure herbicidetolerance gene dpl believes claims resolved without material impact companys financial statements october 26 1998 101 farmers georgia 2 arkansas filed arbitration claims company cases monsanto complainants allege certain roundup ready paymaster cotton seed marketed company 1998 produced plants exhibited condition known bronze wilt consequently sustained varying degrees lost yield complaints also contain allegations poor germination dpl monsanto currently investigating claims determine cause causes alleged problems working cooperatively respective states departments agriculture gather necessary information regarding causation damage presently definitive causes alleged bronze wilt poor germination seed established accordingly monsantos indemnity obligation unresolved dpls intention defend vigorously claims asserting product defects varieties management believes complaints resolved without future material impact companys consolidated financial statements company certain subsidiaries monsanto others named defendants lawsuit filed civil district court williamson county texas 277th judicial district april 1997 plaintiffs allege among others things certain cottonseed acquired monsanto hartz cotton acquisition subsequently sold company failed perform represented allegedly resulting lost yield company filed summary judgment motion based failure arbitrate accordance texas seed law pursuant hartz cotton acquisition agreement company entitled indemnification monsanto damages resulting sale bagged seed inventories acquired dpl acquisition seed involved case may meet criteria dpl therefore entitled indemnification monsanto losses resulting seed management believes case resolved without material impact companys financial statements company monsanto third parties named defendants lawsuits filed district court falls county texas august 1996 ii district court robertson county texas march 1998 plaintiffs allege among things dpls cottonseed varieties contain monsantos bollgard gene perform farmers anticipated particular fully protect cotton crops certain lepidopteran insects pursuant terms bollgard agreement dpl monsanto assumed responsibility defense claims portion claim relating failure bollgard gene subject duty defense monsanto prorata indemnification bollgard agreement applicable indemnity provisions bollgard agreement defense costs liability plaintiffs failure technology would apportioned 71 monsanto 29 dpl claims litigation concern failure monsantos express warranties relating insect resistance claims may within scope dpls partial indemnity obligation monsanto hand claims made litigation concern quality seed coat treatments varietal aspects variety involving failure performance bollgard gene express representations respect thereto therefore may within scope monsantos indemnity obligation dpl intends cooperate monsanto anticipated vigorous defense suits dpl believes suits resolved without material impact companys consolidated financial statements october 1996 mycogen plant science inc agrigenetics inc collectively mycogen filed lawsuit us district court delaware naming dpl monsanto dekalb genetics defendants alleging two mycogens recently issued patents infringed defendants making selling licensing seed contains bollgard gene suit went trial january 1998 sought injunctions alleged infringement compensatory damages treble damages attorneys fees court costs jury found favor dpl monsanto issues infringement mycogen subsequently refiled motion new trial judgment favor mycogen matter law pursuant terms bollgard agreement monsanto required defend dpl patent infringement claims indemnify dpl damages patent infringement claims certain losses costs due monsantos obligation indemnify dpl company believes resolution matter material impact company financial statements may 1998 five individual alleged shareholders brought suits monsanto company board directors chancery court new castle county delaware complaints alleged consideration paid proposed merger company monsanto inadequate companys directors breached fiduciary duties company stockholders voting approval agreement plan merger monsanto aided abetted alleged breach fiduciary duty complaints consolidated one action seeks declaration action maintainable class action merger enjoined alternatively rescinded andor award unspecified compensatory damages merger consummated management believes complaints without merit intend vigorously defend consolidated complaints dpl believes consolidated complaints resolved without material impact companys consolidated financial statements corporation owned son companys former guatemalan distributor sued 1989 asserting company violated agreement granting another entity exclusive license certain areas central america southern mexico suit seeks damages 5300000 guatemalan quetzales approximately 800000 current exchange rates injunction preventing company distributing seed licensee region guatemalan court action proceeding twice declined approve injunction sought management believes resolution matter material impact company financial statements company continues offer seed sale guatemala company involved various claims arising normal course business management believes matters resolved without material effect companys financial position results operations july 18 1996 united states department justice antitrust division usdoj served civil investigative demand cid dpl seeking information documents connection investigation acquisition dpl stock arizona processing inc ellis brothers seed inc mississippi seed inc outstanding common stock sure grow seed inc cid states usdoj investigating whether transactions may violated provisions section 7 clayton act 15 usc ss 18 dpl responded cid employees examined usdoj dpl committed full cooperation usdoj present time ultimate outcome investigation cannot predicted 12 mergers acquisitions merger monsanto company may 8 1998 company entered merger agreement monsanto company monsanto pursuant company would merged monsanto exchange common stock expected tax free section 368a internal revenue code agreement subject approval companys stockholders terms agreement companys stockholders would entitled receive 08625 shares monsantos common stock exchange share delta pine land stock hold merger dpl monsanto subject review united states department justice usdoj hartscottrodino antitrust improvements act 1976 hsr act june 18 1998 monsanto dpl announced received requests additional information documentary materials usdoj hsr act concerning monsantos previously announced acquisition dpl request extends waiting period hsr act parties prohibited closing transaction monsanto dpl complying usdojs requests information documents quickly possible pursuant merger agreement dpl agreed period date signing merger agreement may 8 1998 merger closing date except otherwise expressly permitted terms merger agreement cause respective subsidiaries material respects carry business ordinary course ii use reasonable best efforts preserve intact current business organization iii keep available services current officers employees iv preserve relationships customers suppliers others addition dpl agreed neither dpl applicable subsidiaries without monsantos prior written consent otherwise permitted merger agreement amend certificate incorporation bylaws b split combine reclassify outstanding capital stock declare set aside pay dividend payable cash stock property respect provided dpl may declare pay regular quarterly dividends 003 per share c issue agree issue additional shares rights acquire shares capital stock issuance shares capital stock subsidiary dpl respect dpl shares issuable upon exercise outstanding options pursuant dpl 1993 stock option plan 1995 dpl longterm incentive plan collectively dpl option plans enter agree enter new amended contract agreement labor unions e authorize recommend propose announce intention authorize recommend propose enter agreement principle agreement respect merger consolidation business combination merger monsanto acquisition disposition material amount assets securities inventory ordinary course business f enter amend employment severance changeincontrol agreement benefit plan except required law regulations expressly provided merger agreement ordinary course business g except ordinary course business create incur assume debt existing approved lines credit fund outofpocket costs incurred connection transactions contemplated merger agreement ii assume guarantee endorse otherwise become liable responsible obligations person except majority owned subsidiaries dpl ordinary course business iii make loans advances capital contributions investments person majorityowned subsidiary h amend 1996 dpl shareholder rights plan rights plan redeem rights granted rights plan take action prohibited taking merger agreement would constitute likely cause breach covenant agreement representation set forth merger agreement transactions company merged sure grow companies may 1996 poolingofinterests transaction valued approximately 700 million dpl exchanged approximately 28 million shares common stock subsequently registered december 1996 outstanding shares sure grow companies acquired companies fiscal year ending june 30 august 31 1996 fiscal year ends acquired companies changed august 31 following summarizes income statement data sure grow companies period beginning july 1 1996 ending august 31 1996 sales 574000 cost sales 1043000 operating expenses 207000 15000 net loss 691000 combined net loss 691000 transition period included separate item accompanying consolidated statements stockholders equity net change cash transition period decrease 357000 amount included single item accompanying consolidated statements cash flows february 1996 company acquired hartz cotton inc monsanto company included cotton planting seed inventories germplasm breeding stocks trademarks trade names assets approximately 60 million consideration consisted primarily 1066667 shares companys series convertible nonvoting preferred stock pro forma financial data presented impact acquisition accounted purchase material companys results operations period presented acquisition also included contingent consideration form rights receive 266667 shares companys series convertible nonvoting preferred stock certain unit sales levels hartz cottonseed achieved addition monsanto also right receive shares dpl common stock fiscal 2000 based gross profits earned september 1 1996 august 31 1999 sale varieties developed germplasm acquired 13 stockholders equity preferred stock board directors company authorized subject certain limitations prescribed law monsanto merger agreement without stockholder approval issue aggregate 2000000 shares preferred stock one series determine alter designations preferences rights qualifications limitations restrictions shares series thereof including dividend rights dividend rates conversion rights voting rights terms redemption including sinking fund provisions redemption price prices liquidation preferences number shares constituting series designations series august 1996 board directors adopted stockholder rights plan rights plan declared dividend one preferred stock purchase right outstanding share companys common stock similar rights generally issued respect common stock subsequently issued right becomes exercisable upon occurrence certain events one onehundredth share series junior participating preferred stock 010 par value purchase price 175 per one onehundredth preferred share subject adjustment event company acquired merger business combination transaction approved board directors holder right shall right receive number shares common stock surviving company would market value two times exercise price right board directors unanimously approved monsanto merger modified rights plan deactivate merger rights plan 429319 shares series junior participating preferred stock reserved rights currently exercisable person group acquires beneficial ownership 15 companys outstanding shares common stock rights expire august 30 2006 redeemable whole part companys option time price 001 per right may 1998 july 1998 rights plan amended facilitate monsanto merger company issued 800000 shares effect stock splits series convertible nonvoting preferred stock february 1996 consideration purchase hartz cotton inc monsanto holders series preferred stock entitled receive dividends rate per share paid time share common stock company declared board directors event liquidation dissolution winding company either voluntary involuntary holders series preferred stock shall entitled receive prior preference distribution holders common stock class security company 10452 per share series preferred stock series preferred stock convertible beginning upon seventh anniversary date series preferred stock issued occurrence specified events whichever occurs first stock option plans april 1993 board directors stockholders approved 1993 stock option plan options purchase 2560000 shares effect stock splits november 1997 common stock authorized option price less market price date grant october 17 1995 companys board directors adopted 1995 longterm incentive plan incentive plan pursuant stock options stock appreciation rights restricted shares common stock performance units may awarded officers key employees directors incentive plan 2560000 shares effect stock splits november 1997 common stock company available grant shares subject options awards expire unexercised available new option grants awards companys stockholders ratified adoption incentive plan 1996 annual meeting future members board directors receive automatic grants 62223 shares upon named board february 27 1997 stockholders amended plan provide additional one time grants 8889 shares february 1997 2667 year thereafter next five years directors company options exercisable ratably five years commencing one year date grant fiscal 1997 company adopted sfas 123 accounting stockbased compensation requires companies estimate fair value stock options date grant pronouncement requires company record estimated fair value stock options issued compensation expense income statements related service periods alternatively continue apply accounting methodologies prescribed accounting principles board apb opinion 25 accounting stock issued employees disclose pro forma effects estimated fair value stock options issued accompanying footnotes financial statements adopting pronouncement company elected continue follow accounting methodologies prescribed apb opinion 25 determination fair value required stock options issued beginning fiscal 1996 weighted average fair values options granted fiscal 1996 1997 1998 502 1108 1591 per share respectively proforma effects total compensation expense would recognized sfas 123 follows company utilized blackscholes option pricing model estimate fair value stock options granted using following assumptions following table summarizes certain information stock options granted exercised forfeited three year period ended august 31 1998 common stock march 1996 board directors authorized 3 2 stock split common preferred shares outstanding effected form dividend change par value per share distributed april 15 1996 stockholders record march 29 1996 february 1997 board directors authorized 4 3 stock split common preferred shares outstanding effected form dividend change par value per share distributed april 11 1997 stockholders record march 31 1997 october 1997 board directors authorized 4 3 stock split common preferred shares outstanding effected form dividend change par value per share distributed november 20 1997 stockholders record november 10 1997 stock splits described reflected accompanying financial statements treasury stock april 1997 board directors authorized stock repurchase plan 10 companys outstanding common stock august 31 1997 1998 company purchased 114267 shares aggregate purchase price 2173000 connection monsanto merger board directors formally terminated plan may 1998 earnings per share table reconciles basic diluted earnings per share august 31 basic 1996 1997 1998 net income 15276 6913 1879 preferred stock dividends 39 63 96 net income applicable common stockholders 15237 6850 1783 weighted average shares outstanding 37292 37579 38011 basic earning per share 041 018 005 diluted net income 15237 6850 1783 applicable common stockholders add back preferred stock dividends 39 63 96 net income applicable common stockholder 15276 6913 1879 weighted average shares outstanding 37292 37579 38011 common stock equivalents 1505 1484 1762 weighted average common stock issuable upon conversion preferred stock 467 800 diluted shares outstanding 39264 39863 40573 diluted earnings per share 039 017 004 14 unaudited quarterly financial data companys domestic seed products subject return credits vary year annual level returns ultimately net sales net income influenced various factors principally weather conditions occurring spring planting season spanning companys third fourth fiscal quarters company provides estimated returns sales made extent actual returns differ estimates adjustments companys operating results recorded differences become known typically companys fourth quarter significant returns occur accounted fiscal year end generally international sales subject return substantially company sales concentrated second third fiscal quarters result company generally incurs losses first fourth quarters management believes seasonality common throughout seed industry summarized unaudited quarterly financial data follows thousands except per share data 1the sum quarterly net income loss per share amounts may equal annual amount reported since per share amounts computed independently quarter whereas annual earnings per share based annual weighted average shares deemed outstanding year 2seed returns higher fourth quarter level returns anticipated end third quarter change accounting estimate returns recorded fourth quarter new provision returns greater amount sales recorded fourth quarter result reported net sales fourth quarter negative 3the fourth quarter includes effect recording 190 million special charge 115 million recorded cost sales 75 million recorded operating expenses related production cost optimization program 4the fourth quarter includes effect recording 175 million special charge cost sales associated inventory write offs recalled inventory 51 million operating expense effects evaluation various strategic alternatives monsanto merger item 9item 8 consolidated financial statements supplementary data index financial statements pages following consolidated financial statements delta pine land company subsidiaries submitted response part ii item 8 report independent public accountants30 consolidated statements income three years period ended august 31 199931 consolidated balance sheets august 31 1998 199932 consolidated statements cash flows three years period ended august 31 199933 consolidated statements stockholders equity three years period ended august 31 199934 notes consolidated financial statements35 report independent public accountants delta pine land company audited accompanying consolidated balance sheets delta pine land company delaware corporation subsidiaries august 31 1998 1999 related consolidated statements income cash flows stockholders equity three years period ended august 31 1999 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position delta pine land company subsidiaries august 31 1998 1999 results operations cash flows three years period ended august 31 1999 conformity generally accepted accounting principles arthur andersen llp memphis tennessee november 15 1999 managements report company responsible preparing financial statements related information appearing report management believes financial statements present fairly companys financial position results operations cash flows conformity generally accepted accounting principles preparing financial statements company required include amounts based estimates judgments believes reasonable circumstances company maintains accounting systems designed provide reasonable assurance financial records reliable purposes preparing financial statements assets properly accounted safeguarded compliance systems controls reviewed executive management accounting staff limitations exist internal control system recognizing systems cost exceed benefits derived board directors pursues responsibility companys financial statements audit committee composed solely directors company officers employees audit committee meets least annually independent public accountants management independent public accountants direct access audit committee without presence management representatives accompanying notes integral part consolidated statements accompanying notes integral part consolidated balance sheets accompanying notes integral part consolidated statements accompanying notes integral part consolidated statements notes consolidated financial statements 1 summary significant accounting policies merger monsanto company may 8 1998 delta pine land company dplc entered merger agreement monsanto company monsanto pursuant dplc would merged monsanto agreement approved dplcs stockholders still subject expiration waiting period hartscottrodino antitrust improvements act 1976 terms agreement upon consummation merger dplcs stockholders entitled receive 08625 shares monsantos common stock exchange share delta pine land company stock hold special shareholders meeting held november 30 1998 shareholders approved merger agreement plan merger agreement originally expiration date june 30 1999 however dplc could extend period time complete merger december 31 1999 certain circumstances june 30 2000 may 21 1999 dplc monsanto agreed extend time completing merger june 30 1999 december 31 1999 option dplc extend deadline june 30 2000 connection evaluation various strategic alternatives including contemplated merger dlpc 1998 incurred legal fees investment banker fees professional fees approximating 51 million included special charges unusual charges related acquisitions 1999 dplc incurred approximately 90 million legal fees professional fees costs related contemplated merger nature operations delta pine land company subsidiaries company dpl breed produce condition market cotton soybean planting seed connection seed operations company farms approximately 2600 acres largely production cotton soybean foundation seed company annual agreements various growers produce seed cotton soybeans growers plant seed purchased company follow quality assurance procedures required seed production grower adheres established company quality assurance standards throughout growing season seed meets company quality standards upon harvest company may obligated purchase specified minimum quantities seed prices equal commodity market price seed plus grower premium company conditions seed sale planting seed basis presentation accompanying financial statements include accounts delta pine land company subsidiaries significant intercompany accounts transactions eliminated consolidation special charges july 1999 dpl announced restructuring program aimed improve operating efficiencies consolidating companys three domestic divisions one company recorded 20 million charge fourth quarter severance related costs associated plan substantially paid prior august 31 charge included special charges unusual charges related acquisitions accompanying consolidated statements income 90 million merger related costs 1999 company wrote inventory deemed excess obsolete portion inventory write deemed excess normal levels 152 million separately presented component cost sales income expense includes 37 million loss disposition fixed assets nonrecurring charges 1998 company recorded special nonrecurring charges 226 million relate additional inventory reserves costs related evaluation various strategic alternatives culminated contemplated merger monsanto level inventory reserves writeoffs result excess inventory quantities resulting 7 reduction acreage realignment companys product line due introduction new products changing demand costs related merger primarily fees legal advice investment bankers professionals 1997 dpl announced production cost optimization program aimed improve plant operating efficiencies company recorded 190 million charge fourth quarter estimated costs associated plan 115 million recorded component cost sales 75 million included special charges unusual charges related acquisitions special charge included costs associated idling three plants write fixed assets plant consolidation costs associated phase certain products 1996 company commenced commercial sale cottonseed containing monsantos bollgard gene 1997 company commenced commercial cottonseed sales containing monsantos roundup ready gene result inserting genes companys existing product line number stock keeping units increased significantly june 1997 company commenced review evaluation companys product line efficiency cottonseed delinting facilities determine steps could taken reduce overhead production costs reorganizing andor consolidating companys seed processing fewer number plants management determined reduction number existing varieties reduction expected growth rate development planned future commercial launch would necessary number processing plants could similarly reduced therefore management elected discontinue offering certain products previously expected offered sale next several years ii accelerate planned discontinuance products iii reduce number rate introduction certain new varieties separately connection sure grow seed acquisition 1996 three additional delinting facilities added overall capacity company decision reduce overall stock keeping units decreased volume production three plants closed decreased efficiency increased cost inventory produced facilities june 1997 management board directors adopted formal plan reorganization determined certain products would phased anticipated period three years three delinting facilities would closed immediately based estimated future inventory levels needed company management established reserves certain excess obsolete varieties reduced certain varieties net realizable value due inefficient operations excess capacity discussed bought certain grower contracts varieties phased wrote value excess facilities accordance sfas 121 recorded charge employees affected closing excess facilities year ended august 31 1997 components production cost optimization program consisted following items amounts thousands connection 1996 acquisitions sure grow companies hartz cotton inc company recorded charges anticipated nonrecurring approximately 17 million transaction costs 1997 paid prior august 31 1997 costs primarily include professional fees including costs related us department justice review sure grow acquisition included special charges unusual charges related acquisitions accompanying consolidated statements income august 31 1999 liabilities related items remain balance sheet cash equivalents cash equivalents include overnight repurchase agreements shortterm investments original maturity less three months property plant equipment property plant equipment stated cost depreciation amortization provided financial reporting purposes using straightline method estimated useful lives assets accelerated methods used income tax purposes estimated useful lives various classes property years follows land improvements 520 buildings improvements 1035 machinery equipment 315 germplasm 1015 breeder foundation seed 40 germplasm breeder foundation seed purchased part paymaster hartz acquisitions includes amounts specifically identified varieties breeding stocks amounts associated specific varieties amortized expected commercial life varieties breeding stocks amortized 40 years since revitalized time remain viable indefinitely revitalization intangible assets deferred charges intangible assets consist trademarks patents intangible assets amortized using straightline method 5 40 years excess cost net assets businesses acquired amortized using straightline method 40 years organization costs foreign ventures amortized five years foreign currency translation financial statements foreign operations local currency functional currency translated using exchange rates effect period end assets liabilities average exchange rates period results operations financial statements foreign entities highlyinflationary economies translated though functional currency united states currency translation adjustments reported separate component stockholders equity gains losses foreign currency transactions included earnings income taxes company uses liability method accounting income taxes method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities measured using enacted tax rates laws fair value financial instruments fair value companys financial instruments august 31 1999 approximates carrying value revenue recognition domestic revenues sale planting seed less estimated reserves returns recognized seed shipped international revenues recognized upon later either seed shipped letters credit cleared revenues farm operations recognized time crops harvested sold costs incurred producing crops included inventory two events occur revenues commercialization agreements royalties recognized earned included net sales licensing fees revenues bollgard roundup ready licensing fees net estimated distributor dealer commissions recognized based number acres expected planted seed shipped recorded sales royalties due licensors technology recorded cost sales research development research development costs incurred breed produce experimental seed expensed costs incurred produce sufficient quantities planting seed needed commercialization carried inventory seed sold cotton lint byproducts seed production also carried inventory sold derivative financial instruments company uses futures option contracts soybean hedging program effectively fix cost significant portion soybeans contracts accounted settlement basis net amounts paid received contracts included cost soybeans open futures contracts underlying soybean inventory marked market company typically terminate contracts prior expiration amount deferred losses associated soybean hedging program august 31 1999 material company speculate derivatives impairment assets dpl assesses recoverability impairment intangible assets longlived assets whenever events changes circumstances indicate carrying amount may recoverable dpl determines unamortized balance recovered projected future operating cash flows sum expected future cash flows less carrying amount asset impairment loss recognized accordance sfas 121 accounting impairment longlived assets longlived assets disposed otherwise impairment loss recognized dpl continues amortize intangible assets based remaining estimated useful life use estimates preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts income expenses reporting period actual results could differ estimates reclassifications certain prior year amounts reclassified conform 1999 presentation implementation financial accounting standards company adopted statement financial accounting standards sfas 130 reporting comprehensive income first quarter 1999 statement requires foreign currency translation included comprehensive income accumulated balance comprehensive income separately presented prior year information restated conform requirements statement sfas 133 accounting derivative instruments hedging activities establishes accounting reporting standards derivative instruments including certain derivative instruments embedded contracts hedging activities effective date statement delayed via issuance sfas 137 effective date sfas 133 fiscal years beginning june 15 2000 although earlier adoption encouraged retroactive application prohibited dpl must adopt statement later september 1 2000 management expect adoption standard material impact dpls results operations financial position cash flows april 1998 accounting standards executive committee american institute certified public accountants released sop 985 requiring startup activities expensed incurred sop 985 effective fiscal years beginning december 31 1998 company adopt sop beginning fiscal year 2000 august 31 1999 dpl costs aggregating approximately 1000000 recorded startup organizational costs related primarily foreign joint ventures 2 inventories august 31 consisted following 1998 1999 finished goods 45121000 43528000 raw materials 14036000 15774000 growing crops 586000 1564000 supplies 676000 969000 60419000 61835000 less reserves 9922000 14108000 50497000 47727000 substantially finished goods raw material inventory valued lower average cost market growing crops supplies recorded cost 3 property plant equipment property plant equipment august 31 consisted following 1998 1999 land improvements 4437000 4113000 buildings improvements 35849000 35251000 machinery equipment 38530000 43291000 germplasm 7500000 breeder foundation seed 2000000 construction progress 5650000 4789000 93966000 96944000 less accumulated depreciation 27126000 31778000 66840000 65166000 4 notes payable longterm debt company syndicated credit facility three financial institutions provides aggregate unsecured borrowings 110 million comprised base commitment 55 million seasonal commitment 55 million base commitment longterm loan may borrowed upon time due april 1 2001 seasonal commitment working capital loan may drawn upon september 1 june 30 fiscal year expires april 1 2001 commitment offers variable fixed interest rate options requires company pay facility commitment fees comply certain financial covenants august 31 1999 company 380 million available borrowing base commitment addition lead lender approved 250 million credit line activated company needed april 15 1999 company activated previously approved 250 million additional seasonal credit facility available april 15 1999 september 1 1999 incurred interest rates comparable existing facility interest rate charged loan based libor plus 35 55 basis points depending achievement certain financial ratios combined average interest rate 60 56 1998 1999 respectively financial covenants require company maintain ratio total liabilities tangible net worth august 31 less equal 225 1 40 10 companys fiscal quarter ends b maintain fixed charge ratio end quarter greater equal 20 10 c maintain times tangible net worth less sum 40 million plus ii 50 net income losses determined last day fiscal year commencing august 31 1998 august 31 1999 companys ratio total liabilities tangible net worth 26 10 exceeds permitted ratio lenders waived compliance covenant 5 accrued expenses accrued expenses august 31 consisted following 1998 1999 sales returns allowances 8996000 8627000 payroll 2067000 2883000 bollgard roundup ready royalties related expenses due monsanto 68754000 115260000 accrued expenses 11746000 13379000 91563000 140149000 6 income taxes provisions income taxes years ended august 31 consisted following 1997 1998 1999 current federal 2622000 970000 9628000 state 65000 39000 858000 deferred 79000 298000 7059000 2766000 1307000 3427000 differences statutory federal income tax rate effective rate follows components deferred income taxes august 31 follows deferred tax assets 1998 1999 inventory 4259000 9226000 charitable contributions 270000 368000 intangibles 312000 192000 149000 4083000 4990000 13869000 deferred tax liabilities deferred charges 532000 908000 property 4735000 5228000 335000 641000 5602000 6777000 net deferred income taxes 612000 7092000 date companys foreign subsidiaries joint ventures either generated taxable income granted tax holidays reasons taxes provided foreign operations 7 leases company leases real estate machinery equipment used operations substantially rent expense recorded cost sales company capital leases future minimum rental payments 1999 operating leases initial remaining noncancellable terms excess one year follows 2000 192000 2001 135000 2002 67000 2003 31000 2004 rent lease expense including land rent approximated 2265000 3101000 3182000 1997 1998 1999 respectively 8 employee benefit plans defined benefit plan substantially fulltime employees covered noncontributory defined benefit plan benefits paid employees beneficiaries upon retirement death disability based final average compensation highest consecutive five years plan assets consist primarily us government securities common stock managed independent portfolio manager companys funding policy make contributions plan least equal minimum amounts required funded accordance provisions erisa effective january 15 1992 company adopted supplemental executive retirement plan serp pay supplemental pension benefits certain employees whose benefits plan decreased result certain changes made plan benefits serp paid addition benefits participants may receive plan paid company assets plan assets company adopted sfas 132 employers disclosures pensions postretirement benefits changes presentation information pension postretirement benefit plans disclosures prior years restated measurement plan serp assets obligations performed june 30 following table provides reconciliation changes plans serps benefit obligations fair value assets twoyear period ended august 31 1999 statement funded status august 31 1998 1999 actuarial present value projected benefit obligation plan serp determined using discount rate 75 1998 1999 assumed salary increases 4 1998 1999 expected longterm rate return assets 9 1998 1999 prior service cost amortized 15 years defined contribution plan dpl sponsors defined contribution plan section 401k internal revenue code covers substantially fulltime employees company option may elect make matching contributions plan matching contributions made 1997 1998 1999 9 major customers fiscal 1997 1998 1999 seed sales three customers related licensing fees ultimately billed farmers customers transgenic products comprised 10 total sales licensing fees approximate amount annual sales including technology fees customers follows customer 1997 1998 1999 27100000 23800000 34615000 b 26200000 27388000 50767000 c 31800000 44054000 74710000 10 business segment information company adopted sfas 131 disclosures segments enterprise related information effective august 31 1999 statement establishes standards reporting information operating segments operating segments defined components enterprise separate financial information available evaluated regularly chief operating decisionmaker allocating resources assessing performance company single line business operates two business segments domestic international companys reportable segments offer similar products however business units managed separately due geographic dispersion operations dpl breeds produces delints conditions markets proprietary varieties cotton planting seed united states dpl also breeds produces conditions distributes soybean planting seed united states international segment offers similar cottonseed several foreign countries company develops proprietary seed products research development efforts throughout united states certain foreign countries additionally company utilizes methods production distribution domestic cotton seed stripper picker varieties companys chief operating decision maker utilizes revenue information assessing performance making overall operating decisions resource allocations profit loss information reported segment chief operating decision maker companys board directors accounting policies segments described summary significant accounting policies domestic sales approximated 233949000 170569000 168349000 1999 1998 1997 respectively international sales approximated 26516000 21770000 14900000 1999 1998 1997 respectively international sales includes shipments either originate destined locations outside united states operating incomelosses 1999 1998 1997 respectively approximately 19856000 9228000 13459000 domestic segment 2082000 2960000 2039000 international segment domestic longlived assets approximated 67565000 62187000 1998 1999 respectively international longlived assets approximated 9724000 16028000 1998 1999 respectively longlived assets include property plant equipment goodwill longterm assets capital expenditures 1999 1998 1997 respectively 3824000 5305000 15427000 domestic segment 4269000 4937000 1027000 international segment 11 related party transactions partner law firm represents company also stockholder serves corporate secretary company paid legal fees firm approximately 645000 715000 740000 1997 1998 1999 respectively 1997 1998 1999 institute molecular agrobiology ima owned national university singapore national science technology board singapore conducted contract research upon companys instruction related development certain technologies varietal crops cotton soybeans company paid approximately 350000 260000 340000 1997 1998 1999 respectively research projects dr chua member board directors company chairman management board directors ima also chairman board affiliate ima imagen together singapore bioinnovations pte ltd stic investments pte ltd ocbc wearnes walden investments pte ltd 20 stock dpl china pte ltd 1999 company sold loss approximately 11 million site centre alabama entity controlled officer also shareholder officer shareholder sure grow companies time acquisition dpl 12 commitments contingencies october 14 1999 company monsanto uapga ag chem inc named defendants two lawsuits filed two cotton farmers united states district court western district north carolina suits allege among things certain varieties sold company contain roundup ready gene performed poorly specifically including lack tolerance roundup poor germination company monsanto investigated claims determine cause causes alleged problems pursuant terms roundup ready agreement dpl monsanto dpl tendered defense claims monsanto requested indemnify pursuant roundup ready agreement monsanto contractually obligated defend indemnity company claims arising failure roundup glyphosate tolerance gene dpl right indemnification monsanto however claim involving defective varietal characteristics separate addition failure herbicide tolerance gene claims contained complaints dpl believes claims resolved without material impact companys consolidated financial statements june 11 1999 dpl monsanto asgrow seed company sf services terral seed inc valley farmers coop red river coop central louisiana grain coop named defendants lawsuit filed fourth judicial district parish natchitoches state louisiana suit alleges among things certain soybean seeds contain roundup readyr gene perform advertised produce promised yields plaintiffs case seeking certification class purchasers roundup ready soybeans years 1997 1998 company monsanto presently investigating claim however believe without merit plan vigorously defend lawsuit pursuant terms roundup ready soybean agreement dpl monsanto dpl tendered defense claim monsanto pursuant roundup ready soybean agreement monsanto contractually obligated defend indemnify claims arising failure glyphosate gene tolerance certain types claims dpl right indemnification monsanto however claim involving defects seed andor promotional representations made solely dpl without monsantos approval claims appear contained within complaint dpl believes claim resolved without material impact companys consolidated financial statements company monsanto named defendants four pending lawsuits filed state texas two lawsuits filed lamb county texas april 5 1999 one lawsuit filed lamb county texas april 14 1999 one lawsuit filed hockley county texas april 21 1999 lawsuits removed united states district court lubbock division subsequently remanded back state court filed case plaintiff alleges among things certain cottonseed acquired paymaster contained roundup ready gene perform farmers anticipated lawsuits also include varietal claims aimed solely company litigation identical seed arbitration claims previously filed state texas concluded companys favor company monsanto investigated claims determine cause causes alleged problems pursuant terms roundup ready agreement dpl monsanto dpl tendered defense claims monsanto requested indemnity pursuant roundup ready agreement monsanto contractually obligated defend indemnify company claims arising failure roundup glyphosate tolerance gene dpl right indemnification monsanto however claim involving defective varietal characteristics separate addition failure herbicide tolerance gene claims contained complaints dpl believes claims resolved without material impact companys consolidated financial statements company monsanto parties named defendants lawsuit filed superior court calhoun county georgia april 19 1999 removed united states district court middle district georgia albany division company monsanto presently investigating claim determine cause causes alleged problems pursuant terms roundup ready agreement dpl monsanto dpl tendered defense claim monsanto requested indemnity monsanto contractually obligated defend indemnify company claims arising failure roundup glyphosate tolerance gene dpl right indemnification monsanto however claim involving defects seed separate addition failure herbicide tolerance gene claims contained complaints case subject seed arbitration case filed georgia 1997 concluded companys favor company monsanto named defendants lawsuit filed circuit court state missouri county dunklin april 2 1999 case subsequently removed united states district court eastern district missouri remanded back circuit court state missouri county dunklin suit alleges certain varieties cotton offered sale dpl unmerchantable result alleged susceptibility malady referred bronze wilt although litigation involves transgenic variety allegation complaint sufficient trigger contractual obligation defend indemnify terms roundup ready agreement settlement claim agreed yet consummated settlement reflected companys consolidated financial statements august 31 1999 march 30 1999 company asgrow seed company llc terra international named defendants lawsuit filed fourth judicial district court parish morehouse state louisiana removed united states district court western district louisiana suit alleges among things certain soybean seed contained roundup ready gene properly germinate perform farmer anticipated particular fully protect crops damage following application roundup company monsanto presently investigating claim determine cause causes alleged problem pursuant terms roundup ready agreement dpl monsanto dpl tendered defense claim monsanto pursuant roundup ready agreement monsanto contractually obligated defend indemnify claims arising failure glyphosate gene tolerance dpl believes case resolved without material impact companys consolidated financial statements 1999 1998 45 farmers mississippi filed seed arbitration claims company monsanto mississippi department agriculture arising 1998 cotton crop mississippi department agriculture dismissed 19 claims due failure farmer provide adequate information farmers however still right pursue litigation choose remaining arbitration claims heard march 1999 company exonerated liability 16 cases three cases resulted suggestion nominal damages farmers likewise right pursue litigation choose five 16 unsuccessful claimants 1998 crop year filed suit may 21 1999 circuit court bolivar county mississippi company monsanto company monsanto presently investigating claims pursuant terms roundup ready agreement dpl monsanto dpl tendered defense claims monsanto requested indemnity monsanto contractually obligated defend indemnify company claims arising failure roundup glyphosate tolerance gene dpl right indemnification monsanto however claim involving defects seed separate addition failure herbicide tolerance gene claims contained complaints dpl believes lawsuit resolved without material impact companys consolidated financial statements additionally one farmer mississippi filed seed arbitration claim company mississippi department agriculture arising 1999 cotton crop mississippi department agriculture yet scheduled hearing claim dpl believes claim resolved without material impact companys consolidated financial statements 1999 1998 approximately 210 cotton farmers georgia filed seed arbitration claims arising 1998 cotton crop company cases monsanto approximately 180 cases settled settlements achieved without material impact companys consolidated financial statements remaining claimants filed 1998 crop year still right pursue litigation choose company believes claims resolved without material impact companys consolidated financial statements 1999 approximately 31 cotton farmers georgia filed seed arbitration claims company cases monsanto alleging damages 1999 crop six claims scheduled hearing four january 11 2000 two january 20 2000 company monsanto process investigating claims determine cause causes alleged problems pursuant terms roundup ready agreement dpl monsanto dpl tendered defense seed arbitration claims monsanto requested indemnity pursuant roundup ready agreement monsanto contractually obligated defend indemnify company claims arising failure roundup glyphosate tolerance gene dpl right indemnification however claim involving defects seed separate addition failure herbicide tolerance gene claims contained seed arbitration claims filed based upon information received date dpl believes claims resolved without material impact companys consolidated financial statements 1998 one claim filed arkansas seed arbitration council motion dismiss filed case alleges certain roundup ready cottonseed marketed company 1997 failed perform farmers anticipated caused farmers suffer crop loss pursuant roundup ready agreement dpl monsanto dpl tendered defense claim monsanto pursuant roundup ready agreement monsanto contractually obligated defend indemnify claims arising failure glyphosate gene tolerance dpl believes case resolved without material impact companys consolidated financial statements 1999 1998 three farmers state florida filed arbitration claims company two claims resolved hearing conducted remaining claim october 12 1999 however ruling yet received dpl believes claim resolved without material impact companys consolidated financial statements company certain subsidiaries monsanto others named defendants lawsuit filed civil district court williamson county texas 277th judicial district april 1997 plaintiffs allege among things certain cottonseed acquired monsanto hartz cotton acquisition subsequently sold company failed perform represented allegedly resulting lost yield pursuant hartz cotton acquisition agreement company entitled indemnification monsanto damages resulting sale bagged seed inventories acquired dpl acquisition seed involved case may meet criteria dpl therefore entitled indemnification monsanto losses resulting seed october 1999 case dismissed parties litigation including company monsanto agreed mediate claims subject lawsuit mediation fail parties agreed enter binding arbitration management believes case resolved without material impact companys consolidated financial statements company monsanto third parties named defendants lawsuits filed district court falls county texas august 1996 ii district court robertson county texas march 1998 plaintiffs allege among things dpls cottonseed varieties contain monsantos bollgard gene perform farmers anticipated particular fully protect cotton crops certain lepidopteran insects october 8 1999 settlement falls county case agreed upon yet consummated settlement terms would material impact companys consolidated financial statements may 1998 five individual alleged shareholders brought suits monsanto company board directors court chancery new castle county delaware complaints alleged consideration paid proposed merger company monsanto inadequate companys directors breached fiduciary duties companys stockholders voting approve agreement plan merger monsanto aided abetted alleged breach fiduciary duty complaints consolidated one action sought declaration action maintainable class action merger enjoined alternatively rescinded andor award unspecified compensatory damages merger consummated settlement agreement reached named plaintiffs november 1998 parties intend apply court date hearing approval settlement approved material effect companys consolidated financial statements october 1996 mycogen plant science inc agrigenetics inc collectively mycogen filed lawsuit us district court delaware naming dpl monsanto dekalb genetics defendants alleging two mycogens recently issued patents infringed defendants making selling licensing seed contains bollgard gene suit went trial january 1998 sought injunctions alleged infringement compensatory damages treble damages attorneys fees court costs jury found favor dpl monsanto issues infringement mycogen subsequently refiled motion new trial judgment favor mycogen matter law trial court ruled motions holding mycogen certain issues sustaining jury verdict favor dpl monsanto mycogen appealed us court appeals federal circuit pursuant terms bollgard agreement monsanto required defend dpl patent infringement claims indemnify dpl damages patent infringement claims certain losses costs due monsantos obligation indemnify dpl company believes resolution matter material impact companys consolidated financial statements corporation owned son companys former guatemalan distributor sued 1989 asserting company violated agreement granting another entity exclusive license certain areas central america southern mexico suit seeks damages 5300000 guatemalan quetzales approximately 700000 current exchange rates injunction preventing company distributing seed licensee region guatemalan court action proceeding twice declined approve injunction sought management believes resolution matter material impact companys consolidated financial statements company continues offer seed sale guatemala july 18 1996 united states department justice antitrust division usdoj served civil investigative demand cid dpl seeking information documents connection investigation acquisition dpl stock arizona processing inc ellis brothers seed inc mississippi seed inc outstanding common stock sure grow seed inc cid states usdoj investigating whether transactions may violated provisions section 7 clayton act 15 usc 18 dpl responded cid employees examined 1997 usdoj dpl committed full cooperation usdoj present time ultimate outcome investigation cannot predicted august 9 1999 dpl monsanto received civil investigative demands usdoj seeking determine whether inappropriate exchanges information monsanto dpl prior acquisitions likely substantially lessened competition sale development cottonseed genetic traits dpl complying usdojs request information documents recent civil investigative demand 13 mergers acquisitions merger monsanto company may 8 1998 dplc entered merger agreement monsanto pursuant dplc would merged monsanto agreement approved dplcs stockholders still subject expiration waiting period hartscottrodino antitrust improvements act 1976 terms agreement upon consummation merger dplcs stockholders entitled receive 08625 shares monsantos common stock exchange share delta pine land company stock hold special shareholders meeting held november 30 1998 shareholders approved merger agreement plan merger agreement originally expiration date june 30 1999 however dplc could extend period time complete merger december 31 1999 certain circumstances june 30 2000 may 21 1999 dplc monsanto agreed extend time completing merger june 30 1999 december 31 1999 option dplc extend deadline june 30 2000 merger dplc monsanto subject review usdoj hartscottrodino antitrust improvements act 1976 hsr act june 18 1998 monsanto dpl announced received requests additional information documentary materials usdoj hsr act concerning monsantos previously announced acquisition dplc request extends waiting period hsr act parties prohibited closing transaction august 9 1999 dpl monsanto received civil investigative demands usdoj seeking determine whether inappropriate exchanges information monsanto dpl prior acquisitions likely substantially lessened competition sale development cottonseed genetic traits dpl complying usdojs request information documents recent cid pursuant merger agreement dlpc agreed period date signing merger agreement may 8 1998 merger closing date except otherwise expressly permitted terms merger agreement cause respective subsidiaries material respects carry business ordinary course ii use reasonable best efforts preserve intact current business organization iii keep available services current officers employees iv preserve relationships customers suppliers others addition dplc agreed neither dplc applicable subsidiaries without monsantos prior written consent otherwise permitted merger agreement amend certificate incorporation bylaws b split combine reclassify outstanding capital stock declare set aside pay dividend payable cash stock property respect provided dplc may declare pay regular quarterly dividends 003 per share c issue agree issue additional shares rights acquire shares capital stock issuance shares capital stock subsidiary dplc respect dlpc shares issuable upon exercise outstanding options pursuant dpl 1993 stock option plan 1995 dpl longterm incentive plan collectively dpl option plans enter agree enter new amended contract agreement labor unions e authorize recommend propose announce intention authorize recommend propose enter agreement principle agreement respect merger consolidation business combination merger monsanto acquisition disposition material amount assets securities inventory ordinary course business f enter amend employment severance changeincontrol agreement benefit plan except required law regulations expressly provided merger agreement ordinary course business g except ordinary course business create incur assume debt existing approved lines credit fund outofpocket costs incurred connection transactions contemplated merger agreement ii assume guarantee endorse otherwise become liable responsible obligations person except majority owned subsidiaries dplc ordinary course business iii make loans advances capital contributions investments person majorityowned subsidiary h amend 1996 dplc shareholder rights plan rights plan redeem rights granted rights plan take action prohibited taking merger agreement would constitute likely cause breach covenant agreement representation set forth merger agreement transactions february 1996 company acquired hartz cotton inc monsanto included cotton planting seed inventories germplasm breeding stocks trademarks trade names assets approximately 60 million consideration consisted primarily 1066667 shares dplcs series convertible nonvoting preferred stock 14 stockholders equity preferred stock board directors dplc authorized subject certain limitations prescribed law monsanto merger agreement without stockholder approval issue aggregate 2000000 shares preferred stock one series determine alter designations preferences rights qualifications limitations restrictions shares series thereof including dividend rights dividend rates conversion rights voting rights terms redemption including sinking fund provisions redemption price prices liquidation preferences number shares constituting series designations series august 1996 board directors adopted stockholder rights plan rights plan declared dividend one preferred stock purchase right outstanding share dplcs common stock similar rights generally issued respect common stock subsequently issued right becomes exercisable upon occurrence certain events one onehundredth share series junior participating preferred stock 010 par value purchase price 175 per one onehundredth preferred share subject adjustment event dplc acquired merger business combination transaction approved board directors holder right shall right receive number shares common stock surviving company would market value two times exercise price right board directors unanimously approved monsanto merger modified rights plan deactivate merger rights plan 429319 shares series junior participating preferred stock reserved rights currently exercisable person group acquires beneficial ownership 15 dplcs outstanding shares common stock rights expire august 30 2006 redeemable whole part dplcs option time price 001 per right may 1998 july 1998 rights plan amended facilitate monsanto merger dlpc issued 1066667 shares effect stock splits series convertible nonvoting preferred stock consideration purchase 1996 hartz cotton inc monsanto holders series preferred stock entitled receive dividends rate per share paid time share common stock dplc declared board directors event liquidation dissolution winding dplc either voluntary involuntary holders series preferred stock shall entitled receive prior preference distribution holders common stock class security dlpc 10452 per share series preferred stock series preferred stock convertible beginning upon seventh anniversary date series preferred stock issued occurrence specified events whichever occurs first stock option plans 1993 stock option plan authorized options purchase 2560000 shares effect stock splits common stock option price less market price date grant 1995 longterm incentive plan ltip allows awarding stock options stock appreciation rights restricted shares common stock performance units officers key employees directors ltip 2560000 shares effect stock splits november 1997 common stock dplc available grant shares subject options awards expire unexercised available new option grants awards future members board directors receive automatic grants 62222 shares upon named board february 27 1997 stockholders amended plan provide additional annual grants 2666 shares next five years 1997 2001 present directors company options exercisable ratably five years commencing one year date grant dpl adopted sfas 123 accounting stockbased compensation requires companies estimate fair value stock options date grant pronouncement requires dpl record estimated fair value stock options issued compensation expense income statements related service periods alternatively continue apply accounting methodologies prescribed accounting principles board apb opinion 25 accounting stock issued employees disclose pro forma effects estimated fair value stock options issued accompanying footnotes financial statements adopting pronouncement dpl elected continue follow accounting methodologies prescribed apb opinion 25 determination fair value required stock options issued beginning fiscal 1996 weighted average fair values options granted fiscal 1997 1998 1999 1108 1591 1924 per share respectively pro forma effects total compensation expense would recognized sfas 123 follows dpl utilized blackscholes option pricing model estimate fair value stock options granted using following assumptions following table summarizes certain information stock options granted exercised forfeited three year period ended august 31 1999 common stock february 1997 board directors authorized 4 3 stock split common preferred shares outstanding effected form dividend change par value per share distributed april 11 1997 stockholders record march 31 1997 october 1997 board directors authorized 4 3 stock split common preferred shares outstanding effected form dividend change par value per share distributed november 20 1997 stockholders record november 10 1997 stock splits described reflected accompanying consolidated financial statements treasury stock april 1997 board directors authorized stock repurchase plan 10 dplcs outstanding common stock august 31 1997 1998 dplc purchased 114266 shares aggregate purchase price 2173000 connection monsanto merger board directors formally terminated plan may 1998 earnings per share 15 unaudited quarterly financial data dpls domestic seed products subject return credits vary year annual level returns ultimately net sales net income influenced various factors principally weather conditions occurring spring planting season spanning companys third fourth fiscal quarters company provides estimated returns sales made extent actual returns differ estimates adjustments companys operating results recorded differences become known typically companys fourth quarter significant returns occur accounted fiscal year end generally international sales subject return substantially company sales concentrated second third fiscal quarters result company generally incurs losses first fourth quarters management believes seasonality common throughout seed industry summarized unaudited quarterly financial data follows 1thesum quarterly net income loss per share amounts may equal annual amount reported since per share amounts computed independently quarter whereas annual earnings per share based annual weighted average shares deemed outstanding year 2seed returns higher fourth quarter level returns anticipated end third quarter change accounting estimate returns recorded fourth quarter new provision returns greater amount sales recorded fourth quarter result reported net sales fourth quarter negative 3the fourth quarter includes effect recording 190 million special charge 115 million recorded cost sales 75 million recorded operating expenses related production cost optimization program 4the fourth quarter includes effect recording 175 million special charge cost sales associated inventory write offs recalled inventory 51 million operating expense effects evaluation various strategic alternatives monsanto merger 5 fourth quarter includes effect recording special charges 203 million 152 million recorded cost sales associated inventory writeoffs due product phase outs reserves established excess inventory 31 million operating expenses related merger approximately 20 million income associated loss sale fixed assets item 9item 8 consolidated financial statements supplementary data index financial statements pages following consolidated financial statements delta pine land company subsidiaries submitted response part ii item 8 report independent public accountants23 consolidated statements income three years period ended august 31 200025 consolidated balance sheets august 31 1999 200026 consolidated statements cash flows three years period ended august 31 200027 consolidated statements stockholders equity three years period ended august 31 200028 notes consolidated financial statements29 report independent public accountants delta pine land company audited accompanying consolidated balance sheets delta pine land company delaware corporation subsidiaries august 31 1999 2000 related consolidated statements income cash flows stockholders equity three years period ended august 31 2000 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position delta pine land company subsidiaries august 31 1999 2000 results operations cash flows three years period ended august 31 2000 conformity accounting principles generally accepted united states explained note 1 financial statements effective september 1 1999 company changed method accounting startup activities arthur andersen llp memphis tennessee october 18 2000 managements report company responsible preparing financial statements related information appearing report management believes financial statements present fairly companys financial position results operations cash flows conformity accounting principles generally accepted united states preparing financial statements company required include amounts based estimates judgments believes reasonable circumstances company maintains accounting systems designed provide reasonable assurance financial records reliable purposes preparing financial statements assets properly accounted safeguarded compliance systems controls reviewed executive management accounting staff limitations exist internal control system recognizing systems cost exceed benefits derived board directors pursues responsibility companys financial statements audit committee composed solely directors company officers employees audit committee meets least annually independent public accountants management independent public accountants direct access audit committee without presence management representatives accompanying notes integral part consolidated statements accompanying notes integral part consolidated balance sheets accompanying notes integral part consolidated statements accompanying notes integral part consolidated statements notes consolidated financial statements 1 summary significant accounting policies nature operations delta pine land company subsidiaries company dpl breed produce condition market cotton soybean planting seed connection seed operations company farms approximately 2600 acres largely production cotton soybean foundation seed company annual agreements various growers produce seed cotton soybeans growers plant seed purchased company follow quality assurance procedures required seed production grower adheres established company quality assurance standards throughout growing season seed meets company quality standards upon harvest company may obligated purchase specified minimum quantities seed prices equal commodity market price seed plus grower premium company conditions seed sale planting seed basis presentation accompanying financial statements include accounts delta pine land company subsidiaries significant intercompany accounts transactions eliminated consolidation special charges may 8 1998 delta pine land company dplc entered merger agreement monsanto company monsanto pursuant dplc would merged monsanto december 20 1999 monsanto withdrew premerger notification filed pursuant hartscottrodino antitrust improvements act 1976 hsr act effectively terminating monsantos efforts gain government approval merger december 30 1999 company filed suit december 30 suit first judicial district bolivar county mississippi seeking among things payment 81 million termination fee due pursuant merger agreement compensatory damages 1 billion punitive damages amount proved trial monsantos breach contract january 2 2000 company monsanto reached agreement whereby company would withdraw december 30 suit monsanto would immediately pay 81 million january 3 2000 monsanto paid company termination fee 81 million required merger agreement january 18 2000 company refiled suit reinstating essentially allegations contained december 30 suit 81 million termination fee net related expenses separately presented special charges unusual income item net accompanying consolidated statements income july 1999 dpl announced restructuring program aimed improve operating efficiencies consolidating companys three domestic divisions one company recorded 20 million charge fourth quarter severance related costs associated plan substantially paid prior august 31 1999 charge included special charges unusual income item net accompanying consolidated statements income 90 million cost related foiled merger monsanto 1999 company wroteoff inventory deemed excess obsolete portion inventory writeoff deemed excess normal levels 152 million separately presented component cost sales income expense includes 37 million loss disposition fixed assets nonrecurring charges 1998 company recorded special nonrecurring charges 226 million relate additional inventory reserves costs related evaluation various strategic alternatives culminated contemplated merger monsanto level inventory reserves writeoffs result excess inventory quantities resulting 7 reduction acreage realignment companys product line due introduction new products changing demand costs related merger primarily fees legal advice investment bankers professionals august 31 2000 reserves established 1999 1998 prior years fully utilized cash equivalents cash equivalents include overnight repurchase agreements shortterm investments original maturity less three months property plant equipment property plant equipment stated cost depreciation amortization provided financial reporting purposes using straightline method estimated useful lives assets accelerated methods used income tax purposes estimated useful lives various classes property years follows land improvements 520 buildings improvements 1035 machinery equipment 315 germplasm 1015 breeder foundation seed 40 germplasm breeder foundation seed purchased part paymaster hartz acquisitions includes amounts specifically identified varieties breeding stocks amounts associated specific varieties amortized expected commercial life varieties breeding stocks amortized 40 years since revitalized time remain viable indefinitely revitalization intangible assets deferred charges intangible assets consist trademarks patents intangible assets amortized using straightline method 5 40 years excess cost net assets businesses acquired amortized using straightline method 40 years organization costs foreign ventures amortized five years foreign currency translation financial statements foreign operations local currency functional currency translated using exchange rates effect period end assets liabilities average exchange rates period results operations financial statements foreign entities highlyinflationary economies translated though functional currency united states currency translation adjustments reported separate component stockholders equity gains losses foreign currency transactions included earnings income taxes company uses liability method accounting income taxes method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities measured using enacted tax rates laws fair value financial instruments fair value companys financial instruments august 31 2000 approximates carrying value revenue recognition revenues domestic seed sales generally recognized seed shipped revenues bollgard roundup ready licensing fees recognized based number acres expected planted seed shipped licensing fees charged farmers based preestablished planting rates seven geographic regions 1998 eight regions 1999 2000 estimated number seed contained bag may vary variety location grown factors revenue recognized based established technology fee per unit shipped geographic region international export revenues recognized upon later seed shipped date letters credit confirmed generally international export sales subject return international revenues sale planting seed less estimated reserves returns recognized seed shipped companys domestic seed products including bollgard roundup ready technologies subject return credit vary year annual level returns ultimately net sales influenced various factors principally commodity prices weather conditions occurring spring planting season companys third fourth quarters company provides estimated returns sales occur extent actual returns differ estimates adjustments companys operating results recorded differences become known typically companys fourth quarter significant returns occur accounted fiscal year end research development research development costs incurred breed produce experimental seed expensed costs incurred produce sufficient quantities planting seed needed commercialization carried inventory seed sold cotton lint byproducts seed production also carried inventory sold derivative financial instruments company uses futures option contracts soybean hedging program effectively fix cost significant portion soybeans contracts accounted settlement basis net amounts paid received contracts included cost soybeans open futures contracts underlying soybean inventory marked market company typically terminate contracts prior expiration amount deferred gains associated soybean hedging program august 31 2000 material company speculate derivatives impairment assets dpl assesses recoverability impairment intangible assets longlived assets whenever events changes circumstances indicate carrying amount may recoverable dpl determines unamortized balance recovered projected future operating cash flows sum expected future cash flows less carrying amount asset impairment loss recognized accordance sfas 121 accounting impairment longlived assets longlived assets disposed otherwise impairment loss recognized dpl continues amortize intangible assets based remaining estimated useful life use estimates preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts income expenses reporting period actual results could differ estimates reclassifications certain prior year amounts reclassified conform 2000 presentation implementation financial accounting standards sfas 133 accounting derivative instruments hedging activities establishes accounting reporting standards derivative instruments including certain derivative instruments embedded contracts hedging activities effective date statement delayed via issuance sfas 137 effective date sfas 133 fiscal years beginning june 15 2000 although earlier adoption encouraged retroactive application prohibited dpl must adopt statement later september 1 2000 management determined adoption standard material impact dpls results operations financial position cash flows sop 985 reporting costs startup activities requires costs related startup activities expensed incurred previously capitalized costs written effective september 1 1999 company adopted requirements sop 985 effect adopting statement resulted writeoff net tax approximately 2965000 008 per share adjustment 2965000 net tax benefits approximately 1817000 retroactively apply new method recorded first fiscal quarter 2000 december 1999 sec issued staff accounting bulletin 101 revenue recognition financial statements sab101 provides guidance recognition presentation disclosure revenue financial statements filed sec june 2000 sec issued amendment sab101 allows registrants wait fourth quarter fist fiscal year beginning december 15 1999 implement sab101 therefore dpl must adopt requirements sab101 later june 1 2001 management determined adoption sab101 material impact companys financial statements 2 inventories substantially finished goods raw material inventory valued lower average cost market growing crops supplies recorded cost 3 property plant equipment 4 notes payable longterm debt company syndicated credit facility three financial institutions provides aggregate unsecured borrowings 110 million comprised base commitment 55 million seasonal commitment 55 million base commitment longterm loan may borrowed upon time due april 1 2001 seasonal commitment working capital loan may drawn upon september 1 june 30 fiscal year expires april 1 2001 commitment offers variable fixed interest rate options requires company pay facility commitment fees comply certain financial covenants august 31 2000 company 550 million available borrowing base commitment interest rate charged loan based libor plus 35 55 basis points depending achievement certain financial ratios combined average interest rate 726 56 607 2000 1999 1998 respectively financial covenants require company maintain ratio total liabilities tangible net worth august 31 less equal 225 1 40 10 companys fiscal quarter ends b maintain fixed charge coverage ratio end quarter greater equal 20 10 c maintain times tangible net worth less sum 40 million plus ii 50 net income losses determined last day fiscal year commencing august 31 1998 august 31 1999 companys ratio total liabilities tangible net worth exceeded permitted ratio time companys lenders waived compliance covenant august 31 2000 company compliance covenants 5 accrued expenses 6 income taxes date companys foreign subsidiaries joint ventures either generated taxable income granted tax holidays reasons taxes provided foreign operations 7 leases company leases real estate machinery equipment used operations substantially rent expense recorded cost sales company capital leases future minimum rental payments 2000 operating leases initial remaining noncancellable terms excess one year follows 2001 322000 2002 205000 2003 65000 2004 5000 2005 rent lease expense including land rent approximated 3354000 3182000 3101000 2000 1999 1998 respectively 8 employee benefit plans defined benefit plan substantially fulltime employees covered noncontributory defined benefit plan benefits paid employees beneficiaries upon retirement death disability based final average compensation highest consecutive five years plan assets consist primarily us government securities common stock managed independent portfolio manager companys funding policy make contributions plan least equal minimum amounts required funded accordance provisions erisa effective january 15 1992 company adopted supplemental executive retirement plan serp pay supplemental pension benefits certain employees whose benefits plan decreased result certain changes made plan benefits serp paid addition benefits participants may receive plan paid company assets plan assets company adopted sfas 132 employers disclosures pensions postretirement benefits measurement plan serp assets obligations performed june 30 following table provides reconciliation changes plans serps benefit obligations fair value assets twoyear period ended august 31 2000 statement funded status august 31 1999 2000 actuarial present value projected benefit obligation plan serp determined using discount rate 75 1999 2000 assumed salary increases 4 1999 2000 age 65 expected longterm rate return assets 9 1999 2000 prior service cost amortized 15 years defined contribution plan dpl sponsors defined contribution plan section 401k internal revenue code covers substantially fulltime employees company option may elect make matching contributions plan matching contributions made 2000 1999 1998 9 major customers fiscal 1998 1999 2000 seed sales three customers related licensing fees ultimately billed farmers sales made customers transgenic products comprised 10 total sales licensing fees approximate amount annual sales including technology fees customers follows customer 1998 1999 2000 23800000 34615000 34246000 b 27388000 50767000 51938000 c 44054000 74710000 69951000 10 business segment information company single line business operates two business segments domestic international companys reportable segments offer similar products however business units managed separately due geographic dispersion operations dpl breeds produces delints conditions markets proprietary varieties cotton planting seed united states dpl also breeds produces conditions distributes soybean planting seed united states international segment offers similar cottonseed several foreign countries company develops proprietary seed products research development efforts throughout united states certain foreign countries companys chief operating decision maker utilizes revenue information assessing performance making overall operating decisions resource allocations profit loss information reported segment chief operating decision maker companys board directors accounting policies segments described summary significant accounting policies information companys segments years ended august 31 follows thousands information financial position companys segments august 31 follows thousands 1999 2000 longterm assets domestic 62187 62033 international 16028 14400 78215 76433 total assets domestic 280063 367600 international 15695 22534 295758 390134 11 related party transactions partner law firm represents company also stockholder serves corporate secretary company paid legal fees firm approximately 715000 740000 943000 1998 1999 2000 respectively 1998 1999 2000 institute molecular agrobiology ima owned national university singapore national science technology board singapore conducted contract research upon companys instruction related development certain technologies varietal crops cotton soybeans company paid approximately 260000 340000 296000 1998 1999 2000 respectively research projects dr chua member board directors company chairman management board directors ima september 2000 became vice chairman also chairman board affiliate ima imagen together singapore bioinnovations pte ltd stic investments pte ltd ocbc wearnes walden investments pte ltd 20 stock dpl china pte ltd 1999 company sold loss approximately 11 million site centre alabama entity controlled officer also shareholder officer shareholder sure grow companies time acquisition dpl 12 commitments contingencies company named defendant various lawsuits allege among things certain companies products including monsantos technology perform farmer anticipated expected many suits monsanto cases distributiondealer sold seed also named cases seed sold contained either monsantos bollgard roundup ready gene technologies dpl tendered defense cases monsanto requested indemnity pursuant terms february 6 1996 bollgard gene license seed services agreement bollgard agreement february 6 1996 roundup ready gene license seed services agreement roundup ready agreement amended december 8 1999 dpl right contractually indemnified monsanto claims arising failure monsantos gene technology product liability lawsuits contain varietal claims aimed solely company dpl right indemnification however monsanto claims involving varietal characteristics separate addition failure monsanto technology company believes resolution matters material impact consolidated financial statements company intends vigorously defend matters see part item iii discussion case october 1996 mycogen plant science inc agrigenetics inc collectively mycogen filed lawsuit us district court delaware naming dpl monsanto dekalb genetics defendants alleging two mycogens patents infringed defendants making selling licensing seed contains bollgard gene suit went trial january 1998 sought injunctions alleged infringement compensatory damages treble damages attorneys fees court costs jury found favor dpl monsanto issues infringement mycogen subsequently refiled motion new trial judgment favor mycogen matter law trial court ruled motions holding mycogen certain issues sustaining jury verdict favor dpl monsanto mycogen appealed us court appeals federal circuit pursuant terms bollgard agreement monsanto required defend dpl patent infringement claims indemnify dpl damages patent infringement claims certain losses costs december 1999 mycogen filed suit federal court australia alleging monsanto australia ltd monsantos whollyowned australian subsidiary deltapine australia pty ltd dpls whollyowned australian subsidiary infringing two mycogens australian patents making selling licensing cotton planting seed expressing insect resistance suit seeks injunction continued sale seed containing monsantos ingardr gene recovery unspecified amount damages litigation currently discovery consistent commitments monsanto agreed defend dpl suit indemnify dpl damages awarded monsanto providing separate defense counsel dpl assisting monsanto extent reasonably necessary corporation owned son companys former guatemalan distributor sued 1989 asserting company violated agreement granting another entity exclusive license certain areas central america southern mexico suit seeks damages 5300000 guatemalan quetzales approximately 678000 current exchange rates injunction preventing company distributing seed licensee region guatemalan court action proceeding twice declined approve injunction sought management believes resolution matter material impact companys consolidated financial statements company continues offer seed sale guatemala november 1999 bios agrosystems sa bios former distributor suregrow brand cotton seed greece brought suit us district court delaware dpl international technology dpls subsidiary enjoin termination distributorship become effective end november 1999 suit demanded declaratory judgment termination effective compensatory punitive damages wrongful termination bios also filed request arbitration parallel suit seeking injunctive relief greek court january 2000 u district court denied request injunction prevent termination bios distributorship subsequently enjoined bios proceeding parallel litigation greek courts bios appealed united states court appeals third circuit appeal remains pending dpl believes litigation resolved without material effect dpls combined financial condition without interference distribution suregrow brand cotton seed greece july 18 1996 united states department justice antitrust division usdoj served civil investigative demand cid dpl seeking information documents connection investigation acquisition dpl stock arizona processing inc ellis brothers seed inc mississippi seed inc outstanding common stock sure grow seed inc cid states usdoj investigating whether transactions may violated provisions section 7 clayton act 15 usc 18 dpl responded cid employees examined 1997 usdoj dpl committed full cooperation usdoj present time ultimate outcome investigation cannot predicted august 9 1999 dpl monsanto received civil investigative demands usdoj seeking determine whether inappropriate exchanges information monsanto dpl prior acquisitions likely substantially lessened competition sale development cottonseed genetic traits dpl complying usdojs request information documents recent civil investigative demand 13 stockholders equity preferred stock board directors dpl authorized subject certain limitations prescribed law without stockholder approval issue aggregate 2000000 shares preferred stock one series determine alter designations preferences rights qualifications limitations restrictions shares series thereof including dividend rights dividend rates conversion rights voting rights terms redemption including sinking fund provisions redemption price prices liquidation preferences number shares constituting series designations series august 1996 board directors adopted stockholder rights plan rights plan declared dividend one preferred stock purchase right outstanding share dpls common stock similar rights generally issued respect common stock subsequently issued right becomes exercisable upon occurrence certain events one onehundredth share series junior participating preferred stock 010 par value purchase price 175 per one onehundredth preferred share subject adjustment event dpl acquired merger business combination transaction approved board directors holder right shall right receive number shares common stock surviving company would market value two times exercise price right board directors previously approved monsanto merger modified rights plan deactivate merger upon merger termination board rescinded deactivation rights plan 456989 shares series junior participating preferred stock reserved rights currently exercisable person group acquires beneficial ownership 15 dpls outstanding shares common stock rights expire august 30 2006 redeemable whole part dpls option time price 001 per right dpl issued 1066667 shares effect stock splits series convertible nonvoting preferred stock consideration purchase 1996 hartz cotton inc monsanto holders series preferred stock entitled receive dividends rate per share paid time share common stock dpl declared board directors event liquidation dissolution winding dpl either voluntary involuntary holders series preferred stock shall entitled receive prior preference distribution holders common stock class security dpl 10452 per share series preferred stock series preferred stock convertible beginning upon seventh anniversary date series preferred stock issued occurrence specified events whichever occurs first stock option plans 1993 stock option plan authorized options purchase 2560000 shares common stock option price less market price date grant 1995 longterm incentive plan amended restated march 2000 ltip allows awarding stock options officers key employees directors ltip 5120000 shares common stock dpl available grant shares subject options awards expire unexercised available new option grants awards future members board directors receive automatic grants 62222 shares upon named board february 27 1997 stockholders amended plan provide additional annual grants 2666 shares next five years 1997 2001 present directors company options exercisable ratably five years commencing one year date grant sfas 123 accounting stockbased compensation requires companies estimate fair value stock options date grant pronouncement requires dpl record estimated fair value stock options issued compensation expense income statements related service periods alternatively continue apply accounting methodologies prescribed accounting principles board apb opinion 25 accounting stock issued employees disclose pro forma effects estimated fair value stock options issued accompanying footnotes financial statements adopting pronouncement dpl elected continue follow accounting methodologies prescribed apb opinion 25 determination fair value required stock options issued beginning fiscal 1996 weighted average fair values options granted fiscal 1998 1999 2000 1591 1924 961 per share respectively pro forma effects total compensation expense would recognized sfas 123 follows dpl utilized blackscholes option pricing model estimate fair value stock options granted using following assumptions following table summarizes certain information stock options granted exercised forfeited three year period ended august 31 2000 treasury stock february 2000 board directors authorized program repurchase 50 million companys common stock shares repurchased program used provide option exercises conversion companys series convertible nonvoting preferred shares general corporate purposes august 31 2000 company repurchased 453700 shares aggregate purchase price approximately 7703000 program dilutive common share equivalents consist companys series convertible nonvoting preferred shares outstanding stock options companys 1993 stock option plan 1995 longterm incentive plan approximately 153000 142000 781000 outstanding stock options included computation diluted earnings per share years ended august 31 1998 1999 2000 respectively effect exercise dilutive based average market price companys common stock respective reporting period options expire various dates 2006 2010 table reconciles basic diluted per share computations income cumulative effect change accounting principle 14 unaudited quarterly financial data dpls domestic seed products subject return credits vary year annual level returns ultimately net sales net income influenced various factors principally weather conditions occurring spring planting season spanning companys third fourth fiscal quarters company provides estimated returns sales made extent actual returns differ estimates adjustments companys operating results recorded differences become known typically companys fourth quarter significant returns occur accounted fiscal year end generally international sales subject return substantial portion company sales concentrated second third fiscal quarters result company generally expects incur losses first fourth quarters management believes seasonality common throughout seed industry 1 sum quarterly net income loss per share amounts may equal annual amount reported since per share amounts computed independently quarter whereas annual earnings per share based annual weighted average shares deemed outstanding year 2seed returns higher fourth quarter level returns anticipated end third quarter change accounting estimate returns recorded fourth quarter new provision returns greater amount sales recorded fourth quarter result reported net sales fourth quarter negative 3the second quarter includes effect recording 810 million merger termination fee paid monsanto net related expense incurred 4the fourth quarter includes effect recording 175 million special charge cost sales associated inventory write offs recalled inventory 51 million operating expense effects evaluation various strategic alternatives monsanto merger 5 fourth quarter includes effect recording special charges 203 million 152 million recorded cost sales associated inventory writeoffs due product phase outs reserves established excess inventory 31 million operating expenses related merger approximately 20 million income associated loss sale fixed assets item 9item 8 consolidated financial statements supplementary data report independent public accountants board directors shareholders delta pine land company audited accompanying consolidated balance sheets delta pine land company delaware corporation subsidiaries august 31 2000 2001 related consolidated statements income cash flows stockholders equity three years period ended august 31 2001 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position delta pine land company subsidiaries august 31 2000 2001 results operations cash flows three years period ended august 31 2001 conformity accounting principles generally accepted united states arthur andersen llp memphis tennessee october 26 2001 managements report company responsible preparing financial statements related information appearing report management believes financial statements present fairly companys financial position results operations cash flows conformity accounting principles generally accepted united states preparing financial statements company required include amounts based estimates judgments believes reasonable circumstances company maintains accounting systems designed provide reasonable assurance financial records reliable purposes preparing financial statements assets properly accounted safeguarded compliance systems controls reviewed executive management accounting staff limitations exist internal control system recognizing systems cost exceed benefits derived board directors pursues responsibility companys financial statements audit committee composed solely directors company officers employees audit committee meets least annually independent public accountants management independent public accountants direct access audit committee without presence management representatives delta pine land company subsidiaries consolidated statements income years ended august 31 thousands except per share amounts accompanying notes integral part consolidated statements delta pine land company subsidiaries consolidated balance sheets august 31 thousands except share per share amounts accompanying notes integral part consolidated balance sheets delta pine land company subsidiaries consolidated statements cash flows years ended august 31 thousands accompanying notes integral part consolidated statements delta pine land company consolidated statements changes stockholders equity years ended august 31 1999 2000 2001 thousands except per share data accompanying notes integral part consolidated statements notes consolidated financial statements 1 summary significant accounting policies nature operations delta pine land company subsidiaries company dpl breed produce condition market cotton soybean planting seed connection seed operations company farms approximately 2500 acres largely production cotton soybean foundation seed company annual agreements various growers produce seed cotton soybeans growers plant seed purchased company follow quality assurance procedures required seed production grower adheres established company quality assurance standards throughout growing season seed meets company quality standards upon harvest company may obligated purchase specified minimum quantities seed prices equal commodity market price seed plus grower premium company conditions seed sale planting seed basis presentation accompanying financial statements include accounts delta pine land company subsidiaries significant intercompany accounts transactions eliminated consolidation special chargesunusual items august 2001 dpl announced series actions enhance companys ability execute longterm growth plans improve performance profitability company closed chandler arizona facility august 31 2001 reduced operations corporate staffs company recorded 63 million charge 30 million fixed asset write downs 33 million severance related benefits fourth quarter charge included special charges unusual income item accompanying consolidated statements income may 8 1998 delta pine land company dplc entered merger agreement monsanto company monsanto pursuant dplc would merged monsanto december 20 1999 monsanto withdrew premerger notification filed pursuant hartscottrodino antitrust improvements act 1976 hsr act effectively terminating monsantos efforts gain government approval merger december 30 1999 company filed suit december 30 suit circuit court first judicial district bolivar county mississippi seeking among things payment 81 million termination fee due pursuant merger agreement compensatory damages punitive damages monsantos breach contract january 2 2000 company monsanto reached agreement whereby company would withdraw december 30 suit monsanto would immediately pay 81 million january 3 2000 monsanto paid company termination fee 81 million required merger agreement separately presented special charges unusual income item net related expenses accompanying consolidated statements income july 1999 dpl announced restructuring program aimed improve operating efficiencies consolidating companys three domestic divisions one company recorded 20 million charge fourth quarter severance related costs associated plan substantially paid prior august 31 1999 charge included special charges unusual income item accompanying consolidated statements income 90 million costs related failed merger monsanto 1999 company wrote inventory deemed excess obsolete portion inventory writeoff deemed excess normal levels 152 million separately presented component cost sales income expense includes 37 million loss disposition fixed assets nonrecurring charges august 31 2001 reserves established 2000 1999 prior years matters fully utilized august 31 2001 essentially amounts related severance pay 2001 reorganization paid cash equivalents cash equivalents include overnight repurchase agreements shortterm investments original maturity less three months property plant equipment property plant equipment stated cost depreciation amortization provided financial reporting purposes using straightline method estimated useful lives assets accelerated methods used income tax purposes estimated useful lives various classes property years follows land improvements 520 buildings improvements 1035 machinery equipment 315 germplasm 1015 breeder foundation seed 40 germplasm breeder foundation seed purchased part acquisitions include amounts specifically identified varieties breeding stocks amounts associated specific varieties amortized expected commercial life varieties breeding stocks amortized 40 years since revitalized time remain viable indefinitely revitalization intangible assets deferred charges intangible assets consist trademarks patents intangible assets amortized using straightline method 5 40 years excess cost net assets businesses acquired amortized using straightline method 40 years amortization discontinued september 1 2001 discussed recently issued financial accounting standards organization costs foreign ventures amortized five years foreign currency translation financial statements foreign operations local currency functional currency translated using exchange rates effect period end assets liabilities average exchange rates period results operations financial statements foreign entities highlyinflationary economies translated though functional currency united states currency translation adjustments reported separate component stockholders equity gains losses foreign currency transactions included earnings fair value financial instruments fair value companys financial instruments august 31 2001 approximates carrying value income taxes company uses liability method accounting income taxes method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities measured using enacted tax rates laws revenue recognition revenues domestic seed sales generally recognized seed shipped revenues bollgard roundup ready licensing fees recognized seed shipped licensing fees charged farmers based preestablished planting rates eight geographic regions estimated number seed contained bag may vary variety location grown factors international export revenues recognized upon later seed shipped date letters credit confirmed generally international export sales subject return international revenues sale planting seed less estimated reserves returns recognized seed shipped companys domestic seed products including bollgard roundup ready technologies subject return credit risks vary year annual level returns ultimately net sales influenced various factors principally commodity prices weather conditions occurring spring planting season companys third fourth quarters company provides estimated returns sales occur extent actual returns differ estimates adjustments companys operating results recorded differences become known typically companys fourth quarter significant returns occur accounted fiscal year end research development research development costs incurred breed produce experimental seed expensed costs incurred produce sufficient quantities planting seed needed commercialization carried inventory seed sold cotton lint byproducts seed production also carried inventory sold accounting stockbased compensation effective fiscal 1996 company adopted disclosure provisions sfas 123 accounting stockbased compensation accordance provisions sfas 123 company applies accounting principles board opinion 25 related interpretations accounting employee stock option plans see note 14 summary pro forma effects reported net income earnings per share fiscal 2001 2000 1999 based fair value options shares granted prescribed sfas 123 derivative financial instruments company uses various financial instruments considered derivatives mitigate risk variability cash flows related soybean purchases effectively fix cost significant portion soybean raw material inventory terms hedging derivatives used company negotiated approximate terms forecasted transaction therefore company expects instruments used hedging transactions highly effective offsetting changes cash flows hedged items realized unrealized hedging gains losses recorded component comprehensive income reclassified earnings period forecasted transaction affects earnings ie sold disposed generally occurs companys second third fiscal quarters quantities hedged exceed forecasted transactions accounted cash flow hedges however extent quantities hedged exceed forecasted transactions due intraseason changes sales forecast probable originally forecasted transaction longer occur company accounts derivative instruments discontinued cash flow hedges company enter derivative instruments extend future one fiscal year company adopted requirements sfas 133 accounting derivative instruments hedging activities september 1 2000 adoption sfas 133 material impact companys financial statements impairment assets dpl assesses recoverability impairment intangible assets longlived assets whenever events changes circumstances indicate carrying amount may recoverable dpl determines unamortized balance recovered projected future operating cash flows sum expected future cash flows less carrying amount asset impairment loss recognized accordance sfas 121 accounting impairment longlived assets longlived assets disposed otherwise impairment loss recognized dpl continues amortize intangible assets based remaining estimated useful life use estimates preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts income expenses reporting period actual results could differ estimates reclassifications certain prior year amounts reclassified conform 2001 presentation recently issued financial accounting standards sfas 144 accounting impairment disposal longlived assets addresses financial accounting reporting impairment disposal longlived assets statement effective fiscal years beginning december 15 2001 interim periods within fiscal years early application encouraged therefore dpl must adopt statement later september 1 2002 management determined impact statement consolidated financial position results operations sfas 143 accounting asset retirement obligations addresses financial accounting reporting obligations associated retirement tangible longlived assets associated asset retirement costs statement effective fiscal years beginning june 15 2002 therefore dpl must adopt statement later september 1 2002 management determined impact statement consolidated financial position results operations sfas 142 goodwill intangible assets addresses financial accounting reporting acquired goodwill intangible assets amortization goodwill including goodwill recorded past business combinations cease upon adoption statement effective fiscal years beginning december 15 2001 however early application permitted entities fiscal years beginning march 15 2001 provided first interim financial statements issued previously effective september 1 2001 company adopted sfas 142 time goodwill amortization ceased fiscal 2002 goodwill amortization would approximately 366000 provisions statement require goodwill measured periodically impairment impact adoption companys consolidated financial position results operations related provisions yet determined sfas 141 business combinations requires business combinations initiated june 30 2001 accounted purchase method sfas 141 also sets forth guidelines applying purchase method accounting determination intangible assets including goodwill acquired business combination expands financial disclosures concerning business combinations consummated june 1 2001 management determined impact statement effect consolidated financial position results operations 2 inventories august 31 consisted following 2000 2001 finished goods 28649000 31835000 raw materials 11327000 12515000 growing crops 1744000 2218000 supplies 1165000 1162000 42885000 47730000 less reserves 7607000 10985000 35278000 36745000 substantially finished goods raw material inventory valued lower average cost market growing crops supplies recorded cost 3 property plant equipment property plant equipment august 31 consisted following 2000 2001 land improvements 4046000 4284000 buildings improvements 37759000 38777000 machinery equipment 46239000 48279000 germplasm 7500000 breeder foundation seed 2000000 construction progress 4444000 1529000 101988000 102369000 less accumulated depreciation 36944000 39530000 65044000 62839000 4 notes payable longterm debt company syndicated credit facility three financial institutions provided aggregate unsecured borrowings 110 million comprised base commitment 55 million seasonal commitment 55 million base commitment longterm loan could borrowed upon time due april 1 2001 seasonal commitment working capital loan could drawn upon september 1 june 30 fiscal year expired april 1 2001 commitment offered variable fixed interest rate options required company pay facility commitment fees comply certain financial covenants interest rate charged loan based libor plus 35 55 basis points depending achievement certain financial ratios average interest rate 56 726 534 1999 2000 2001 respectively financial covenants required company maintain ratio total liabilities tangible net worth august 31 less equal 225 1 40 10 companys fiscal quarter ends b maintain fixed charge coverage ratio end quarter greater equal 20 10 c maintain times tangible net worth less sum 40 million plus ii 50 net income losses determined last day fiscal year commencing august 31 1998 agreement expired april 30 2001 replaced 30 million unsecured credit line covenants august 31 2000 2001 company compliance covenants lenders company currently negotiating replacement facility provides unsecured borrowings 100 million lender company executed term sheet finalizing formal agreement 5 accrued expenses accrued expenses august 31 consisted following 2000 2001 bollgard roundup ready royalties related expenses due monsanto 128581000 133956000 sales returns allowances 11285000 16383000 payroll 4011000 4162000 accrued expenses 20825000 20584000 164702000 175085000 6 income taxes provisions income taxes years ended august 31 consisted following differences statutory federal income tax rate effective rate follows deferred income taxes august 31 consisted following deferred tax assets 2000 2001 inventory 3821000 4098000 seed claims 582000 1635000 3649000 3818000 8052000 9551000 deferred tax liabilities property 5285000 5034000 322000 549000 5607000 5583000 net deferred income taxes 2445000 3968000 income taxes provided undistributed earnings companys foreign subsidiaries either income taxes distribution earnings form dividends would offset substantially foreign tax credits company intends reinvest earnings indefinitely practicable estimate income tax liability might incurred earnings remitted united states 7 leases company leases real estate machinery equipment used operations substantially rent expense recorded cost sales company capital leases future minimum rental payments 2001 operating leases initial remaining noncancellable terms excess one year follows 2002 462000 2003 136000 2004 29000 2005 2006 rent lease expense including land rent approximated 2993000 3354000 3182000 2001 2000 1999 respectively 8 employee benefit plans defined benefit plan substantially fulltime employees covered noncontributory defined benefit plan benefits paid employees beneficiaries upon retirement death disability based final average compensation highest consecutive five years plan assets consist primarily us government securities common stock managed independent portfolio manager companys funding policy make contributions plan least equal minimum amounts required funded accordance provisions erisa effective january 15 1992 company adopted supplemental executive retirement plan serp pay supplemental pension benefits certain employees whose benefits plan decreased result certain changes made plan benefits serp paid addition benefits participants may receive plan paid company assets plan assets company adopted sfas 132 employers disclosures pensions postretirement benefits measurement plan serp assets obligations performed june 30 following table provides reconciliation changes plans serps benefit obligations fair value assets twoyear period ended august 31 2001 statement funded status august 31 2000 2001 actuarial present value projected benefit obligation plan serp determined using discount rate 75 2000 725 2001 assumed salary increases 4 2000 2001 age 65 expected longterm rate return assets 9 2000 2001 prior service cost amortized 15 years defined contribution plan dpl sponsors defined contribution plan section 401k internal revenue code covers substantially fulltime employees company option may elect make matching contributions plan matching contributions made 1999 2000 2001 9 major customers fiscal 1999 2000 2001 seed sales three customers related licensing fees ultimately billed farmers sales made customers transgenic products comprised 10 total sales licensing fees table presents approximate amount annual sales including technology fees customers amounts reported companys domestic segment customer 1999 2000 2001 34615000 34246000 31833000 b 50767000 51938000 54937000 c 74710000 69951000 72358000 10 business segment information company single line business operates two business segments domestic international companys reportable segments offer similar products however business units managed separately due geographic dispersion operations dpl breeds produces delints conditions markets proprietary varieties cotton planting seed united states dpl also breeds produces conditions distributes soybean planting seed united states international segment offers similar cottonseed several foreign countries company develops proprietary seed products research development efforts throughout united states certain foreign countries companys chief operating decision maker utilizes revenue information assessing performance making overall operating decisions resource allocations profit loss information reported segment chief operating decision maker companys board directors accounting policies segments described summary significant accounting policies information companys segments years ended august 31 follows thousands information financial position companys segments august 31 follows thousands 2000 2001 longterm assets domestic 62033 60215 international 14400 13569 76433 73784 total assets domestic 367600 382879 international 22534 28642 390134 411521 11 related party transactions partner law firm represents company also stockholder serves corporate secretary company paid legal fees firm approximately 740000 943000 833000 1999 2000 2001 respectively 1999 2000 2001 institute molecular agrobiology ima owned national university singapore national science technology board singapore conducted contract research upon companys instruction related development certain technologies varietal crops cotton soybeans company paid approximately 340000 296000 406000 1999 2000 2001 respectively research projects dr chua member board directors company chairman management board directors ima september 2000 deputy chairman time september 2001 also chairman board affiliate ima imagen august 2001 imagen together singapore bioinnovations pte ltd stic investments pte ltd ocbc wearnes walden investments pte ltd 20 stock dpl china pte ltd 1999 company sold loss approximately 11 million site centre alabama entity controlled officer also shareholder officer shareholder sure grow companies time acquisition dpl 12 derivative financial instruments net losses 631000 deferred comprehensive income year ended august 31 2001 year ended august 31 2001 841000 losses previously deferred comprehensive income reclassified equity current year net income 205000 arose fourth quarter due positions opened closed fourth quarter charges reflected component cost sales year ended august 31 2001 company recorded gains losses earnings result hedge ineffectiveness discontinuance cash flow hedges august 31 2001 deferred gain 210000 reflected component accumulated comprehensive loss includes realized gains approximately 84000 value underlying commodity change quarter ended august 31 2001 deferred gain would reclassified earnings within next fiscal year actual amount reclassified earnings may vary amount result changes market conditions 13 commitments contingencies product liability claims company named defendant various lawsuits allege among things certain companys products including monsantos technology perform farmer anticipated expected many suits monsanto cases distributiondealer sold seed also named cases seed sold contained either monsantos bollgard roundup ready gene technologies dpl tendered defense cases monsanto requested indemnity pursuant terms february 2 1996 bollgard gene license seed services agreement bollgard agreement february 2 1996 roundup ready gene license seed services agreement roundup ready agreement amended december 8 1999 dpl right contractually indemnified monsanto claims arising failure monsantos gene technology product liability lawsuits contain varietal claims aimed solely company dpl right indemnification however monsanto claims involving varietal characteristics separate addition failure monsanto technology company believes resolution matters material impact consolidated financial statements company intends vigorously defend matters see part item iii discussion case matters may 15 2000 several farmers seller farm supplies filed suit united states district court northern district alabama monsanto company dm international llc joint venture monsanto company federal antitrust laws requested class certification plaintiffs claim defendants 1 unlawfully attempted monopolize us cotton seed herbicide market violation ss 2 sherman act 2 monopolized us cotton seed herbicide market violation ss 2 sherman act 3 conspired unreasonably restrain trade us cotton seed herbicide market violation ss 1 sherman act 4 engaged unlawful tying cotton seed herbicide violation ss 3 clayton act plaintiffs demand unspecified antitrust damages including treble compensatory damages plus costs litigation including attorneys fees july 2000 company answered complaint october 2000 moved dismissal action ground plaintiffs failed allege conduct action company violates federal antitrust laws discovery commenced october 22 2001 magistrate judge case assigned recommended monsantos dpls motions dismiss complaint granted plaintiffs right replead file revised complaint within 30 days court yet acted magistrate judges recommendation december 1999 mycogen plant science inc mycogen filed suit federal court australia alleging monsanto australia ltd monsantos whollyowned australian subsidiary deltapine australia pty ltd dpls whollyowned australian subsidiary infringing two mycogens australian patents making selling licensing cotton planting seed expressing insect resistance suit seeks injunction continued sale seed containing monsantos ingardr gene recovery unspecified amount damages litigation currently discovery pretrial proceedings consistent commitments monsanto agreed defend dpl suit indemnify dpl damages awarded monsanto providing separate defense counsel dpl assisting monsanto extent reasonably necessary november 1999 bios agrosystems sa bios former distributor suregrow brand cottonseed greece brought suit us district court delaware dpl international technology dpls subsidiary enjoin termination distributorship become effective end november 1999 suit demanded declaratory judgment termination effective compensatory punitive damages wrongful termination bios also filed request arbitration parallel suit seeking injunctive relief greek court january 2000 u district court denied request injunction prevent termination bios distributorship subsequently enjoined bios proceeding parallel litigation greek courts bios appealed united states court appeals third circuit march 2001 bios gave notice dismissing appeal bios indicated whether continue seek arbitrate claims dpl believes litigation resolved without material effect dpls combined financial condition without interference distribution suregrow brand cottonseed greece corporation owned son companys former guatemalan distributor sued 1989 asserting company violated agreement granting another entity exclusive license certain areas central america southern mexico suit seeks damages 5300000 guatemalan quetzales approximately 650000 current exchange rates injunction preventing company distributing seed licensee region guatemalan court action proceeding twice declined approve injunction sought management believes resolution matter material impact companys consolidated financial statements company continues offer seed sale guatemala us department justice civil investigation demands july 18 1996 united states department justice antitrust division usdoj served civil investigative demand cid dpl seeking information documents connection investigation acquisition dpl stock arizona processing inc ellis brothers seed inc mississippi seed inc outstanding common stock sure grow seed inc cid states usdoj investigating whether transactions may violated provisions section 7 clayton act 15 usc ss18 dpl responded cid employees examined 1997 usdoj dpl committed full cooperation usdoj dpl believes demonstrated usdoj acquisition constitute violation clayton act antitrust law usdoj taken action connection 1996 cid august 9 1999 dpl monsanto received civil investigative demands usdoj seeking determine whether inappropriate exchanges information monsanto dpl prior acquisitions likely substantially lessened competition sale development cottonseed genetic traits dpl complying usdojs request information documents recent civil investigative demand september 1999 dpl complied usdojs request information documents 1999 cid usdoj taken action directed toward dpl connection 1999 cid 14 stockholders equity preferred stock board directors dpl authorized subject certain limitations prescribed law without stockholder approval issue aggregate 2000000 shares preferred stock one series determine alter designations preferences rights qualifications limitations restrictions shares series thereof including dividend rights dividend rates conversion rights voting rights terms redemption including sinking fund provisions redemption price prices liquidation preferences number shares constituting series designations series august 1996 board directors adopted stockholder rights plan rights plan declared dividend one preferred stock purchase right outstanding share dpls common stock similar rights generally issued respect common stock subsequently issued right becomes exercisable upon occurrence certain events one onehundredth share series junior participating preferred stock 010 par value purchase price 175 per one onehundredth preferred share subject adjustment event dpl acquired merger business combination transaction approved board directors holder right shall right receive number shares common stock surviving company would market value two times exercise price right board directors previously approved monsanto merger modified rights plan deactivate merger upon merger termination board rescinded deactivation rights plan 456989 shares series junior participating preferred stock reserved rights currently exercisable person group acquires beneficial ownership 15 dpls outstanding shares common stock rights expire august 30 2006 redeemable whole part dpls option time price 001 per right dpl issued 1066667 shares effect stock splits series convertible nonvoting preferred stock consideration purchase 1996 hartz cotton inc monsanto holders series preferred stock entitled receive dividends rate per share paid time share common stock dpl declared board directors event liquidation dissolution winding dpl either voluntary involuntary holders series preferred stock shall entitled receive prior preference distribution holders common stock class security dpl 10452 per share series preferred stock series preferred stock convertible beginning upon seventh anniversary date series preferred stock issued occurrence specified events whichever occurs first stock option plans 1993 stock option plan authorized options purchase 2560000 shares effect stock splits common stock option price less market price date grant 1995 longterm incentive plan amended restated march 2000 ltip allows awarding stock options officers key employees directors amended restated 1995 plan eliminates ability board directors award stock appreciation rights restricted shares common stock performance units ltip 5120000 shares effect stock splits november 1997 common stock dpl available grant shares subject options awards expire unexercised available new option grants awards new members board directors receive automatic grants 62222 shares upon named board director given additional annual grant 2666 shares second sixth years director serves grants began february 1998 march 30 2000 annual meeting board directors agreed grant options director 80000 shares company common stock options exercisable ratably five years commencing one year date grant additional information regarding options granted outstanding summarized pro forma effects total compensation expense would recognized sfas 123 follows determination fair value required stock options issued beginning fiscal 1996 weighted average fair values options granted fiscal 1999 2000 2001 1924 961 1041 per share respectively dpl utilized blackscholes option pricing model estimate fair value stock options granted using following assumptions 1999 2000 2001 expected dividend yield 3 expected option lives 5 years 5 years 5 years expected volatility 6441 5188 3909 riskfree interest rates 629 596 586 following table summarizes certain information outstanding exercisable stock options ended august 31 2001 treasury stock february 2000 board directors authorized program repurchase 50 million companys common stock shares repurchased program used provide option exercises conversion companys series convertible nonvoting preferred shares general corporate purposes august 31 2001 company repurchased 453700 shares aggregate purchase price approximately 7703000 program company purchased additional shares plan year ended august 31 2001 subsequent august 31 2001 company repurchased approximately 200000 shares earnings per share dilutive common share equivalents consist companys series convertible nonvoting preferred shares outstanding stock options companys 1993 stock option plan 1995 longterm incentive plan approximately 142000 781000 748000 outstanding stock options included computation diluted earnings per share years ended august 31 1999 2000 2001 respectively effect exercise dilutive based average market price companys common stock respective reporting period options expire various dates 2006 2011 table reconciles basic diluted per share computations income cumulative effect change accounting principle 15 unaudited quarterly financial data dpls domestic seed products subject return credits vary year annual level returns ultimately net sales net income influenced various factors principally weather conditions occurring spring planting season spanning companys third fourth fiscal quarters company provides estimated returns sales made extent actual returns differ estimates adjustments companys operating results recorded differences become known typically companys fourth quarter significant returns occur accounted fiscal year end generally international sales subject return substantial portion company sales concentrated second third fiscal quarters result company generally expects incur losses first fourth quarters management believes seasonality common throughout seed industry summarized unaudited quarterly financial data follows 1 sum quarterly net income loss per share amounts may equal annual amount reported since per share amounts computed independently quarter whereas annual earnings per share based annual weighted average shares deemed outstanding year 2 fourth quarter 1999 includes effect recording special charges 203 million 152 million recorded cost sales associated inventory writeoffs due product phase outs reserves established excess inventory 31 million operating expenses related merger approximately 20 million income associated loss sale fixed assets 3 second quarter includes effect recording 810 million merger termination fee paid monsanto net related expenses 4 fourth quarter includes effect recording 63 million charge closing delinting plant severance related reduction operations corporate staffs item 9item 8 consolidated financial statements supplementary data index financial statements pages following consolidated financial statements delta pine land company subsidiaries submitted response part ii item 8 independent auditors report26 report independent public accountants27 managements report28 consolidated statements income three years period ended august 31 200329 consolidated balance sheets august 31 2003 200230 consolidated statements cash flows three years period ended august 31 200331 consolidated statements stockholders equity comprehensive income three years period ended august 31 200332 notes consolidated financial statements33 independent auditors report board directors delta pine land company audited accompanying consolidated balance sheets delta pine land company subsidiaries august 31 2003 2002 related statements income changes stockholders equity comprehensive income cash flows years ended financial statements responsibility companys management responsibility express opinion financial statements based audits consolidated financial statements delta pine land company year ended august 31 2001 audited auditors ceased operations auditors expressed unqualified opinion financial statements report dated october 26 2001 conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion 2003 2002 consolidated financial statements referred present fairly material respects financial position delta pine land company august 31 2003 2002 results operations cash flows years ended conformity accounting principles generally accepted united states america kpmg llp memphis tennessee october 24 2003 report independent public accountants board directors shareholders delta pine land company audited accompanying consolidated balance sheets delta pine land company delaware corporation subsidiaries august 31 2000 2001 related consolidated statements income cash flows stockholders equity three years period ended august 31 2001 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position delta pine land company subsidiaries august 31 2000 2001 results operations cash flows three years period ended august 31 2001 conformity accounting principles generally accepted united states arthur andersen llp memphis tennessee october 26 2001 copy audit report previously issued arthur andersen llp connection delta pine land companys filing form 10k year ended august 31 2001 audit report reissued arthur andersen llp connection filing form 10k see exhibit 2302 discussion managements report dpl responsible preparing financial statements related information appearing report management believes financial statements present fairly dpls financial position results operations cash flows conformity accounting principles generally accepted united states preparing financial statements dpl required include amounts based estimates judgments believes reasonable circumstances dpl maintains accounting systems designed provide reasonable assurance financial records reliable purposes preparing financial statements assets properly accounted safeguarded compliance systems controls reviewed executive management accounting staff limitations exist internal control system recognizing systems cost exceed benefits derived board directors pursues responsibility dpls financial statements audit committee composed solely directors company officers employees audit committee meets least quarterly independent auditors management independent auditors direct access audit committee without presence management representatives delta pine land company subsidiaries consolidated statements income years ended august 31 thousands except share per share amounts accompanying notes integral part consolidated statements delta pine land company subsidiaries consolidated balance sheets august 31 thousands except share per share amounts accompanying notes integral part consolidated statements delta pine land company subsidiaries consolidated statements cash flows years ended august 31 thousands accompanying notes integral part consolidated statements delta pine land company consolidated statements changes stockholders equity comprehensive income years ended august 31 2001 2002 2003 thousands except per share data accompanying notes integral part consolidated statements notes consolidated financial statements 1 summary significant accounting policies nature operations delta pine land company subsidiaries company dpl breed produce condition market cotton soybean planting seed connection seed operations dpl farms approximately 3000 acres largely production cotton soybean foundation seed dpl annual agreements various growers produce seed cotton soybeans growers plant seed purchased dpl follow quality assurance procedures required seed production grower adheres established company quality assurance standards throughout growing season seed meets company quality standards upon harvest dpl may obligated purchase specified minimum quantities seed prices equal commodity market price seed plus grower premium dpl conditions seed sale planting seed basis presentation accompanying financial statements include accounts delta pine land company subsidiaries significant intercompany accounts transactions eliminated consolidation dpls investment 50owned affiliate deltamax cotton llc accounted using equity method reclassifications certain prior year amounts reclassified conform 2003 presentation special chargesunusual items 2003 dpl recorded 10 million charge associated additional expenses closing chandler arizona plant closing facility centre alabama reductions number employees whollyowned subsidiary australia joint venture hebei province peoples republic china charges included special charges accompanying consolidated statements income august 2001 dpl announced series actions enhance dpls ability execute longterm growth plans improve performance profitability dpl closed chandler arizona facility reduced operations corporate staffs dpl recorded 63 million charge 30 million fixed asset write downs 33 million severance related benefits fourth quarter charge included special charges accompanying consolidated statements income august 31 2003 essentially amounts related closing two us facilities headcount reductions noted utilized august 31 2002 essentially amounts related fixed asset write downs 2001 reorganization utilized cash equivalents cash equivalents include overnight repurchase agreements shortterm investments original maturity less three months property plant equipment property plant equipment stated cost depreciation amortization provided financial reporting purposes using straightline method estimated useful lives assets accelerated methods used income tax purposes estimated useful lives various classes property years follows land improvements 520 buildings improvements 1035 machinery equipment 315 germplasm 1015 breeder foundation seed 40 germplasm breeder foundation seed purchased part acquisitions include amounts specifically identified varieties breeding stocks amounts associated specific varieties amortized expected commercial life varieties breeding stocks amortized 40 years since revitalized time remain viable indefinitely revitalization intangible assets identifiable intangible assets consist trademarks patents intangible assets amortized using straightline method 5 40 years excess cost net assets businesses acquired amortized using straightline method 40 years september 1 2001 amortization discontinued required statement financial accounting standards sfas 141 foreign currency translation financial statements foreign operations local currency functional currency translated using exchange rates effect period end assets liabilities average exchange rates period results operations translation adjustments reported separate component stockholders equity gains losses foreign currency transactions included earnings fair value financial instruments fair value dpls financial instruments august 31 2003 approximates carrying value income taxes dpl uses liability method accounting income taxes method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities measured using enacted tax rates laws revenue recognition revenues domestic seed sales recognized seed shipped revenues bollgard roundup ready licensing fees recognized seed shipped domestically licensing fees charged farmers bollgard roundup ready cottonseed based preestablished planting rates nine geographic regions consider estimated number seed contained bag may vary variety location grown factors international export revenues recognized upon later seed shipped date letters credit instruments confirmed generally international export sales subject return generally international revenues sale planting seed less estimated reserves returns recognized seed shipped dpls domestic seed products including containing bollgard roundup ready technologies subject return credit risk effects vary year annual level returns ultimately net sales net income influenced various factors principally commodity prices weather conditions occurring spring planting season dpls third fourth quarters dpl provides estimated returns sales occur extent actual returns differ estimates adjustments dpls operating results recorded differences become known typically dpls fourth quarter significant returns occur accounted fiscal year end also offer various sales incentive programs seed participate programs related bollgard roundup ready technology fees offered monsanto generally programs farmer plants seed crop lost usually due inclement weather certain date portion price seed technology fees forgiven rebated farmer amount refund impact dpl depends number factors including whether farmer replant crop destroyed record monthly estimates account programs majority program rebates occur second third quarters essentially material claims programs occurred accounted fiscal year end research development research development costs incurred breed produce experimental seed expensed costs incurred produce sufficient quantities planting seed needed commercialization carried inventory seed sold cotton lint byproducts seed production also carried inventory sold accounting stockbased compensation permitted sfas 123 accounting stockbased compensation sfas 148 accounting stockbased compensationtransition disclosurean amendment fasb statement 123 dpl applies accounting principles board opinion 25 accounting employee stock option plans therefore compensation expense stock options deducted determining net income options granted exercise price equal fair market value underlying common stock grant date see note 17 description plan disclosure assumptions underlying pro forma calculations following table illustrates effect net income earnings per share dpl recorded compensation expense accordance fair value provisions sfas 123 2003 2002 2001 net income reported 27805 30339 32307 less total stockbased compensation expense determined fair value based method awards net related tax effects 3600 4714 5743 pro forma 24205 25625 26564 basic earnings per share reported 072 079 084 pro forma 063 066 069 diluted earnings per share reported 070 076 081 pro forma 062 064 066 derivative financial instruments dpl uses various derivative financial instruments mitigate risk variability cash flows related soybean purchases effectively fix cost significant portion soybean raw material inventory terms hedging derivatives used dpl negotiated approximate terms forecasted transaction therefore dpl expects instruments used hedging transactions highly effective offsetting changes cash flows hedged items realized unrealized hedging gains losses recorded component comprehensive income reclassified cost sales period forecasted transaction affects earnings ie sold disposed generally occurs dpls second third fiscal quarters quantities hedged exceed forecasted transactions accounted cash flow hedges manner discussed however extent quantities hedged exceed forecasted transactions due intraseason changes sales forecast probable originally forecasted transaction longer occur dpl accounts gains losses derivative instruments discontinued cash flow hedges whereby immediately recorded component net income dpl enter derivative instruments extend beyond close following fiscal year dpl enter speculative hedges purchase hold derivative financial instruments trading purposes impairment assets dpl assesses recoverability impairment identifiable intangible assets longlived assets whenever events changes circumstances indicate carrying amount may recoverable recorded goodwill attributable domestic segment tested impairment comparing implied fair value carrying value based managements impairment test management determined none goodwill recorded impaired longlived assets dpl determines unamortized balance recovered projected future operating cash flows sum expected future cash flows less carrying amount asset impairment loss recognized otherwise impairment loss recognized dpl continues amortize longlived assets based remaining estimated useful life use estimates preparation dpls consolidated financial statements requires use estimates assumptions affect reported amounts assets liabilities reported amounts revenues expenses disclosure contingent liabilities management makes best estimate ultimate outcome items based historical trends information available financial statements prepared changes estimates recognized accordance accounting rules estimate typically period new information becomes available management areas nature estimate makes reasonably possible actual results could materially differ amounts estimated include damaged obsolete excess inventory income tax liabilities allowances sales returns marketing programs contingent liabilities recently issued financial accounting standards financial accounting standards board interpretation fin 46 consolidation variable interest entities interpretation arb 51 requires primary beneficiary variable interest entity vie consolidate vie certain circumstances fin 46 effective new vies created acquired january 31 2003 amended fasb staff position fin 466 effective date fasb interpretation 46 consolidation variable interest entities fin 46 effective variable interests vie created february 1 2003 end first interim annual period ending december 15 2003 second quarter fiscal 2004 february 28 2004 dpl management determined impact statement financial position results operations sfas 150 accounting certain financial instruments characteristics liabilities equity provides guidance classify measure certain financial instruments characteristics liabilities equity statement effective financial instruments entered modified may 31 2003 otherwise effective beginning first interim period beginning june 15 2003 dpl adopted statement financial instruments entered may 31 2003 otherwise adopted statement september 1 2003 adoption statement material impact dpls consolidated financial position results operations sfas 149 amendment statement 133 derivative instruments hedging activities amends clarifies accounting reporting derivative instruments including embedded derivatives hedging activities sfas 133 accounting derivative instruments hedging activities sfas 149 effective contracts entered modified june 30 2003 hedging relationships designated june 30 2003 adoption statement material impact dpls consolidated financial position results operations sfas 148 accounting stockbased compensation transition disclosure amendment fasb statement 123 issued december 2002 sfas 148 provides alternative methods transition voluntary change fair value based method accounting stockbased employee compensation cost stock options recognized addition statement amends disclosure requirements fasb statement 123 require prominent disclosures annual interim financial statements method accounting stockbased compensation effect method used reported results required disclosure included sfas 146 accounting costs associated exit disposal activities addresses financial accounting reporting costs associated exit disposal activities statement effective exit disposal activities initiated december 31 2002 dpl adopted statement january 1 2003 adoption statement material impact dpls consolidated financial position results operations sfas 144 accounting impairment disposal longlived assets addresses financial accounting reporting impairment disposal longlived assets statement effective fiscal years beginning december 15 2001 interim periods within fiscal years dpl adopted statement september 1 2002 adoption statement material impact dpls consolidated financial position results operations sfas 143 accounting asset retirement obligations addresses financial accounting reporting obligations associated retirement tangible longlived assets associated asset retirement costs statement effective fiscal years beginning june 15 2002 dpl adopted statement september 1 2002 adoption statement material impact dpls consolidated financial position results operations 2 inventories august 31 consisted following thousands 2003 2002 finished goods 21476 26263 raw materials 17062 20961 growing crops 1199 878 supplies 733 1141 40470 49243 less reserves 8239 9222 32231 40021 finished goods raw material inventory valued lower average cost market growing crops supplies recorded cost inventory reserves relate estimated excess obsolete inventory 3 property plant equipment property plant equipment august 31 consisted following thousands 2003 2002 land improvements 5124 5038 buildings improvements 41272 37117 machinery equipment 56202 52565 germplasm 7500 breeder foundation seed 2000 construction progress 5464 4478 117562 108698 less accumulated depreciation 53121 45297 64441 63401 4 intangibles components identifiable intangible assets follow thousands 2003 2002 gross carrying accumulated carrying accumulated amount amortization amount amortization trademarks 3182 800 3182 721 commercialization agreements 400 65 400 37 licenses 1100 patents 426 84 295 74 1959 648 1492 505 7067 1597 5369 1337 amortization expense identifiable intangible assets year ended august 31 2003 2002 2001 approximately 270000 280000 260000 respectively identifiable intangible asset amortization expense estimated 300000 fiscal years fiscal 2004 fiscal 2008 pro forma results operations year ended august 31 2001 applied nonamortization provisions sfas 142 period would materially different reported results period 5 investment affiliate dpl owns 50 interest deltamax cotton llc deltamax limited liability company jointly owned verdia inc formerly known maxyag inc whollyowned subsidiary maxygen inc established may 22 2002 deltamax formed create develop commercialize herbicide tolerant insect resistant traits cotton seed market dpl licensed deltamax developed traits commercialization us cottonproducing countries world years ended august 31 2003 2002 dpls equity net loss deltamax 1977000 305000 respectively 6 notes payable longterm debt dpl syndicated credit facility three financial institutions provided aggregate unsecured borrowings 110 million comprised base commitment 55 million seasonal commitment 55 million base commitment longterm loan could borrowed upon time due april 1 2001 seasonal commitment working capital loan could drawn upon september 1 june 30 fiscal year expired april 1 2001 commitment offered variable fixed interest rate options required dpl pay facility commitment fees comply certain financial covenants interest rate charged loan based libor plus 35 55 basis points depending achievement certain financial ratios average interest rate 534 2001 financial covenants required dpl maintain ratio total liabilities tangible net worth august 31 less equal 225 1 40 10 dpls fiscal quarter ends b maintain fixed charge coverage ratio end quarter greater equal 20 10 c maintain times tangible net worth less sum 40 million plus ii 50 net income losses determined last day fiscal year commencing august 31 1998 agreement expired april 1 2001 august 31 2003 2002 2001 dpl compliance covenants still used determine fees charged letters credit dpl lenders discussions replacement facility would provide aggregate borrowings sufficient meet working capital need contain terms conditions similar 1998 facility 7 accrued expenses accrued expenses august 31 consisted following thousands 2003 2002 bollgard roundup ready royalties related expenses due monsanto 135627 112178 sales allowances 11756 10447 payroll 2136 2310 accrued expenses 26631 18598 176150 143533 8 income taxes provisions income taxes years ended august 31 consisted following thousands 2003 2002 2001 current federal 10891 18380 16972 state 1216 2047 2064 deferred 2636 3733 863 14743 16694 18173 differences statutory federal income tax rate effective rate follows 2003 2002 2001 statutory rate 350 increases decreases tax resulting state taxes net federal tax benefit 23 22 24 research development tax credits 11 10 foreign activities nondeductible costs 13 14 17 02 08 13 effective rate 347 355 360 deferred income taxes august 31 consisted following thousands 2003 2002 deferred tax assets inventory 5635 5660 litigation costs 1387 1946 pension 1080 1447 2575 2988 10677 12041 deferred tax liabilities property 1799 1225 3421 2723 5220 3948 net deferred income taxes 5457 8093 company provided income taxes undistributed earnings foreign subsidiaries distributed cases earnings planned permanently reinvested outside united states 9 leases dpl leases portion real estate machinery equipment used operations substantially rent expense recorded cost sales dpl capital leases future minimum rental payments 2003 operating leases initial remaining noncancellable terms excess one year follows 2004 249000 2005 96000 2006 40000 2007 19000 2008 17000 rent lease expense including land rent approximated 2767000 2704000 2993000 2003 2002 2001 respectively 10 employee benefit plans defined benefit plan substantially fulltime employees covered noncontributory defined benefit plan benefits paid employees beneficiaries upon retirement death disability based final average compensation highest consecutive five years plan assets consist primarily common stock preferred stock corporate bonds managed independent portfolio manager dpls funding policy make contributions plan least equal minimum amounts required funded accordance provisions erisa effective january 1992 dpl adopted supplemental executive retirement plan serp pay supplemental pension benefits certain employees whose benefits plan decreased result certain changes made plan benefits serp paid addition benefits participants may receive plan paid company assets plan assets measurement plan serp assets obligations performed june 30 following table provides reconciliation changes plans serps benefit obligations fair value assets twoyear period ended august 31 2003 statement funded status august 31 2003 2002 actuarial present value projected benefit obligation plan serp determined using discount rate 600 2003 700 2002 assumed salary increases 4 2003 2002 age 65 expected longterm rate return assets 85 2003 90 2002 prior service cost amortized expected future service years plan participants expected receive benefits defined contribution plan dpl sponsors defined contribution plan section 401k internal revenue code covers substantially fulltime employees dpl option may elect make matching contributions plan matching contributions made 2003 2002 2001 11 major customers fiscal 2003 2002 2001 seed sales three customers related licensing fees ultimately billed farmers sales made customers transgenic products comprised 10 total sales licensing fees table presents approximate amount annual sales licensing fees customers amounts reported dpls domestic segment customer 2003 2002 2001 31842000 29034000 31833000 b 56911000 46752000 54937000 c 54791000 56532000 72358000 12 business segment information dpl single line business operates two business segments domestic international dpls reportable segments offer similar products however business units managed separately due geographic dispersion operations dpl breeds produces conditions markets proprietary varieties cotton soybean planting seed united states international segment offers cottonseed several foreign countries export sales incountry operations dpl develops proprietary seed products research development efforts united states certain foreign countries dpls chief operating decision maker utilizes revenue information assessing performance making overall operating decisions resource allocations profit loss information reported segment chief operating decision maker dpls board directors accounting policies segments substantially described summary significant accounting policies information dpls segments years ended august 31 follows thousands 2003 2002 2001 net sales licensing fees domestic 251922 225402 261883 international 29354 32405 43923 281276 257807 305806 operating income domestic 55885 44554 43429 international 756 5276 8241 56641 49830 51670 capital expenditures domestic 5613 5922 6594 international 2685 2462 872 8298 8384 7466 information financial position dpls segments august 31 follows thousands 2003 2002 longterm assets domestic 59640 60004 international 16651 14670 76291 74674 total assets domestic 403976 368345 international 27576 14797 431552 383142 13 related party transactions chairman board directors dpl also director stephens group inc october 2003 retired officer stephens group inc director officer stephens inc full service investment bank however remains consultant employee companies stephens group inc stephens inc stockholders dpl 2002 dpl paid consulting fees stephens inc approximately 306000 relating deltamax formation 2003 2002 2001 partner two law firms changed firms october 2001 represented dpl also stockholder dpls corporate secretary dpl paid legal fees firms approximately 633000 628000 833000 2003 2002 2001 respectively 2002 2001 institute molecular agrobiology ima owned national university singapore national science technology board singapore conducted contract research upon dpls instruction related development certain technologies varietal crops cotton soybeans dpl paid approximately 249000 406000 2002 2001 respectively research projects dr chua member board directors dpl chairman management board directors ima september 2000 deputy chairman time september 2001 also chairman board affiliate ima imagen august 2001 imagen together singapore bioinnovations pte ltd stic investments pte ltd ocbc wearnes walden investments pte ltd 20 stock dpl china pte ltd 2003 deltamax paid temasek life science laboratory temasek approximately 811000 research activities temasek conducted deltamax temasek related party temasek capital temasek holdings dr chua member board directors dpl chief scientific advisor temasek capital april 2001 march 2003 appointed corporate advisor temasek holdings april 2003 march 2004 14 derivative financial instruments comprehensive loss includes following related companys soybean hedging program years ended august 31 2003 2002 thousands 2003 2002 deferred net gain beginning year 304 210 net gains losses hedging instruments arising year 463 222 reclassification adjustment gains losses hedging instruments earnings 505 316 net change accumulated comprehensive loss 42 94 deferred net gain derivative instruments included comprehensive loss end year 262 304 net gain 262000 included accumulated comprehensive loss august 31 2003 consists net unrealized gains 260000 net realized gains 2000 recognized earnings within next twelve months however actual amount charged earnings may vary result changes market conditions years ended august 31 2003 august 31 2002 dpl recorded gains losses earnings result hedge ineffectiveness discontinuance cash flow hedges 15 acquisition dm international llc may 28 2002 dm international llc redeemed pharmacias 50 interest dm international llc cash approximately 48 million dpl monsanto formed dm international llc 1995 introduce cotton planting seed international markets combining dpls acid delinting technology elite germplasm monsantos bollgard roundup ready gene technologies april 2002 pharmacia activated cross purchase provision operating agreement dm international llc dpl notified pharmacia elected dm international llc redeem pharmacias 50 interest company result redemption pharmacias interest dpl owns dm international llc 1 march 31 2000 monsanto company consummated merger pharmacia upjohn inc changed name pharmacia corporation february 9 2000 monsanto company formed new subsidiary corporation monsanto ag company march 31 2000 changed name monsanto company august 31 2002 pharmacia distributed shareholders remaining interest new monsanto company pursuant closing merger april 16 2003 pharmacia corporation merged whollyowned subsidiary pfizer inc pharmacia survived merger whollyowned subsidiary pfizer inc document respect events occurring march 31 2000 term monsanto refers entity designated monsanto company renamed pharmacia corporation date respect events occurring march 31 2000 april 16 2003 entity referred pharmacia respect events occurring april 16 2003 entity referred pharmacia entity date became whollyowned subsidiary pfizer inc respect events occurring march 31 2000 entity formed monsanto ag company renamed monsanto company nyse mon march 31 2000 referred monsanto acquisition 50 interest dm international llc accounted purchase business combination results operations included dpls consolidated statement operations date acquisition allocation purchase price resulted goodwill pro forma results operations year ended august 31 2002 acquisition occurred beginning period would materially different reported results period 16 commitments contingencies product liability claims dpl named defendant various lawsuits allege among things certain dpls products including containing monsantos technology perform farmer anticipated expected cases monsanto andor dealer distributor sold seed also named defendants cases seed sold contained either monsantos bollgard andor roundup ready gene technologies farmer alleged failure one technologies dpl tendered defense case monsanto requested indemnity pursuant terms february 2 1996 bollgard gene license seed services agreement bollgard agreement february 2 1996 roundup ready gene license seed services agreement roundup ready agreement amended december 1999 january 2000 march 2003 roundup ready agreement additionally amended july 1996 dpl right contractually indemnified monsanto claims arising failure monsantos gene technology pharmacia remains liable monsantos performance indemnity agreements product liability lawsuits contain varietal claims aimed solely dpl right indemnification monsanto claims involving varietal characteristics separate addition failure monsanto technology dpl believes resolution matters material impact consolidated financial statements dpl intends vigorously defend matters july 15 2003 dpl received notice monsanto asserting disputes exist among monsanto dpl dm partners pertaining four matters bollgardr roundup readyr licenses united states two matters license agreements argentina republic south africa respectively monsantos notice dispute asserts dpls failure address issues would breach dpl obligations relevant agreements reserves monsantos rights agreements august 2003 dpl dm partners responded monsantos positions issue notified monsanto three additional disputes concerning monsantos compliance obligations bollgard roundup ready licenses united states accordance dispute resolution provisions subject agreements issues raised monsanto dpl dm partners notices submitted panel senior executives dpl committed participating good faith resolution issues dispute issues resolved executive panel may submitted binding arbitration provided relevant agreements july 23 2003 dpl named defendant along local resident lawsuit filed circuit court dunklin county missouri case removed united states district court eastern district missouri southwest division august 22 2003 motion remand case back state court pending lawsuit alleges dpl committed certain business torts including malicious prosecution civil action interference contractual relationships claims dpl pursued claim earlier lawsuit plaintiff litigation defense claim tendered dpls liability insurance carriers dpls insurance carriers agreed provide defense action indemnity subject reservation certain specific rights case early pretrial phase intitial discovery ongoing july 2002 syngenta biotechnology inc sbi brought suit us district court delaware alleging dpls making using selling offering sell cotton planting seed containing monsantos bt genes sold trade name bollgard infringes us patent 6051757 entitled regeneration plants containing genetically engineered tdna suit seeks preliminary permanent injunction dpl monsanto acts alleged infringement contributory infringement inducement infringement sbis patent recovery damages unspecified amount including treble damages account defendants alleged willful infringement dpl demanded pharmacia monsanto agree defend dpl suit indemnify dpl damages may awarded monsanto assumed defense dpl filed answer generally denying infringement claims made litigation dpl assisting monsanto extent reasonably necessary conduct litigation due recent nature suit management determined effect litigation dpl may 2002 pharmacia corporation filed suit state court missouri dpl international technology corp ditc dpls subsidiary seeking declaratory judgment entitled invoke cross purchase provision operating agreement dm international llc limited liability company jointly owned pharmacia ditc alternative pharmacia sought declaratory judgment ditc deemed consented pharmacias transfer operating agreement monsanto issuance transfer shares monsantos stock ditc moved dismiss june 6 2002 case moot present justiciable controversy ditc already invoked rights cross purchase provision caused pharmacias interest dm international llc redeemed instead answering ditcs motion june 13 2002 pharmacia filed amended petition dropping prior claims seeking declaratory judgment ditc contractual rights enjoin pharmacia selling shares monsanto seek damages pharmacias prior initial public offering monsantos shares public ditc moved dismiss suit since never threatened enjoin spinoff alternative moved definite statement october 12 2002 court denied ditcs motion dismiss granted ditcs motion definite statement pharmacia filed second amended petition october 30 2002 ditc filed motion dismiss second amended petition november 19 2002 january 14 2003 court denied ditcs motion dismiss case discovery december 1999 mycogen plant science inc mycogen filed suit federal court australia alleging monsanto australia ltd monsantos whollyowned australian subsidiary deltapine australia pty ltd dpls whollyowned australian subsidiary infringing two mycogens australian patents making selling licensing cotton planting seed expressing insect resistance suit seeks injunction continued sale seed containing monsantos ingardr gene recovery unspecified amount damages litigation currently discovery pretrial proceedings consistent commitments monsanto agreed defend dpl suit indemnify dpl damages awarded monsanto providing separate defense counsel dpl assisting monsanto extent reasonably necessary corporation owned son dpls former guatemalan distributor sued 1989 asserting dpl violated agreement granting another entity exclusive license certain areas central america southern mexico suit seeks damages 5292459 guatemalan quetzales approximately 669000 october 31 2003 exchange rates injunction preventing dpl distributing seed licensee region guatemalan court action proceeding twice declined approve injunction sought dpl continues make available seed sale central america mexico 17 stockholders equity preferred stock board directors dpl authorized subject certain limitations prescribed law without stockholder approval issue aggregate 2000000 shares preferred stock one series determine alter designations preferences rights qualifications limitations restrictions shares series thereof including dividend rights dividend rates conversion rights voting rights terms redemption including sinking fund provisions redemption price prices liquidation preferences number shares constituting series designations series august 1996 board directors adopted stockholder rights plan rights plan declared dividend one preferred stock purchase right outstanding share dpls common stock similar rights generally issued respect common stock subsequently issued right becomes exercisable upon occurrence certain events one onehundredth share series junior participating preferred stock 010 par value purchase price 175 per one onehundredth preferred share subject adjustment event dpl acquired merger business combination transaction approved board directors holder right shall right receive number shares common stock surviving company would market value two times exercise price right rights plan 456989 shares series junior participating preferred stock reserved rights currently exercisable person group acquires beneficial ownership 15 dpls outstanding shares common stock rights expire august 30 2006 redeemable whole part dpls option time price 001 per right dpl issued 1066667 shares effect stock splits series convertible nonvoting preferred stock consideration purchase 1996 hartz cotton inc monsanto holders series preferred stock entitled receive dividends rate per share paid time share common stock dpl declared board directors event liquidation dissolution winding dpl either voluntary involuntary holders series preferred stock shall entitled receive prior preference distribution holders common stock class security dpl 13936 per share series preferred stock series preferred stock became convertible february 2 2003 seventh anniversary date series preferred stock issued stock option plans 1993 stock option plan authorized options purchase 2560000 shares effect stock splits common stock option price less market price date grant 1995 longterm incentive plan amended restated march 2000 ltip allows awarding stock options officers key employees directors amended restated 1995 plan eliminates ability board directors award stock appreciation rights restricted shares common stock performance unit credits ltip options purchase 5120000 shares effect stock splits common stock dpl available grant shares subject options awards expire unexercised available new option grants awards new members board directors receive automatic grants options purchase 62222 shares upon named board director given additional annual grant options purchase 2666 shares second sixth year director serves grants began 1998 march 30 2000 annual meeting board directors agreed grant options director 80000 shares dpl common stock options exercisable ratably five years commencing one year date grant additional information regarding options granted outstanding summarized stock options number shares price range outstanding august 31 2000 4437620 467 4931 granted 84218 2368 2519 exercised 165508 467 2236 lapsed canceled 300370 1571 4931 outstanding august 31 2001 4055960 467 4931 granted 682496 1785 2047 exercised 200338 467 1962 lapsed canceled 500299 1691 4931 outstanding august 31 2002 4037819 467 4731 granted 258554 1828 2399 exercised 213545 467 2425 lapsed canceled 98846 1785 4169 outstanding august 31 2003 3983982 467 4731 weighted average fair values options granted fiscal 2003 2002 2001 641 649 1041 per share respectively fair value options estimated date grant using blackscholes option pricing model following assumptions 2003 2002 2001 expected dividend yield 1 3 expected option lives 8 years 5 years 5 years expected volatility 2499 3352 3909 riskfree interest rates 307 554 586 following table summarizes certain information outstanding exercisable stock options august 31 2003 options outstanding options exercisable weighted average weighted remaining average exercise price contractual life exercise range number years price number price 467 1650 735130 14 842 735130 842 1691 2890 3165192 62 2077 1860981 2182 3280 3919 81660 52 3590 67990 3596 4169 4731 2000 47 4731 2000 4731 3983982 2666101 treasury stock february 2000 board directors authorized program repurchase 50 million dpls common stock shares repurchased program used provide option exercises conversion dpls series convertible nonvoting preferred shares general corporate purposes august 31 2003 dpl repurchased 1303000 shares aggregate purchase price approximately 23798000 program dpl purchased 310100 shares aggregate purchase price 6135000 plan year ended august 31 2003 earnings per share dilutive common share equivalents consist dpls series convertible nonvoting preferred shares outstanding stock options dpls 1993 stock option plan 1995 longterm incentive plan approximately 1117000 2259000 748000 outstanding stock options included computation diluted earnings per share years ended august 31 2003 2002 2001 respectively effect exercise dilutive based average market price dpls common stock respective reporting period table reconciles basic diluted per share computations twelve months ended august 31 2003 2002 2001 income net income 27805 30339 32307 less preferred stock dividends 288 213 160 net income basic eps 27517 30126 32147 effect dilutive securities convertible preferred stock dividends 288 213 160 net income available common stockholders plus assumed conversions diluted eps 27805 30339 32307 shares basic eps shares 38113 38362 38473 effect dilutive securities options purchase common stock 414 352 571 convertible preferred stock 1067 diluted eps shares 39594 39781 40111 per share amounts basic 072 079 084 diluted 070 076 081 18 unaudited quarterly financial data dpls domestic seed products including containing bollgard roundup ready technologies subject return credit risks effects vary year annual level returns ultimately net sales net income influenced various factors principally commodity prices weather conditions occurring spring planting season dpls third fourth fiscal quarters dpl provides estimated returns sales occur extent actual returns differ estimates adjustments dpls operating results recorded differences become known typically dpls fourth quarter significant returns occur accounted fiscal year end also offer various sales incentive programs seed participate programs related bollgard roundup ready technology fees offered monsanto generally programs farmer plants seed crop lost usually due inclement weather certain date portion price seed technology fees forgiven rebated farmer amount refund impact dpl depends number factors including whether farmer replant crop destroyed record monthly estimates account programs majority program rebates occur second third quarters essentially material claims programs occurred accounted fiscal year end generally international sales subject return substantial portion company sales concentrated second third fiscal quarters result dpl generally expects incur losses first fourth quarters management believes seasonality common throughout seed industry summarized unaudited quarterly financial data follows thousands except per share data fiscal 2003 three months ended november 30 february 28 may 31 august 31 net sales licensing fees 5599 107537 168936 796 gross profit 1760 42161 58389 17 net loss income applicable common shares 2 7484 16068 28401 9468 net loss income per sharebasic 1 2 020 042 075 025 weighted average number shares used quarterly per share calculationsbasic 38176 38124 38049 38103 net loss income per share diluted 1 2 020 041 072 025 weighted average number shares used quarterly per share calculationsdiluted 38176 39556 39598 38103 fiscal 2002 three months ended november 30 february 29 may 31 august 31 net sales licensing fees 8253 111867 135386 2301 gross profit 2804 40122 49050 573 net loss income applicable common shares 4538 17721 25012 8069 net loss income per sharebasic1 012 046 065 021 weighted average number shares used quarterly per share calculations basic 38385 38454 38343 38267 net loss income per share diluted 1 012 044 063 021 weighted average number shares used quarterly per share calculations diluted 38385 39991 39769 38267 fiscal 2001 three months ended november 30 february 28 may 31 august 31 net sales licensing fees 9694 150154 139331 6627 gross profit 2295 51782 48596 2897 net loss income applicable common shares 3 4958 23843 22885 9623 net loss income per sharebasic 1 3 013 062 059 025 weighted average number shares used quarterly per share calculations basic 38386 38425 38963 38543 net loss income per share diluted 1 3 013 059 056 025 weighted average number shares used quarterly per share calculations diluted 38386 40101 40667 38543 1 sum quarterly net loss income per share amounts may equal annual amount reported since per share amounts computed independently quarter whereas annual earnings per share based annual weighted average shares deemed outstanding year 2 first third quarters include effect recording 05 million charge quarter closing two us locations reductions number employees international whollyowned subsidiary international joint venture 3 fourth quarter includes effect recording 63 million charge closing delinting plant severance related reduction operations corporate staffs item 9item 8 consolidated financial statements supplementary data report independent registered public accounting firm board directors stockholders delta pine land company audited accompanying consolidated balance sheets delta pine land company subsidiaries company august 31 2004 2003 related consolidated statements income stockholders equity comprehensive income cash flows years threeyear period ended august 31 2004 consolidated financial statements responsibility companys management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position delta pine land company subsidiaries august 31 2004 2003 results operations cash flows years threeyear period ended august 31 2004 conformity us generally accepted accounting principles kpmg llp memphis tennessee october 25 2004 managements report dpl responsible preparing financial statements related information appearing report management believes financial statements present fairly dpls financial position results operations cash flows conformity accounting principles generally accepted united states preparing financial statements dpl required include amounts based estimates judgments believes reasonable circumstances dpl maintains accounting systems designed provide reasonable assurance financial records reliable purposes preparing financial statements assets properly accounted safeguarded compliance systems controls reviewed executive management accounting staff limitations exist internal control system recognizing systems cost exceed benefits derived board directors pursues responsibility dpls financial statements primarily efforts audit committee composed solely independent directors company officers employees audit committee meets often determines necessary least four times per year addition audit committee meets independent auditor least quarterly audit committee also meets periodically management head internal audit function separate executive sessions independent auditors direct access audit committee without presence management representatives notes consolidated financial statements 1 summary significant accounting policies nature operations delta pine land company subsidiaries company dpl breed produce condition market cotton soybean planting seed dpl farms approximately 5500 acres largely research purposes production cotton soybean foundation seed dpl annual agreements various growers produce seed cotton soybeans growers plant seed purchased dpl follow quality assurance procedures required seed production grower adheres established company quality assurance standards throughout growing season seed meets company quality standards upon harvest dpl may obligated purchase specified minimum quantities seed prices equal commodity market price seed plus grower premium dpl conditions seed sale planting seed basis presentation accompanying financial statements include accounts delta pine land company subsidiaries significant intercompany accounts transactions eliminated consolidation dpls investment 50owned affiliate deltamax cotton llc accounted using equity method reclassifications 2004 consolidated income statement certain expenses historically classified research development operating expenses reclassified cost sales expenses prior years also reclassified consistency expenses relate certain activities performed technical services department sales transgenic varieties increased percentage net sales licensing fees past several years certain technical services department activities become related preparing seed sale research development activities expenses reclassified relate primarily increase seed quantities allow us offer certain varieties commercially latestage trials performed ensure varieties chosen offered commercially meet agronomic transgenic requirements thirdparty technology licenses amount expenses reclassified 2004 2003 2002 1803000 1626000 1717000 respectively also 2004 certain shipping expenses historically classified reduction net sales licensing fees reclassified cost sales expenses primarily relate costs incurred ship finished goods customers amount expenses reclassified 2004 2003 2002 3104000 3211000 2234000 respectively addition certain prior year amounts reclassified conform 2004 presentation special chargesunusual items 2003 dpl recorded 10 million charge associated additional expenses closing chandler arizona plant closing facility centre alabama reductions number employees whollyowned subsidiary australia joint venture hebei province peoples republic china charges included special charges accompanying consolidated statements income august 31 2003 essentially amounts related closing two us facilities headcount reductions noted utilized cash equivalents cash equivalents include overnight repurchase agreements shortterm investments original maturity less three months property plant equipment property plant equipment stated cost depreciation amortization provided financial reporting purposes using straightline method estimated useful lives assets accelerated methods used income tax purposes estimated useful lives various classes property years follows land improvements 520 buildings improvements 1035 machinery equipment 315 germplasm 1015 breeder foundation seed 40 germplasm breeder foundation seed purchased part acquisitions include amounts specifically identified varieties breeding stocks amounts associated specific varieties amortized expected commercial life varieties breeding stocks amortized 40 years since revitalized time remain viable indefinitely revitalization intangible assets identifiable intangible assets consist trademarks patents intangible assets amortized using straightline method 5 40 years excess cost net assets businesses acquired amortized using straightline method 40 years september 1 2001 amortization discontinued required statement financial accounting standards sfas 141 dpl incurred inprocess research development iprd related transaction costs 38532000 2004 including amounts assigned acquired inprocess technology 36225000 value assigned acquired inprocess technology determined identifying acquired specific inprocess research development projects would continued technology feasibility established acquisition date b alternative future use c fair value estimable reasonable reliability foreign currency translation financial statements foreign operations local currency functional currency translated using exchange rates effect period end assets liabilities average exchange rates period results operations translation adjustments reported separate component stockholders equity gains losses foreign currency transactions included earnings fair value financial instruments fair value dpls financial instruments includes cash accounts receivables derivatives accounts payable august 31 2004 approximates carrying value income taxes dpl uses liability method accounting income taxes method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities measured using enacted tax rates laws revenue recognition revenues domestic seed sales recognized seed shipped revenues bollgard roundup ready licensing fees recognized seed shipped domestically licensing fees charged farmers bollgard roundup ready cottonseed based preestablished planting rates nine geographic regions consider number seed contained container bag bulk box international export revenues recognized upon later seed shipped date letters credit instruments confirmed generally international export sales subject return generally international revenues sale planting seed less estimated reserves returns recognized seed shipped dpls domestic seed products including containing bollgard roundup ready technologies subject return credit risk effects vary year dpl provides estimated returns sales occur significant returns occur accounted fiscal year end record monthly estimates account various sales incentive programs seed monsantos bollgard roundup ready technologies majority program rebates occur second third fourth quarters essentially material claims programs occurred accounted fiscal year end research development research development costs incurred breed produce experimental seed expensed costs incurred produce sufficient quantities planting seed needed commercialization carried inventory seed sold cotton lint byproducts seed production also carried inventory sold accounting stockbased compensation permitted sfas 123 accounting stock based compensation sfas 148 accounting stockbased compensation transition disclosure amendment fasb statement 123 dpl applies accounting principles board opinion 25 accounting employee stock option plans therefore compensation expense stock options deducted determining net income options granted exercise price equal fair market value underlying common stock grant date see note 18 description plan disclosure assumptions underlying pro forma calculations following table illustrates effect net income earnings per share dpl recorded compensation expense accordance fair value provisions sfas 123 derivative financial instruments dpl uses various derivative financial instruments mitigate risk variability cash flows related soybean purchases effectively fix cost significant portion soybean raw material inventory terms hedging derivatives used dpl negotiated approximate terms forecasted transaction therefore dpl expects instruments used hedging transactions highly effective offsetting changes cash flows hedged items realized unrealized hedging gains losses recorded component comprehensive income reclassified cost sales period forecasted transaction affects earnings ie sold disposed generally occurs dpls second third fiscal quarters quantities hedged exceed forecasted transactions accounted cash flow hedges manner discussed however extent quantities hedged exceed forecasted transactions due intraseason changes sales forecast probable originally forecasted transaction longer occur dpl accounts gains losses derivative instruments discontinued cash flow hedges whereby immediately recorded component net income dpl enter derivative instruments extend beyond close following fiscal year dpl enter speculative hedges purchase hold derivative financial instruments trading purposes impairment assets dpl assesses recoverability impairment identifiable intangible assets longlived assets whenever events changes circumstances indicate carrying amount may recoverable recorded goodwill attributable domestic segment tested annually fourth quarter fiscal year impairment comparing implied fair value carrying value based managements impairment test fourth quarter 2004 2003 management determined none goodwill recorded impaired longlived assets dpl determines unamortized balance recovered projected future operating cash flows sum expected future cash flows less carrying amount asset impairment loss recognized otherwise impairment loss recognized dpl continues amortize longlived assets based remaining estimated useful life use estimates preparation dpls consolidated financial statements requires use estimates assumptions affect reported amounts assets liabilities reported amounts revenues expenses disclosure contingent liabilities management makes best estimate ultimate outcome items based historical trends information available financial statements prepared changes estimates recognized accordance accounting rules estimate typically period new information becomes available management areas nature estimate makes reasonably possible actual results could materially differ amounts estimated include damaged obsolete excess inventory income tax liabilities allowances sales returns marketing programs contingent liabilities recently issued financial accounting standards january 2003 fasb issued interpretation 46 consolidation variable interest entities interpretation arb 51 december 2003 fasb published revision interpretation 46 46r clarify provisions original interpretation company variable interest entities therefore adoption statement material impact dpls consolidated financial position results operations statement financial accounting standards sfas 132 revised 2003 employers disclosures pensions postretirement benefits requires additional annual disclosures pension plan assets benefit obligations cash flows benefit costs related information sfas 132 revised 2003 also requires companies disclose various elements pension postretirement benefit costs interimperiod financial statements quarters beginning december 15 2003 required additional annual disclosures included note 10 sfas 150 accounting certain financial instruments characteristics liabilities equity provides guidance classify measure certain financial instruments characteristics liabilities equity statement effective financial instruments entered modified may 31 2003 otherwise effective beginning first interim period beginning june 15 2003 dpl adopted statement financial instruments entered may 31 2003 otherwise adopted statement september 1 2003 adoption statement material impact dpls consolidated financial position results operations 2 inventories august 31 consisted following thousands 2004 2003 finished goods 24867 21476 raw materials 14333 17062 growing crops 1432 1199 supplies 1040 733 41672 40470 less reserves 11521 8239 30151 32231 finished goods raw material inventory valued lower average cost market growing crops recorded cost elements cost inventories include raw materials direct production costs manufacturing overhead immaterial general administrative expenses inventory reserves relate estimated excess obsolete inventory provision recorded excess obsolete inventory years ended august 31 2004 2003 2002 12299000 7478000 10345000 respectively see note 14 description hedging activities 3 property plant equipment property plant equipment august 31 consisted following thousands 2004 2003 land improvements 5981 5124 buildings improvements 42228 41272 machinery equipment 59125 56202 germplasm 7500 breeder foundation seed 2000 construction progress 2538 5464 119372 117562 less accumulated depreciation 57384 53121 61988 64441 depreciation expense approximately 7980000 7490000 6540000 2004 2003 2002 respectively 4 intangibles components identifiable intangible assets august 31 consisted following thousands amortization expense identifiable intangible assets years ended august 31 2004 2003 2002 approximately 380000 270000 280000 respectively identifiable intangible asset amortization expense estimated 400000 fiscal years 2005 2008 300000 2009 fourth quarters fiscal 2004 2003 excess cost net assets business acquired goodwill attributable domestic segment tested impairment comparing implied fair value carrying value based managements impairment test management determined none goodwill recorded impaired 5 investment affiliate dpl owns 50 interest deltamax limited liability company jointly owned verdia inc verdia acquired dupont july 2 2004 established may 2002 deltamax joint venture formed create develop commercialize herbicide tolerant insect resistant traits cottonseed market dpl licensed deltamax developed traits commercialization us cottonproducing countries world years ended august 31 2004 2003 2002 dpls equity net loss deltamax 3551000 1977000 305000 respectively 6 notes payable longterm debt amounts reported consolidated balance sheets notes payable longterm debt august 31 2004 relate payments made syngenta crop protection ag syngenta related acquisition certain licenses see note 16 information transaction 7 accrued expenses accrued expenses august 31 consisted following thousands 2004 2003 bollgard roundup ready royalties related expenses due monsanto 149984 135627 sales allowances 12281 11756 dividends 4619 3917 accrued expenses 21006 24850 187890 176150 8 income taxes provisions income taxes years ended august 31 consisted following thousands 2004 2003 2002 current federal 12078 10891 18380 state 1226 1216 2047 deferred federal 10232 2347 3282 state 1678 289 451 1394 14743 16694 differences statutory federal income tax rate effective rate follows effective tax rate reduced 2004 primarily due impact iprd charge see note 16 state taxes resulted net benefit 2004 due state income tax credits recognition certain state net operating losses previously benefited deferred income taxes august 31 consisted following thousands 2004 2003 deferred tax assets inventory 4048 5635 litigation costs 1129 1387 pension 955 1080 capitalized licenses syngenta 14541 3327 2575 24000 10677 deferred tax liabilities property intangibles 3615 3923 3018 1297 6633 5220 net deferred income taxes 17367 5457 company provided income taxes undistributed earnings foreign subsidiaries distributed cases earnings planned permanently reinvested outside united states 9 leases dpl leases portion real estate machinery equipment used operations substantially rent expense recorded cost sales dpl capital leases future minimum rental payments 2004 operating leases initial remaining noncancellable terms excess one year follows 2005 187000 2006 125000 2007 80000 2008 82000 2009 78000 rent lease expense approximated 2558000 2767000 2704000 2004 2003 2002 respectively 10 employee benefit plans defined benefit plan substantially fulltime employees covered noncontributory defined benefit plan benefits paid employees beneficiaries upon retirement death disability based final average compensation highest consecutive five years dpls funding policy make contributions plan least equal minimum amounts required funded accordance provisions erisa dpl expects contribute 1 million plan 2005 effective january 1992 dpl adopted supplemental executive retirement plan serp pay supplemental pension benefits certain employees whose benefits plan decreased result certain changes made plan benefits serp paid addition benefits participants may receive plan paid company assets plan assets dpl expect contribute serp 2005 measurement plan serp assets obligations performed june 30 following table provides reconciliation changes plans serps benefit obligations fair value assets twoyear period ended august 31 2004 statement funded status august 31 2004 2003 accumulated benefit obligation plan 15858000 15004000 2004 2003 respectively accumulated benefit obligation serp 607000 616000 2004 2003 respectively periodic pension expense expected longterm rate return assumptions asset class selected based historical relationships assets classes economic capital market environments updated current conditions dpls plan serp asset allocations measurement dates june 30 2004 2003 follows plan serp plan assets managed independent portfolio manager balanced accounts assets invested fixed income securities including preferred stock corporate bonds debentures equities including common stock target range asset allocation 20 40 fixed income securities 60 80 equities primary risk control limiting one equity position 8 value equity portion portfolio derivatives used portfolio construction plan serp assets invested dpl common stock june 30 2004 2003 august 31 2004 total future plan serp benefits estimated follows plan serp 2005 676000 63000 2006 736000 63000 2007 750000 63000 2008 790000 63000 2009 850000 63000 years 20102014 4962000 314000 defined contribution plan dpl sponsors defined contribution plan section 401k internal revenue code covers substantially fulltime employees dpl option may elect make matching contributions plan matching contributions made 2004 2003 2002 11 major customers fiscal 2004 2003 2002 seed sales three customers related licensing fees ultimately billed farmers sales made customers transgenic products comprised 10 total sales licensing fees table presents approximate amount annual sales licensing fees customers amounts reported dpls domestic segment customer 2004 2003 2002 38820000 32275000 29368000 b 66156000 57580000 47176000 c 55388000 55438000 57057000 12 business segment information dpl single line business operates two business segments domestic international dpls reportable segments offer similar products however business units managed separately due geographic dispersion operations dpl breeds produces conditions markets proprietary varieties cotton soybean planting seed united states international segment offers cottonseed several foreign countries export sales incountry operations dpl develops proprietary seed products research development efforts united states certain foreign countries dpls chief operating decision maker utilizes revenue information assessing performance making overall operating decisions resource allocations profit loss information reported segment chief operating decision maker dpls board directors accounting policies segments substantially described summary significant accounting policies information dpls segments years ended august 31 follows thousands information financial position dpls segments august 31 follows thousands 2004 2003 longterm assets domestic 65210 59640 international 16338 16651 81548 76291 total assets domestic 428444 403976 international 28579 27576 457023 431552 13 related party transactions chairman board directors dpl also director stephens group inc october 2003 retired officer stephens group inc director officer stephens inc full service investment bank however remains consultant employee companies stephens group inc stephens inc stockholders dpl 2004 dpl paid consulting fees stephens inc approximately 313000 evaluation certain technology transactions 2002 dpl paid consulting fees stephens inc approximately 306000 relating deltamax formation 2004 2003 2002 partner two law firms changed firms october 2001 represented dpl also stockholder dpls corporate secretary dpl paid legal fees firms approximately 929000 633000 628000 2004 2003 2002 respectively 2002 institute molecular agrobiology ima owned national university singapore national science technology board singapore conducted contract research upon dpls instruction related development certain technologies varietal crops cotton soybeans dpl paid approximately 249000 2002 research projects dr chua member board directors dpl chairman management board directors ima september 2000 deputy chairman time september 2001 also chairman board affiliate ima imagen august 2001 imagen together singapore bioinnovations pte ltd stic investments pte ltd ocbc wearnes walden investments pte ltd 20 stock dpl china pte ltd 2004 2003 deltamax paid temasek life science laboratory tll approximately 1118000 811000 respectively research activities temasek conducted deltamax tll related party temasek capital temasek holdings dr chua member board directors dpl chief scientific advisor temasek capital april 2001 march 2003 appointed corporate advisor temasek holdings april 2003 march 2005 advised tll since april 2004 dr chua paid consultant pioneer hibred international inc dupont subsidiary several years continues capacity july 2004 dupont acquired verdia inc owns 50 deltamax see note 5 14 derivative financial instruments comprehensive loss includes following related companys soybean hedging program years ended august 31 2004 2003 thousands net loss 134000 included accumulated comprehensive loss august 31 2004 consists net unrealized losses 175000 net unrealized gains 41000 recognized earnings within next twelve months however actual amount charged earnings may vary result changes market conditions years ended august 31 2004 august 31 2003 dpl recorded gains losses earnings result hedge ineffectiveness discontinuance cash flow hedges 15 acquisition dm international llc may 28 2002 dm international llc redeemed pharmacias 50 interest dm international llc cash approximately 48 million dpl monsanto formed dm international llc 1995 introduce cotton planting seed international markets combining dpls acid delinting technology elite germplasm monsantos bollgard roundup ready gene technologies april 2002 pharmacia activated cross purchase provision operating agreement dm international llc dpl notified pharmacia elected dm international llc redeem pharmacias 50 interest company result redemption pharmacias interest dpl owns dm international llc acquisition 50 interest dm international llc accounted purchase business combination results operations included dpls consolidated statement operations date acquisition allocation purchase price resulted goodwill pro forma results operations year ended august 31 2002 acquisition occurred beginning period would materially different reported results period 16 inprocess research development august 2004 dpl entered acquisition agreement syngenta purchase global licenses develop commercialize syngentas insect resistance technology cottonseed addition dpl purchased licenses wide range syngenta enabling technologies may useful developing new products use cottonseed soybean seed return licenses dpl pay syngenta approximately 468 million installments due primarily next three years acquisition agreement dpl paid syngenta 141 million closing fiscal year 2004 required pay syngenta 58 million fiscal year 2005 1015 million fiscal year 2006 595 million fiscal year 2007 16 million fiscal year 2008 contingent payments 16 million fiscal year 2008 31 million fiscal year 2009 30 million fiscal year 2010 15 million fiscal year 2011 may also made agreements purchase date amount equal present value payments required made capitalized intangible asset immediately expensed consolidated statement income technologies purchased licenses inprocess research development iprd projects yet reached technological feasibility alternative future use amount capitalized written iprd 36225000 amount reported consolidated statement income inprocess research development related transaction costs payments made three onehalf years contingent certain events occurring thus included amount capitalized written iprd related transaction costs approximately 2307000 primarily related professional fees also included caption inprocess research development related transaction costs consolidated statement income 1 march 31 2000 monsanto company consummated merger pharmacia upjohn inc changed name pharmacia corporation february 9 2000 monsanto company formed new subsidiary corporation monsanto ag company march 31 2000 changed name monsanto company august 31 2002 pharmacia distributed shareholders remaining interest new monsanto company pursuant closing merger april 16 2003 pharmacia corporation merged whollyowned subsidiary pfizer inc pharmacia survived merger whollyowned subsidiary pfizer inc document respect events occurring march 31 2000 term monsanto refers entity designated monsanto company renamed pharmacia corporation date respect events occurring march 31 2000 april 16 2003 entity referred pharmacia respect events occurring april 16 2003 entity referred pharmacia entity date became whollyowned subsidiary pfizer inc respect events occurring march 31 2000 entity formed monsanto ag company renamed monsanto company nyse mon march 31 2000 referred monsanto present value amounts paid first three onehalf years computed based discount rates approximated borrowing rates would incur borrowings similar maturities payments required made accordingly discount rate used payments made one two three onehalf years purchase date 328 384 425 respectively amount due syngenta within next twelve months reported consolidated balance sheet notes payable current liabilities balance remaining payments due next three onehalf years reported longterm debt 17 commitments contingencies product liability claims dpl named defendant various lawsuits allege among things certain dpls products including containing monsantos technology perform farmer anticipated expected cases monsanto andor dealer distributor sold seed also named defendants cases seed sold contained either monsantos bollgardr andor roundup readyr gene technologies farmer alleged failure one technologies dpl tendered defense case monsanto requested indemnity pursuant terms february 2 1996 bollgard gene license seed services agreement bollgard agreement february 2 1996 roundup ready gene license seed services agreement roundup ready agreement amended december 1999 january 2000 march 2003 roundup ready agreement additionally amended july 1996 dpl right contractually indemnified monsanto claims arising failure monsantos gene technology pharmacia remains liable monsantos performance indemnity agreements product liability lawsuits contain varietal claims aimed solely dpl right indemnification monsanto claims involving varietal characteristics separate addition failure monsanto technology dpl believes resolution matters material impact consolidated financial statements dpl intends vigorously defend matters legal matters december 9 2003 bayer bioscience nv bayer cropscience gmbh collectively bayer filed suit federal court australia alleging importing exporting selling alleged uses deltapine australia pty ltd dpls whollyowned australian subsidiary deltapine australia bollgard iir cottonseed infringes bayers australian patent claims alleged invention entitled prevention bt resistance development suit seeks injunction damages relief deltapine australia deltapine australia disputes validity infringement enforceability bayers patent april 16 2004 deltapine australia responded suit denying infringement asserting affirmative defenses cross claims suit pretrial proceedings due status matter management unable determine impact matter consolidated financial statements july 2003 dpl received notice monsanto asserting disputes exist among monsanto dpl dm partners partnership dpl 90 monsanto 10 pertaining matters bollgard roundup ready licenses united states matters license agreements argentina republic south africa august 2003 dpl dm partners responded monsantos positions issue notified monsanto additional disputes concerning monsantos compliance obligations bollgard roundup ready licenses united states accordance dispute resolution provisions subject agreements issues raised monsanto dpl dm partners notices submitted panel senior executives executive panel monsanto subsequently withdrew executive panel issue involving license agreements republic south africa submitted executive panel one additional issue interpretation bollgard roundup ready licenses united states issues arising operations argentina issues involving technology fees interest settled longer dispute may 20 2004 monsanto submitted arbitration american arbitration association two unresolved issues whether dm partners paid monsanto royalties due whether dpl made unauthorized transfers materials containing monsanto technology arbitration proceeding monsanto seeks adjudication alleged right terminate bollgard roundup ready licenses dissolve dm partners obtain accounting receive monetary damages return destruction materials containing monsanto technologies dpl denies claims asserted monsanto arbitration filing filed appropriate responses counterclaims monsantos claims based issues submitted dpl executive panel november 8 2004 monsanto submitted one new claim allegedly involving dispute license agreements executive panel dpl committed participating good faith resolution issues dispute arbitration executive panel applicable due status matter management unable determine impact matter consolidated financial statements july 2002 syngenta biotechnology inc sbi brought suit us district court delaware alleging dpls making using selling offering sell cotton planting seed containing monsantos insectresistant bt genes sold trade name bollgard monsantos herbicide tolerance genes sold trade name roundup ready infringed us patent 6051757 entitled regeneration plants containing genetically engineered tdna suit dismissed prejudice stipulation dismissal filed february 20 2004 material impact dpl may 2002 pharmacia corporation filed suit state court missouri dpl international technology corp ditc dpls subsidiary seeking declaratory judgment entitled invoke cross purchase provision operating agreement dm international llc limited liability company jointly owned pharmacia ditc march 2004 parties agreed settle matter without material financial impact company order dismissal entered april 27 2004 december 1999 mycogen plant science inc mycogen filed suit federal court australia alleging monsanto australia ltd monsantos whollyowned australian subsidiary deltapine australia infringing two mycogens australian patents making selling licensing cotton planting seed expressing insect resistance suit seeks injunction continued sale seed containing monsantos ingardr gene recovery unspecified amount damages litigation currently discovery pretrial proceedings consistent commitments monsanto agreed defend dpl suit indemnify dpl damages awarded monsanto providing separate defense counsel dpl assisting monsanto extent reasonably necessary due status matter management unable determine impact matter consolidated financial statements corporation owned son dpls former guatemalan distributor sued 1989 asserting dpl violated agreement granting another entity exclusive license certain areas central america southern mexico suit seeks damages 5292459 guatemalan quetzales approximately 697000 october 31 2004 exchange rates injunction preventing dpl distributing seed licensee region guatemalan court action proceeding twice declined approve injunction sought dpl continues make available seed sale central america mexico dpl vs monsanto company pharmacia corp december 20 1999 monsanto withdrew premerger notification filed pursuant hartscottrodino antitrust improvements act 1976 hsr act effectively terminating monsantos efforts gain government approval merger monsanto dpl may 8 1998 merger agreement december 30 1999 dpl filed suit first judicial district bolivar county mississippi seeking among things payment 81 million termination fee due pursuant merger agreement compensatory damages punitive damages january 2 2000 dpl monsanto reached agreement whereby dpl would withdraw suit without prejudice purpose negotiating settlement dpls claims monsanto would immediately pay 81 million january 3 2000 monsanto paid dpl termination fee 81 million required merger agreement january 18 2000 unsuccessful negotiations dpl refiled suit dpl seeks excess 1 billion compensatory 1 billion punitive damages breach merger agreement parties september 12 2003 monsanto amended answer include four counterclaims dpl monsanto seeking unspecified damages counterclaims including 81 million paid monsanto dpl termination fee related expenses dpl answered counterclaims denying liability dpl intends vigorously defend counterclaims due status matter management unable determine impact matter consolidated financial statements 18 stockholders equity preferred stock board directors dpl authorized subject certain limitations prescribed law without stockholder approval issue aggregate 2000000 shares preferred stock one series determine alter designations preferences rights qualifications limitations restrictions shares series thereof including dividend rights dividend rates conversion rights voting rights terms redemption including sinking fund provisions redemption price prices liquidation preferences number shares constituting series designations series august 1996 board directors adopted stockholder rights plan rights plan declared dividend one preferred stock purchase right outstanding share dpls common stock similar rights generally issued respect common stock subsequently issued right becomes exercisable upon occurrence certain events one onehundredth share series junior participating preferred stock 010 par value purchase price 175 per one onehundredth preferred share subject adjustment event dpl acquired merger business combination transaction approved board directors holder right shall right receive number shares common stock surviving company would market value two times exercise price right rights plan 456989 shares series junior participating preferred stock reserved rights currently exercisable person group acquires beneficial ownership 15 dpls outstanding shares common stock rights expire august 30 2006 redeemable whole part dpls option time price 001 per right dpl issued 1066667 shares effect stock splits series convertible nonvoting preferred stock consideration purchase 1996 hartz cotton inc monsanto holders series preferred stock entitled receive dividends rate per share paid time share common stock dpl declared board directors event liquidation dissolution winding dpl either voluntary involuntary holders series preferred stock shall entitled receive prior preference distribution holders common stock class security dpl 13936 per share series preferred stock series preferred stock became convertible february 2 2003 seventh anniversary date series preferred stock issued stock option plans 1993 stock option plan authorized options purchase 2560000 shares effect stock splits common stock option price less market price date grant 1995 longterm incentive plan amended restated march 2000 ltip allows awarding stock options officers key employees directors amended restated 1995 plan eliminates ability board directors award stock appreciation rights restricted shares common stock performance unit credits ltip options purchase 5120000 shares effect stock splits common stock dpl available grant shares subject options awards expire unexercised available new option grants awards new members board directors receive automatic grants options purchase 62222 shares upon named board director given additional annual grant options purchase 2666 shares second sixth year director serves grants began 1998 march 30 2000 annual meeting board directors agreed grant options director 80000 shares dpl common stock options exercisable ratably five years commencing one year date grant additional information regarding options granted outstanding summarized stock options number shares price range outstanding august 31 2001 4055960 467 4931 granted 682496 1785 2047 exercised 200338 467 1962 lapsed canceled 500299 1691 4931 outstanding august 31 2002 4037819 467 4731 granted 258554 1828 2399 exercised 213545 467 2425 lapsed canceled 98846 1785 4169 outstanding august 31 2003 3983982 467 4731 granted 35332 2261 2550 exercised 637704 467 2236 lapsed canceled 51977 467 2267 outstanding august 31 2004 3329633 1069 4731 weighted average fair values options granted fiscal 2004 2003 2002 614 641 649 per share respectively fair value options estimated date grant using blackscholes option pricing model following assumptions 2004 2003 2002 expected dividend yield 1 3 expected option lives 8 years 8 years 5 years expected volatility 1601 2499 3352 riskfree interest rates 382 307 554 following table summarizes certain information outstanding exercisable stock options august 31 2004 treasury stock february 2000 board directors authorized program repurchase 50 million dpls common stock shares repurchased program used provide option exercises conversion dpls series convertible nonvoting preferred shares general corporate purposes august 31 2004 dpl repurchased 1553200 shares aggregate purchase price approximately 29600000 program dpl purchased 250200 shares aggregate purchase price 5748000 plan year ended august 31 2004 earnings per share dilutive common share equivalents consist dpls series convertible nonvoting preferred shares outstanding stock options dpls 1993 stock option plan 1995 longterm incentive plan approximately 551000 1117000 2259000 outstanding stock options included computation diluted earnings per share years ended august 31 2004 2003 2002 respectively effect exercise dilutive based average market price dpls common stock respective reporting period table reconciles basic diluted per share computations shares outstanding additional information regarding shares outstanding summarized common shares number shares outstanding august 31 2001 38543267 exercises stock options 200338 purchases common stock 539200 outstanding august 31 2002 38204405 exercises stock options 213545 purchases common stock 310100 outstanding august 31 2003 38107850 exercises stock options 637704 purchases common stock 250200 outstanding august 31 2004 38495354 19 unaudited quarterly financial data dpls domestic seed products including containing bollgard roundup ready technologies subject return credit risks effects vary year annual level returns ultimately net sales net income influenced various factors principally commodity prices weather conditions occurring spring planting season dpls third fourth fiscal quarters dpl provides estimated returns sales occur extent actual returns differ estimates adjustments dpls operating results recorded differences become known typically dpls fourth quarter significant returns occur accounted fiscal year end also offer various sales incentive programs seed participate programs related bollgard roundup ready technology fees offered monsanto generally programs farmer plants seed crop lost usually due inclement weather certain date portion price seed technology fees forgiven rebated farmer amount refund impact dpl depends number factors including whether farmer replant crop destroyed record monthly estimates account programs majority program rebates occur second third fourth quarters essentially material claims programs occurred accounted fiscal year end generally international sales subject return substantial portion company sales concentrated second third fiscal quarters result dpl generally expects incur losses first fourth quarters management believes seasonality common throughout seed industry summarized unaudited quarterly financial data follows item 9item 8 consolidated financial statements supplementary data index financial statements pages following consolidated financial statements delta pine land company subsidiaries submitted response part ii item 8 reports independent registered public accounting firm32 managements report34 consolidated statements income three years period ended august 31 200535 consolidated balance sheets august 31 2005 200436 consolidated statements cash flows three years period ended august 31 200537 consolidated statements stockholders equity comprehensive income three years period ended august 31 200538 notes consolidated financial statements39 report independent registered public accounting firm board directors stockholders delta pine land company audited accompanying consolidated balance sheets delta pine land company subsidiaries company august 31 2005 2004 related consolidated statements income changes stockholders equity comprehensive income cash flows years threeyear period ended august 31 2005 consolidated financial statements responsibility companys management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position delta pine land company subsidiaries august 31 2005 2004 results operations cash flows years threeyear period ended august 31 2005 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states effectiveness delta pine land company subsidiaries internal control financial reporting august 31 2005 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso report dated november 14 2005 expressed unqualified opinion managements assessment effective operation internal control financial reporting kpmg llp jackson mississippi november 14 2005 report independent registered public accounting firm board directors stockholders delta pine land company audited managements assessment included accompanying managements annual report internal control financial reporting see part ii item 9ac august 31 2005 annual report 10k delta pine land company delta pine land company subsidiaries company maintained effective internal control financial reporting august 31 2005 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso companys management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinion managements assessment opinion effectiveness companys internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting evaluating managements assessment testing evaluating design operating effectiveness internal control performing procedures considered necessary circumstances believe audit provides reasonable basis opinion companys internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion managements assessment delta pine land company subsidiaries maintained effective internal control financial reporting august 31 2005 fairly stated material respects based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso also opinion delta pine land company subsidiaries maintained material respects effective internal control financial reporting august 31 2005 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso also audited accordance standards public company accounting oversight board united states consolidated balance sheets delta pine land company subsidiaries august 31 2005 2004 related consolidated statements income changes stockholders equity comprehensive income cash flows years threeyear period ending august 31 2005 report dated november 14 2005 expressed unqualified opinion consolidated financial statements kpmg llp jackson mississippi november 14 2005 managements report dpl responsible preparing consolidated financial statements related information appearing annual report form 10k management believes financial statements present fairly dpls financial position results operations cash flows conformity accounting principles generally accepted united states preparing financial statements dpl required include amounts based estimates judgments believes reasonable circumstances dpl maintains accounting systems designed provide reasonable assurance financial records reliable purposes preparing financial statements assets properly accounted safeguarded compliance systems controls reviewed executive management accounting staff limitations exist internal control system recognizing systems cost exceed benefits derived board directors pursues responsibility dpls financial statements primarily efforts audit committee composed solely independent directors company officers employees audit committee meets often determines necessary least four times per year addition audit committee meets independent auditor least quarterly audit committee also meets periodically management head internal audit function separate executive sessions independent auditors direct access audit committee without presence management representatives delta pine land company subsidiaries consolidated statements income years ended august 31 thousands except per share amounts delta pine land company subsidiaries consolidated balance sheets august 31 thousands except share per share amounts delta pine land company subsidiaries consolidated statements cash flows years ended august 31 thousands delta pine land company consolidated statements changes stockholders equity comprehensive income years ended august 31 2003 2004 2005 thousands except per share data accompanying notes integral part consolidated statements notes consolidated financial statements 1 summary significant accounting policies nature operations delta pine land company subsidiaries company dpl breed produce condition market cotton soybean planting seed dpl farms approximately 5500 acres largely research purposes production cotton soybean foundation seed dpl annual agreements various growers produce seed cotton soybeans growers plant seed purchased dpl follow quality assurance procedures required seed production grower adheres established company quality assurance standards throughout growing season seed meets company quality standards upon harvest dpl may obligated purchase specified minimum quantities seed prices equal commodity market price seed plus grower premium dpl conditions seed sale planting seed basis presentation accompanying financial statements include accounts delta pine land company subsidiaries significant intercompany accounts transactions eliminated consolidation dpls investment 50owned affiliate deltamax cotton llc accounted using equity method reclassifications certain prior year amounts reclassified conform 2005 presentation special chargesunusual items 2003 dpl recorded 10 million charge associated additional expenses closing chandler arizona plant closing facility centre alabama reductions number employees whollyowned subsidiary australia joint venture hebei province peoples republic china charges included special charges accompanying consolidated statements income august 31 2003 essentially amounts related closing two us facilities headcount reductions noted utilized cash equivalents cash equivalents include overnight repurchase agreements shortterm investments original maturity less three months property plant equipment property plant equipment stated cost depreciation amortization provided financial reporting purposes using straightline method estimated useful lives assets accelerated methods used income tax purposes estimated useful lives various classes property years follows land improvements 520 buildings improvements 1035 machinery equipment 315 germplasm 1015 breeder foundation seed 40 germplasm breeder foundation seed purchased part acquisitions include amounts specifically identified varieties breeding stocks amounts associated specific varieties amortized expected commercial life varieties breeding stocks amortized 40 years since revitalized time remain viable indefinitely revitalization intangible assets identifiable intangible assets consist trademarks patents intangible assets amortized using straightline method 5 40 years dpl incurred inprocess research development iprd related transaction costs 38532000 2004 including amounts assigned acquired inprocess technology 36225000 value assigned acquired inprocess technology determined identifying acquired specific inprocess research development projects would continued technology feasibility established acquisition date b alternative future use c fair value estimable reasonable reliability foreign currency translation financial statements foreign operations local currency functional currency translated using exchange rates effect period end assets liabilities average exchange rates period results operations translation adjustments reported separate component stockholders equity gains losses foreign currency transactions included earnings fair value financial instruments fair value dpls financial instruments august 31 2005 2004 include cash receivables derivatives accounts payable payments made syngenta approximates carrying value income taxes dpl uses liability method accounting income taxes method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities measured using enacted tax rates laws revenue recognition revenues domestic seed sales recognized seed shipped revenues bollgardr bollgard iir roundup readyr licensing fees recognized seed shipped domestically licensing fees charged farmers bollgard ii roundup ready cottonseed based preestablished planting rates nine geographic regions consider number seed contained container bag bulk box international export revenues recognized upon later seed shipped date letters credit instruments confirmed generally international export sales subject return generally international revenues sale planting seed less estimated reserves returns recognized seed shipped dpls domestic seed products including containing bollgard ii roundup ready technologies subject return credit risk effects vary year dpl provides estimated returns sales occur significant returns occur accounted fiscal year end company records monthly estimates account various sales incentive programs seed monsantos bollgard ii roundup ready technologies majority program rebates occur second third fourth quarters essentially material claims programs occurred accounted fiscal year end research development research development costs incurred breed produce experimental seed expensed costs incurred produce sufficient quantities planting seed needed commercialization carried inventory seed sold cotton lint byproducts seed production also carried inventory sold accounting stockbased compensation permitted sfas 123 accounting stockbased compensation sfas 148 accounting stockbased compensation transition disclosure amendment fasb statement 123 dpl applies accounting principles board opinion 25 accounting employee stock option plans therefore compensation expense stock options deducted determining net income options granted exercise price equal fair market value underlying common stock grant date see note 18 description plans disclosure assumptions underlying pro forma calculations following table illustrates effect net income earnings per share dpl recorded compensation expense accordance fair value provisions sfas 123 derivative financial instruments dpl uses various derivative financial instruments mitigate risk variability cash flows related soybean purchases effectively fix cost significant portion soybean raw material inventory terms hedging derivatives used dpl negotiated approximate terms forecasted transaction therefore dpl expects instruments used hedging transactions highly effective offsetting changes cash flows hedged items realized unrealized hedging gains losses recorded component comprehensive income reclassified cost sales period forecasted transaction affects earnings ie sold disposed generally occurs dpls second third fiscal quarters quantities hedged exceed forecasted transactions accounted cash flow hedges manner discussed however extent quantities hedged exceed forecasted transactions due intraseason changes sales forecast probable originally forecasted transaction longer occur dpl accounts gains losses derivative instruments discontinued cash flow hedges whereby immediately recorded component net income dpl enter derivative instruments extend beyond close following fiscal year dpl enter speculative hedges purchase hold derivative financial instruments trading purposes impairment longlived assets dpl assesses recoverability impairment identifiable intangible assets longlived assets whenever events changes circumstances indicate carrying amount may recoverable recorded goodwill tested annually fourth quarter fiscal year impairment comparing implied fair value carrying value based managements impairment tests fourth quarters 2005 2004 management determined none goodwill impaired longlived assets dpl determines unamortized balance recovered projected future operating cash flows sum expected future cash flows less carrying amount asset impairment loss recognized otherwise impairment loss recognized dpl continues amortize longlived assets based remaining estimated useful life use estimates preparation dpls consolidated financial statements requires use estimates assumptions affect reported amounts assets liabilities reported amounts revenues expenses disclosure contingent liabilities management makes best estimate ultimate outcome items based historical trends information available financial statements prepared changes estimates recognized accordance accounting rules estimate typically period new information becomes available management areas nature estimate makes reasonably possible actual results could materially differ amounts estimated include damaged obsolete excess inventory income tax liabilities allowances sales returns marketing programs allowance doubtful accounts employee benefit plans contingent liabilities recently issued financial accounting standards may 2005 financial accounting standards board fasb issued statement financial accounting standards sfas 154 accounting changes error corrections replacement apb opinion 20 sfas 3 among changes sfas 154 requires voluntary change accounting principle applied retrospectively prior period financial statements presented based new accounting principle unless impracticable sfas 154 provides 1 change method depreciating amortizing longlived nonfinancial asset accounted change estimate prospectively effected change accounting principle 2 correction errors previously issued financial statements termed restatement sfas 154 effective accounting changes correction errors made fiscal years beginning december 15 2005 company expect adoption statement material impact dpls consolidated financial statements december 2004 fasb issued sfas 153 exchanges nonmonetary assets amendment apb opinion 29 accounting nonmonetary transactions statements amendments based principle exchanges nonmonetary assets measured based fair value assets exchanged sfas 153 eliminates narrow exception nonmonetary exchanges similar productive assets replaces broader exception exchanges nonmonetary assets commercial substance provisions statement effective fiscal periods beginning june 15 2005 company expect adoption statement material impact dpls consolidated financial statements november 2004 fasb issued sfas 151 inventory costs amendment arb 43 chapter 4 clarifies types costs expensed rather capitalized inventory statement also clarifies circumstances fixed overhead costs associated operating facilities involved inventory processing capitalized provisions sfas 151 effective fiscal years beginning june 15 2005 may impact certain inventory costs dpl incurs september 1 2005 company determined impact statement dpls consolidated financial position results operations sfas 123r sharebased payment issued december 2004 revision fasb 123 accounting stockbased compensation supersedes accounting principles board opinion 25 accounting stock issued employees related implementation guidance statement focuses primarily accounting transactions entity obtains employee services sharebased payment transactions sfas 123r requires public entity measure cost employee services received exchange award equity instruments based grantdate fair value award limited exceptions cost recognized period employee required provide service exchange award statement effective beginning first interim annual reporting period begins june 15 2005 statement apply awards granted required effective date awards modified repurchased cancelled date sfas 123r effective dpl first quarter fiscal year 2006 company yet made decisions adopt sfas 123r however pro forma net income effect using fair value method years ended august 31 2005 2004 2003 presented note 1 pro forma compensation costs presented note 1 prior filings calculated using blackscholes option pricing model may indicative amounts expected future years dpl made decisions optionpricing model appropriate future awards company determined impact statement dpls consolidated financial position results operations 2 inventories august 31 consisted following thousands 2005 2004 finished goods 19713 24867 raw materials 13156 14333 growing crops 818 1432 supplies 1101 1040 34788 41672 less reserves 8163 11521 26625 30151 finished goods raw material inventory valued lower average cost market growing crops recorded cost elements cost inventories include raw materials direct production costs manufacturing overhead immaterial general administrative expenses inventory reserves relate estimated damaged obsolete excess inventory provision recorded damaged obsolete excess inventory years ended august 31 2005 2004 2003 12997000 12299000 7478000 respectively see note 15 description hedging activities 3 property plant equipment property plant equipment august 31 consisted following thousands 2005 2004 land improvements 6263 5981 buildings improvements 43018 42228 machinery equipment 63142 59125 germplasm 7500 breeder foundation seed 2000 construction progress 2564 2538 124487 119372 less accumulated depreciation 64329 57384 60158 61988 depreciation expense approximately 8250000 7980000 7490000 2005 2004 2003 respectively 4 intangibles components identifiable intangible assets august 31 consisted following thousands amortization expense identifiable intangible assets years ended august 31 2005 2004 2003 approximately 410000 380000 270000 respectively identifiable intangible asset amortization expense estimated 500000 fiscal years 2006 2007 400000 fiscal years 2008 2010 fourth quarters fiscal 2005 2004 excess cost net assets business acquired goodwill tested impairment comparing implied fair value carrying value based managements impairment test management determined none goodwill impaired 5 investment affiliate dpl owns 50 interest deltamax cotton llc limited liability company jointly owned verdia inc verdia acquired dupont july 2 2004 established may 2002 deltamax joint venture formed create develop commercialize herbicide tolerant insect resistant traits cottonseed market dpl licensed deltamax developed traits commercialization us cottonproducing countries world years ended august 31 2005 2004 2003 dpls equity net loss deltamax 2787000 3551000 1977000 respectively 6 longterm debt amounts reported consolidated balance sheets current maturities longterm debt longterm debt august 31 2005 primarily relate payments made syngenta crop protection ag syngenta related acquisition certain licenses see note 16 information transaction 7 accrued expenses accrued expenses august 31 consisted following thousands 2005 2004 bollgard ii roundup ready royalties related expenses due monsanto 179412 149984 sales allowances 15106 12281 dividends 5419 4619 accrued expenses 21887 21006 221824 187890 8 income taxes provisions income taxes years ended august 31 consisted following thousands 2005 2004 2003 current federal 18606 12078 10891 state 1997 1226 1216 deferred federal 1813 10232 2347 state 230 1678 289 22646 1394 14743 differences statutory federal income tax rate effective tax rate follows effective tax rate reduced 2004 primarily due impact iprd charge see note 16 state taxes resulted net benefit 2004 due state income tax credits recognition certain state net operating losses previously benefited deferred income taxes august 31 consisted following thousands 2005 2004 deferred tax assets inventory 2954 4048 litigation costs 453 1129 pension 1984 955 capitalized licenses syngenta 13839 14541 1932 3327 21162 24000 deferred tax liabilities property intangibles 4046 3615 53 3018 4099 6633 net deferred income taxes 17063 17367 company provided income taxes undistributed earnings certain foreign subsidiaries earnings expected permanently reinvested outside united states however taxes provided earnings taxes expected material companys consolidated financial statements american jobs creation act 2004 provides onetime opportunity us corporations elect deduct 85 certain cash dividends controlled foreign corporations provided certain qualifications met amounts dividends use repatriated funds company yet completed evaluation provisions end calendar year 2005 9 leases dpl leases portion real estate machinery equipment used operations operating lease arrangements substantially rent expense recorded cost sales dpl capital leases future minimum rental payments 2005 operating leases initial remaining noncancelable terms excess one year follows 2006 511000 2007 467000 2008 83000 2009 79000 2010 34000 rent lease expense approximated 3059000 2558000 2767000 2005 2004 2003 respectively 10 credit facility april 15 2005 delta pine land company certain subsidiaries entered unsecured 75 million credit agreement credit agreement bank america na bank credit agreement provides unsecured revolving loans maximum aggregate amount outstanding 75 million plus letters credit outstanding prior execution credit agreement amount approximately 2 million total commitment 50 million represents seasonal commitment available october july year credit agreement expires july 31 2006 time outstanding amounts credit agreement would due payable subject companys right request oneyear extension banks acceptance request october 10 2005 company requested extension credit agreement negotiations regarding extension underway general borrowings credit agreement bear interest rate calculated according eurodollar rate plus 055 eurodollar rate generally 30day 60day 90day libor rate company also required pay annual fee 0125 dailyunused portion credit agreement primary financial covenant requires companys funded indebtedness credit agreement exceed 50 certain current longterm assets defined credit agreement determined last day fiscal quarter august 31 2005 loans outstanding credit agreement existing letters credit discussed 11 employee benefit plans defined benefit plan substantially fulltime employees covered noncontributory defined benefit plan benefits paid employees beneficiaries upon retirement death disability based final average compensation highest consecutive five years dpls funding policy make contributions plan least equal minimum amounts required funded accordance provisions erisa dpl expects contribute 2 million plan 2006 effective january 1992 dpl adopted supplemental executive retirement plan serp pay supplemental pension benefits certain employees whose benefits plan decreased result certain changes made plan benefits serp paid addition benefits participants may receive plan paid company assets plan assets dpl expect contribute serp 2006 measurement plan serp assets obligations performed june 30 following table provides reconciliation changes plans serps benefit obligations fair value assets twoyear period ended august 31 2005 statement funded status august 31 2005 2004 accumulated benefit obligation plan 19999000 15858000 august 31 2005 2004 respectively accumulated benefit obligation serp 633000 607000 august 31 2005 2004 respectively periodic pension expense expected longterm rate return assumptions asset class selected based historical relationships assets classes economic capital market environments updated current conditions dpls plan serp asset allocations measurement dates june 30 2005 2004 follows plan serp plan assets managed independent portfolio manager balanced accounts assets invested fixed income securities including preferred stocks corporate bonds debentures equities including common stocks target range asset allocation 20 40 fixed income securities 60 80 equities primary risk control limiting one equity position 8 value equity portion portfolio derivatives used portfolio construction plan serp assets invested dpl common stock june 30 2005 2004 august 31 2005 total future plan serp benefits estimated follows plan serp 2006 769000 63000 2007 782000 63000 2008 827000 63000 2009 892000 63000 2010 972000 63000 years 20112015 5388000 314000 defined contribution plan dpl sponsors defined contribution plan section 401k internal revenue code covers substantially fulltime employees dpl option may elect make matching contributions plan matching contributions made 2005 2004 2003 12 major customers fiscal 2005 2004 2003 seed sales three customers related licensing fees ultimately billed farmers sales made customers transgenic products comprised 10 total sales licensing fees table presents approximate amount annual sales licensing fees customers amounts reported dpls domestic segment customer 2005 2004 2003 41245000 38820000 32275000 b 77865000 66156000 57580000 c 69306000 55388000 55438000 13 business segment information dpl single line business operates two business segments domestic international dpls reportable segments offer similar products however business units managed separately due geographic dispersion operations dpl breeds produces conditions markets proprietary varieties cotton soybean planting seed united states international segment offers cottonseed several foreign countries export sales incountry operations dpl develops proprietary seed products research development efforts united states certain foreign countries dpls chief operating decision maker utilizes revenue information assessing performance making overall operating decisions resource allocations profit loss information reported segment chief operating decision maker dpls board directors accounting policies segments substantially described summary significant accounting policies information dpls segments years ended august 31 follows thousands information financial position dpls segments august 31 follows thousands 2005 2004 longterm assets domestic 65898 65210 international 16607 16338 82505 81548 total assets domestic 408784 428444 international 30400 28579 439184 457023 14 related party transactions chairman board directors dpl also director stephens group inc october 2003 retired officer stephens group inc director officer stephens inc full service investment bank however remains consultant employee companies stephens group inc stephens inc stockholders dpl 2004 dpl paid consulting fees stephens inc approximately 313000 evaluation certain technology transactions 2005 2004 2003 partner law firm represents dpl also stockholder dpls corporate secretary dpl paid legal fees firm approximately 962000 929000 633000 2005 2004 2003 respectively 2005 2004 2003 deltamax paid temasek life science laboratory tll approximately 1465000 1118000 811000 respectively research activities tll conducted deltamax tll related party temasek capital temasek holdings dr chua member board directors dpl chief scientific advisor temasek capital april 2001 march 2003 appointed corporate advisor temasek holdings april 2003 march 2006 advised tll since april 2004 dr chua paid consultant pioneer hibred international inc dupont subsidiary several years continues capacity july 2004 dupont acquired verdia inc owns 50 deltamax see note 5 15 derivative financial instruments accumulated comprehensive loss includes following related companys soybean hedging program years ended august 31 2005 2004 thousands 2005 2004 deferred net loss gain beginning year 134 262 net losses gains hedging instruments arising year 116 60 reclassification adjustment lossesgains hedging instruments earnings 474 456 net change accumulated comprehensive loss 358 396 deferred net gain loss end year 224 134 deferred net gain 224000 included accumulated comprehensive loss august 31 2005 consists net realized gains 234000 net unrealized losses 10000 recognized earnings within next twelve months however actual amount charged earnings may vary result changes market conditions years ended august 31 2005 august 31 2004 dpl recorded gains losses earnings result hedge ineffectiveness discontinuance cash flow hedges 16 inprocess research development august 2004 dpl entered acquisition agreement syngenta purchase global licenses develop commercialize syngentas insect resistance technology cottonseed addition dpl purchased licenses wide range syngenta enabling technologies may useful developing new products use cottonseed soybean seed return licenses dpl pay syngenta approximately 468 million installments due primarily first quarter 2008 acquisition agreement dpl paid syngenta 141 million closing 2004 paid syngenta 58 million 2005 dpl required make future payments 1015 million 2006 595 million 2007 16 million 2008 468 million purchase price contingent payments 16 million 2008 31 million 2009 30 million 2010 15 million 2011 may also made agreements purchase date amount equal present value payments required made capitalized intangible asset 36225000 immediately expensed 2004 consolidated statement income technologies dpl purchased licenses inprocess research development iprd projects yet reached technological feasibility alternative future use payments made first quarter 2008 contingent certain events occurring thus included amount capitalized written iprd related transaction costs approximately 2307000 primarily related professional fees also included caption inprocess research development related transaction costs consolidated statement income present value amounts paid first quarter 2008 computed based discount rates approximated borrowing rates dpl would incur borrowings similar maturities payments required made accordingly discount rate used payments made one two three onehalf years purchase date 328 384 425 respectively amount due syngenta within next twelve months reported consolidated balance sheet current maturities longterm debt current liabilities balance remaining payments due first quarter 2008 reported longterm debt 17 commitments contingencies product liability claims dpl named defendant various lawsuits allege among things certain dpls products including containing monsantos technology perform farmer anticipated expected cases monsanto andor dealer distributor sold seed also named defendants cases seed sold contained either monsantos bollgard andor roundup ready gene technologies farmer alleged failure one technologies dpl tendered defense case monsanto requested indemnity pursuant terms february 2 1996 bollgard gene license seed services agreement bollgard agreement february 2 1996 roundup ready gene license seed services agreement roundup ready agreement amended december 1999 january 2000 march 2003 roundup ready agreement additionally amended july 1996 dpl right contractually indemnified monsanto claims arising failure monsantos gene technology pharmacia remains liable monsantos performance indemnity agreements product liability lawsuits contain varietal claims aimed solely dpl right indemnification monsanto claims involving varietal characteristics separate addition failure monsanto technology dpl believes resolution matters material impact consolidated financial statements dpl intends vigorously defend matters legal matters december 9 2003 bayer bioscience nv bayer cropscience gmbh collectively bayer filed suit federal court australia alleging importing exporting selling alleged uses deltapine australia pty ltd dpls whollyowned australian subsidiary deltapine australia bollgard iir cottonseed infringes bayers australian patent claims alleged invention entitled prevention bt resistance development suit seeks injunction damages relief deltapine australia deltapine australia disputes validity infringement enforceability bayers patent april 16 2004 deltapine australia responded suit denying infringement asserting affirmative defenses cross claims suit pretrial proceedings due status matter management unable determine impact matter consolidated financial statements july 2003 dpl received notice monsanto asserting disputes exist among monsanto dpl dm partners partnership dpl 90 monsanto 10 pertaining matters bollgard roundup ready licenses united states matters license agreements argentina republic south africa august 2003 dpl dm partners responded monsantos positions issue notified monsanto additional disputes concerning monsantos compliance obligations bollgard roundup ready licenses united states accordance dispute resolution provisions subject agreements issues raised monsanto dpl dm partners notices submitted panel senior executives executive panel monsanto subsequently withdrew executive panel issue involving license agreements republic south africa submitted executive panel one additional issue interpretation bollgard roundup ready licenses united states issues arising operations argentina issues involving technology fees interest settled longer dispute may 20 2004 monsanto submitted arbitration american arbitration association two unresolved issues whether dm partners paid monsanto royalties due whether dpl made unauthorized transfers materials containing monsanto technology arbitration proceeding monsanto seeks adjudication alleged right terminate bollgard roundup ready licenses dissolve dm partners obtain accounting receive monetary damages return destruction materials containing monsanto technologies dpl denies claims asserted monsanto arbitration filing filed appropriate responses monsantos claims filed three counterclaims based issues submitted dpl executive panel parties 1 march 31 2000 monsanto company consummated merger pharmacia upjohn inc changed name pharmacia corporation february 9 2000 monsanto company formed new subsidiary corporation monsanto ag company march 31 2000 changed name monsanto company august 31 2002 pharmacia distributed shareholders remaining interest new monsanto company pursuant closing merger april 16 2003 pharmacia corporation merged whollyowned subsidiary pfizer inc pharmacia survived merger whollyowned subsidiary pfizer inc document respect events occurring march 31 2000 term monsanto refers entity designated monsanto company renamed pharmacia corporation date respect events occurring march 31 2000 april 16 2003 entity referred pharmacia respect events occurring april 16 2003 entity referred pharmacia entity date became whollyowned subsidiary pfizer inc respect events occurring march 31 2000 entity formed monsanto ag company renamed monsanto company nyse mon march 31 2000 referred monsanto currently conducting discovery arbitration panel set august 2006 final hearing date november 8 2004 monsanto submitted one new claim allegedly involving dispute license agreements executive panel issue resolved executive panel march 31 2005 dpl submitted issue involving international license 1996 option agreement monsanto dpl resolution executive panel executive panel claim consideration dpl committed participating good faith resolution issues dispute arbitration executive panel applicable due status matter management unable determine impact matter consolidated financial statements december 1999 mycogen plant science inc mycogen filed suit federal court australia alleging monsanto australia ltd monsantos whollyowned australian subsidiary deltapine australia infringing two mycogens australian patents making selling licensing cotton planting seed expressing insect resistance suit seeks injunction continued sale seed containing monsantos ingardr gene recovery unspecified amount damages trial matter commenced march 7 2005 concluded april 6 2005 dpl awaiting decision court consistent commitments monsanto agreed defend dpl suit indemnify dpl damages awarded monsanto providing separate defense counsel dpl assisting monsanto extent reasonably necessary due status matter management unable determine impact matter consolidated financial statements corporation owned son dpls former guatemalan distributor sued dpl 1989 asserting dpl violated agreement granting another entity exclusive license certain areas central america southern mexico suit seeks damages 5292459 guatemalan quetzales approximately 696329 october 31 2005 exchange rates injunction preventing dpl distributing seed licensee region guatemalan court action proceeding twice declined approve injunction sought dpl continues make available seed sale central america mexico dpl believes resolution matter material impact consolidated financial statements dpl vs monsanto company pharmacia corporation december 20 1999 monsanto withdrew premerger notification filed pursuant hartscottrodino antitrust improvements act 1976 hsr act effectively terminating monsantos efforts gain government approval merger monsanto dpl may 8 1998 merger agreement december 30 1999 dpl filed suit first judicial district bolivar county mississippi seeking among things payment 81 million termination fee due pursuant merger agreement compensatory damages punitive damages january 2 2000 dpl monsanto reached agreement whereby dpl would withdraw suit without prejudice purpose negotiating settlement dpls claims monsanto would immediately pay 81 million january 3 2000 monsanto paid dpl termination fee 81 million required merger agreement january 18 2000 unsuccessful negotiations dpl refiled suit dpl seeks excess 1 billion compensatory 1 billion punitive damages breach merger agreement parties september 12 2003 monsanto amended answer include four counterclaims dpl monsanto seeking unspecified damages counterclaims including 81 million paid monsanto dpl termination fee related expenses dpl answered counterclaims denying liability dpl intends vigorously defend counterclaims december 21 2004 monsanto filed motion amend answer withdraw two four counterclaims february 17 2005 dpl filed motion trial court amend complaint add claim monsanto fraudulently inducing dpl extend deadline complete merger monsanto mississippi supreme court stayed proceedings case pending resolution two interlocutory appeals filed dpl due status matter management unable determine impact matter consolidated financial statements 18 stockholders equity preferred stock board directors dpl authorized subject certain limitations prescribed law without stockholder approval issue aggregate 2000000 shares preferred stock one series determine alter designations preferences rights qualifications limitations restrictions shares series thereof including dividend rights dividend rates conversion rights voting rights terms redemption including sinking fund provisions redemption price prices liquidation preferences number shares constituting series designations series august 1996 board directors adopted stockholder rights plan rights plan declared dividend one preferred stock purchase right outstanding share dpls common stock similar rights generally issued respect common stock subsequently issued right becomes exercisable upon occurrence certain events one onehundredth share series junior participating preferred stock 010 par value purchase price 175 per one onehundredth preferred share subject adjustment event dpl acquired merger business combination transaction approved board directors holder right shall right receive number shares common stock surviving company would market value two times exercise price right rights plan 456989 shares series junior participating preferred stock reserved rights currently exercisable person group acquires beneficial ownership 15 dpls outstanding shares common stock rights expire august 30 2006 redeemable whole part dpls option time price 001 per right dpl issued 1066667 shares effect stock splits series convertible nonvoting preferred stock consideration purchase 1996 hartz cotton inc monsanto holders series preferred stock entitled receive dividends rate per share paid time share common stock dpl declared board directors event liquidation dissolution winding dpl either voluntary involuntary holders series preferred stock shall entitled receive prior preference distribution holders common stock class security dpl 13936 per share series preferred stock series preferred stock became convertible february 2 2003 seventh anniversary date series preferred stock issued long term incentive plans 1993 stock option plan authorized issuance options purchase 2560000 shares effect stock splits common stock option price less market price date grant 1995 longterm incentive plan amended restated march 2000 ltip allows awarding stock options officers key employees directors amended restated 1995 plan eliminates ability board directors award stock appreciation rights restricted shares common stock performance unit credits ltip options purchase 5120000 shares effect stock splits common stock dpl available grant shares subject options awards expire unexercised available new option grants awards ltip new members board directors receive automatic grants options purchase 62222 shares upon named board director given additional annual grant options purchase 2666 shares second sixth year director serves grants began 1998 march 30 2000 annual meeting board directors agreed grant options director 80000 shares dpl common stock options exercisable ratably five years commencing one year date grant 2005 omnibus stock plan 2005 stock plan approved shareholders january 2005 provides grant incentive stock options defined internal revenue code 1986 amended b nonqualified stock options c restricted stock restricted stock units dpls employees independent contractors members board directors purpose encouraging share ownership dpl 4500000 shares shall available grants awards plan maximum number shares may issued awards restricted stock restricted stock units 2100000 shares maximum options 2400000 compensation committee board directors administers plan sole discretion regarding exercisability option grants lapsed awards shall available plan 2005 approximately 11 million stock options granted ltip 2005 stock plan granted exercise prices fair market value dpl common stock time grant options vested august 31 2005 additional information regarding stock options granted outstanding summarized number shares price range outstanding august 31 2002 4037819 467 4731 granted 258554 1828 2399 exercised 213545 467 2425 lapsed canceled 98846 1785 4169 outstanding august 31 2003 3983982 467 4731 granted 35332 2261 2550 exercised 637704 467 2236 lapsed canceled 51977 467 2267 outstanding august 31 2004 3329633 1069 4731 granted 1170548 2602 3006 exercised 766109 1069 2682 lapsed canceled 29890 1778 2682 outstanding august 31 2005 3704182 1069 4731 weighted average fair values options granted 2005 2004 2003 464 614 641 per share respectively fair value options estimated date grant using blackscholes option pricing model following assumptions 2005 2004 2003 expected dividend yield 148 100 expected option lives 4 years 8 years 8 years expected volatility 1981 1601 2499 riskfree interest rates 396 382 307 following table summarizes certain information outstanding exercisable stock options august 31 2005 may 18 2005 company issued approximately 145000 shares restricted stock employees provisions 2005 stock plan pursuant 2005 stock plan restricted stock award shares subject forfeiture participant employed company date dates specified stock award performance goals specified stock award met stock award particular issuance contain performance goals ownership instruments vest holders threeyear period follows 40 may 19 2006 30 may 18 2007 30 may 18 2008 company also issued 24000 restricted stock units rsus nonemployee directors provisions 2005 stock plan pursuant 2005 stock plan rsu means stock award subject period periods time participant receive shares conditions contained award met particular issuance rsus contained conditions passage time rsus issued vest schedule restricted stock discussed deferred compensation expense approximately 44 million related restricted stock rsus recognized threeyear vesting period based percentage units vesting respective year deferred compensation expense calculated based market price companys common stock date grant 2631 year ended august 31 2005 company recognized approximately 508000 compensation expense related instruments treasury stock february 2000 board directors authorized program repurchase 50 million dpls common stock shares repurchased program used provide option exercises potential conversion dpls series convertible nonvoting preferred shares general corporate purposes august 31 2005 dpl repurchased 2229900 shares aggregate purchase price approximately 47505000 program repurchase plan terminated replaced june 2005 plan discussed may 24 2005 dpl completed purchase 2374940 shares common stock pursuant modified dutch auction tender offer announced april 20 2005 new plan separately approved board directors shares purchased 2700 per share aggregate purchase price 64123380 company also incurred associated expenses approximately 675000 connection acquisition shares primarily related legal advisory services recorded component treasury stock june 30 2005 dpls board directors authorized new share repurchase program buy additional 50 million companys common stock program replaces plan established february 2000 august 31 2005 dpl repurchased 110000 shares aggregate purchase price approximately 2807000 plan earnings per share dilutive common share equivalents consist dpls series convertible nonvoting preferred shares outstanding options purchase dpls common stock issued 1993 stock option plan 1995 longterm incentive plan 2005 omnibus stock plan outstanding restricted stock restricted stock units issued 2005 omnibus stock plan approximately 599000 551000 1117000 outstanding common stock options included computation diluted earnings per share years ended august 31 2005 2004 2003 respectively effect exercise dilutive based average market price dpls common stock respective reporting period year ended august 31 2005 restricted stock restricted stock units included computation diluted earnings per share antidilutive period presented number dilutive common share equivalents issued current year include exclude computation diluted earnings per share calculated based length time outstanding excluded options expire various dates 2007 2015 table reconciles basic diluted per share computations shares outstanding additional information regarding shares outstanding summarized common shares number shares outstanding august 31 2002 38204405 exercises stock options 213545 purchases common stock 310100 outstanding august 31 2003 38107850 exercises stock options 637704 purchases common stock 250200 outstanding august 31 2004 38495354 exercises stock options 766109 purchases common stock 3161640 outstanding august 31 2005 36099823 19 unaudited quarterly financial data dpls domestic seed products including containing bollgard ii roundup ready technologies subject return credit risks effects vary year annual level returns ultimately net sales net income influenced various factors principally commodity prices weather conditions occurring spring planting season dpls third fourth fiscal quarters dpl provides estimated returns sales occur extent actual returns differ estimates adjustments dpls operating results recorded differences become known typically dpls fourth quarter significant returns occur accounted fiscal year end dpl also offers various sales incentive programs seed participate programs related bollgard ii roundup ready technology fees offered monsanto generally programs farmer plants seed crop lost usually due inclement weather certain date portion price seed technology fees forgiven rebated farmer amount refund impact dpl depends number factors including whether farmer replant crop destroyed dpl records monthly estimates account programs majority program rebates occur second third fourth quarters essentially material claims programs occurred accounted fiscal year end generally international sales subject return substantial portion company sales concentrated second third fiscal quarters result dpl generally expects incur losses first fourth quarters management believes seasonality common throughout seed industry summarized unaudited quarterly financial data follows thousands except per share data 1 2004 fourth quarter includes effect recording 385 million charge write inprocess research development related transaction expenses related august 24 2004 acquisition global licenses develop commercialize syngentas insect resistance technology cottonseed 2 sum quarterly net loss income per share amounts may equal annual amount reported since per share amounts computed independently quarter whereas annual earnings per share based annual weighted average shares deemed outstanding year 3 2003 first third quarters include effect recording 05 million charge quarter closing two us locations reductions number employees international whollyowned subsidiary international joint venture item 9item 8 consolidated financial statements supplementary data index report independent registered public accounting firm board directors stockholders delta pine land company audited accompanying consolidated balance sheets delta pine land company subsidiaries company august 31 2006 2005 related consolidated statements income changes stockholders equity comprehensive income cash flows years threeyear period ended august 31 2006 consolidated financial statements responsibility companys management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position delta pine land company subsidiaries august 31 2006 2005 results operations cash flows years threeyear period ended august 31 2006 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states effectiveness delta pine land company subsidiaries internal control financial reporting august 31 2006 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso report dated november 13 2006 expressed unqualified opinion managements assessment effective operation internal control financial reporting discussed note 1 consolidated financial statements effective september 1 2005 company adopted statement financial accounting standards 123 revised 2004 sharebased payment kpmg llp memphis tennessee november 13 2006 report independent registered public accounting firm board directors stockholders delta pine land company audited managements assessment included accompanying managements annual report internal control financial reporting see part ii item 9ac august 31 2006 annual report form 10k delta pine land company delta pine land company subsidiaries company maintained effective internal control financial reporting august 31 2006 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso companys management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinion managements assessment opinion effectiveness companys internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting evaluating managements assessment testing evaluating design operating effectiveness internal control performing procedures considered necessary circumstances believe audit provides reasonable basis opinion companys internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion managements assessment delta pine land company subsidiaries maintained effective internal control financial reporting august 31 2006 fairly stated material respects based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso also opinion delta pine land company subsidiaries maintained material respects effective internal control financial reporting august 31 2006 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso also audited accordance standards public company accounting oversight board united states consolidated balance sheets delta pine land company subsidiaries august 31 2006 2005 related consolidated statements income changes stockholders equity comprehensive income cash flows years threeyear period ending august 31 2006 report dated november 13 2006 expressed unqualified opinion consolidated financial statements kpmg llp memphis tennessee november 13 2006 managements report delta pine land company dpl responsible preparing consolidated financial statements related information appearing annual report form 10k management believes financial statements present fairly dpls financial position results operations cash flows conformity accounting principles generally accepted united states preparing financial statements dpl required include amounts based estimates judgments believes reasonable circumstances dpl maintains accounting systems designed provide reasonable assurance financial records reliable purposes preparing financial statements assets properly accounted safeguarded compliance systems controls reviewed executive management accounting staff limitations exist internal control system recognizing systems cost exceed benefits derived board directors pursues responsibility dpls financial statements primarily efforts audit committee composed solely independent directors company officers employees audit committee meets often determines necessary least four times per year addition audit committee meets independent auditor least quarterly audit committee also meets periodically management head internal audit function separate executive sessions independent auditors direct access audit committee without presence management representatives delta pine land company subsidiaries consolidated statements income years ended august 31 thousands except per share amounts delta pine land company subsidiaries consolidated balance sheets august 31 thousands except share per share amounts delta pine land company subsidiaries consolidated statements cash flows years ended august 31 thousands delta pine land company consolidated statements changes stockholders equity comprehensive income years ended august 31 2004 2005 2006 thousands except per share data notes consolidated financial statements 1 summary significant accounting policies nature operations delta pine land company subsidiaries company dpl breed produce condition market cotton soybean planting seed dpl farms approximately 5600 acres largely research purposes production cotton soybean foundation seed dpl annual agreements various growers produce seed cotton soybeans growers plant seed purchased dpl follow quality assurance procedures required seed production grower adheres established company quality assurance standards throughout growing season seed meets company quality standards upon harvest dpl may obligated purchase specified minimum quantities seed prices equal commodity market price seed plus grower premium dpl conditions seed sale planting seed merger monsanto company august 14 2006 dpl entered agreement plan merger agreement monsanto whollyowned subsidiary monsanto sub inc pursuant monsanto sub inc merged dpl become whollyowned subsidiary monsanto terms merger agreement upon consummation merger outstanding share dpl common preferred stock except shares held dpl monsanto subsidiaries converted right receive 4200 per share cash without interest provided stockholders elect right seek payment appraised value shares section 262 delaware general corporation law merger agreement subject approval dpls stockholders date stockholders meeting set december 21 2006 dpls board directors unanimously approved recommended stockholders approve merger agreement closing merger subject expiration waiting periods hartscottrodino antitrust improvements act 1976 hsr act september 27 2006 united states department justice antitrust division usdoj requested additional information documents monsanto dpl hsr act second request second request extends waiting period hsr act parties prohibited closing merger 30 days parties substantially comply second request unless waiting period terminated earlier usdoj extended dpls monsantos consent dpl monsanto process complying usdojs second request 1 february 9 2000 monsanto company formed new subsidiary corporation monsanto ag company march 31 2000 changed name monsanto company march 31 2000 monsanto company consummated merger pharmacia upjohn inc changed name pharmacia corporation august 31 2002 pharmacia distributed shareholders remaining interest new monsanto company pursuant closing merger april 16 2003 pharmacia corporation merged whollyowned subsidiary pfizer inc pharmacia survived merger whollyowned subsidiary pfizer inc document respect events occurring march 31 2000 term monsanto refers entity designated monsanto company renamed pharmacia corporation date respect events occurring march 31 2000 april 16 2003 entity referred pharmacia respect events occurring april 16 2003 entity referred pharmacia entity date became whollyowned subsidiary pfizer inc respect events occurring march 31 2000 entity formed monsanto ag company renamed monsanto company nyse mon march 31 2000 referred monsanto pursuant merger agreement dpl agreed merger consummated merger agreement earlier terminated except otherwise expressly permitted terms merger agreement cause subsidiaries carry business ordinary course ii use reasonable best efforts preserve intact current business organization goodwill iii keep available services current officers employees iv preserve relationships suppliers distributors customers others company incurred approximately 80 million expenses related merger 2006 including legal advisory fees incremental costs directly associated merger expenses reported component expense net consolidated statements income basis presentation accompanying financial statements include accounts delta pine land company subsidiaries significant intercompany accounts transactions eliminated consolidation dpls investment 50owned affiliate deltamax cotton llc accounted using equity method reclassifications certain prior year amounts reclassified conform 2006 presentation cash equivalents cash equivalents include overnight repurchase agreements shortterm investments original maturity less three months marketable securities marketable securities represent investments auction rate securities ars classified availableforsale provisions statement financial accounting standards 115 accounting certain investments debt equity securities sfas 115 accordingly investments marked market period end resulting change value recorded separate component accumulated comprehensive incomeloss consolidated balance sheet reported consolidated statements income years ended august 31 2006 2005 2004 unrealized change fair value investments ars period end accordingly amounts recorded separate component accumulated comprehensive incomeloss income earned investments including realized gains losses reported component interest income net consolidated statements income august 31 2004 company investments ars 50 million previously reported component cash equivalents consolidated balance sheets due companys assessment ars readily convertible cash year ended august 31 2005 50 million investment noted august 31 2004 liquidated however since original maturities securities longterm nature company corrected 2005 2004 cash flow presentation activity presenting cash flows investing activities consolidated statements cash flows change resulted 50 million decrease cash flows investing activities 2004 corresponding 50 million increase cash flows investing activities 2005 amounts previously reported also cash equivalents balance august 31 2004 consolidated statements cash flows reduced reflect change reclassification impact consolidated statements income consolidated statements changes stockholders equity comprehensive income property plant equipment property plant equipment stated cost depreciation amortization provided financial reporting purposes using straightline method estimated useful lives assets accelerated methods used income tax purposes estimated useful lives various classes property years follows land improvements 520 buildings improvements 1035 machinery equipment 315 germplasm 1015 breeder foundation seed 40 germplasm breeder foundation seed purchased part acquisitions include amounts specifically identified varieties breeding stocks amounts associated specific varieties amortized expected commercial life varieties breeding stocks amortized 40 years since revitalized time remain viable indefinitely revitalization intangible assets identifiable intangible assets consist trademarks patents intangible assets amortized using straightline method 5 40 years dpl incurred inprocess research development iprd related transaction costs 276 million 2006 385 million 2004 associated acquisitions technology licenses certain global cottonseed assets see note 16 value assigned acquired inprocess technology determined identifying acquired specific inprocess research development projects would continued technology feasibility established acquisition date b alternative future use c fair value estimable reasonable reliability cash paid acquisition iprd included cash flows operating activities consolidated statements cash flows foreign currency translation financial statements foreign operations local currency functional currency translated using exchange rates effect period end assets liabilities average exchange rates period results operations translation adjustments reported separate component stockholders equity gains losses foreign currency transactions included earnings fair value financial instruments fair value dpls financial instruments august 31 2006 2005 include cash marketable securities receivables derivatives accounts payable payments made syngenta approximates carrying value income taxes dpl uses liability method accounting income taxes method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities measured using enacted tax rates laws revenue recognition revenues domestic seed sales recognized seed shipped revenues bollgardr bollgard iir roundup readyr roundup ready flexr licensing fees recognized seed shipped domestically licensing fees charged farmers bollgard ii roundup ready roundup ready flex cottonseed based preestablished planting rates nine geographic regions international export revenues recognized upon later seed shipped date letters credit instruments confirmed generally international export sales subject return generally international revenues sale planting seed less estimated reserves returns recognized seed shipped dpls domestic seed products including containing bollgard ii roundup ready roundup ready flex technologies subject return credit risk effects vary year dpl provides estimated returns sales occur significant returns occur accounted fiscal year end company records monthly estimates account various sales incentive programs seed monsantos bollgard ii roundup ready roundup ready flex technologies majority program rebates occur second third fourth quarters essentially material claims programs occurred accounted fiscal year end research development research development costs incurred breed produce experimental seed expensed costs incurred produce sufficient quantities planting seed needed commercialization carried inventory seed sold cotton lint byproducts seed production also carried inventory sold accounting stockbased compensation effective september 1 2005 company adopted statement financial accounting standards 123 revised 2004 sharebased payment sfas 123r utilizing modified prospective approach modified prospective approach sfas 123r applies new awards outstanding september 1 2005 subsequently modified cancelled additionally compensation cost portion awards requisite service rendered september 1 2005 recognized remaining service period using compensation cost calculated pro forma disclosure purposes previously sfas 123 accounting stockbased compensation sfas 123 prior periods restated reflect impact adopting sfas 123r company elected use alternative shortcut method determine amount excess tax benefits would recognized additional paidin capital company previously adopted sfas 123 recognition purposes prior adoption sfas 123r company accounted employee stock options equitybased compensation awards using intrinsic value method accounting prescribed accounting principles board opinion 25 accounting stock issued employees derivative financial instruments dpl uses various derivative financial instruments mitigate risk variability cash flows related soybean purchases effectively fix cost significant portion soybean raw material inventory terms hedging derivatives used dpl negotiated approximate terms forecasted transaction therefore dpl expects instruments used hedging transactions highly effective offsetting changes cash flows hedged items realized unrealized hedging gains losses recorded component comprehensive income reclassified cost sales period forecasted transaction affects earnings ie sold disposed generally occurs dpls second third fiscal quarters quantities hedged exceed forecasted transactions accounted cash flow hedges manner discussed however extent quantities hedged exceed forecasted transactions due intraseason changes sales forecast probable originally forecasted transaction longer occur dpl accounts gains losses derivative instruments discontinued cash flow hedges whereby immediately recorded component net income dpl enter derivative instruments extend beyond close following fiscal year dpl enter speculative hedges purchase hold derivative financial instruments trading purposes impairment longlived assets dpl assesses recoverability impairment identifiable intangible assets longlived assets whenever events changes circumstances indicate carrying amount may recoverable recorded goodwill tested annually fourth quarter fiscal year impairment comparing implied fair value carrying value based managements impairment tests fourth quarters 2006 2005 management determined none goodwill impaired longlived assets dpl determines unamortized balance recovered projected future operating cash flows sum expected future cash flows less carrying amount asset impairment loss recognized otherwise impairment loss recognized dpl continues amortize longlived assets based remaining estimated useful life use estimates preparation dpls consolidated financial statements requires use estimates assumptions affect reported amounts assets liabilities reported amounts revenues expenses disclosure contingent liabilities management makes best estimate ultimate outcome items based historical trends information available financial statements prepared changes estimates recognized accordance accounting rules estimate typically period new information becomes available management areas nature estimate makes reasonably possible actual results could materially differ amounts estimated include damaged obsolete excess inventory income tax liabilities allowances sales returns marketing programs allowance doubtful accounts employee benefit plans contingent liabilities recently issued financial accounting standards sfas 154 accounting changes error corrections may 2005 financial accounting standards board fasb issued statement financial accounting standards sfas 154 accounting changes error corrections replacement apb opinion 20 sfas 3 among changes sfas 154 requires voluntary change accounting principle applied retrospectively prior period financial statements presented based new accounting principle unless impracticable sfas 154 provides 1 change method depreciating amortizing longlived nonfinancial asset accounted change estimate prospectively effected change accounting principle 2 correction errors previously issued financial statements termed restatement sfas 154 effective accounting changes correction errors made fiscal years beginning december 15 2005 therefore company adopted standard beginning september 2006 since standard applies voluntary changes accounting principles well may mandated standardsetting authorities possible estimate impact adoption standard dpls financial position results operations sfas 157 fair value measurements september 2006 fasb issued sfas 157 fair value measurements statement defines fair value establishes framework measuring fair value accordance united states generally accepted accounting principles expands disclosures fair value measurements sfas 157 effective fiscal year begins november 15 2007 company adopt standard beginning september 2008 currently company evaluating impact new standard financial position results operations sfas 158 employers accounting defined benefit pension postretirement benefits amendment fasb statements 87 88 106 132r september 2006 fasb issued sfas 158 employers accounting defined benefit pension postretirement benefits amendment fasb statements 87 88 106 132r statement requires employer defined benefit pension plan 1 recognize funded status benefit plan statement financial position 2 recognize component comprehensive income net tax gains losses prior service costs credits arise period recognized components net periodic benefit cost pursuant fasb statement 87 fasb statement 106 3 measure defined benefit plan assets obligations date employers fiscal yearend statement financial position 4 disclose notes financial statements additional information certain effects net periodic benefit cost next fiscal year arise delayed recognition gains losses prior service costs credits transition asset obligation adoption sfas 158 required end fiscal year ends december 15 2006 therefore company adopt standard august 31 2007 company presently evaluating impact adopting sfas 158 financial position results operations fin 48 accounting uncertainty income taxes july 2006 fasb interpretation 48 accounting uncertainty income taxes fin 48 issued fin 48 clarifies accounting uncertainty income taxes recognized enterprises financial statements accordance fasb statement 109 accounting income taxes defining criterion individual tax position must meet order recognized financial statements fin 48 requires tax effects position recognized morelikelythannot sustained based solely technical merits reporting date fin 48 requires interest tax laws require paid underpayment taxes accrued difference amount claimed expected claimed return tax benefit recognized financial statements fin 48 also requires additional disclosures unrecognized tax benefits including reconciliation beginning ending balances fin 48 effective fiscal years beginning december 15 2006 therefore company expects implement fin 48 beginning september 1 2007 company presently evaluating impact adopting fin 48 financial position results operations sab 108 considering effects prior year misstatements quantifying misstatements current year financial statements september 2006 staff securities exchange commission issued staff accounting bulletin 108 considering effects prior year misstatements quantifying misstatements current year financial statements sab 108 standard provides guidance approach companies must follow quantifying misstatements financial statements specifically sab 108 requires companies apply two approaches evaluating materiality misstatements financial statements first sab 108 requires companies evaluate materiality using rollover approach companies quantify misstatement based amount error originating current year income statement ignoring effect correcting portion currentyear balance sheet misstatement originated prior years second sab 108 requires companies evaluate materiality using iron curtain approach companies quantify misstatement based effects correcting misstatement existing balance sheet end current year irrespective misstatements years origination sab 108 effective fiscal years ending november 15 2006 company still evaluating impact adopting standard may financial position results operations 2 inventories august 31 consisted following thousands 2006 2005 finished goods 22102 19713 raw materials 17353 13156 growing crops 1844 818 supplies 805 1101 42104 34788 less reserves 10504 8163 31600 26625 finished goods raw material inventory valued lower average cost market growing crops recorded cost elements cost inventories include raw materials direct production costs manufacturing overhead immaterial general administrative expenses inventory reserves relate estimated damaged obsolete excess inventory provision recorded damaged obsolete excess inventory years ended august 31 2006 2005 2004 approximately 11300000 12997000 12299000 respectively see note 15 description inventory hedging activities related soybeans 3 property plant equipment property plant equipment august 31 consisted following thousands 2006 2005 land improvements 6501 6263 buildings improvements 45282 43018 machinery equipment 67635 63142 germplasm 7500 breeder foundation seed 2000 construction progress 2974 2564 131892 124487 less accumulated depreciation 70826 64329 61066 60158 depreciation expense approximately 8842000 8250000 7980000 2006 2005 2004 respectively 4 intangibles components identifiable intangible assets august 31 consisted following thousands amortization expense identifiable intangible assets years ended august 31 2006 2005 2004 approximately 550000 410000 380000 respectively identifiable intangible asset amortization expense estimated 360000 2007 2009 350000 2010 2011 december 29 2005 dpl acquired vikkis agrotech pvt ltd vikkis indian cottonseed company cash approximately 26 million results vikkis operations included dpls consolidated statements operations date acquisition allocation purchase price resulted approximately 23 million allocated licenses pro forma results operations year ended august 31 2006 acquisition occurred beginning year would materially different reported results year 5 investment affiliate dpl owns 50 interest deltamax cotton llc limited liability company jointly owned verdia inc verdia acquired dupont july 2 2004 established may 2002 deltamax joint venture formed create develop commercialize herbicide tolerant insect resistant traits cottonseed market dpl licensed deltamax developed traits commercialization united states cottonproducing countries world years ended august 31 2006 2005 2004 dpls equity net loss deltamax 3089000 2787000 3551000 respectively 6 longterm debt amounts reported consolidated balance sheets current maturities longterm debt longterm debt august 31 2006 primarily relate payments made syngenta crop protection ag syngenta related acquisition certain licenses 2004 see note 16 information transaction 7 accrued expenses accrued expenses august 31 consisted following thousands 2006 2005 bollgardr bollgard iir roundup readyr roundup ready flexr royalties related expenses due monsanto 211368 179412 sales allowances 26865 15106 dividends 5462 5419 accrued expenses 31948 21887 275643 221824 8 income taxes provisions income taxes years ended august 31 consisted following thousands differences statutory federal income tax rate effective tax rate follows effective tax rate reduced 2004 primarily due impact iprd charge see note 16 state taxes resulted net benefit 2004 due state income tax credits recognition certain state net operating losses previously benefited deferred income taxes august 31 consisted following thousands company provided income taxes undistributed earnings certain foreign subsidiaries earnings expected permanently reinvested outside united states however taxes provided earnings taxes expected material companys consolidated financial statements 9 leases dpl leases portion real estate machinery equipment used operations operating lease arrangements substantially rent expense recorded cost sales dpl capital leases approximate future minimum rental payments 2006 operating leases initial remaining noncancelable terms excess one year follows 2007 995000 2008 455000 2009 244000 2010 34000 2011 rent lease expense approximated 3150000 3059000 2558000 2006 2005 2004 respectively 10 credit facility april 15 2005 delta pine land company certain subsidiaries entered unsecured 75 million credit agreement credit agreement bank america na bank credit agreement provides unsecured revolving loans maximum aggregate amount outstanding 75 million plus letters credit outstanding prior execution credit agreement amount approximately 2 million total commitment 50 million represents seasonal commitment available october july year credit agreement set expire july 31 2006 however december 5 2005 pursuant companys request provided credit agreement company bank agreed extend credit agreement july 31 2007 time outstanding amounts credit agreement due payable subject companys right request additional oneyear extension banks acceptance request general borrowings credit agreement bear interest rate calculated according eurodollar rate plus 055 eurodollar rate generally 30day 60day 90day libor rate company also required pay annual fee 0125 dailyunused portion credit agreement primary financial covenant requires companys funded indebtedness credit agreement exceed 50 certain current longterm assets defined credit agreement determined last day fiscal quarter year ended august 31 2006 maximum amount borrowed 45 million credit agreement repaid august 31 2006 existing letters credit discussed loans outstanding credit agreement august 31 2006 11 employee benefit plans defined benefit plan substantially fulltime employees covered noncontributory defined benefit plan benefits paid employees beneficiaries upon retirement death disability based final average compensation highest consecutive five years dpls funding policy make contributions plan least equal minimum amounts required funded accordance provisions erisa dpl expects contribute approximately 2 million plan 2007 effective january 1992 dpl adopted supplemental executive retirement plan serp pay supplemental pension benefits certain employees whose benefits plan decreased result certain changes made plan benefits serp paid addition benefits participants may receive plan paid company assets plan assets dpl contribute funds serp 2006 expect contribute funds serp 2007 measurement plan serp assets obligations performed june 30 following table provides reconciliation changes plans serps benefit obligations fair value assets twoyear period ended august 31 2006 statement funded status august 31 2006 2005 accumulated benefit obligation plan 19133000 19999000 august 31 2006 2005 respectively accumulated benefit obligation serp 559000 633000 august 31 2006 2005 respectively periodic pension expense expected longterm rate return assumptions asset class selected based historical relationships asset classes economic capital market environments updated current conditions dpls plan serp asset allocations measurement dates june 30 2006 2005 follows plan serp plan assets managed independent portfolio managers balanced accounts assets invested fixed income securities including preferred stocks corporate bonds debentures equities including common stocks target range asset allocation 20 40 fixed income securities 60 80 equities primary risk control limiting one equity position 8 value equity portion portfolio derivatives used portfolio construction plan serp assets invested dpl common stock june 30 2006 2005 august 31 2006 total future plan serp benefits estimated follows plan serp 2007 789000 59000 2008 834000 59000 2009 905000 59000 2010 989000 59000 2011 999000 59000 years 20122016 5765000 295000 defined contribution plan dpl sponsors defined contribution plan section 401k internal revenue code covers substantially fulltime employees dpl option may elect make matching contributions plan matching contributions made 2006 2005 2004 12 major customers 2006 2005 2004 seed sales four customers related licensing fees ultimately billed farmers sales made customers transgenic products comprised 10 total sales licensing fees table presents approximate amount annual sales licensing fees customers amounts reported dpls domestic segment customer 2006 2005 2004 53398000 41245000 38820000 b 94834000 77865000 66156000 c 82628000 69306000 55388000 41094000 22173000 20327000 13 business segment information dpl single line business operates two business segments domestic international dpls reportable segments offer similar products however business units managed separately due geographic dispersion operations dpl breeds produces conditions markets proprietary varieties cotton soybean planting seed united states international segment offers cottonseed several foreign countries export sales incountry operations dpl develops proprietary seed products research development efforts united states certain foreign countries dpls chief operating decision maker utilizes revenue information assessing performance making overall operating decisions resource allocations profit loss information reported segment chief operating decision maker dpls board directors accounting policies segments substantially described summary significant accounting policies information dpls segments years ended august 31 follows thousands information financial position dpls segments august 31 follows thousands 2006 2005 longterm assets domestic 78689 65898 international 18298 16607 96987 82505 total assets domestic 477393 408784 international 28861 30400 506254 439184 14 related party transactions 2006 2005 2004 partner law firm represents dpl also stockholder dpls corporate secretary dpl paid legal fees firm approximately 1577000 962000 929000 2006 2005 2004 respectively 2006 2005 2004 deltamax paid temasek life science laboratory tll approximately 1929000 1465000 1118000 respectively research activities tll conducted deltamax tll related party temasek capital temasek holdings dr chua member board directors dpl chief scientific advisor temasek capital april 2001 march 2003 appointed corporate advisor temasek holdings april 2003 march 2006 advised tll since april 2004 dr chua paid consultant pioneer hibred international inc dupont subsidiary several years continues capacity july 2004 dupont acquired verdia inc owns 50 deltamax see note 5 15 derivative financial instruments accumulated comprehensive loss includes following related companys soybean hedging program years ended august 31 2006 2005 thousands deferred net loss 136000 included accumulated comprehensive loss august 31 2006 recognized earnings within next twelve months however actual amount charged earnings may vary result changes market conditions years ended august 31 2006 2005 dpl recorded gains losses earnings result hedge ineffectiveness discontinuance cash flow hedges 16 inprocess research development dupont technology licenses june 30 2006 acquired licenses ei dupont de nemours company dupont duponts affiliates pioneer hibred international inc pioneer verdia inc verdia optimum gat trait cotton soybeans optimum gat trait developed dupont provide farmers expanded weed control options help optimize yield herbicide tolerance technology makes plants tolerant glyphosate als herbicides including sulfonylurea herbicides previously dupont announced plans commercialize optimum gat pioneerr brand corn soybeans also secured significant outlicense agreements dupont pioneer subsidiary partners deltamax joint venture initially formed develop commercialize glyphosateonly tolerance cotton paid 205 million connection transaction technology fee sharing optimum gat technology essentially consistent existing terms deltamax collaboration agreement also reached agreement license soybean lines suitable planting southern soybean market involvement greenleaf genetics llc year ended august 31 2006 recorded charge 205 million related writeoff acquired iprd related transaction costs technologies yet reached technological feasibility alternative future use accordingly amount paid licenses expensed 2006 consolidated statements income acquisition date syngenta global cottonseed assets may 2006 dpl purchased selected assets syngentas global cottonseed business 70 million comprised certain cottonseed germplasm united states india certain countries certain equipment sublease buildings land syngenta india ltds research farm aurangabad india agreed make employment offers four employees syngenta india ltds cotton breeding program syngenta retained rights use two specific cotton lines transgenic trait development addition usual corporate warranties syngenta warranted specific exceptions exclusive ownership freedom use acquired products absence transgenes intended components acquired products hybrid germplasm acquired india require regulatory approval country offered commercial sale germplasm acquired united states contains syngentas vipcot technology acquired license 2004 see also requires regulatory approval united states since assets alternative future use regulatory approvals obtained entire purchase price expensed 2006 consolidated statements income acquisition date writeoff acquired iprd syngenta technology licenses august 2004 dpl entered acquisition agreement syngenta purchase global licenses develop commercialize syngentas insect resistance technology cottonseed addition dpl purchased licenses wide range syngenta enabling technologies may useful developing new products use cottonseed soybean seed return licenses dpl pay syngenta approximately 468 million installments due primarily first quarter 2008 acquisition agreement dpl paid syngenta 141 million closing 2004 paid syngenta 58 million 2005 1015 million 2006 dpl required make future payments 595 million 2007 16 million 2008 468 million purchase price contingent payments 16 million 2008 31 million 2009 30 million 2010 15 million 2011 may also made agreements purchase date amount equal present value payments required made capitalized intangible asset 3623 million expensed 2004 consolidated statements income technologies dpl purchased licenses iprd projects yet reached technological feasibility alternative future use payments made first quarter 2008 contingent certain events occurring thus included amount capitalized written iprd related transaction costs approximately 23 million primarily related professional fees also included caption inprocess research development related transaction costs consolidated statements income present value amounts paid first quarter 2008 computed based discount rates approximated borrowing rates dpl would incur borrowings similar maturities payments required made accordingly discount rate used payments made one two three onehalf years purchase date 328 384 425 respectively amount due syngenta within next twelve months reported consolidated balance sheet notes payables current maturities longterm debt current liabilities balance remaining payments due first quarter 2008 reported longterm debt 17 commitments contingencies merger monsanto august 14 2006 merger agreement signed dpl monsanto contains various provisions related possible termination merger agreement certain events occur case may depending upon termination event one following may occur monsanto may required pay dpl termination payment 600 million ii royalty paid monsanto certain licenses dpl may reduced iii dpl may required pay monsanto termination payment 15 million termination events also impact various dispute litigation issues pending dpl monsanto described fully footnote product liability claims dpl named defendant various lawsuits allege among things certain dpls products including containing monsantos technology perform farmer anticipated expected cases monsanto andor dealer distributor sold seed also named defendants cases seed sold contained either monsantos bollgard andor roundup ready gene technologies farmer alleged failure one technologies dpl tendered defense case monsanto requested indemnity pursuant terms february 2 1996 bollgard gene license seed services agreement bollgard agreement february 2 1996 roundup ready gene license seed services agreement roundup ready agreement amended december 1999 january 2000 march 2003 august 2006 roundup ready agreement additionally amended july 1996 dpl right contractually indemnified monsanto claims arising failure monsantos gene technology pharmacia remains liable monsantos performance indemnity agreements product liability lawsuits contain varietal claims aimed solely dpl right indemnification monsanto claims involving varietal characteristics separate addition failure monsanto technology dpl believes resolution matters material adverse impact consolidated financial statements dpl intends vigorously defend matters legal matters december 9 2003 bayer bioscience nv bayer cropscience gmbh collectively bayer filed suit federal court australia alleging importing exporting selling alleged uses deltapine australia pty ltd dpls whollyowned australian subsidiary deltapine australia bollgard iir cottonseed infringes bayers australian patent claims alleged invention entitled prevention bt resistance development suit seeks injunction damages relief deltapine australia deltapine australia disputes validity infringement enforceability bayers patent april 16 2004 deltapine australia responded suit denying infringement asserting affirmative defenses cross claims suit pretrial proceedings due status matter management unable determine impact matter consolidated financial statements since july 2003 dpl monsanto involved alternative dispute resolution proceedings arbitration pertaining matters among agreements bollgard roundup ready licenses united states august 14 2006 monsanto dpl dm partners entered arbitration settlement agreement certain provisions bollgard roundup ready licenses marketing services agreement amended resolve issues dispute claims counterclaims alleged arbitration including monsantos claims terminate license rights dpl dm partners released dismissed prejudice monetary payments required monsanto dpl dm partners settlement february 17 2006 dpl initiated dispute resolution proceeding 1996 option agreement 2002 bollgard gene license issue whether monsantos implementation farmer licensing system bollgard gene technology brazil violates dpls local affiliates rights exclusive license develop produce sell bollgard planting seed brazil march 27 2006 dpl submitted issue arbitration american arbitration association aaa part arbitration dpl sought enjoin monsantos implementation farmer licensing system seeking damages incurred dpl affiliates july 2006 arbitration panel conducted preliminary hearing panel denied preliminary injunction without prejudice granting permanent injunction upon final hearing august 14 2006 monsanto dpl entered settlement agreement proceedings arbitration stayed pending proposed merger monsanto dpl andor mutually agreed resolution dispute provided net technology fees collected farmer licensing system period stay divided monsanto affiliates dpl affiliates ratio 5644 pursuant settlement agreement litigation dpl monsanto new castle county delaware monsanto dpl affiliates st louis county missouri related arbitration dismissed prejudice mdm sementes de algodao limitada dpls affiliate brazil proceeding planned launch sales cotton seed containing bollgard gene technology brazil 2007 sales season june 16 2006 dpl submitted arbitration aaa issues involving dpls rights exclusive rights bollgard technology two additional exunited states countries dpls rights favorable license terms united states bollgard ii licenses pursuant settlement agreements entered august 14 2006 arbitration respect exclusive licenses two exunited states countries dispute resolution proceeding involving confidentiality provisions bollgard roundup ready licenses stayed pending merger monsanto dpl arbitration issue involving favored licensee provisions dismissed prejudice february 28 2006 dpl filed suit circuit court dunklin county missouri seeking recover soybean seed services fees amount approximately 22 million monsanto refused pay dpl respect soybean seed containing monsantos roundup ready technology sold dpl 2005 planting season suit also sought declaratory judgment dpls payments royalties roundup ready soybean license correctly calculated paid years 2002 2005 pursuant settlement agreement entered august 14 2006 monsanto paid dpl 22 million dispute payments roundup ready soybean license 2006 growing season made existing terms license 2007 subsequent growing seasons license amended respect payments royalties seed sold replanting litigation dismissed prejudice dpl vs monsanto company pharmacia corporation december 20 1999 monsanto withdrew premerger notification filed pursuant hartscottrodino antitrust improvements act 1976 hsr act effectively terminating monsantos efforts gain government approval merger monsanto dpl may 8 1998 merger agreement 1998 merger agreement december 30 1999 dpl filed suit first judicial district bolivar county mississippi seeking among things payment 81 million termination fee due pursuant 1998 merger agreement compensatory damages punitive damages january 2 2000 dpl monsanto reached agreement whereby dpl would withdraw suit without prejudice purpose negotiating settlement dpls claims monsanto would immediately pay 81 million january 3 2000 monsanto paid dpl termination fee 81 million required 1998 merger agreement january 18 2000 unsuccessful negotiations dpl refiled suit 1998 merger litigation dpl seeks excess 1 billion compensatory 1 billion punitive damages breach 1998 merger agreement september 12 2003 monsanto amended answer include four counterclaims dpl monsanto seeking unspecified amount damages counterclaims including 81 million paid monsanto dpl termination fee related expenses dpl answered counterclaims denying liability december 21 2004 monsanto filed motion amend answer withdraw two four counterclaims february 17 2005 dpl filed motion trial court amend complaint add claim monsanto fraudulently inducing dpl extend deadline complete merger monsanto mississippi supreme court stayed proceedings case pending resolution two interlocutory appeals filed dpl pursuant agreement plan merger monsanto sub inc dpl entered august 14 2006 merger agreement monsanto dpl agreed take steps necessary stay 1998 merger litigation period twelve months august 27 2006 mississippi supreme court entered order staying proceedings 1998 merger litigation february 27 2007 2006 merger agreement provides 1998 merger litigation dismissed prejudice upon certain circumstances including 1 completion merger 2 merger completed outside date defined 2006 merger agreement certain regulatory approvals obtained completion merger prevented law order related antitrust completion law 3 monsanto breaches covenant agreement 2006 merger agreement material respect fails cure upon notice 4 dpls board directors approves dpl enters acquisition transaction party monsanto 5 dpl breaches covenants agreements 2006 merger agreement material respect fails cure upon notice circumstances described items 2 3 monsanto required pay dpl 600 million cash following circumstances stay 1998 merger litigation terminate parties may pursue rights litigation 1 dpls board directors modifies changes recommendation approval merger time dpls board directors received proposal party monsanto regarding acquisition 2 dpl breaches representations warranties 2006 merger agreement fails cure upon notice 3 merger completed outside date material adverse change respect dpl 4 2006 merger agreement terminated agreement dpl monsanto reason specified 18 stockholders equity preferred stock pursuant 2006 merger agreement executed monsanto company precluded issuing additional shares preferred stock prior merger agreement executed monsanto board directors dpl authorized subject certain limitations prescribed law without stockholder approval issue aggregate 2000000 shares preferred stock one series determine alter designations preferences rights qualifications limitations restrictions shares series thereof including dividend rights dividend rates conversion rights voting rights terms redemption including sinking fund provisions redemption price prices liquidation preferences number shares constituting series designations series august 1996 board directors adopted stockholder rights plan rights plan declared dividend one preferred stock purchase right outstanding share dpls common stock similar rights generally issued respect common stock subsequently issued right becomes exercisable upon occurrence certain events one onehundredth share series junior participating preferred stock 010 par value purchase price 175 per one onehundredth preferred share subject adjustment event dpl acquired merger business combination transaction approved board directors holder right shall right receive number shares common stock surviving company would market value two times exercise price right rights plan 501989 shares series junior participating preferred stock reserved rights currently exercisable person group acquires beneficial ownership 15 dpls outstanding shares common stock rights expire august 30 2016 redeemable whole part dpls option time price 001 per right dpl issued 1066667 shares effect stock splits series convertible nonvoting preferred stock consideration purchase 1996 hartz cotton inc monsanto holders series preferred stock entitled receive dividends rate per share paid time share common stock dpl declared board directors event liquidation dissolution winding dpl either voluntary involuntary holders series preferred stock shall entitled receive prior preference distribution holders common stock class security dpl 13936 per share series preferred stock series preferred stock became convertible february 2 2003 seventh anniversary date series preferred stock issued longterm incentive plans sharebased payments effective september 1 2005 company adopted sfas 123r utilizing modified prospective approach modified prospective approach sfas 123r applies new awards outstanding september 1 2005 subsequently modified cancelled additionally compensation cost portion awards requisite service rendered september 1 2005 recognized remaining service period using compensation cost calculated pro forma disclosure purposes previously sfas 123 accounting stockbased compensation prior periods restated reflect impact adopting sfas 123r company elected use alternative shortcut method determine amount excess tax benefits would recognized additional paidin capital company previously adopted sfas 123 recognition purposes prior adoption sfas 123r company accounted employee stock options equitybased compensation awards using intrinsic value method accounting prescribed apb opinion 25 accounting stock issued employees compensation expense previously recognized related companys stock options number shares fixed grant date options exercise price set stocks fair market value date option granted sfas 123r company charged income approximately 33 million compensation expense stock options restricted stock restricted stock units year ended august 31 2006 1995 longterm incentive plan amended restated march 2000 ltip allows awarding stock options officers key employees directors ltip options purchase 5120000 shares effect stock splits common stock dpl available grant shares subject options awards expire unexercised available new option grants awards ltip compensation committee board directors administers plan sole discretion regarding exercisability option grants 2005 omnibus stock plan 2005 stock plan approved shareholders january 2005 provides grant incentive stock options defined internal revenue code 1986 amended b nonqualified stock options c restricted stock restricted stock units dpls employees independent contractors members board directors purpose encouraging share ownership dpl 4500000 shares available grants awards plan maximum number shares may issued awards restricted stock restricted stock units 2100000 shares maximum options 2400000 compensation committee board directors administers plan sole discretion regarding exercisability option grants lapsed awards shall available plan options company determines fair value stock option awards using blackscholes optionpricing model expected volatilities based historical volatility companys common stock company uses historical data estimate share option exercise employee departure behavior used blackscholes optionpricing model expected term share options granted derived output option pricing model represents period time share options granted expected outstanding riskfree rate based yields united states treasury securities similar terms expected life options company recognized gross compensation cost associated outstanding stock option awards 17 million prior tax benefit 553000 year ended august 31 2006 versus 0 prior year august 31 2006 approximately 18 million unrecognized compensation cost related stock option awards prior anticipated tax benefit 685000 expected recognized remaining employees service periods weightedaverage period two years outstanding options contractual term 7 10 years stock option awards made prior may 18 2005 become exercisable ratably fiveyear service period stock option awards made may 18 2005 become exercisable 45 days issuance stock option awards made subsequent may 18 2005 become exercisable ratably fiveyear service period ltip 2005 stock plan outstanding stock options become exercisable immediately upon change control company approximately 23 million stock options available grant august 31 2006 postvesting restrictions related outstanding stock options additional information regarding stock options granted outstanding summarized weightedaverage grantdate fair values options granted 2006 2005 2004 615 464 614 per share respectively fair value options estimated date grant using blackscholes optionpricingmodel following weightedaverage assumptions 2006 2005 2004 expected dividend yield 244 148 100 expected option lives 6 years 4 years 8 years expected volatility 2451 1981 1601 riskfree interest rates 456 396 382 following table summarizes certain information outstanding exercisable stock options august 31 2006 restricted stock restricted stock units year ended august 31 2006 12350 shares restricted stock restricted stock units granted employees 11840 shares restricted stock directors 510 restricted stock units dividends previously issued restricted stock units total compensation cost approximately 287000 determined based market price companys common stock time award considering dividend restrictions expected forfeitures compensation cost recognized expense ratably threeyear vesting period year ended august 31 2006 company recognized gross compensation cost associated restricted stock restricted stock units awards approximately 16 million prior tax benefit 520000 versus 508000 prior year period prior tax benefit 181000 august 31 2006 24 million unrecognized compensation cost related shares restricted stock restricted stock units expected recognized prior anticipated tax benefit 913000 weightedaverage period two years approximately 19 million shares available grants restricted stock restricted stock units august 31 2006 following represents restricted stock restricted stock units activity year ended august 31 2006 merger monsanto company pursuant merger agreement monsanto board directors dpl authorized issuance approximately 155000 shares restricted stock restricted stock units directors officers key employees dpl accordance provisions 2005 stock plan shares restricted stock restricted stock units issued vest three year period however effective time merger shares restricted stock restricted stock units become immediately vested converted right receive 4200 per share cash without interest less applicable withholding tax merger close instruments vest 40 first anniversary issuance 30 second anniversary issuance remaining 30 third anniversary issuance pro forma presentation following table illustrates years ended august 31 2005 2004 effect operating results per share information company accounted sharebased compensation accordance sfas 123 thousands treasury stock february 2000 board directors authorized program repurchase 50 million dpls common stock shares repurchased program used provide option exercises potential conversion dpls series convertible nonvoting preferred shares general corporate purposes august 31 2005 dpl repurchased 2229900 shares aggregate purchase price approximately 47505000 program repurchase plan terminated replaced june 2005 repurchase program discussed may 24 2005 dpl completed purchase 2374940 shares common stock pursuant modified dutch auction tender offer announced april 20 2005 new plan separately approved board directors shares purchased 2700 per share aggregate purchase price 64123380 company also incurred associated expenses approximately 675000 connection acquisition shares primarily related legal advisory services recorded component treasury stock june 30 2005 dpls board directors authorized new share repurchase program buy additional 50 million companys common stock program replaces program established february 2000 august 31 2006 dpl repurchased 918494 shares aggregate purchase price approximately 22568992 plan merger agreement monsanto prohibits us without monsantos prior written consent purchasing redeeming otherwise acquiring outstanding shares earnings per share dilutive common share equivalents consist dpls series convertible nonvoting preferred shares outstanding options purchase dpls common stock issued ltip 2005 stock plan outstanding restricted stock restricted stock units issued 2005 stock plan approximately 577000 599000 551000 outstanding common stock options included computation diluted earnings per share years ended august 31 2006 2005 2004 respectively effect exercise antidilutive based average market price dpls common stock respective reporting period year ended august 31 2006 2005 restricted stock restricted stock units included computation diluted earnings per share antidilutive period presented number dilutive common share equivalents issued current year include exclude computation diluted earnings per share calculated based length time outstanding excluded options expire various dates 2007 2015 table reconciles basic diluted per share computations shares outstanding additional information regarding shares outstanding summarized common shares number shares outstanding august 31 2003 38107850 exercises stock options 637704 purchases common stock 250200 outstanding august 31 2004 38495354 exercises stock options 766109 purchases common stock 3161640 outstanding august 31 2005 36099823 exercises stock options vesting restricted stock 1124238 purchases common stock 808494 outstanding august 31 2006 36415567 19 unaudited quarterly financial data dpls domestic seed products including containing bollgard ii roundup ready roundup ready flex technologies subject return credit risks effects vary year annual level returns ultimately net sales net income influenced various factors principally commodity prices weather conditions occurring spring planting season dpls third fourth fiscal quarters dpl provides estimated returns sales occur extent actual returns differ estimates adjustments dpls operating results recorded differences become known typically dpls fourth quarter significant returns occur accounted fiscal year end dpl also offers various sales incentive programs seed participate programs related bollgard ii roundup ready roundup ready flex technology fees offered monsanto generally programs farmer plants seed crop lost usually due inclement weather certain date portion cases price seed technology fees forgiven rebated farmer amount refund impact dpl depends number factors including whether farmer replant crop destroyed dpl records monthly estimates account programs majority program rebates occur second third fourth quarters essentially material claims programs occurred accounted fiscal year end generally international sales subject return substantial portion company sales concentrated second third fiscal quarters result dpl generally expects incur losses first fourth quarters management believes seasonality common throughout seed industry summarized unaudited quarterly financial data follows thousands except per share data 1 2006 recorded 70 million charge writeoff acquired iprd related may 15 2006 acquisition syngentas global cottonseed assets also 2006 recorded 205 million charge writeoff acquired iprd related june 30 2006 acquisition technology licenses dupont develop commercialize duponts herbicide resistance technology cottonseed soybean seed transaction expense related two items approximated 100000 2004 recorded 385 million charge writeoff iprd related transaction expenses related august 24 2004 acquisition global licenses develop commercialize syngentas insect resistance technology cottonseed 2 sum quarterly net loss income per share amounts may equal annual amount reported since per share amounts computed independently quarter whereas annual earnings per share based annual weightedaverage shares deemed outstanding year item 9item 8 consolidated financial statements supplementary data index financial statements pages following consolidated financial statements delta pine land company subsidiaries submitted response part ii item 8 report independent public accountants20 consolidated statements income three years period ended august 31 199621 consolidated balance sheets august 31 1995 199622 consolidated statements cash flows three years period ended august 31 199623 consolidated statements stockholders equity three years period ended august 31 1996 24 notes consolidated financial statements25 report independent public accountants delta pine land company audited accompanying consolidated balance sheets delta pine land company delaware corporation subsidiaries august 31 1995 1996 related consolidated statements income cash flows stockholders equity three years period ended august 31 1996 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position delta pine land company subsidiaries august 31 1995 1996 results operations cash flows three years period ended august 31 1996 conformity generally accepted accounting principles arthur andersen llp memphis tennessee october 11 1996 managements report company responsible preparing financial statements related information appearing report management believes financial statements present fairly companys financial position results operations cash flows conformity generally accepted accounting principles preparing financial statements company required include amounts based estimates judgments believes reasonable circumstances company maintains accounting systems designed provide reasonable assurance financial records reliable purposes preparing financial statements assets properly accounted safeguarded compliance systems controls reviewed executive management accounting staff limitations exist internal control system recognizing systems cost exceed benefits derived board directors pursues responsibility companys financial statements audit committee composed solely directors company officers employees audit committee meets timetotime independent public accountants management independent public accountants direct access audit committee without presence management representatives notes consolidated financial statements 1 summary significant accounting policies nature operations delta pine land company subsidiaries company breed produce condition market cotton soybean planting seed connection seed operations company farms approximately 2000 acres largely production cotton soybean foundation seed land leased former stockholder terms rates management believes prevailing company annual agreements various growers produce seed cotton soybeans growers plant seed purchased company follow quality assurance procedures required seed production grower adheres established company quality assurance standards throughout growing season seed meets company quality standards upon harvest company obligated purchase specified minimum quantities seed prices equal commodity market price seed plus grower premium company conditions seed sale planting seed basis presentation accompanying financial statements include accounts delta pine land company subsidiaries reported results 1994 1995 restated 1996 include results operations arizona processing inc ellis brothers seed inc mississippi seed inc sure grow companies sure grow company merged may 1996 poolingofinterests transaction acquired companies fiscal year ending june 30 august 31 1996 fiscal year end acquired companies changed august 31 net loss twomonth transition period july 1 1996 august 31 1996 shown single line consolidated statements stockholders equity significant intercompany accounts transactions eliminated consolidation connection acquisition sure grow companies hartz cotton inc see note 12 company recorded anticipated nonrecurring charges approximately 14 million transaction costs primarily include professional fees including costs related us department justice review sure grow acquisition presented unusual charges related acquisitions accompanying consolidated statements income cash equivalents cash equivalents include overnight repurchase agreements shortterm investments original maturity less three months property plant equipment property plant equipment stated cost depreciation amortization provided financial reporting purposes using straightline method estimated useful lives assets accelerated methods used income tax purposes estimated useful lives various classes property years follows land improvements 520 buildings improvements 1035 machinery equipment 315 germplasm breeder foundation seed 1040 germplasm breeder foundation seed purchased part paymaster hartz acquisitions includes amounts specifically identified varieties breeding stocks amounts associated specific varieties amortized expected commercial life varieties breeding stocks amortized 40 years intangible assets deferred charges intangible assets consist trademarks patents intangible assets amortized using straightline method 5 40 years excess cost net assets businesses acquired amortized using straightline method 40 years organization costs foreign ventures deferred amortized five years foreign currency translation financial statements foreign operations local currency functional currency translated using exchange rates effect period end assets liabilities average exchange rates period results operations financial statements foreign entities highlyinflationary economies translated though functional currency united states currency translation adjustments reported separate component stockholders equity gains losses foreign transactions included earnings income taxes company uses liability method accounting income taxes method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities measured using enacted tax rates laws fair value financial instruments fair value companys financial instruments august 31 1996 approximates carrying value revenue recognition domestic revenues sale planting seed less estimated reserves returns recognized seed shipped international revenues recognized upon later either seed shipped letters credit cleared revenues farm operations recognized time crops harvested sold costs incurred producing crops included inventory two events occur revenues commercialization agreements royalties recognized earned included net sales royalties revenues bollgard licensing fees net estimated distributor dealer commissions recognized based number acres estimated planted seed shipped recorded net sales payments due licensors technology recorded cost sales research development research development costs incurred breed produce experimental seed expensed costs incurred produce sufficient quantities planting seed needed commercialization carried inventory seed sold cotton lint byproducts transgenic seed production also carried inventory sold reclassifications certain 1994 1995 balances reclassified conform 1996 presentation use estimates preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts income expenses reporting period actual results could differ estimates implementation financial accounting standards sfas 116 accounting contributions received contributions made effective fiscal years beginning december 15 1994 although company periodically makes contributions universities nonprofit organizations companys consolidated financial statements significantly affected statement sfas 121 accounting impairment longlived assets longlived assets disposed issued effective fiscal years beginning december 15 1995 company currently impaired assets therefore affected statement sfas 123 accounting stockbased compensation issued effective fiscal years beginning december 15 1995 standard companies may continue use intrinsic value methodology prescribed accounting principles board opinion 25 accounting stock issued employees may apply fair value methodology used sfas 123 company anticipates continuing account stockbased compensation using intrinsic method therefore sfas 123 impact companys reported results operations financial position company plans adopt disclosure requirements sfas 123 effective fiscal 1997 2 inventories august 31 consisted following restated 1995 1996 finished goods 17534000 28634000 raw materials 3975000 13367000 growing crops 731000 579000 supplies 750000 814000 22990000 43394000 less reserves 2822000 1934000 20168000 41460000 substantially finished goods raw material inventory valued lower average cost market growing crops supplies recorded cost 3 property plant equipment property plant equipment august 31 consisted following restated 1995 1996 land improvements 3349000 3881000 buildings improvements 16943000 24877000 machinery equipment 23056000 31409000 germplasm breeder foundation seed 8000000 9500000 construction progress 6494000 5840000 57842000 75507000 less accumulated depreciation 16751000 20449000 41091000 55058000 4 notes payable longterm debt october 1994 company renewed loan agreement bank provide base commitment 150 million seasonal commitment 350 million expiring 1997 base commitment longterm loan could borrowed upon time seasonal commitment could drawn upon september june fiscal year two facilities permitted company select fixed variable interest rate options specify portion loan covered specific interest rate option applicable funding period interest rate option apply 1995 company bank negotiated new terms reduced interest rates charged combined average interest rates paid 50 70 1994 1995 respectively company paid commitment fee 15 1 per annum unused portion seasonal commitment fee 14 1 per annum unused portion base commitment november 1995 company another financial institution entered new loan agreement replaced existing facility new agreement provided base commitment 150 million seasonal commitment 350 million march 1996 bank approved additional seasonal facility 150 million june 1996 base commitment increased 300 million seasonal commitment reduced 200 million accommodate anticipated changes borrowings related acquisition sure grow changes made additional seasonal facility base commitment longterm loan may borrowed upon time due january 1 1999 seasonal commitment additional seasonal commitment working capital loans may drawn upon september 1 june 30 fiscal year expire january 1 1999 commencing january 1997 january thereafter facilities renewable another three year term commitment offers variable fixed interest rate options requires company pay facility andor commitment fees comply certain financial covenants combined average interest rate 1996 65 financial covenants new loan agreement require company maintain minimum tangible net worth amount less 200 million increased 50 net income fiscal year b allow ratio total liabilities tangible net worth exceed 15 1 c maintain cash flow coverage ratio least 2 1 august 31 1996 companys ratio total liabilities tangible net worth 19 10 exceeds permitted ratio bank waived compliance covenant 5 accrued expenses accrued expenses august 31 consisted following restated 1995 1996 sales returns allowances 5464000 5650000 payroll 2073000 2004000 bollgard licensing expenses 43403000 accrued expenses 4209000 4022000 11746000 55079000 6 income taxes provisions income taxes years ended august 31 consisted following restated 1994 1995 1996 current federal 3845000 5734000 7520000 state 593000 889000 1153000 deferred 79000 103000 220000 4359000 6726000 8453000 differences statutory federal income tax rate effective rate follows restated 1994 1995 1996 statutory rate 342 344 350 increases tax resulting state taxes net federal tax benefit 31 15 06 25 effective rate 358 381 356 components deferred income taxes august 31 follows deferred tax assets restated 1995 1996 inventory 1090000 1293000 charitable contributions 769000 compensation 210000 278000 selfinsurance reserves 289000 324000 174000 126000 1763000 2790000 deferred tax liabilities property 1511000 2679000 pension 445000 280000 455000 812000 2411000 3771000 net deferred income taxes 648000 981000 7 leases company leases real estate machinery equipment used operations substantially rent expense recorded cost sales company capital leases future minimum rental payments 1996 operating leases initial remaining noncancellable terms excess one year follows 1997 440000 1998 173000 1999 134000 2000 104000 2001 91000 company annually leases farmland related facilities former stockholder see note 1 rent expense years ended august 31 consisted following 1994 1995 1996 rent paid former stockholder 293000 258000 281000 rents 1269000 1030000 1101000 1562000 1288000 1382000 8 employee benefit plans defined benefit plan substantially fulltime employees covered noncontributory defined benefit plan benefits paid employees beneficiaries upon retirement death disability based final average compensation highest consecutive five years plan assets consist primarily us government securities common stock companys funding policy make contributions plan least equal minimum amounts required funded accordance provisions erisa effective january 15 1992 company adopted supplemental executive retirement plan serp pay supplemental pension benefits certain employees whose benefits plan decreased result certain changes made plan benefits serp paid addition benefits participants may receive plan paid company assets plan assets annual cost serp 1994 1995 1996 approximated 100000 may 1995 company funded 250000 irrevocable trust established make payments participants serps unfunded accumulated benefit obligation june 30 1995 1996 119000 216000 respectively measurement plan serp assets obligations performed june 30 following sets forth plans serps funded status amounts recognized companys financial statements august 31 1995 1996 actuarial present value accumulated benefit obligationincluding vested benefits 4927000 1995 5714000 1996 5042000 5847000 plan assets fair value 6161000 7237000 projected benefit obligations service rendered date 5407000 6239000 plan assets excess projected benefit obligation 754000 998000 unrecognized prior service cost 68000 65000 unrecognized net gain 243000 900000 unrecognized net obligation 792000 673000 prepaid pension expense 1371000 836000 net periodic pension expense company contributions years ended august 31 follows 1994 1995 1996 service cost 317000 345000 462000 interest cost projected benefit obligation 283000 344000 401000 actual return assets 177000 1032000 1064000 amortization transitional obligation 119000 net unrecognized loss gain amortization 286000 566000 511000 net periodic pension expense 256000 342000 429000 company contributions 279000 actuarial present value projected benefit obligation determined using weightedaverage interest rate 7 1995 75 1996 assumed salary increases 4 1995 1996 expected longterm rate return assets 9 1995 1996 prior service cost amortized 15 years defined contribution plan dpl sponsors defined contribution plan section 401k internal revenue code covers substantially fulltime employees company option may elect make matching contributions plan matching contributions made 1994 1995 1996 9 major customers export sales foreign operations fiscal 1994 1995 1996 sales two customers comprised 10 total sales approximate amount annual sales two customers follows restated customer 1994 1995 1996 12700000 14700000 22400000 b 8500000 10500000 16200000 international sales including export sales approximated 2900000 7100000 1260000 1994 1995 1996 respectively sales operating income attributable companys subsidiaries mexico australia material 10 related party transactions partner law firm represents company also stockholder serves corporate secretary company paid legal fees firm approximately 350000 300000 575000 1994 1995 1996 respectively 1994 1995 1996 director company provided consulting services associated development negotiation behalf company certain international joint ventures fees approximated 100000 10000 6000 1994 1995 1996 respectively 1993 dpl loaned certain officers employees 170000 exercise southwide inc dpls liquidated parent stock options notes receivable bore interest prime due june 1996 collateralized dpl common stock received optionee liquidation southwide inc august 31 1996 notes receivable paid full 11 commitments contingencies company monsanto third parties named defendants two lawsuits filed texas august 1996 third lawsuit filed october 1996 louisiana two suits request certified class action plaintiffs allege among things dpls nucotn varieties contain monsantos bollgard gene perform farmers anticipated particular fully protect cotton crops certain lepidopteran insects pursuant terms agreement dpl monsanto assumed responsibility defense claims since vendee claims failure bollgard gene subject duty defense monsanto prorata indemnification agreement applicable indemnity provisions defense costs liability plaintiffs related claims covered agreement apportioned 71 monsanto 29 dpl claims made litigation concerning quality seed coat treatments involving failure performance bollgard gene representations respect thereof may within scope monsantos indemnity obligation company would required bear damages relating product defects involving failure bollgard gene provide insect resistance dpl intends cooperate monsanto anticipated vigorous defense claims dpl believes claims resolved without material impact companys financial statements october 1996 mycogen agrigenetics inc filed lawsuit naming dpl monsanto dekalb genetics defendants alleging two mycogens recently issued patents infringed defendants selling seed contains bollgard gene pursuant terms agreement monsanto required defend dpl patent infringement claims indemnify dpl damages patent infringement claims dpl believes resolution matter material impact company financial statements corporation owned son companys former guatemalan distributor sued 1989 asserting company violated agreement granting another entity exclusive license certain areas central america southern mexico suit seeks damages 5300000 guatemalan quetzales approximately 900000 current exchange rates injunction preventing company distributing seed licensee region guatemalan court action proceeding twice declined approve injunction sought management believes resolution matter material impact company financial statements company continues offer seed sale guatemala company involved various claims arising normal course business management believes matters without merit resolved without material effect companys financial position results operations july 18 1996 united states department justice antitrust division usdoj served civil investigative demand cid dpl seeking information documents connection investigation acquisition dpl stock arizona processing inc ellis brothers seed inc mississippi seed inc cid states usdoj investigating whether transaction may violated provisions section 7 clayton act 15 usc section 18 dpl currently engaged responding cid committed full cooperation usdoj present time ultimate outcome investigation cannot predicted company noncancellable contracts outstanding various capital improvement projects completed 1997 august 31 1996 amounts paid contracts approximates 5100000 12 mergers acquisitions february 1996 company acquired hartz cotton inc monsanto included cotton planting seed inventories germplasm breeding stocks trademarks trade names assets approximately 60 million consideration consisted primarily 450000 shares companys series convertible nonvoting preferred stock pro forma financial data presented impact acquisition accounted purchase material companys results operations period presented company merged sure grow companies may 1996 poolingofinterests transaction valued approximately 700 million dpl exchanged approximately 15 million unregistered shares common stock outstanding shares sure grow companies acquired companies fiscal year ending june 30 august 31 1996 fiscal year ends acquired companies changed august 31 following summarizes income statement data sure grow companies period beginning july 1 1996 ending august 31 1996 sales 574000 cost sales 1043000 operating expenses 207000 15000 net loss 691000 combined net loss 691000 transition period included separate item accompanying consolidated statements stockholders equity net change cash transition period decrease 357000 amount included single item accompanying consolidated statements cash flows 13 stockholders equity preferred stock board directors company authorized subject certain limitations prescribed law without stockholder approval issue aggregate 2000000 shares preferred stock one series determine alter designations preferences rights qualifications limitations restrictions shares series thereof including dividend rights dividend rates conversion rights voting rights terms redemption including sinking fund provisions redemption price prices liquidation preferences number shares constituting series designations series august 1996 board directors adopted stockholder rights plan declared dividend one preferred stock purchase right outstanding share companys common stock similar rights generally issued respect common stock subsequently issued right becomes exercisable upon occurrence certain events one onehundredth share series junior participating preferred stock 010 par value purchase price 175 per one onehundredth preferred share subject adjustment event company acquired merger business combination transaction approved board directors holder right shall right receive number shares common stock surviving company would market value two times exercise price right stockholder rights plan 241787 shares series junior participating preferred stock reserved rights currently exercisable person group acquires beneficial ownership 15 companys outstanding shares common stock rights expire august 30 2006 redeemable whole part companys option time price 001 per right company issued 450000 shares effect stock split series convertible nonvoting preferred stock february 1996 consideration purchase hartz cotton inc monsanto holders series preferred stock entitled receive dividends rate per share paid time share common stock company declared board directors event liquidation dissolution winding company either voluntary involuntary holders series preferred stock shall entitled receive prior preference distribution holders common stock class security company 24775 per share series preferred stock series preferred stock convertible beginning upon seventh anniversary date series preferred stock issued occurrence specified events whichever occurs first stock option plans april 1993 board directors stockholders approved 1993 stock option plan options purchase 1440000 shares effect stock splits common stock authorized option price less market price date grant october 17 1995 companys board directors adopted 1995 longterm incentive plan incentive plan pursuant stock options stock appreciation rights restricted shares common stock performance units may awarded officers key employees directors incentive plan 1440000 shares common stock company available grant shares subject options awards expire unexercised available new option grants awards companys stockholders ratified adoption incentive plan 1996 annual meeting future members board directors receive automatic grants upon named board options exercisable ratably five years commencing one year date grant stock options number shares price range outstanding august 31 1993 granted 1155000a 8 516 8 1316 exercised lapsed canceled outstanding august 31 1994 1155000 8 516 8 1316 granted exercised 6600 8 516 8 1316 lapsed canceled outstanding august 31 1995 1148400 8 516 8 1316 granted 427499 19 28 116 exercised 274350 8 516 8 1316 lapsed canceled 20600 8 516 19 outstanding august 31 1996 1280949 8 516 28 116 includes options 180000 shares effect stock splits granted members board directors june 1994 subject final stockholder approval 1995 annual meeting prior grant holders majority shares approved amendment 1993 stock option plan provided automatic grant options 30000 shares effect stock splits current future members board directors amendment formally approved 1995 annual stockholders meeting common stock october 1995 board directors authorized 4 3 stock split effected form dividend change par value per share distributed december 15 1995 stockholders record december 1 1995 march 1996 board directors authorized 3 2 stock split common preferred shares outstanding effected form dividend change par value per share distributed april 15 1996 stockholders record march 29 1996 stock splits reflected accompanying financial statements 14 unaudited quarterly financial data companys domestic seed products subject return credits vary year annual level returns ultimately net sales net income influenced various factors principally weather conditions occurring spring planting season spanning companys third fourth fiscal quarters company provides estimated returns sales made extent actual returns actual acreage planted seed containing bollgard gene differ estimates adjustments companys operating results recorded differences become known significant returns occur accounted fiscal year end generally international sales subject return substantially company sales concentrated second third fiscal quarters result company generally incurs losses first fourth quarters management believes seasonality common throughout seed industry item 9item 8 consolidated financial statements supplementary data index financial statements pages following consolidated financial statements delta pine land company subsidiaries submitted response part ii item 8 report independent public accountants22 consolidated statements income three years period ended august 31 199723 consolidated balance sheets august 31 1996 199724 consolidated statements cash flows three years period ended august 31 199725 consolidated statements stockholders equity three years period ended august 31 199726 notes consolidated financial statements27 report independent public accountants delta pine land company audited accompanying consolidated balance sheets delta pine land company delaware corporation subsidiaries august 31 1996 1997 related consolidated statements income cash flows stockholders equity three years period ended august 31 1997 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position delta pine land company subsidiaries august 31 1996 1997 results operations cash flows three years period ended august 31 1997 conformity generally accepted accounting principles arthur andersen llp memphis tennessee october 24 1997 managements report company responsible preparing financial statements related information appearing report management believes financial statements present fairly companys financial position results operations cash flows conformity generally accepted accounting principles preparing financial statements company required include amounts based estimates judgments believes reasonable circumstances company maintains accounting systems designed provide reasonable assurance financial records reliable purposes preparing financial statements assets properly accounted safeguarded compliance systems controls reviewed executive management accounting staff limitations exist internal control system recognizing systems cost exceed benefits derived board directors pursues responsibility companys financial statements audit committee composed solely directors company officers employees audit committee meets timetotime independent public accountants management independent public accountants direct access audit committee without presence management representatives consolidated statements income thousands except per share amounts years ended august 31 1995 1996 1997 net sales licensing fees 98950 153271 183249 cost sales 55946 97477 116289 special charges 11500 gross profit 43004 55794 55460 operating expenses research development 6631 9794 13651 selling 7611 9435 11053 general administrative 9602 9383 10136 special charges unusual charges related acquisitions 1418 9200 23844 30030 44040 operating income 19160 25764 11420 interest expense net 2038 2418 2204 539 383 463 income taxes 17661 23729 9679 provision income taxes 6726 8453 2766 net income 10935 15276 6913 dividends preferred stock 39 63 net income applicable common shares 10935 15237 6850 net income per share primary 029 039 018 weighted average number shares used per share calculations primary 37540 38592 38896 net income per share fully diluted 029 039 017 weighted average number shares used per share calculations fully diluted 37589 39264 39863 accompanying notes integral part statements consolidated balance sheets august 31 thousands except share amounts assets 1996 1997 current assets cash equivalents 560 1890 receivables net allowance 379 281 66650 95437 inventories 41460 42886 prepaid expenses 1363 2167 deferred income taxes 1907 3069 total current assets 111940 145449 property plant equipment net 55058 63022 excess cost net assets businesses acquired net accumulated amortization 149 243 4950 4589 intangibles net accumulated amortization 576 705 3214 3674 assets 4498 3922 179660 220656 liabilities stockholders equity current liabilities notes payable 2595 259 accounts payable 14954 19113 accrued expenses 55079 91196 income taxes payable 3338 1956 total current liabilities 75966 112524 longterm debt 31465 30572 deferred income taxes 2888 4038 commitments contingencies notes 7 11 minority interest subsidiaries 991 stockholders equity preferred stock par value 010 per share 2000000 shares authorized series junior participating preferred par value 010 per share 429319 shares authorized shares issued outstanding series convertible nonvoting preferred par value 010 per share 800000 shares authorized 800000 shares issued outstanding 80 common stock par value 010 per share 50000000 shares authorized 37563787 37724116 shares issued 37563787 37609849 shares outstanding 3756 3772 capital excess par value 20746 22865 retained earnings 45004 48894 cumulative foreign currency translation adjustments 245 907 treasury stock cost 114267 shares 1997 2173 total stockholders equity 69341 72531 179660 220656 accompanying notes integral part balance sheets consolidated statements cash flows thousands years ended august 31 1995 1996 1997 cash flows operating activities net income 10935 15276 6913 adjustments reconcile net income net cash provided used operating activities depreciation amortization 3150 4026 5060 noncash items associated special charges 12242 minority interest subsidiaries 991 loss disposition business unit net 1183 increase decrease deferred income taxes 103 220 12 changes current assets liabilities receivables 1846 62161 28787 inventories 2391 20984 5255 prepaid expenses 34 207 804 accounts payable 413 6828 4159 accrued expenses 3103 43675 31195 income taxes payable 2143 3283 1382 decrease intangible assets 105 321 416 net cash provided used operating activities 16932 16729 24736 cash flows investing activities purchases property equipment 10674 15960 17116 proceeds sale property equipment 1460 44 acquisition business 1035 purchase sale investments 555 563 net 140 net cash used investing activities 9629 16388 17116 cash flows financing activities payments shortterm debt 24025 30133 31226 payments longterm debt 3854 11300 20893 dividends paid 1544 2332 3023 proceeds longterm debt 3575 32433 20000 proceeds shortterm debt 24025 32190 28890 purchase common stock 2173 proceeds exercise stock options tax benefit stock option exercises 55 4984 2135 net 205 net cash used provided financing activities 1563 25842 6290 net increase decrease cash equivalents 5740 7275 1330 cash equivalents beginning year 2452 8192 560 net decrease cash transition period notes 1 12 357 cash equivalents end year 8192 560 1890 supplemental cash flow information interest paid net capitalized interest 1900 2400 2000 income taxes paid 3900 9400 4600 accompanying notes integral part statements consolidated statements stockholders equity years ended august 31 1995 1996 1997 thousands except share data notes consolidated financial statements 1 summary significant accounting policies nature operations delta pine land company subsidiaries company breed produce condition market cotton soybean planting seed connection seed operations company farms approximately 2600 acres largely production cotton soybean foundation seed company annual agreements various growers produce seed cotton soybeans growers plant seed purchased company follow quality assurance procedures required seed production grower adheres established company quality assurance standards throughout growing season seed meets company quality standards upon harvest company may obligated purchase specified minimum quantities seed prices equal commodity market price seed plus grower premium company conditions seed sale planting seed basis presentation accompanying financial statements include accounts delta pine land company subsidiaries reported results 1995 1996 1997 include results operations arizona processing inc ellis brothers seed inc mississippi seed inc sure grow seed inc sure grow companies sure grow company merged may 1996 poolingofinterests transaction acquired companies fiscal year ending june 30 august 31 1996 fiscal year end acquired companies changed august 31 net loss twomonth transition period july 1 1996 august 31 1996 shown single line consolidated statements stockholders equity significant intercompany accounts transactions eliminated consolidation connection 1996 acquisitions sure grow companies hartz cotton inc see note 12 company recorded charges anticipated nonrecurring approximately 14 million 17 million transaction costs 1996 1997 respectively costs primarily include professional fees including costs related us department justice review sure grow acquisition included special charges unusual charges related acquisitions accompanying consolidated statements income 1997 dpl announced production cost optimization program aimed improve plant operating efficiencies company recorded 190 million charge fourth quarter estimated costs associated plan 115 million recorded component cost sales 75 million included special charges unusual charges related acquisitions special charge includes costs associated idling three plants write fixed assets plant consolidation costs associated phase certain products cash equivalents cash equivalents include overnight repurchase agreements shortterm investments original maturity less three months property plant equipment property plant equipment stated cost depreciation amortization provided financial reporting purposes using straightline method estimated useful lives assets accelerated methods used income tax purposes estimated useful lives various classes property years follows land improvements 520 buildings improvements 1035 machinery equipment 315 germplasm breeder foundation seed 1040 germplasm breeder foundation seed purchased part paymaster hartz acquisitions includes amounts specifically identified varieties breeding stocks amounts associated specific varieties amortized expected commercial life varieties breeding stocks amortized 40 years intangible assets deferred charges intangible assets consist trademarks patents intangible assets amortized using straightline method 5 40 years excess cost net assets businesses acquired amortized using straightline method 40 years organization costs foreign ventures amortized five years foreign currency translation financial statements foreign operations local currency functional currency translated using exchange rates effect period end assets liabilities average exchange rates period results operations financial statements foreign entities highlyinflationary economies translated though functional currency united states currency translation adjustments reported separate component stockholders equity gains losses foreign transactions included earnings income taxes company uses liability method accounting income taxes method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities measured using enacted tax rates laws fair value financial instruments fair value companys financial instruments august 31 1997 approximates carrying value revenue recognition domestic revenues sale planting seed less estimated reserves returns recognized seed shipped international revenues recognized upon later either seed shipped letters credit cleared revenues farm operations recognized time crops harvested sold costs incurred producing crops included inventory two events occur revenues commercialization agreements royalties recognized earned included net sales licensing fees revenues bollgard roundup ready licensing fees net estimated distributor dealer commissions recognized based number acres estimated planted seed shipped recorded sales royalties due licensors technology recorded cost sales research development research development costs incurred breed produce experimental seed expensed costs incurred produce sufficient quantities planting seed needed commercialization carried inventory seed sold cotton lint byproducts seed production also carried inventory sold derivative financial instruments company uses futures option contracts soybean hedging program effectively fix cost soybeans contracts accounted settlement basis net amounts paid received contracts included cost soybeans open futures contracts underlying soybean inventory marked market company terminate contracts prior expiration amount deferred losses associated soybean hedging program august 31 1997 material company speculate derivatives use estimates preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts income expenses reporting period actual results could differ estimates reclassifications certain 1995 1996 balances reclassified conform 1997 presentation implementation financial accounting standards statement financial accounting standards sfas 128 earnings per share issued effective interim annual periods ending december 15 1997 statement requires among things presentation basic earnings per share diluted earnings per share earlier adoption prohibited basic earnings per share excludes dilution computed dividing income available common stockholders weightedaverage number common shares outstanding period diluted earnings per share reflects potential dilution could occur securities contracts issue common stock exercised converted common stock resulted issuance common stock shared earnings entity diluted earnings per share computed similarly fully diluted earnings per share proforma effects accounting change years ended august 31 follows per share amounts 1995 1996 1997 primary eps reported 029 039 018 basic eps 029 040 018 fully diluted eps reported 029 039 017 diluted eps 029 039 017 sfas 130 reporting comprehensive income establishes new standards reporting comprehensive income components revenues expenses gains losses financial statements statement effective fiscal years beginning december 15 1997 company expect adoption sfas 130 material effect financial statements 2 inventories august 31 consisted following 1996 1997 finished goods 28634000 28114000 raw materials 13367000 16121000 growing crops 579000 300000 supplies 814000 876000 43394000 45411000 less reserves 1934000 2525000 41460000 42886000 substantially finished goods raw material inventory valued lower average cost market growing crops supplies recorded cost 3 property plant equipment property plant equipment august 31 consisted following special charge described note 1 includes pretax charge 3500000 record asset impairments conjunction optimization program amounts reflected table 4 notes payable longterm debt company available financial institution core commitment 50 million seasonal commitment 25 million core commitment longterm loan may borrowed upon time due january 1 2000 seasonal commitment working capital loan may drawn upon september 1 june 30 fiscal year expires january 1 2000 commitment offers variable fixed interest rate options requires company pay facility commitment fees comply certain financial covenants interest rate charged loan based libor plus 45 70 basis points depending achievement certain financial ratios combined average interest rate 65 61 1996 1997 respectively financial covenants require company maintain minimum tangible net worth amount less 200 million increased 50 net income fiscal year 31095000 august 31 1997 b allow ratio total liabilities tangible net worth defined exceed 225 1 c maintain cash flow coverage ratio least 2 1 august 31 1997 companys ratio total liabilities tangible net worth 24 10 exceeds permitted ratio lender waived compliance covenant 5 accrued expenses accrued expenses august 31 consisted following accrued special charges related optimization program include costs associated idling three plants plant consolidation costs associated certain terminated contracts 6 income taxes provisions income taxes years ended august 31 consisted following differences statutory federal income tax rate effective rate follows 1995 1996 1997 statutory rate 344 350 increases decreases tax resulting state taxes net federal tax benefit 31 20 research development tax credits 5 34 tax effects resulting acquisitions foreign activities 22 11 25 28 effective rate 381 356 286 components deferred income taxes august 31 follows deferred tax assets 1996 1997 inventory 1293000 1818000 charitable contributions 769000 403000 selfinsurance reserves 324000 550000 404000 298000 2790000 3069000 deferred tax liabilities deferred inventory 393000 property 2679000 2407000 intangibles 429000 590000 663000 648000 3771000 4038000 net deferred income taxes 981000 969000 7 leases company leases real estate machinery equipment used operations substantially rent expense recorded cost sales company capital leases future minimum rental payments 1997 operating leases initial remaining noncancellable terms excess one year follows 1998 131000 1999 128000 2000 95000 2001 60000 2002 12000 rent expense including land rent approximated 1288000 1382000 2265000 1995 1996 1997 respectively 8 employee benefit plans defined benefit plan substantially fulltime employees covered noncontributory defined benefit plan benefits paid employees beneficiaries upon retirement death disability based final average compensation highest consecutive five years plan assets consist primarily us government securities common stock managed independent portfolio manager companys funding policy make contributions plan least equal minimum amounts required funded accordance provisions erisa effective january 15 1992 company adopted supplemental executive retirement plan serp pay supplemental pension benefits certain employees whose benefits plan decreased result certain changes made plan benefits serp paid addition benefits participants may receive plan paid company assets plan assets annual cost serp 1995 1996 approximated 100000 cost 1997 approximated 60000 may 1995 company funded 250000 irrevocable trust established make payments serp participants serps unfunded accumulated benefit obligation june 30 1996 1997 216000 277000 respectively measurement plan serp assets obligations performed june 30 following sets forth plans serps funded status amounts recognized companys financial statements august 31 net periodic pension expense company contributions years ended august 31 follows actuarial present value projected benefit obligation plan serp determined using discount rate 75 1996 1997 assumed salary increases 4 1996 1997 expected longterm rate return assets 9 1996 1997 prior service cost amortized 15 years defined contribution plan dpl sponsors defined contribution plan section 401k internal revenue code covers substantially fulltime employees company option may elect make matching contributions plan matching contributions made 1995 1996 1997 9 major customers export sales foreign operations fiscal 1995 1996 1997 seed sales three customers related licensing fees ultimately billed farmers customers transgenic products comprised 10 total sales licensing fees approximate amount annual sales including technology fees customers follows international sales including export sales approximated 7100000 12600000 14900000 1995 1996 1997 respectively 10 related party transactions partner law firm represents company also stockholder serves corporate secretary company paid legal fees firm approximately 300000 575000 645000 1995 1996 1997 respectively 1995 1996 1997 director company provided consulting services associated development negotiation behalf company certain international joint ventures fees approximated 10000 6000 17000 1995 1996 1997 respectively company paid approximately 230000 1996 350000 1997 certain research projects conducted institute molecular agrobiology ima affiliate imagen holdings pte ltd director company also director ima 11 commitments contingencies august 1997 october 1997 numerous farmers filed arbitration claims company monsanto company monsanto state agencies primarily mississippi complainants allege roundup ready seed marketed company failed perform anticipated resulting deformed missing bolls assert substantial yield losses 1997 crops company monsanto presently investigating claims determine cause causes problems alleged pursuant terms roundup ready gene license seed services agreement roundup agreement dpl monsanto assumed responsibility defense claims pursuant roundup agreement monsanto contractually obligated defend indemnify company claims arising failure roundup ready glyphosate tolerance gene dpl right indemnification monsanto however claims involving defective varietal characteristics separate addition failure herbicidetolerance gene dpl believes claims resolved without material impact companys financial statements company monsanto third parties named defendants lawsuit filed district court falls county texas august 1996 another lawsuit filed october 1996 district court natchitoches parish louisiana second texas lawsuit brought 1996 settled 1997 material impact company financial statements two remaining cases plaintiffs allege among things dpls nucotn varieties contain monsantos bollgardtm gene perform farmers anticipated particular fully protect cotton crops certain lepidopteran insects pursuant terms bollgard gene license seed services agreement bollgard agreement dpl monsanto assumed responsibility defense claims failure bollgard gene subject duty defense monsanto prorata indemnification bollgard agreement applicable indemnity provisions bollgard agreement defense costs liability plaintiffs failure technology would apportioned 71 monsanto 29 dpl claims litigation concern failure monsantos express warranties relating insect resistance claims may within scope dpls indemnity obligation monsanto hand claims made litigation concern quality seed coat treatments varietal aspects nucotn involving failure performance bollgard gene express representations respect thereto therefore may within scope monsantos indemnity obligation dpl intends cooperate monsanto anticipated vigorous defense suits dpl believes suits resolved without material impact companys financial statements october 1996 mycogen plant science inc mycogen agrigenetics inc filed lawsuit us district court delaware naming dpl monsanto dekalb genetics defendants alleging two mycogens recently issued patents infringed defendants making selling licensing seed contains bollgard gene suit seeks injunctions alleged infringement compensatory damages treble damages attorneys fees court costs pursuant terms bollgard agreement monsanto required defend dpl patent infringement claims indemnify dpl damages patent infringement claims certain losses costs due monsantos obligation indemnify dpl company believes resolution matter material impact company financial statements corporation owned son companys former guatemalan distributor sued 1989 asserting company violated agreement granting another entity exclusive license certain areas central america southern mexico suit seeks damages 5300000 guatemalan quetzales approximately 900000 current exchange rates injunction preventing company distributing seed licensee region guatemalan court action proceeding twice declined approve injunction sought management believes resolution matter material impact company financial statements company continues offer seed sale guatemala company involved various claims arising normal course business management believes matters resolved without material effect companys financial position results operations july 18 1996 united states department justice antitrust division usdoj served civil investigative demand cid dpl seeking information documents connection investigation acquisition dpl stock arizona processing inc ellis brothers seed inc mississippi seed inc outstanding common stock sure grow seed inc cid states usdoj investigating whether transactions may violated provisions section 7 clayton act 15 usc ss 18 dpl responded cid employees examined usdoj dpl committed full cooperation usdoj present time ultimate outcome investigation cannot predicted 12 mergers acquisitions february 1996 company acquired hartz cotton inc monsanto company included cotton planting seed inventories germplasm breeding stocks trademarks trade names assets approximately 60 million consideration consisted primarily 800000 shares companys series convertible nonvoting preferred stock pro forma financial data presented impact acquisition accounted purchase material companys results operations period presented acquisition also included contingent consideration form rights receive 266667 shares companys series convertible nonvoting preferred stock certain unit sales levels hartz cotton seed achieved addition monsanto also right receive shares dpl common stock fiscal 2000 based gross profits earned september 1 1996 august 31 1999 sale varieties developed germplasm acquired company merged sure grow companies may 1996 poolingofinterests transaction valued approximately 700 million dpl exchanged approximately 28 million shares common stock subsequently registered december 1996 outstanding shares sure grow companies acquired companies fiscal year ending june 30 august 31 1996 fiscal year ends acquired companies changed august 31 following summarizes income statement data sure grow companies period beginning july 1 1996 ending august 31 1996 sales 574000 cost sales 1043000 operating expenses 207000 15000 net loss 691000 combined net loss 691000 transition period included separate item accompanying consolidated statements stockholders equity net change cash transition period decrease 357000 amount included single item accompanying consolidated statements cash flows 13 stockholders equity preferred stock board directors company authorized subject certain limitations prescribed law without stockholder approval issue aggregate 2000000 shares preferred stock one series determine alter designations preferences rights qualifications limitations restrictions shares series thereof including dividend rights dividend rates conversion rights voting rights terms redemption including sinking fund provisions redemption price prices liquidation preferences number shares constituting series designations series august 1996 board directors adopted stockholder rights plan declared dividend one preferred stock purchase right outstanding share companys common stock similar rights generally issued respect common stock subsequently issued right becomes exercisable upon occurrence certain events one onehundredth share series junior participating preferred stock 010 par value purchase price 175 per one onehundredth preferred share subject adjustment event company acquired merger business combination transaction approved board directors holder right shall right receive number shares common stock surviving company would market value two times exercise price right stockholder rights plan 429319 shares series junior participating preferred stock reserved rights currently exercisable person group acquires beneficial ownership 15 companys outstanding shares common stock rights expire august 30 2006 redeemable whole part companys option time price 001 per right company issued 800000 shares effect stock splits series convertible nonvoting preferred stock february 1996 consideration purchase hartz cotton inc monsanto holders series preferred stock entitled receive dividends rate per share paid time share common stock company declared board directors event liquidation dissolution winding company either voluntary involuntary holders series preferred stock shall entitled receive prior preference distribution holders common stock class security company 13936 per share series preferred stock series preferred stock convertible beginning upon seventh anniversary date series preferred stock issued occurrence specified events whichever occurs first stock option plans april 1993 board directors stockholders approved 1993 stock option plan options purchase 2560000 shares effect stock splits november 1997 common stock authorized option price less market price date grant october 17 1995 companys board directors adopted 1995 longterm incentive plan incentive plan pursuant stock options stock appreciation rights restricted shares common stock performance units may awarded officers key employees directors incentive plan 2560000 shares effect stock splits november 1997 common stock company available grant shares subject options awards expire unexercised available new option grants awards companys stockholders ratified adoption incentive plan 1996 annual meeting future members board directors receive automatic grants 62223 shares upon named board february 27 1997 stockholders amended plan provide additional one time grants 8444 shares february 1997 2667 year thereafter next five years directors company options exercisable ratably five years commencing one year date grant includes options 320000 shares effect stock splits granted members board directors june 1994 subject final stockholder approval 1995 annual meeting prior grant holders majority shares approved amendment 1993 stock option plan provided automatic grant options 53333 shares effect stock splits current future members board directors amendment formally approved 1995 annual stockholders meeting fiscal 1997 company adopted sfas 123 accounting stockbased compensation requires companies estimate fair value stock options date grant pronouncement requires company record estimated fair value stock options issued compensation expense income statements related service periods alternatively continue apply accounting methodologies prescribed accounting principles board apb opinion 25 accounting stock issued employees disclose pro forma effects estimated fair value stock options issued accompanying footnotes financial statements adopting pronouncement company elected continue follow accounting methodologies prescribed apb opinion 25 determination fair value required stock options issued beginning fiscal 1996 weighted average fair values options granted fiscal 1996 1997 502 1108 per share respectively proforma effects total compensation expense would recognized sfas 123 follows august 31 dollars thousands except per share data 1996 1997 net income reported 15237 6850 proforma net income 14857 4792 primary earnings per share reported 039 018 proforma earnings per share 038 012 adopting sfas 123 company utilized blackscholes option pricing model estimate fair value stock options granted using following assumptions 1996 1997 expected dividend yield 3 expected option lives 5 years 5 years expected volatility 3388 4723 4700 4870 riskfree interest rates 566 651 615 690 following table summarizes information stock options outstanding august 31 1997 common stock october 1995 board directors authorized 4 3 stock split common shares outstanding effected form dividend change par value per share distributed december 15 1995 stockholders record december 1 1995 march 1996 board directors authorized 3 2 stock split common preferred shares outstanding effected form dividend change par value per share distributed april 15 1996 stockholders record march 29 1996 february 1997 board directors authorized 4 3 stock split common preferred shares outstanding effected form dividend change par value per share distributed april 11 1997 stockholders record march 31 1997 october 1997 board directors authorized 4 3 stock split common preferred shares outstanding effected form dividend change par value per share distributed november 20 1997 stockholders record november 10 1997 stock splits described reflected accompanying financial statements treasury stock april 1997 board directors authorized stock repurchase plan 10 companys outstanding common stock august 31 1997 company purchased 114267 shares aggregate purchase price 2173000 14 unaudited quarterly financial data companys domestic seed products subject return credits vary year annual level returns ultimately net sales net income influenced various factors principally weather conditions occurring spring planting season spanning companys third fourth fiscal quarters company provides estimated returns sales made extent actual returns actual acreage planted seed containing bollgard roundup ready genes differ estimates adjustments companys operating results recorded differences become known significant returns occur accounted fiscal year end generally international sales subject return substantially company sales concentrated second third fiscal quarters result company generally incurs losses first fourth quarters management believes seasonality common throughout seed industry summarized unaudited quarterly financial data follows 1the sum quarterly net income loss per share amounts may equal annual amount reported since per share amounts computed independently quarter whereas annual earnings per share based annual weighted average shares deemed outstanding year 2after adjustment 4 3 stock split effected april 1997 4 3 stock split effected november 1997 3seed returns higher fourth quarter level returns anticipated end third quarter change accounting estimate returns recorded fourth quarter new provision returns greater amount sales recorded fourth quarter result reported net sales fourth quarter negative 4the fourth quarter includes effect recording 190 million special charge 115 million recorded cost sales 75 million recorded operating expenses related production cost optimization program item 9item 8 consolidated financial statements supplementary data index independent auditors report board directors delta pine land company audited accompanying consolidated balance sheet delta pine land company subsidiaries august 31 2002 related statements income changes stockholders equity comprehensive income cash flows year ended financial statements responsibility companys management responsibility express opinion financial statements based audit consolidated financial statements delta pine land company years ended august 31 2000 2001 audited auditors ceased operations auditors expressed unqualified opinion financial statements report dated october 26 2001 conducted audit accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion 2002 financial statements referred present fairly material respects financial position delta pine land company august 31 2002 results operations cash flows year ended conformity accounting principles generally accepted united states america kpmg llp memphis tennessee october 25 2002 report independent public accountants board directors shareholders delta pine land company audited accompanying consolidated balance sheets delta pine land company delaware corporation subsidiaries august 31 2000 2001 related consolidated statements income cash flows stockholders equity three years period ended august 31 2001 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position delta pine land company subsidiaries august 31 2000 2001 results operations cash flows three years period ended august 31 2001 conformity accounting principles generally accepted united states arthur andersen llp memphis tennessee october 26 2001 copy audit report previously issued arthur andersen llp connection delta pine land companys filing form 10k year ended august 31 2001 audit report reissued arthur andersen llp connection filing form 10k see exhibit 2302 discussion managements report dpl responsible preparing financial statements related information appearing report management believes financial statements present fairly dpls financial position results operations cash flows conformity accounting principles generally accepted united states preparing financial statements dpl required include amounts based estimates judgments believes reasonable circumstances dpl maintains accounting systems designed provide reasonable assurance financial records reliable purposes preparing financial statements assets properly accounted safeguarded compliance systems controls reviewed executive management accounting staff limitations exist internal control system recognizing systems cost exceed benefits derived board directors pursues responsibility dpls financial statements audit committee composed solely directors company officers employees audit committee meets least annually independent auditors management independent auditors direct access audit committee without presence management representatives delta pine land company subsidiaries consolidated statements income years ended august 31 thousands except per share amounts accompanying notes integral part consolidated statements delta pine land company subsidiaries consolidated balance sheets august 31 thousands except share per share amounts 2001 2002 assets current assets cash equivalents 114003 109091 receivables net 176177 145876 inventories 36745 40021 prepaid expenses 2138 2266 deferred income taxes 8674 11214 total current assets 337737 308468 property plant equipment net 62839 63401 excess cost net assets businesses acquired net accumulated amortization 772 737 4148 4187 intangibles net accumulated amortization 1118 1337 4383 4032 investment affiliate 695 assets 2414 2359 total assets 411521 383142 liabilities stockholders equity current liabilities notes payable 1629 1763 accounts payable 15279 16447 accrued expenses 175085 143533 income taxes payable 16048 12381 total current liabilities 208041 174124 longterm debt 2836 1176 deferred income taxes 4706 3121 commitments contingencies notes 9 16 minority interest subsidiaries 7530 2514 stockholders equity preferred stock par value 010 per share 2000000 shares authorized series junior participating preferred par value 010 per share 456989 shares authorized 107 shares issued outstanding series convertible nonvoting preferred par value 0l0 per share 1066667 shares authorized issued outstanding common stock par value 010 per share 100000000 shares authorized 39111233 39311571 shares issued 38543267 38204405 shares outstanding 3911 3931 capital excess par value 48406 51563 retained earnings 149923 172381 accumulated comprehensive loss 4063 5939 treasury stock cost 567966 1107166 shares 9876 19836 total stockholders equity 188408 202207 total liabilities stockholders equity 411521 383142 accompanying notes integral part consolidated balance sheets delta pine land company subsidiaries consolidated statements cash flows years ended august 31 thousands accompanying notes integral part consolidated statements delta pine land company consolidated statements changes stockholders equity years ended august 31 2000 2001 2002 thousands except per share data accompanying notes integral part consolidated statements notes consolidated financial statements 1 summary significant accounting policies nature operations delta pine land company subsidiaries company dpl breed produce condition market cotton soybean planting seed connection seed operations dpl farms approximately 2000 acres largely production cotton soybean foundation seed dpl annual agreements various growers produce seed cotton soybeans growers plant seed purchased dpl follow quality assurance procedures required seed production grower adheres established company quality assurance standards throughout growing season seed meets company quality standards upon harvest dpl may obligated purchase specified minimum quantities seed prices equal commodity market price seed plus grower premium dpl conditions seed sale planting seed basis presentation accompanying financial statements include accounts delta pine land company subsidiaries significant intercompany accounts transactions eliminated consolidation dpls investment 50owned affiliate deltamax cotton llc accounted using equity method special chargesunusual items august 2001 dpl announced series actions enhance dpls ability execute longterm growth plans improve performance profitability dpl closed chandler arizona facility reduced operations corporate staffs dpl recorded 63 million charge 30 million fixed asset write downs 33 million severance related benefits fourth quarter charge included special charges unusual income item accompanying consolidated statements income may 8 1998 dpl entered merger agreement monsanto pursuant dpl would merged monsanto december 20 1999 monsanto withdrew premerger notification filed pursuant hartscottrodino antitrust improvements act 1976 hsr act effectively terminating monsantos efforts gain government approval merger december 30 1999 dpl filed suit december 30 suit circuit court first judicial district bolivar county mississippi seeking among things payment 81 million termination fee due pursuant merger agreement compensatory damages punitive damages monsantos breach contract january 2 2000 dpl monsanto reached agreement whereby dpl would withdraw december 30 suit monsanto would immediately pay 81 million january 3 2000 monsanto paid dpl termination fee 81 million required merger agreement separately presented special charges unusual income item net related expenses accompanying consolidated statements income 1 march 31 2000 monsanto company consummated merger pharmacia upjohn inc changed name pharmacia corporation february 9 2000 monsanto company formed new subsidiary corporation monsanto ag company march 31 2000 changed name monsanto company august 31 2002 pharmacia distributed shareholders remaining interest new monsanto company document respect events occurring march 31 2000 term monsanto refers entity designated monsanto company renamed pharmacia corporation nyse pha date respect events occurring march 31 2000 entity referred pharmacia entity formed monsanto ag company renamed monsanto company nyse mon date referred monsanto august 31 2002 essentially amounts related fixed asset write downs 2001 reorganization utilized august 31 2001 essentially amounts related severance pay 2001 reorganization paid august 31 2001 reserves established 2000 1999 prior years matters fully utilized cash equivalents cash equivalents include overnight repurchase agreements shortterm investments original maturity less three months property plant equipment property plant equipment stated cost depreciation amortization provided financial reporting purposes using straightline method estimated useful lives assets accelerated methods used income tax purposes estimated useful lives various classes property years follows land improvements 520 buildings improvements 1035 machinery equipment 315 germplasm 1015 breeder foundation seed 40 germplasm breeder foundation seed purchased part acquisitions include amounts specifically identified varieties breeding stocks amounts associated specific varieties amortized expected commercial life varieties breeding stocks amortized 40 years since revitalized time remain viable indefinitely revitalization intangible assets deferred charges identifiable intangible assets consist trademarks patents intangible assets amortized using straightline method 5 40 years excess cost net assets businesses acquired amortized using straightline method 40 years september 1 2001 amortization discontinued discussed recently issued financial accounting standards foreign currency translation financial statements foreign operations local currency functional currency translated using exchange rates effect period end assets liabilities average exchange rates period results operations financial statements foreign entities highlyinflationary economies translated though functional currency united states currency translation adjustments reported separate component stockholders equity gains losses foreign currency transactions included earnings fair value financial instruments fair value dpls financial instruments august 31 2002 approximates carrying value income taxes dpl uses liability method accounting income taxes method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities measured using enacted tax rates laws revenue recognition revenues domestic seed sales recognized seed shipped revenues bollgard roundup ready licensing fees recognized seed shipped domestically licensing fees charged farmers bollgard roundup ready cottonseed based preestablished planting rates eight geographic regions consider estimated number seed contained bag may vary variety location grown factors international export revenues recognized upon later seed shipped date letters credit confirmed generally international export sales subject return generally international revenues sale planting seed less estimated reserves returns recognized seed shipped dpls domestic seed products including containing bollgard roundup ready technologies subject return credit risk effects vary year annual level returns ultimately net sales influenced various factors principally commodity prices weather conditions occurring spring planting season dpls third fourth quarters dpl provides estimated returns sales occur extent actual returns differ estimates adjustments dpls operating results recorded differences become known typically dpls fourth quarter significant returns occur accounted fiscal year end research development research development costs incurred breed produce experimental seed expensed costs incurred produce sufficient quantities planting seed needed commercialization carried inventory seed sold cotton lint byproducts seed production also carried inventory sold accounting stockbased compensation effective fiscal 1996 dpl adopted disclosure provisions statement financial accounting standard sfas 123 accounting stockbased compensation accordance provisions sfas 123 dpl applies accounting principles board opinion 25 related interpretations accounting employee stock option plans see note 17 summary pro forma effects reported net income earnings per share fiscal 2000 2001 2002 based fair value options shares granted prescribed sfas 123 derivative financial instruments dpl uses various derivative financial instruments mitigate risk variability cash flows related soybean purchases effectively fix cost significant portion soybean raw material inventory terms hedging derivatives used dpl negotiated approximate terms forecasted transaction therefore dpl expects instruments used hedging transactions highly effective offsetting changes cash flows hedged items realized unrealized hedging gains losses recorded component comprehensive income reclassified earnings period forecasted transaction affects earnings ie sold disposed generally occurs dpls second third fiscal quarters quantities hedged exceed forecasted transactions accounted cash flow hedges manner discussed however extent quantities hedged exceed forecasted transactions due intraseason changes sales forecast probable originally forecasted transaction longer occur dpl accounts gains losses derivative instruments discontinued cash flow hedges whereby immediately recorded component net income dpl enter derivative instruments extend beyond close following fiscal year impairment assets dpl assesses recoverability impairment intangible assets longlived assets whenever events changes circumstances indicate carrying amount may recoverable dpl determines unamortized balance recovered projected future operating cash flows sum expected future cash flows less carrying amount asset impairment loss recognized accordance sfas 121 accounting impairment longlived assets longlived assets disposed otherwise impairment loss recognized dpl continues amortize intangible assets based remaining estimated useful life use estimates preparation dpls consolidated financial statements requires use estimates assumptions affect reported amounts assets liabilities reported amounts revenues expenses disclosure contingent liabilities management makes best estimate ultimate outcome items based historical trends information available financial statements prepared changes estimates recognized accordance accounting rules estimate typically period new information becomes available management areas nature estimate makes reasonably possible actual results could materially differ amounts estimated include damaged obsolete excess inventory income tax liabilities allowances sales returns marketing programs contingent liabilities recently issued financial accounting standards statement financial accounting standards sfas 145 accounting costs associated exit disposal activities addresses financial accounting reporting costs associated exit disposal activities statement effective exit disposal activities initiated december 31 2002 early application encouraged therefore dpl must adopt statement later january 1 2003 management determined impact statement consolidated financial position results operations sfas 144 accounting impairment disposal longlived assets addresses financial accounting reporting impairment disposal longlived assets statement effective fiscal years beginning december 15 2001 interim periods within fiscal years therefore dpl adopted statement september 1 2002 adoption statement material impact dpls consolidated financial position results operations sfas 143 accounting asset retirement obligations addresses financial accounting reporting obligations associated retirement tangible longlived assets associated asset retirement costs statement effective fiscal years beginning june 15 2002 therefore dpl adopted statement september 1 2002 adoption statement material impact dpls consolidated financial position results operations sfas 142 goodwill intangible assets addresses financial accounting reporting acquired goodwill intangible assets effective september 1 2001 dpl adopted sfas 142 time goodwill amortization ceased fiscal 2002 goodwill amortization would approximately 160000 second quarter fiscal 2002 recorded goodwill attributable domestic segment tested impairment comparing implied fair value carrying value based managements initial impairment test management determined none goodwill recorded impaired impairment adjustments recognized adoption generally required recognized operating expenses excess cost net assets business acquired august 31 2001 august 31 2002 4148000 4187000 respectively sfas 141 business combinations sets forth guidelines applying purchase method accounting determination intangible assets including goodwill acquired business combination expands financial disclosures concerning business combinations consummated june 1 2001 application sfas 141 affect dpls previously reported amounts goodwill intangible assets 2 inventories august 31 consisted following 2001 2002 finished goods 31835000 26263000 raw materials 12515000 20961000 growing crops 2218000 878000 supplies 1162000 1141000 47730000 49243000 less reserves 10985000 9222000 36745000 40021000 finished goods raw material inventory valued lower average cost market growing crops supplies recorded cost inventory reserves relate estimated excess obsolete inventory 3 property plant equipment property plant equipment august 31 consisted following 2001 2002 land improvements 4284000 5038000 buildings improvements 38777000 37117000 machinery equipment 48279000 52565000 germplasm 7500000 breeder foundation seed 2000000 construction progress 1529000 4478000 102369000 108698000 less accumulated depreciation 39530000 45297000 62839000 63401000 4 intangibles connection adopting sfas 142 dpl reassessed useful lives classification identifiable intangible assets determined continue appropriate components identifiable intangible assets follow thousands amortization expense identifiable intangible assets year ended august 31 2002 approximately 280000 identifiable intangible asset amortization expense estimated 250000 fiscal years fiscal 2003 fiscal 2007 pro forma results operations years ended august 31 2000 2001 applied nonamortization provisions sfas 142 periods would materially different reported results periods 5 investment affiliate dpls investment affiliate consists 50 interest deltamax cotton llc deltamax limited liability company jointly owned verdia inc formerly known maxyag inc whollyowned subsidiary maxygen inc established may 22 2002 deltamax joint venture formed create develop commercialize herbicide tolerant insect resistant traits cotton seed market dpl licensed deltamax developed traits commercialization us cottonproducing countries world august 31 2002 dpls equity net loss deltamax 305000 6 notes payable longterm debt dpl syndicated credit facility three financial institutions provided aggregate unsecured borrowings 110 million comprised base commitment 55 million seasonal commitment 55 million base commitment longterm loan could borrowed upon time due april 1 2001 seasonal commitment working capital loan could drawn upon september 1 june 30 fiscal year expired april 1 2001 commitment offered variable fixed interest rate options required dpl pay facility commitment fees comply certain financial covenants interest rate charged loan based libor plus 35 55 basis points depending achievement certain financial ratios average interest rate 726 534 2000 2001 respectively financial covenants required dpl maintain ratio total liabilities tangible net worth august 31 less equal 225 1 40 10 dpls fiscal quarter ends b maintain fixed charge coverage ratio end quarter greater equal 20 10 c maintain times tangible net worth less sum 40 million plus ii 50 net income losses determined last day fiscal year commencing august 31 1998 agreement expired april 1 2001 august 31 2000 2001 2002 dpl compliance covenants dpl lenders currently negotiating replacement facility provide aggregate borrowings sufficient meet working capital needs contain terms conditions similar 1998 facility 7 accrued expenses accrued expenses august 31 consisted following 2001 2002 bollgard roundup ready royalties related expenses due monsanto 133956000 112178000 sales allowances 16383000 10447000 payroll 4162000 2310000 accrued expenses 20584000 18598000 175085000 143533000 8 income taxes provisions income taxes years ended august 31 consisted following differences statutory federal income tax rate effective rate follows deferred income taxes august 31 consisted following 2001 2002 deferred tax assets inventory 4098000 5660000 litigation costs 1635000 1946000 pension 460000 1447000 3358000 2988000 9551000 12041000 deferred tax liabilities property 5034000 1225000 549000 2723000 5583000 3948000 net deferred income taxes 3968000 8093000 company provided income taxes undistributed earnings foreign subsidiaries distributed cases earnings planned permanently reinvested outside united states 9 leases dpl leases portion real estate machinery equipment used operations substantially rent expense recorded cost sales dpl capital leases future minimum rental payments 2002 operating leases initial remaining noncancellable terms excess one year follows 2003 364000 2004 79000 2005 29000 2006 29000 2007 8000 rent lease expense including land rent approximated 3354000 2993000 2704000 2000 2001 2002 respectively 10 employee benefit plans defined benefit plan substantially fulltime employees covered noncontributory defined benefit plan benefits paid employees beneficiaries upon retirement death disability based final average compensation highest consecutive five years plan assets consist primarily us government securities common stock managed independent portfolio manager dpls funding policy make contributions plan least equal minimum amounts required funded accordance provisions erisa effective january 1992 dpl adopted supplemental executive retirement plan serp pay supplemental pension benefits certain employees whose benefits plan decreased result certain changes made plan benefits serp paid addition benefits participants may receive plan paid company assets plan assets dpl adopted sfas 132 employers disclosures pensions postretirement benefits measurement plan serp assets obligations performed june 30 following table provides reconciliation changes plans serps benefit obligations fair value assets twoyear period ended august 31 2002 statement funded status august 31 2001 2002 periodic pension expense actuarial present value projected benefit obligation plan serp determined using discount rate 725 2001 700 2002 assumed salary increases 4 2001 2002 age 65 expected longterm rate return assets 9 2001 2002 prior service cost amortized 15 years defined contribution plan dpl sponsors defined contribution plan section 401k internal revenue code covers substantially fulltime employees dpl option may elect make matching contributions plan matching contributions made 2000 2001 2002 11 major customers fiscal 2000 2001 2002 seed sales three customers related licensing fees ultimately billed farmers sales made customers transgenic products comprised 10 total sales licensing fees table presents approximate amount annual sales including technology fees customers amounts reported dpls domestic segment customer 2000 2001 2002 34246000 31833000 29034000 b 51938000 54937000 46752000 c 69951000 72358000 56532000 12 business segment information dpl single line business operates two business segments domestic international dpls reportable segments offer similar products however business units managed separately due geographic dispersion operations dpl breeds produces conditions markets proprietary varieties cotton soybean planting seed united states international segment offers cottonseed several foreign countries export sales incountry operations dpl develops proprietary seed products research development efforts united states certain foreign countries dpls chief operating decision maker utilizes revenue information assessing performance making overall operating decisions resource allocations profit loss information reported segment chief operating decision maker dpls board directors accounting policies segments substantially described summary significant accounting policies information dpls segments years ended august 31 follows thousands information financial position dpls segments august 31 follows thousands 2001 2002 longterm assets domestic 60215 60004 international 13569 14670 73784 74674 total assets domestic 382879 368345 international 28642 14797 411521 383142 13 related party transactions chairman board directors dpl also director officer stephens group inc stephens inc full service investment bank stephens group inc stephens inc stockholders dpl 2002 dpl paid consulting fees stephens inc approximately 306000 2000 2001 2002 partner two law firms changed firms represented dpl also stockholder dpls corporate secretary dpl paid legal fees firms approximately 943000 833000 628000 2000 2001 2002 respectively 2000 2001 2002 institute molecular agrobiology ima owned national university singapore national science technology board singapore conducted contract research upon dpls instruction related development certain technologies varietal crops cotton soybeans dpl paid approximately 296000 406000 249000 2000 2001 2002 respectively research projects dr chua member board directors dpl chairman management board directors ima september 2000 deputy chairman time september 2001 also chairman board affiliate ima imagen august 2001 imagen together singapore bioinnovations pte ltd stic investments pte ltd ocbc wearnes walden investments pte ltd 20 stock dpl china pte ltd 14 derivative financial instruments august 31 2001 august 31 2002 net unrealized gains 210000 304000 related soybean hedging activities recorded component comprehensive income respectively net unrealized losses 631000 222000 arose twelve months ended august 31 2001 august 31 2002 respectively reclassification adjustments comprehensive income net losses realized net income 841000 316000 made years ended august 31 2001 august 31 2002 respectively net unrealized gains 304000 remain comprehensive income august 31 2002 recognized earnings within next twelve months however actual amount charged earnings may vary result changes market conditions foreign currency forward exchange contracts outstanding august 31 2002 years ended august 31 2001 august 31 2002 dpl recorded gains losses earnings result hedge ineffectiveness discontinuance cash flow hedges 15 acquisition dm international llc may 28 2002 dpl acquired 50 interest dm international llc pharmacia cash approximately 48 million dpl monsanto formed dm international llc 1995 introduce cotton planting seed international markets combining dpls acid delinting technology elite germplasm monsantos bollgard roundup ready gene technologies april 2002 pharmacia activated cross purchase provision operating agreement dm international llc dpl notified pharmacia elected dm international llc redeem pharmacias 50 interest company result redemption pharmacias interest dpl owns dm international llc acquisition 50 interest dm international llc accounted purchase results operations earnings losses previously allocated minority owner included date acquisition preliminary allocation purchase price resulted goodwill complete allocation purchase price fair values international joint ventures comprise primary assets dm international llc determined pro forma results operations years ended august 31 2000 2001 2002 acquisition occurred beginning periods would materially different reported results periods 16 commitments contingencies product liability claims dpl named defendant various lawsuits allege among things certain dpls products including monsantos technology perform farmer anticipated expected many suits monsanto cases distributiondealer sold seed also named cases seed sold contained either monsantos bollgard roundup ready gene technologies dpl tendered defense cases monsanto requested indemnity pursuant terms bollgard gene license seed services agreement dated february 2 1996 amended december 8 1999 bollgard agreement roundup ready gene license seed services agreement dated february 2 1996 amended july 26 1996 december 8 1999 roundup ready agreement dpl right contractually indemnified monsanto claims arising failure monsantos gene technology pharmacia remains liable monsantos performance indemnity agreements product liability lawsuits contain varietal claims aimed solely dpl right indemnification however monsanto claims involving varietal characteristics separate addition failure monsanto technology dpl believes resolution matters material impact consolidated financial statements dpl intends vigorously defend matters july 2002 syngenta biotechnology inc sbi brought suit us district court delaware alleging dpls making using selling offering sell cotton planting seed containing monsantos bt genes sold trade name bollgard infringes us patent 6051757 entitled regeneration plants containing genetically engineered tdna suit seeks preliminary permanent injunction dpl monsanto acts alleged infringement contributory infringement inducement infringement sbis patent recovery damages unspecified amount including treble damages account defendants alleged willful infringement dpl demanded pharmacia monsanto agree defend dpl suit indemnify dpl damages may awarded monsanto assumed defense dpl filed answer generally denying infringement claims made litigation dpl assisting monsanto extent reasonably necessary conduct litigation due recent nature suit management determined effect litigation dpl may 2002 pharmacia corporation filed suit state court missouri dpl international technology corp ditc dpls subsidiary seeking declaratory judgment entitled invoke cross purchase provision operating agreement dm international llc limited liability company jointly owned pharmacia ditc alternative pharmacia sought declaratory judgment ditc deemed consented pharmacias transfer operating agreement monsanto issuance transfer shares monsantos stock ditc moved dismiss june 6 2002 case moot present justiciable controversy ditc already invoked rights cross purchase provision caused pharmacias interest dm international llc redeemed instead answering ditcs motion june 13 2002 pharmacia filed amended petition dropping prior claims seeking declaratory judgment ditc contractual rights enjoin pharmacia selling shares monsanto seek damages pharmacias prior initial public offering monsantos shares public ditc moved dismiss suit since never threatened enjoin spinoff alternative moved definite statement october 12 2002 court denied ditcs motion dismiss granted ditcs motion definite statement pharmacia filed second amended petition october 30 2002 ditc filed motion dismiss second amended petition november 19 2002 given relief sought dpl believe litigation material effect dpl may 15 2000 several farmers seller farm supplies filed suit united states district court northern district alabama monsanto dpl dm international llc limited liability company jointly owned monsanto dpl federal antitrust laws requested class certification plaintiffs claim defendants 1 unlawfully attempted monopolize us cottonseed herbicide market violation ss 2 sherman act 2 monopolized us cottonseed herbicide market violation ss 2 sherman act 3 conspired unreasonably restrain trade us cottonseed herbicide market violation ss 1 sherman act 4 engaged unlawful tying cottonseed herbicide violation ss 3 clayton act plaintiffs demand unspecified antitrust damages including treble compensatory damages plus costs litigation including attorneys fees july 2000 dpl answered complaint october 2000 moved dismissal action ground plaintiffs failed allege conduct action dpl violates federal antitrust laws december 6 2001 united states district judge acting recommendation magistrate judge granted monsantos dpls motions dismiss complaint without prejudice plaintiffs granted 30 days district courts order file amended complaint january 7 2002 plaintiffs filed amended complaint monsanto dpl however plaintiffs assert amended complaint claims dm international llc dpl monsanto moved dismiss complaint court granted motion part denied part may 30 2002 dpl filed answer november 1 2002 court granted monsantos dpls motion bifurcate discovery process limited discovery class certification issues followed discovery merits november 14 2002 court granted plaintiffs motion voluntary dismissal claims brought behalf direct purchasers court also dismissed counts 1 2 amended complaint alleged unlawful monopolization cottonseed herbicide markets remaining claim brought behalf indirect purchasers relates allegations unlawful tying cottonseed herbicide plaintiffs march 15 2003 file class certification motion december 1999 mycogen plant science inc mycogen filed suit federal court australia alleging monsanto australia ltd monsantos whollyowned australian subsidiary deltapine australia pty ltd dpls whollyowned australian subsidiary infringing two mycogens australian patents making selling licensing cotton planting seed expressing insect resistance suit seeks injunction continued sale seed containing monsantos ingardr gene recovery unspecified amount damages litigation currently discovery pretrial proceedings consistent commitments monsanto agreed defend dpl suit indemnify dpl damages awarded monsanto providing separate defense counsel dpl assisting monsanto extent reasonably necessary corporation owned son dpls former guatemalan distributor sued 1989 asserting dpl violated agreement granting another entity exclusive license certain areas central america southern mexico suit seeks damages 5292459 guatemalan quetzales approximately 715265 october 31 2002 exchange rates injunction preventing dpl distributing seed licensee region guatemalan court action proceeding twice declined approve injunction sought dpl continues make available seed sale guatemala 17 stockholders equity preferred stock board directors dpl authorized subject certain limitations prescribed law without stockholder approval issue aggregate 2000000 shares preferred stock one series determine alter designations preferences rights qualifications limitations restrictions shares series thereof including dividend rights dividend rates conversion rights voting rights terms redemption including sinking fund provisions redemption price prices liquidation preferences number shares constituting series designations series august 1996 board directors adopted stockholder rights plan rights plan declared dividend one preferred stock purchase right outstanding share dpls common stock similar rights generally issued respect common stock subsequently issued right becomes exercisable upon occurrence certain events one onehundredth share series junior participating preferred stock 010 par value purchase price 175 per one onehundredth preferred share subject adjustment event dpl acquired merger business combination transaction approved board directors holder right shall right receive number shares common stock surviving company would market value two times exercise price right board directors previously approved monsanto merger modified rights plan deactivate merger upon merger termination board rescinded deactivation rights plan 456989 shares series junior participating preferred stock reserved rights currently exercisable person group acquires beneficial ownership 15 dpls outstanding shares common stock rights expire august 30 2006 redeemable whole part dpls option time price 001 per right dpl issued 1066667 shares effect stock splits series convertible nonvoting preferred stock consideration purchase 1996 hartz cotton inc monsanto holders series preferred stock entitled receive dividends rate per share paid time share common stock dpl declared board directors event liquidation dissolution winding dpl either voluntary involuntary holders series preferred stock shall entitled receive prior preference distribution holders common stock class security dpl 13936 per share series preferred stock series preferred stock convertible beginning upon seventh anniversary date series preferred stock issued occurrence specified events whichever occurs first stock option plans 1993 stock option plan authorized options purchase 2560000 shares effect stock splits common stock option price less market price date grant 1995 longterm incentive plan amended restated march 2000 ltip allows awarding stock options officers key employees directors amended restated 1995 plan eliminates ability board directors award stock appreciation rights restricted shares common stock performance unit credits ltip 5120000 shares effect stock splits common stock dpl available grant shares subject options awards expire unexercised available new option grants awards new members board directors receive automatic grants 62222 shares upon named board director given additional annual grant 2666 shares second sixth years director serves grants began 1998 march 30 2000 annual meeting board directors agreed grant options director 80000 shares dpl common stock options exercisable ratably five years commencing one year date grant additional information regarding options granted outstanding summarized stock options number shares price range outstanding august 31 1999 3142957 467 4931 granted 1785443 1691 1981 exercised 281160 467 2682 lapsed canceled 209620 1069 4856 outstanding august 31 2000 4437620 467 4931 granted 84218 2368 2519 exercised 165508 467 2236 lapsed canceled 300370 1571 4931 outstanding august 31 2001 4055960 467 4931 granted 682496 1785 2047 exercised 200338 467 1962 lapsed canceled 500299 1691 4931 outstanding august 31 2002 4037819 467 4731 dpl applies accounting principles board opinion 25 accounting employee stock option plans therefore compensation cost stock options deducted determining net income sfas 123 elected would require estimated fair value options granted fiscal 1996 thereafter amortized expense options vesting period compensation cost calculated manner dpls pro forma net income net earnings per share would follows weighted average fair values options granted fiscal 2000 2001 2002 961 1041 649 per share respectively fair value options estimated date grant using blackscholes option pricing model following assumptions following table summarizes certain information outstanding exercisable stock options august 31 2002 treasury stock february 2000 board directors authorized program repurchase 50 million dpls common stock shares repurchased program used provide option exercises conversion dpls series convertible nonvoting preferred shares general corporate purposes august 31 2002 dpl repurchased 992900 shares aggregate purchase price approximately 17663000 program dpl purchased 539200 shares aggregate purchase price 9960000 plan year ended august 31 2002 september 1 2002 october 25 2002 dpl repurchased 61400 shares aggregate purchase price 11 million earnings per share dilutive common share equivalents consist dpls series convertible nonvoting preferred shares outstanding stock options dpls 1993 stock option plan 1995 longterm incentive plan approximately 781000 748000 2259000 outstanding stock options included computation diluted earnings per share years ended august 31 2000 2001 2002 respectively effect exercise dilutive based average market price dpls common stock respective reporting period table reconciles basic diluted per share computations income cumulative effect change accounting principle 18 unaudited quarterly financial data dpls domestic seed products subject return credit risks effects vary year annual level returns ultimately net sales net income influenced various factors principally weather conditions occurring spring planting season spanning dpls third fourth fiscal quarters dpl provides estimated returns sales made extent actual returns differ estimates adjustments dpls operating results recorded differences become known typically dpls fourth quarter significant returns occur accounted fiscal year end generally international sales subject return substantial portion company sales concentrated second third fiscal quarters result dpl generally expects incur losses first fourth quarters management believes seasonality common throughout seed industry summarized unaudited quarterly financial data follows thousands except per share data item 9 nannannannanitem 15 exhibits financial statement schedules reports form 8k 1 financial statements following consolidated financial statements delta pine land company subsidiaries submitted response part ii item 8 independent auditors report independent public accountants consolidated statements income three years period ended august 31 2003 consolidated balance sheets august 31 2003 2002 consolidated statements cash flows three years period ended august 31 2003 consolidated statements changes stockholders equity comprehensive income three years period ended august 31 2003 notes consolidated financial statements 2 financial statement schedule following financial statement schedule delta pine land company subsidiaries submitted response part iv item 15 independent auditors report53 report independent public accountants54 schedule ii consolidated valuation qualifying accounts55 schedules omitted required applicable data included financial statements 3 exhibits annual report delta pine land company filed herewith listed page 56 4 reports form 8k september 12 2003 dpl filed report form 8k dated september 12 2003 items 5 7 announcing press release dated september 12 2003 announcing court action lawsuit monsanto company october 28 2003 dpl filed report form 8k dated october 28 2003 items 7 12 announcing press release dated october 28 2003 reporting results operations financial condition quarter twelve months ended august 31 2003 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized november 26 2003 delta pine land company registrant jon em jacoby november 26 2003 jon e jacoby chairman board pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date w thomas jagodinski president chief executive november 26 2003 officer director w thomas jagodinski principal executive officer rd greene vice president finance november 26 2003 treasurer assistant secretary r greene principal financial accounting officer f murray robinson vice chairman director november 26 2003 f murray robinson stanley p roth vice chairman director november 26 2003 stanley p roth namhai chua director november 26 2003 namhai chua joseph murphy director november 26 2003 joseph murphy rudi e scheidt director november 26 2003 rudi e scheidt independent auditors report board directors delta pine land company audited accordance auditing standards generally accepted united states 2003 financial statements delta pine land company included form 10k audits made purpose forming opinion basic financial statements taken whole schedule listed index part iv item 15a2 responsibility companys management presented purposes complying securities exchange commissions rules part basic financial statements schedule subjected auditing procedures applied audits basic 2003 2002 financial statements opinion fairly states material respects financial data required set forth therein relation basic 2003 2002 financial statements taken whole kpmg llp memphis tennessee october 24 2003 report independent public accountants delta pine land company audited accordance auditing standards generally accepted united states financial statements delta pine land company included form 10k audits made purpose forming opinion basic financial statements taken whole schedule listed index part iv item 14a2 responsibility companys management presented purposes complying securities exchange commissions rules part basic financial statements schedule subjected auditing procedures applied audit basic financial statements opinion fairly states material respects financial data required set forth therein relation basic financial statements taken whole arthur andersen llp memphis tennessee october 26 2001 copy audit report previously issued arthur andersen llp connection delta pine land companys filing form 10k year ended august 31 2001 audit report reissued arthur andersen llp connection filing form 10k see exhibit 2302 discussion schedule ii delta pine land company subsidiaries consolidated valuation qualifying accounts index exhibits annual report form 10k year ended august 31 2003 delta pine land company exhibits1 description 201 agreement plan merger dated may 8 1998 monsanto company delta pine land company 2 202 termination option agreement dated may 8 1998 monsanto company delta pine land company 2 301 restated certificate incorporation registrant dated june 11 1993 302 amended restated bylaws registrant dated april 26 1993 401 certificate designation convertible preferred stock delta pine land company 3 402 specimen certificate representing common stock par value 10 per share 403 letter registrant john hancock mutual life insurance company regarding certain registration rights dated june 28 1993 404 rights agreement dated august 13 1996 delta pine land company harris trust savings bank including form right certificate related form election purchase exhibit summary rights purchase preferred shares exhibit b 4 405 amendment 1 rights agreement dated may 8 1998 delta pine land company harris trust savings bank 2 406 amendment 2 rights agreement dated may 8 1998 delta pine land company harris trust savings bank 14 407 certificate designations rights privileges shares junior participating preferred stock created august 13 1996 filed pursuant section 151 delaware general corporation law 4 1001 incentive bonus program 6 1002 delta pine land company retirement plan amended restated january 1 1997 amended amendment 1 dated october 23 2002 amendment nos 2 3 dated december 20 2002 15 1003 supplemental executive retirement plan dated may 22 1992 effective january 1 1992 6 1004 1993 stock option plan registrant adopted june 11 1993 16 1005 asset purchase agreement delta pine land company cargill inc dated may 2 1994 8 1006 delta pine land company savings plan wells fargo bank texas na defined contribution master plan trust agreement adoption agreement dated december 23 2002 egtrra amendment wells fargo bank texas na defined contribution master plan trust agreement dated november 1 2001 postegtrra amendment wells fargo bank texas na defined contribution master plan trust agreement dated september 11 2003 15 1007 hartz cotton acquisition agreement dated february 2 1996 among monsanto company monsanto hartz cotton inc hartz cotton delta pine land company paymaster technology corp ptc 3 1008 trademark license agreement dated february 2 1996 monsanto dpl 3 1009 registration rights agreement dpl monsanto dated february 2 1996 3 1010 temporary services agreement dated february 2 1996 monsanto dpl ptc 3 1011 research facility lease option purchase dated february 2 1996 monsanto ptc 3 1012 greenhouse lease dated february 2 1996 monsanto ptc 3 1013 research agreement dated february 2 1996 monsanto ptc 3 1014 partnership agreement dated february 2 1996 dpl monsanto3 1015 marketing services agreement dated february 2 1996 dpl monsanto dm partners 3 1016 bollgard gene license seed services agreement dated february 2 1996 monsanto dm partners dpl 3 1017 roundup ready gene license seed services agreement dated february 2 1996 monsanto dm partners dpl 3 1018 option agreement dated february 2 1996 monsanto dpl 36 1019 agreement dpl companies sure grow companies sure grow shareholders sure grow principals dated may 20 1996 9 1020 amended restated delta pine land company 1995 longterm incentive plan adopted february 6 1996 615 1021 amendment agreements dated december 8 1999 monsanto company registrant dm partners partnership monsanto dpl paymaster technology corp 12 1022 dm international operating agreement march 10 1995 delta pine land company whollyowned subsidiary dpl international technology corp monsanto company 13 1023 bollgard ii gene license seed services agreement dated december 11 2000 11 1024 roundup ready soybean license seed services agreement amended restated licensee incentive agreement 11 1025 bollgard gene license agreement monsanto company delta pine land company dpl international technology corp dm international amendment 10 1026 redemption agreement dated may 28 2002 among dm international llc dpl international technology corp pharmacia corporation solely purposes section 12c articles ii iii hereof monsanto company solely purposes section 32 hereof delta pine land company 10 1027 amendment bollgard gene license seed services agreement february 2 1996 dated march 26 2003 15 1028 amendment roundup ready gene license seed services agreement february 2 1996 dated march 26 2003 15 1400 delta pine land company code business conduct ethics 15 1600 letter arthur andersen llp securities exchange commission dated may 14 2002 regarding change certifying accountant 5 2101 subsidiaries registrant 15 2301 independent auditors consent 15 2302 notice regarding consent arthur andersen llp 15 3101 section 302 certification principal executive officer 15 3102 section 302 certification principal financial officer 15 3201 certification periodic financial report pursuant 18 usc section 1350 principal executive officer 15 3202 certification periodic financial report pursuant 18 usc section 1350 principal financial accounting officer 15 1 incorporated reference registration statement form s1 file 3361568 filed june 29 1993 except otherwise noted herein 2 incorporated reference form 8k filed may 14 1998 3 incorporated reference form 8k file 00014136 filed february 19 1996 4 incorporated reference form 8a file 00021293filed september 3 1996 5 incorporated reference form 8k filed may 17 2002 6 represents management contract compensatory plan 7 incorporated reference form 10q file 00021788filed july 14 8 incorporated reference form 8k filed may 16 1994 9 incorporated reference form 8k file 00021788 filed june 4 10 incorporated reference form 10k filed november 25 2002 11 incorporated reference form 10k filed november 29 2001 12 incorporated reference form 8k filed may 18 2000 13 incorporated reference form 8k filed september 14 2000 14 incorporated reference form 10k filed november 24 1998 15 filed herewithitem 15 exhibits financial statement schedules reports form 8k 1 financial statements following consolidated financial statements delta pine land company subsidiaries submitted response part ii item 8 report independent registered public accounting firm consolidated statements income three years period ended august 31 2004 consolidated balance sheets august 31 2004 2003 consolidated statements cash flows three years period ended august 31 2004 consolidated statements changes stockholders equity comprehensive income three years period ended august 31 2004 notes consolidated financial statements 2 financial statement schedule following financial statement schedule delta pine land company subsidiaries submitted response part iv item 15 report independent registered public accounting firm 57 schedule ii consolidated valuation qualifying accounts58 schedules omitted required applicable data included financial statements 3 exhibits annual report delta pine land company filed herewith listed page 59 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized november 15 2004 delta pine land company registrant jon e jacoby november 15 2004 jon e jacoby chairman board pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date w thomas jagodinski president chief executive officer november 15 2004 director w thomas jagodinski principal executive officer r greene vice president finance november 15 2004 treasurer assistant secretary r greene principal financial accounting officer f murray robinson vice chairman director november 15 2004 f murray robinson stanley p roth vice chairman director november 15 2004 stanley p roth namhai chua director november 15 2004 namhai chua joseph murphy director november 15 2004 joseph murphy rudi e scheidt director november 15 2004 rudi e scheidt report independent registered public accounting firm board directors stockholders delta pine land company date october 25 2004 reported consolidated balance sheets delta pine land company subsidiaries company august 31 2004 2003 related consolidated statements income stockholders equity comprehensive income cash flows years threeyear period ended august 31 2004 included form 10k connection audits aforementioned consolidated financial statements also audited related consolidated financial statement schedules listed part iv item 15a2 financial statement schedules responsibility companys management responsibility express opinion financial statement schedules based audits opinion financial statement schedules considered relation basic consolidated financial statements taken whole present fairly material respects information set forth therein kpmg llp memphis tennessee october 25 2004 schedule ii delta pine land company subsidiaries consolidated valuation qualifying accounts index exhibits annual report form 10k year ended august 31 2004 delta pine land company exhibits1 description 201 agreement plan merger dated may 8 1998 monsanto company delta pine land company 2 202 termination option agreement dated may 8 1998 monsanto company delta pine land company 2 301 restated certificate incorporation registrant dated june 11 1993 302 amended restated bylaws registrant dated april 26 1993 401 certificate designation convertible preferred stock delta pine land company 3 402 specimen certificate representing common stock par value 10 per share 403 reserved 404 rights agreement dated august 13 1996 delta pine land company harris trust savings bank including form right certificate related form election purchase exhibit summary rights purchase preferred shares exhibit b 4 405 amendment 1 rights agreement dated may 8 1998 delta pine land company harris trust savings bank 2 406 amendment 2 rights agreement dated may 8 1998 delta pine land company harris trust savings bank 14 407 certificate designations rights privileges shares junior participating preferred stock created august 13 1996 filed pursuant section 151 delaware general corporation law 4 1001 incentive bonus program 16 1002 delta pine land company retirement plan amended restated january 1 1997 amended amendment 1 dated october 23 2002 amendment nos 2 3 dated december 20 2002 15 1003 supplemental executive retirement plan dated may 22 1992 effective january 1 1992 16 1004 1993 stock option plan registrant adopted june 11 1993 16 1005 asset purchase agreement delta pine land company cargill inc dated may 2 1994 8 1006 delta pine land company savings plan wells fargo bank texas na defined contribution master plan trust agreement adoption agreement dated december 23 2002 egtrra amendment wells fargo bank texas na defined contribution master plan trust agreement dated november 1 2001 postegtrra amendment wells fargo bank texas na defined contribution master plan trust agreement dated september 11 2003 15 1007 hartz cotton acquisition agreement dated february 2 1996 among monsanto company monsanto hartz cotton inc hartz cotton delta pine land company paymaster technology corp ptc 3 1008 trademark license agreement dated february 2 1996 monsanto dpl 3 1009 registration rights agreement dpl monsanto dated february 2 1996 3 1010 reserved 1011 reserved 1012 reserved 1013 reserved 1014 partnership agreement dated february 2 1996 dpl monsanto 3 1015 marketing services agreement dated february 2 1996 dpl monsanto dm partners 3 1016 bollgard gene license seed services agreement dated february 2 1996 monsanto dm partners dpl 3 1017 roundup ready gene license seed services agreement dated february 2 1996 monsanto dm partners dpl 3 1018 option agreement dated february 2 1996 monsanto dpl 36 1019 agreement dpl companies sure grow companies sure grow shareholders sure grow principals dated may 20 1996 9 1020 amended restated delta pine land company 1995 longterm incentive plan adopted february 6 1996 615 1021 amendment agreements dated december 8 1999 monsanto company registrant dm partners partnership monsanto dpl paymaster technology corp 12 1022 dm international operating agreement march 10 1995 delta pine land company whollyowned subsidiary dpl international technology corp monsanto company 13 1023 bollgard ii gene license seed services agreement dated december 11 2000 11 1024 roundup ready soybean license seed services agreement amended restated licensee incentive agreement 11 1025 bollgard gene license agreement monsanto company delta pine land company dpl international technology corp dm international llc amendment 10 1026 redemption agreement dated may 28 2002 among dm international llc dpl international technology corp pharmacia corporation solely purposes section 12c articles ii iii hereof monsanto company solely purposes section 32 hereof delta pine land company 10 1027 amendment bollgard gene license seed services agreement february 2 1996 dated march 26 2003 15 1028 amendment roundup ready gene license seed services agreement february 2 1996 dated march 26 2003 15 1029 restated license acquisition agreement dated august 24 2004 among syngenta crop protection ag delta pine land company16 1030 restated vip3a gene license agreement dated august 24 2004 among syngenta crop protection ag delta pine land company 16 1031 restated cry1ab gene license agreement dated august 24 2004 among syngenta crop protection ag delta pine land company 16 1400 delta pine land company code business conduct ethics amended october 28 2004 17 1600 letter arthur andersen llp securities exchange commission dated may 14 2002 regarding change certifying accountant 5 2101 subsidiaries registrant 16 2301 consent independent registered public accounting firm 16 3101 section 302 certification principal executive officer 16 3102 section 302 certification principal financial officer 16 3201 certification periodic financial report pursuant 18 usc section 1350 principal executive officer 16 3202 certification periodic financial report pursuant 18 usc section 1350 principal financial accounting officer 16 1 incorporated reference registration statement form s1 file 3361568 filed june 29 1993 except otherwise noted herein 2 incorporated reference form 8k filed may 14 1998 3 incorporated reference form 8k file 00014136 filed february 19 1996 4 incorporated reference form 8a file 00021293 filed september 3 1996 5 incorporated reference form 8k filed may 17 2002 6 represents management contract compensatory plan 7 incorporated reference form 10q file 00021788 filed july 14 1995 8 incorporated reference form 8k filed may 16 1994 9 incorporated reference form 8k file 00021788 filed june 4 10 incorporated reference form 10k filed november 25 2002 11 incorporated reference form 10k filed november 29 2001 12 incorporated reference form 8k filed may 18 2000 13 incorporated reference form 8k filed september 14 2000 14 incorporated reference form 10k filed november 24 1998 15 incorporated reference form 10k filed november 26 2003 16 filed herewith 17 incorporated reference form 8k filed november 1 2004 company applied confidential treatment portions agreement accordingly portions thereof omitted filed separatelyitem 15 exhibits financial statement schedules 1 financial statements following consolidated financial statements delta pine land company subsidiaries submitted response part ii item 8 reports independent registered public accounting firm consolidated statements income three years period ended august 31 2005 consolidated balance sheets august 31 2005 2004 consolidated statements cash flows three years period ended august 31 2005 consolidated statements changes stockholders equity comprehensive income three years period ended august 31 2005 notes consolidated financial statements 2 financial statement schedule following financial statement schedule delta pine land company subsidiaries submitted response part iv item 15 report independent registered public accounting firm62 schedule ii consolidated valuation qualifying accounts63 schedules omitted required applicable data included financial statements 3 exhibits annual report delta pine land company filed herewith listed page 64 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized november 14 2005 delta pine land company registrant jon e jacoby november 14 2005 jon e jacoby chairman board pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date w thomas jagodinski president chief executive november 14 2005 officer director w thomas jagodinski principal executive officer r greene vice president finance november 14 2005 treasurer assistant secretary r greene principal financial accounting officer f murray robinson vice chairman director november 14 2005 f murray robinson stanley p roth vice chairman director november 14 2005 stanley p roth namhai chua director november 14 2005 namhai chua joseph murphy director november 14 2005 joseph murphy rudi e scheidt director november 14 2005 rudi e scheidt report independent registered public accounting firm board directors stockholders delta pine land company date november 14 2005 reported consolidated balance sheets delta pine land company subsidiaries company august 31 2005 2004 related consolidated statements income changes stockholders equity comprehensive income cash flows years threeyear period ended august 31 2005 contained annual report form 10k year 2005 connection audits aforementioned consolidated financial statements also audited related consolidated financial statement schedule listed part iv item 15a2 financial statement schedule responsibility companys management responsibility express opinion financial statement schedule based audits opinion financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein kpmg llp jackson mississippi november 14 2005 schedule ii delta pine land company subsidiaries consolidated valuation qualifying accounts index exhibits annual report form 10k year ended august 31 2005 delta pine land company exhibits 1 description 201 agreement plan merger dated may 8 1998 monsanto company delta pine land company 2 202 termination option agreement dated may 8 1998 monsanto company delta pine land company 2 301 restated certificate incorporation registrant dated june 11 1993 302 amended restated bylaws registrant dated april 26 1993 401 certificate designation convertible preferred stock delta pine land company 3 402 specimen certificate representing common stock par value 10 per share 403 reserved 404 rights agreement dated august 13 1996 delta pine land company harris trust savings bank including form right certificate related form election purchase exhibit summary rights purchase preferred shares exhibit b 4 405 amendment 1 rights agreement dated may 8 1998 delta pine land company harris trust savings bank 2 406 amendment 2 rights agreement dated may 8 1998 delta pine land company harris trust savings bank 14 407 certificate designations rights privileges shares junior participating preferred stock created august 13 1996 filed pursuant section 151 delaware general corporation law 4 408 delta pine land company 2005 omnibus stock plan 6 19 1001 incentive bonus program 1 6 1002 delta pine land company retirement plan amended restated january 1 1997 amended amendment 1 dated october 23 2002 amendment nos 2 3 dated december 20 2002 15 1003 supplemental executive retirement plan dated may 22 1992 effective january 1 1992 1 6 1004 1993 stock option plan registrant adopted june 11 1993 1 6 1005 asset purchase agreement delta pine land company cargill inc dated may 2 1994 8 1006 delta pine land company savings plan wells fargo bank texas na defined contribution master plan trust agreement adoption agreement dated december 23 2002 egtrra amendment wells fargo bank texas na defined contribution master plan trust agreement dated november 1 2001 postegtrra amendment wells fargo bank texas na defined contribution master plan trust agreement dated september 11 2003 15 1007 hartz cotton acquisition agreement dated february 2 1996 among monsanto company monsanto hartz cotton inc hartz cotton delta pine land company paymaster technology corp ptc 3 1008 trademark license agreement dated february 2 1996 monsanto dpl 3 1009 registration rights agreement dpl monsanto dated february 2 1996 3 1010 reserved 1011 reserved 1012 reserved 1013 reserved 1014 partnership agreement dated february 2 1996 dpl monsanto 3 1015 marketing services agreement dated february 2 1996 dpl monsanto dm partners 3 1016 bollgard gene license seed services agreement dated february 2 1996 monsanto dm partners dpl 3 1017 roundup ready gene license seed services agreement dated february 2 1996 monsanto dm partners dpl 3 1018 option agreement dated february 2 1996 monsanto dpl 3 6 1019 agreement dpl companies sure grow companies sure grow shareholders sure grow principals dated may 20 1996 9 1020 amended restated delta pine land company 1995 longterm incentive plan adopted february 6 1996 6 15 1021 amendment agreements dated december 8 1999 monsanto company registrant dm partners partnership monsanto dpl paymaster technology corp 12 1022 dm international operating agreement march 10 1995 delta pine land company whollyowned subsidiary dpl international technology corp monsanto company 13 1023 bollgard ii gene license seed services agreement dated december 11 2000 11 1024 roundup ready soybean license seed services agreement amended restated licensee incentive agreement 11 1025 bollgard gene license agreement monsanto company delta pine land company dpl international technology corp dm international llc amendment 10 1026 redemption agreement dated may 28 2002 among dm international llc dpl international technology corp pharmacia corporation solely purposes section 12c articles ii iii thereof monsanto company solely purposes section 32 thereof delta pine land company 10 1027 amendment bollgard gene license seed services agreement february 2 1996 dated march 26 2003 15 1028 amendment roundup ready gene license seed services agreement february 2 1996 dated march 26 2003 15 1029 restated license acquisition agreement dated august 24 2004 among syngenta crop protection ag delta pine land company 16 1030 restated vip3a gene license agreement dated august 24 2004 among syngenta crop protection ag delta pine land company 16 1031 restated cry1ab gene license agreement dated august 24 2004 among syngenta crop protection ag delta pine land company 16 1032 credit agreement among delta pine land company borrower certain subsidiaries guarantors bank america na lender dated april 15 2005 related forms revolving note dated april 15 2005 autoborrow service agreement dated april 15 2005 21 1033 roundup ready flex gene license seed services agreement dated december 22 2004 20 1034 form restricted stock unit award member board directors 6 22 1035 form restricted stock award member board directors 6 22 1036 form restricted stock award employee 6 22 1037 form nonqualified stock option award 6 22 1038 employment agreement delta pine land company w thomas jagodinski effective september 1 1997 6 18 1400 delta pine land company code business conduct ethics amended october 28 2004 17 1600 letter arthur andersen llp securities exchange commission dated may 14 2002 regarding change certifying accountant 5 2101 subsidiaries registrant 23 2301 consent independent registered public accounting firm 23 3101 section 302 certification principal executive officer 23 3102 section 302 certification principal financial officer 23 3201 certification periodic financial report pursuant 18 usc section 1350 principal executive officer 23 3202 certification periodic financial report pursuant 18 usc section 1350 principal financial accounting officer 23 1 incorporated reference registration statement form s1 file 3361568 filed june 29 1993 except otherwise noted herein 2 incorporated reference form 8k filed may 14 1998 3 incorporated reference form 8k file 00014136 filed february 19 1996 4 incorporated reference form 8a file 00021293 filed september 3 1996 5 incorporated reference form 8k filed may 17 2002 6 represents management contract compensatory plan 7 incorporated reference form 10q file 00021788 filed july 14 1995 8 incorporated reference form 8k filed may 16 1994 9 incorporated reference form 8k file 00021788 filed june 4 1996 10 incorporated reference form 10k filed november 25 2002 11 incorporated reference form 10k filed november 29 2001 12 incorporated reference form 8k filed may 18 2000 13 incorporated reference form 8k filed september 14 2000 14 incorporated reference form 10k filed november 24 1998 15 incorporated reference form 10k filed november 26 2003 16 incorporated reference form 10k filed november 15 2004 17 incorporated reference form 8k filed november 1 2004 18 incorporated reference form 10q filed january 15 1998 19 incorporated reference form s8 filed march 28 2005 20 incorporated reference form 10q filed april 11 2005 21 incorporated reference form 8k filed april 20 2005 22 incorporated reference form 8k filed may 24 2005 23 filed herewith company applied received sec approval confidential treatment portions agreement accordingly portions thereof omitted filed separatelyitem 15 exhibits financial statement schedules 1 financial statements following consolidated financial statements delta pine land company subsidiaries submitted response part ii item 8 reports independent registered public accounting firm consolidated statements income three years period ended august 31 2006 consolidated balance sheets august 31 2006 2005 consolidated statements cash flows three years period ended august 31 2006 consolidated statements changes stockholders equity comprehensive income three years period ended august 31 2006 notes consolidated financial statements 2 financial statement schedule following financial statement schedule delta pine land company subsidiaries submitted response part iv item 15 report independent registered public accounting firm72 schedule ii consolidated valuation qualifying accounts73 schedules omitted required applicable data included financial statements 3 exhibits annual report delta pine land company filed herewith listed beginning page 75 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized delta pine land company registrant report independent registered public accounting firm board directors stockholders delta pine land company date november 13 2006 reported consolidated balance sheets delta pine land company subsidiaries company august 31 2006 2005 related consolidated statements income changes stockholders equity comprehensive income cash flows years threeyear period ended august 31 2006 contained annual report form 10k year 2006 included form 10k connection audits aforementioned consolidated financial statements also audited related consolidated financial statement schedule listed part iv item 15a2 financial statement schedule responsibility companys management responsibility express opinion financial statement schedule based audits opinion financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein discussed note 1 consolidated financial statements effective september 1 2005 company adopted statement financial accounting standards 123 revised 2004 sharebased payment kpmg llp memphis tennessee november 13 2006 schedule ii delta pine land company subsidiaries consolidated valuation qualifying accounts thousands amount charged cumulative translation adjustment fluctuations nonunited states dollar denominated reserves b writeoff uncollectible accounts net recoveries c amount includes 724 related writeoff allowance doubtful accounts amounts previously deemed uncollectible provided prior years addition certain payables similar amount related item also reduced prior years amount represents writeoff allowance doubtful accounts deemed uncollectible provided prior years index exhibits annual report form 10k year ended august 31 2006 delta pine land company exhibits 1 description 201 agreement plan merger dated may 8 1998 monsanto company delta pine land company 2 202 termination option agreement dated may 8 1998 monsanto company delta pine land company 2 203 agreement plan merger dated august 14 2006 among monsanto company monsanto sub inc delta pine land company 25 301 restated certificate incorporation registrant dated june 11 1993 302 amended restated bylaws registrant dated april 26 1993 401 certificate designation convertible preferred stock delta pine land company 3 402 specimen certificate representing common stock par value 10 per share 403 reserved 404 rights agreement dated august 13 1996 delta pine land company harris trust savings bank including form right certificate related form election purchase exhibit summary rights purchase preferred shares exhibit b 4 405 amendment 1 rights agreement dated may 8 1998 delta pine land company harris trust savings bank 2 406 amendment 2 rights agreement dated may 8 1998 delta pine land company harris trust savings bank 13 4071 certificate designations rights privileges shares junior participating preferred stock created august 13 1996 filed pursuant section 151 delaware general corporation law 4 408 delta pine land company 2005 omnibus stock plan 5 18 409 delta pine land company defined contribution plan 5 22 410 notice removal rights agent appointment successor rights agent amendment 3 rights agreement 23 411 amendment 4 rights agreement effective may 12 2006 24 1001 incentive bonus program 1 5 1002 delta pine land company retirement plan amended restated january 1 1997 amended amendment 1 dated october 23 2002 amendment nos 2 3 dated december 20 2002 14 1003 supplemental executive retirement plan dated may 22 1992 effective january 1 1992 1 5 1004 1993 stock option plan registrant adopted june 11 1993 1 5 1005 asset purchase agreement delta pine land company cargill inc dated may 2 1994 7 1006 delta pine land company savings plan wells fargo bank texas na defined contribution master plan trust agreement adoption agreement dated december 23 2002 egtrra amendment wells fargo bank texas na defined contribution master plan trust agreement dated november 1 2001 postegtrra amendment wells fargo bank texas na defined contribution master plan trust agreement dated september 11 2003 14 1007 hartz cotton acquisition agreement dated february 2 1996 among monsanto company monsanto hartz cotton inc hartz cotton delta pine land company paymaster technology corp ptc 3 1008 trademark license agreement dated february 2 1996 monsanto dpl 3 1009 registration rights agreement dpl monsanto dated february 2 1996 3 1010 reserved 1011 reserved 1012 reserved 1013 reserved 1014 partnership agreement dated february 2 1996 dpl monsanto 3 1015 marketing services agreement dated february 2 1996 dpl monsanto dm partners 3 1016 bollgard gene license seed services agreement dated february 2 1996 monsanto dm partners dpl3 1017 roundup ready gene license seed services agreement dated february 2 1996 monsanto dm partners dpl 3 1018 option agreement dated february 2 1996 monsanto dpl 3 5 1019 agreement dpl companies sure grow companies sure grow shareholders sure grow principals dated may 20 1996 8 1020 amended restated delta pine land company 1995 longterm incentive plan adopted february 6 1996 5 14 1021 amendment agreements dated december 8 1999 monsanto company registrant dm partners partnership monsanto dpl paymaster technology corp 11 1022 dm international operating agreement march 10 1995 delta pine land company whollyowned subsidiary dpl international technology corp monsanto company 12 1023 bollgard ii gene license seed services agreement dated december 11 2000 10 1024 roundup ready soybean license seed services agreement amended restated licensee incentive agreement 10 1025 bollgard gene license agreement monsanto company delta pine land company dpl international technology corp dm international llc amendment 9 1026 redemption agreement dated may 28 2002 among dm international llc dpl international technology corp pharmacia corporation solely purposes section 12c articles ii iii thereof monsanto company solely purposes section 32 thereof delta pine land company 9 1027 amendment bollgard gene license seed services agreement february 2 1996 dated march 26 2003 14 1028 amendment roundup ready gene license seed services agreement february 2 1996 dated march 26 2003 14 1029 restated license acquisition agreement dated august 24 2004 among syngenta crop protection ag delta pine land company 25 1030 restated vip3a gene license agreement dated august 24 2004 among syngenta crop protection ag delta pine land company 25 1031 restated cry1ab gene license agreement dated august 24 2004 among syngenta crop protection ag delta pine land company 25 1032 credit agreement among delta pine land company borrower certain subsidiaries guarantors bank america na lender dated april 15 2005 related forms revolving note dated april 15 2005 autoborrow service agreement dated april 15 2005 20 1033 roundup ready flex gene license seed services agreement dated december 22 2004 19 1034 form restricted stock unit award member board directors 5 21 1035 form restricted stock award member board directors 5 21 1036 form restricted stock award employee 5 21 1037 form nonqualified stock option award 5 21 1038 employment agreement delta pine land company w thomas jagodinski effective september 1 1997 517 1039 settlement agreement dated august 14 2006 among delta pine land company dm international llc dpl international technology corp monsanto company 25 1041 settlement agreement ii dated august 14 2006 among delta pine land company dm partners monsanto company 25 1042 arbitration settlement agreement dated august 14 2006 among delta pine land company dm partners monsanto company 25 1043 amended restated employment agreement dated august 25 2006 delta pine land company w thomas jagodinski 5 26 1044 severance protection agreement dated august 23 2006 delta pine land company kenneth avery 5 26 1045 severance protection agreement dated august 24 2006 delta pine land company rd greene 5 26 1046 severance protection agreement dated august 21 2006 delta pine land company charles r dismuke jr 5 26 1047 severance protection agreement dated august 24 2006 delta pine land company william v hugie 5 26 1048 form severance protection agreement dated august 24 2006 delta pine land company james h willeke entered delta pine land company certain executives 5 26 1400 delta pine land company code business conduct ethics amended october 28 2004 16 2101 subsidiaries registrant 27 2301 consent independent registered public accounting firm 27 3101 certification pursuant rules 13a14a 15d14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 principal executive officer 27 3102 certification pursuant rules 13a14a 15d14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 principal financial officer 27 3201 certification pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 principal executive officer 27 3202 certification pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 principal financial accounting officer 27 1 incorporated reference registration statement form s1 file 3361568 filed june 29 1993 except otherwise noted herein 2 incorporated reference form 8k filed may 14 1998 3 incorporated reference form 8k file 00014136 filed february 19 1996 4 incorporated reference form 8a file 00021293 filed september 3 1996 5 represents management contract compensatory plan 6 incorporated reference form 10q file 00021788 filed july 14 1995 7 incorporated reference form 8k filed may 16 1994 8 incorporated reference form 8k file 00021788 filed june 4 1996 9 incorporated reference form 10k filed november 25 2002 10 incorporated reference form 10k filed november 29 2001 11 incorporated reference form 8k filed may 18 2000 12 incorporated reference form 8k filed september 14 13 incorporated reference form 10k filed november 24 1998 14 incorporated reference form 10k filed november 26 2003 15 incorporated reference form 10k filed november 15 2004 16 incorporated reference form 8k filed november 1 2004 17 incorporated reference form 10q filed january 15 1998 18 incorporated reference form s8 filed march 28 2005 19 incorporated reference form 10q filed april 11 2005 20 incorporated reference form 8k filed april 20 2005 21 incorporated reference form 8k filed may 24 2005 22 incorporated reference form s8 filed april 4 2006 23 incorporated reference form 10q filed april 10 2006 24 incorporated reference form 8k filed may 16 2006 25 incorporated reference form 8k filed august 18 2006 26 incorporated reference form 8k filed august 25 2006 27 filed herewith company applied received sec approval confidential treatment portions agreement accordingly portions thereof omitted filed separatelynannanitem 15 exhibits financial statement schedules reports form 8k 1 financial statements following consolidated financial statements delta pine land company subsidiaries submitted response part ii item 8 report independent public accountants consolidated statements income three years period ended august 31 2002 consolidated balance sheets august 31 2001 2002 consolidated statements cash flows three years period ended august 31 2002 consolidated statements changes stockholders equity three years period ended august 31 2002 notes consolidated financial statements 2 financial statement schedule following financial statement schedule delta pine land company subsidiaries submitted response part iv item 15 schedules omitted required applicable data included financial statements 3 exhibits annual report delta pine land company filed herewith listed page 58 4 reports form 8k reports form 8k filed quarter ended august 31 2002 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized november 25 2002 delta pine land company registrant jon e jacoby november 25 2002 jon e jacoby chairman board pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated certification chief executive officer pursuant section 302 sarbanesoxley act 2002 w thomas jagodinski certify 1 reviewed annual report delta pine land company 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows dpl periods presented annual report 4 registrants certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrants disclosure controls procedures date within 90 days prior filing date annual report evaluation date c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrants certifying officers disclosed based recent evaluation registrants auditors audit committee registrants board directors persons performing equivalent function significant deficiencies design operation internal controls could adversely affect registrants ability record process summarize report financial data identified registrants auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrants internal controls 6 registrants certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses date november 25 2002 w thomas jagodinski w thomas jagodinski president chief executive officer director certification chief financial officer pursuant section 302 sarbanesoxley act 2002 r greene certify 1 reviewed annual report delta pine land company 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows dpl periods presented annual report 4 registrants certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrants disclosure controls procedures date within 90 days prior filing date annual report evaluation date c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrants certifying officers disclosed based recent evaluation registrants auditors audit committee registrants board directors persons performing equivalent function significant deficiencies design operation internal controls could adversely affect registrants ability record process summarize report financial data identified registrants auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrants internal controls 6 registrants certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses date november 25 2002 r greene r greene vice presidentfinance treasurer assistant secretary independent auditors report board directors delta pine land company audited accordance auditing standards generally accepted united states 2002 financial statements delta pine land company included form 10k audit made purpose forming opinion basic 2002 financial statements taken whole schedule listed index part iv item 15a2 responsibility companys management presented purposes complying securities exchange commissions rules part basic 2002 financial statements schedule subjected auditing procedures applied audit basic 2002 financial statements opinion fairly states material respects financial data required set forth therein relation basic 2002 financial statements taken whole kpmg llp memphis tennessee october 25 2002 report independent public accountants delta pine land company audited accordance auditing standards generally accepted united states financial statements delta pine land company included form 10k audits made purpose forming opinion basic financial statements taken whole schedule listed index part iv item 14a2 responsibility companys management presented purposes complying securities exchange commissions rules part basic financial statements schedule subjected auditing procedures applied audit basic financial statements opinion fairly states material respects financial data required set forth therein relation basic financial statements taken whole arthur andersen llp memphis tennessee october 26 2001 copy audit report previously issued arthur andersen llp connection delta pine land companys filing form 10k year ended august 31 2001 audit report reissued arthur andersen llp connection filing form 10k see exhibit 2302 discussion schedule ii delta pine land company subsidiaries consolidated valuation qualifying accounts index exhibits annual report form 10k year ended august 31 2002 delta pine land company exhibits1 description 201 agreement plan merger dated may 8 1998 monsanto company delta pine land company 2 202 termination option agreement dated may 8 1998 monsanto company delta pine land company 2 301 restated certificate incorporation registrant dated june 11 1993 302 amended restated bylaws registrant dated april 26 1993 401 certificate designation convertible preferred stock delta pine land company 3 402 specimen certificate representing common stock par value 10 per share 403 letter registrant john hancock mutual life insurance company regarding certain registration rights dated june 28 1993 404 rights agreement dated august 13 1996 delta pine land company harris trust savings bank including form right certificate related form election purchase exhibit summary rights purchase preferred shares exhibit b 4 405 amendment 1 rights agreement dated may 8 1998 delta pine land company harris trust savings bank 2 406 amendment 2 rights agreement dated may 8 1998 delta pine land company harris trust savings bank 14 407 certificate designations rights privileges shares junior participating preferred stock created august 13 1996 filed pursuant section 151 delaware general corporation law 4 1005 incentive bonus program 16 1006 retirement plan dpl dated january 2 1992 amendment 1 plan dated april 30 1992 amendment 2 plan dated december 20 1992 amendment 3 plan dated october 6 1994 15 1008 supplemental executive retirement plan dated may 22 1992 effective january 1 1992 16 1010 1993 stock option plan registrant adopted june 11199316 1011 asset purchase agreement delta pine land company cargill inc dated may 2 1994 8 1013 1994 saving plan registrant adopted april 1 1994 amendment 1 dated may 1 1994 56 1015 hartz cotton acquisition agreement dated february 2 1996 among monsanto company monsanto hartz cotton inc hartz cotton delta pine land company paymaster technology corp ptc 3 1016 trademark license agreement dated february 2 1996 monsanto dpl 3 1017 registration rights agreement dpl monsanto dated february 2 1996 3 1018 temporary services agreement dated february 2 1996 monsanto dpl ptc 3 1019 research facility lease option purchase dated february 2 1996 monsanto ptc 3 1020 greenhouse lease dated february 2 1996 monsanto ptc 3 1021 research agreement dated february 2 1996 monsanto ptc 3 1022 partnership agreement dated february 2 1996 dpl monsanto3 1023 marketing services agreement dated february 2 1996 dpl monsanto dm partners 3 1024 bollgard gene license seed services agreement dated february 2 1996 monsanto dm partners dpl 3 1025 roundup ready gene license seed services agreement dated february 2 1996 monsanto dm partners dpl 3 1026 option agreement dated february 21996 monsanto dpl36 1027 agreement dpl companies sure grow companies sure grow shareholders sure grow principals dated may 20 1996 9 1028 delta pine land company 1995 longterm incentive plan adopted february 6 1996 610 1029 amendment agreements dated december 8 1999 monsanto company registrant dm partners partnership monsanto dpl paymaster technology corp 12 1030 dm international operating agreement march 10 1995 delta pine land company whollyowned subsidiary dpl international technology corp monsanto company 13 1031 bollgard ii gene license seed services agreement dated december 11 2000 11 1032 roundup ready soybean license seed services agreement amended restated licensee incentive agreement 11 1033 bollgard gene license agreement republic mexico 11 1034 roundup ready license agreement republic south africa dated september 24 2001 11 1035 glyphosatetolerant cotton agreement australia dated july 3200111 1036 bollgard gene license agreement monsanto company delta pine land company dpl international technology corp dm international amendment 15 1037 redemption agreement dated may 28 2002 among dm international llc dpl international technology corp pharmacia corporation solely purposes section 12c articles ii iii hereof monsanto company solely purposes section 32 hereof delta pine land company 15 1600 letter arthur andersen llp securities exchange commission dated may 14 2002 regarding change certifying accountant 16 2101 subsidiaries registrant 15 2301 independent auditors consent 15 2302 notice regarding consent arthur andersen llp 15 9901 certification periodic financial report pursuant 18 usc section 1350 15 9902 certification periodic financial report pursuant 18 usc section 1350 15 1 incorporated reference registration statement form s1 file 3361568 filed june 29 1993 except otherwise noted herein 2 incorporated reference form 8k filed may 14 1998 3 incorporated reference form 8k file 00014136 filed february 19 1996 4 incorporated reference form 8a file 00021293 filed september 3 1996 5 incorporated reference form 10k file 0021788 filed november 22 1995 6 represents management contract compensatory plan 7 incorporated reference form 10q file 00021788 filed july 14 1995 8 incorporated reference form 8k filed may 16 1994 9 incorporated reference form 8k file 00021788 filed june 4 1996 10 incorporated reference form 10k file 00114136 filed november 27 1996 11 incorporated reference form 10k filed november 29 2001 12 incorporated reference form 8k filed may 18 2000 13 incorporated reference form 8k filed september 14 2000 14 incorporated reference form 10k filed november 24 1998 15 filed herewith 16 incorporated reference form 8k filed may 17 2002 exhibit 2101 subsidiaries registrant subsidiary place incorporation atled corporation usa dm international llc usa dm partners usa dpl argentina inc usa dpl china inc usa dpl china pte ltd singapore dpl investing corp usa dpl investments inc usa dpl mexico inc usa deltapine paraguay inc usa dpl south africa inc usa dpl international technology corp usa delta pine land international ltd virgin islands delta pine de mexico sa de cv mexico deltapine australia pty limited australia greenfield seed company usa hebei ji dai cottonseed technology company ltd china paymaster technology corp usa turk deltapine inc usa sure grow seed inc usa ellis brothers seed inc usa arizona processing inc usa mississippi seed inc usa dpl semillas ltd costa rica cdm mandiyu srl argentina delta pine land hellas monoprosopi epe greece dpl brasil ltda brazil anhui dai cottonseed technology company ltd china dpl technology holding corp usa dm brasil algodao ltda brazil mdm maeda deltapine monsanto algodao ltda brazil exhibit 2301 independent auditors consent board directors delta pine land company consent incorporation reference registration statements nos 33321049 33374168 form s8 delta pine land company reports dated october 25 2002 respect consolidated balance sheet delta pine land company august 31 2002 related consolidated statements operations stockholders equity comprehensive income cash flows year ended august 31 2002 related financial statement schedules reports appear august 31 2002 annual report form 10k delta pine land company kpmg llp memphis tennessee november 25 2002 exhibit 2302 notice regarding consent arthur andersen llp section 11a securities act 1933 amended securities act provides part registration statement time becomes effective contains untrue statement material fact omits material fact required stated therein necessary make statements therein misleading person acquiring security pursuant registration statement unless proved time acquisition person knew untruth omission may assert claim among others accountant consented named certified part registration statement prepared report use connection registration statement may 15 2002 board directors delta pine land company dpl upon recommendation audit committee decided longer engage arthur andersen llp arthur andersen dpls independent public accountants effective immediately additional information see dpls current report form 8k filed securities exchange commission sec may 17 2002 reasonable efforts dpl unable obtain arthur andersens written consent incorporation reference dpls registration statements form s8 nos 33321049 33374168 registration statements arthur andersens audit report respect dpls consolidated financial statements august 31 2001 two years period ended circumstances rule 437a securities act permits dpl file annual report form 10k incorporated reference registration statements without written consent arthur andersen result respect transactions dpls securities pursuant registration statements occur subsequent date annual report form 10k filed securities exchange commission arthur andersen liability section 11a securities act untrue statements material fact contained financial statements audited arthur andersen omissions material fact required stated therein accordingly acquiror dpls securities would unable assert claim arthur andersen section 11a securities act exhibit 9901 certification periodic financial report pursuant 18 usc section 1350 pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 connection annual report form 10k delta pine land company fiscal year ended august 31 2002 filed securities exchange commission date hereof report undersigned w thomas jagodinski president chief executive officer hereby certifies report fully complies requirements section 13a 15d securities exchange act 1934 information contained report fairly presents material respects financial condition results operations dpl certificate made solely purpose 18 usc section 1350 subject knowledge standard contained therein purposes exhibit 9902 certification periodic financial report pursuant 18 usc section 1350 pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 connection annual report form 10k delta pine land company fiscal year ended august 31 2002 filed securities exchange commission date hereof report undersigned r greene vice presidentfinance treasurer assistant secretary hereby certifies report fully complies requirements section 13a 15d securities exchange act 1934 information contained report fairly presents material respects financial condition results operations dpl certificate made solely purpose 18 usc section 1350 subject knowledge standard contained therein purposes