UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

(MARK ONE)

FOR THE QUARTERLY PERIOD ENDED JUNE 25, 2004

OR

FOR THE TRANSITION PERIOD FROM              TO             

COMMISSION FILE NUMBER 000-26519

SEMINIS, INC.

(805) 647-1572
(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)

NOT APPLICABLE
(FORMER NAME, ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT)

Indicate, by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [   ]

Indicate, by check mark whether the Registrant is an accelerated filer (as defined in rule 12b-2 of the Exchange Act). YES [   ] NO [X]

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SEMINIS, INC.

FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 25, 2004

TABLE OF CONTENTS

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

SEMINIS, INC.

The accompanying notes are an integral part of these consolidated financial statements.

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SEMINIS, INC.

Consolidated Statements of Operations

The accompanying notes are an integral part of these consolidated financial statements.

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SEMINIS, INC.

The accompanying notes are an integral part of these consolidated financial statements.

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SEMINIS, INC.

The accompanying notes are an integral part of these consolidated financial statements.

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SEMINIS, INC.

Note 1 — Summary of Significant Accounting Policies

Description of Business

Seminis, Inc. (the “Company”, “we”) is the leading worldwide developer, producer and marketer of vegetable and fruit seeds. As a result of the acquisition transactions described in Note 2, which were completed on September 29, 2003, Fox Paine & Company, LLC, together with its affiliates and co-investors (collectively, “Fox Paine”), became the Company’s majority shareholder.

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of the Company and its majority controlled and owned subsidiaries. Investments in unconsolidated entities, representing ownership interests between 20% and 50%, are accounted for using the equity method of accounting. All material intercompany transactions and balances have been eliminated in consolidation. Certain reclassifications have been made to prior years’ financial statements to conform to the current presentation.

As a result of the acquisition transactions described in Note 2, which were completed on September 29, 2003, the Company has presented its results of operations, and cash flows on a predecessor/successor basis. Periods prior to September 29, 2003 are predecessor periods, while others are successor periods.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the fiscal period, including estimates and assumptions related to customer discounts and allowances. Actual results could differ from those estimates.

The unaudited consolidated financial statements included herein reflect all adjustments (consisting only of normal recurring adjustments) that the Company considers necessary for a fair presentation of the results of operations for the interim periods covered and the financial condition of the Company at the date of the interim balance sheet. The Company’s business is subject to seasonal fluctuation and, therefore, the results of operations for periods less than one year are not necessarily indicative of results that may be expected for any other interim period or for the fiscal year as a whole.

Supplementary Cash Flow Information

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Recent Accounting Pronouncements

In December 2003, the FASB reissued SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88, and 106.” This Statement revises employers’ disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans required by SFAS No. 87, “Employers’ Accounting for Pensions,” SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,” and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” This Statement retains the disclosure requirements contained in the original SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” The revised Statement also requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The provisions of the original SFAS No. 132 will remain in effect until the provisions of this Statement are adopted. Certain new provisions are effective for financial statements with fiscal years ending after December 15, 2003, while other provisions are effective for fiscal years ending after June 15, 2004. The interim period disclosures are effective for interim periods beginning after December 15, 2003. See Note 8 “Pensions and Other Postretirement Benefits,” for disclosures required under the revised SFAS No. 132.

In December 2003, the Financial Accounting Standards Board (FASB) reissued Interpretation No. 46, “Consolidation of Variable Interest Entities – an Interpretation of ARB No. 51.” The Interpretation clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity risk for the entity to finance its activities without additional subordinated financial support. The provisions of this Interpretation are effective for the Company for interim periods ending after March 15, 2004. The adoption of this Interpretation has not had a significant impact on the Company’s financial results of operations and financial position.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This Statement requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). The provisions of this Statement are effective for financial instruments entered into or modified after May 31, 2003, and otherwise are effective at the beginning of the first interim period beginning after June 15, 2003. The Company adopted this Statement as of June 27, 2003 and accordingly classified its newly issued paid-in-kind mandatory redeemable preferred stock (“PIK Preferred Stock”) as a liability.

In April 2003, the FASB issued SFAS No. 149, “Amendment to Statement 133 on Derivative Instruments and Hedging Activities.” This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) used for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” The provisions of this Statement are effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of this Statement did not have a significant impact on the Company’s financial condition or results of operations.

In January 2003, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123.” SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. It also requires disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS No. 148 is effective for annual and interim periods beginning after December 15, 2002. The Company has adopted FASB Statement No. 123 under the provisions of SFAS No. 148 on October 1, 2003.

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Note 2 — Acquisition Transactions / Liquidity

Under the acquisition transactions, described in Note 3, in September 2003, the Company became a privately held company, acquired all of its publicly held shares of Class A common stock , shares of Class B common stock and shares of Class B and Class C Redeemable Preferred Stocks, repaid the $216.6 million of principal outstanding under its senior credit facility, and the $11.6 million mortgage on its Oxnard real property. In order to fund these transactions and other related expenses, Fox Paine purchased shares of the Company’s common stock for a purchase price of $163.2 million, and the Company issued $190.0 million of ten year, 10 1/4% senior subordinated notes, established a senior secured credit facility that consisted of a $190.0 million term loan and a $60.0 million revolving loan (none of which was outstanding at June 25, 2004 and September 30, 2003, respectively), borrowed $17.0 million under a new mortgage note, and issued PIK Preferred Stock along with warrants to purchase 3.9 million shares of common stock for combined proceeds of $50.0 million (see Note 11 –– PIK Preferred Stock).

Upon completion of the acquisition transactions, the Company had total indebtedness of $421.3 million as of September 30, 2003 compared to $252.5 million before the transactions.

On January 23, 2004, the Company issued an additional $140.0 million of its 10 1/4% senior subordinated notes, at a premium of $12.6 million. These notes have identical terms and conditions as the $190.0 million of senior subordinated notes issued as part of the acquisition transactions on September 29, 2003. The net proceeds from the additional notes, after deducting underwriting discounts and other expenses, were approximately $145.6 million. These net proceeds from the offering were used to repay $100.0 million and $15.0 million of the borrowings under the term loan portion and revolver portion, respectively, of Company’s senior secured credit facility and for general corporate purposes.

Concurrently with the offering of the additional notes, the Company amended the senior secured credit facility. The amended senior secured credit facility decreased the term loan from $190.0 million to $90.0 million, increased the revolving credit facility from $60.0 million to $75.0 million, amended pricing terms on both the term loan and revolver portion of the credit facility, and amended certain financial covenants.

The Company’s total indebtedness as of June 25, 2004 was $470.3 million, of which $89.3 million were borrowings under Company’s term loan, $342.0 million were borrowings under our senior 10 1/4% subordinated notes ( including $12.0 million of remaining premium balance, which will be amortized over the life of the notes and reduces interest expense), $17.4 million, $1.3 million, $0.5 million and $19.8 million were borrowings by its United States, Spanish, French and South Korean subsidiaries, respectively. The Company also has $41.5 million of preferred shares subject to mandatory redemption (see Note 11–– PIK Preferred Stock). As of June 25, 2004, the Company has cash and cash equivalents of $74.6 million.

Going forward, the Company’s principal source of liquidity will be cash flow generated from operations, borrowings under its senior secured credit facility and additional capital infusion. The Company’s principal uses of cash will be to meet debt service requirements, finance capital expenditures and provide working capital. Based on the current level of operations, management believes that remaining cash on hand, cash flow from operations and available borrowings under its revolving credit portion of the senior secured credit facility will enable the Company to meet its working capital, capital expenditure, debt service and other funding requirements for at least the next 12 months.

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Note 3 — Accounting Effects of the Acquisition Transactions

Overview

On May 30, 2003, the Company and certain other parties entered into a number of agreements pursuant to which a newly incorporated entity was formed to effect the acquisition transactions whereby the Company became a privately held company and Fox Paine acquired 75.1% of the outstanding common stock of the Company. On September 29, 2003, the acquisition transactions, described in Note 2, were completed.

The acquisition transactions are accounted for under the purchase method of accounting. In accordance with applicable accounting guidelines, the purchase price paid by Fox Paine for Seminis’ common stock plus related purchase accounting adjustments are “pushed down” and recorded in Seminis’ financial statements. The acquisition transactions resulted, for purposes of financial statement presentation of the results of operations and cash flows, in a predecessor entity and a successor entity.

Carrying Value Adjustments

The 75.1% of deemed assets acquired and liabilities assumed in connection with the acquisition transactions were originally recorded at their estimated fair market values based on an independent appraisal and 24.9% of the historical bases were carried over, however, these values were in excess of the proportionate purchase price paid by Fox Paine. Accordingly, the negative goodwill totaling $433.4 million was allocated against the value of non-current assets on a proportionate basis. The following summarizes the fair market values, subsequent adjustments and on-going carrying values of the net assets acquired:

Inventories

The increase in inventory value of $73.2 million, reflecting the fair market value adjustment, is being expensed as the inventory is sold, which is expected to be over a 16 month period from September 29, 2003, the date of acquisition.

Depreciation and Amortization

The effect of the negative goodwill allocation to the non current assets resulted from the acquisition transactions is being amortized or depreciated based on the remaining lives of the assets. This results in lower depreciation and amortization expense.

Other

Finally, the intangible assets are being amortized on a straight-line basis over periods between five and forty years, and in-process research and development was immediately expensed in the results of the successor entity for the one-day period ended September 30, 2003.

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Note 4 — Inventories

Inventories consist of the following:

Inventories are presented net of reserves of $70,338 and $79,531 at June 25, 2004 and September 30, 2003, respectively. As described in Note 3, as part of the acquisition transactions, inventories were stepped-up by $73.2 million. In the current period, $44.9 million of the step-up was amortized and charged to cost of sales. This non-cash adjustment will continue as the inventory is expected to be sold over the next 7 months.

Note 5 — Intangible Assets

Intangible assets at June 25, 2004 and September 30, 2003 consist of the following:

Aggregate amortization expense was $5.9 million and $11.9 million for the nine months ended June 25, 2004 and June 27, 2003, respectively. Estimated amortization expense for the next five years is estimated at $7.7 million each year.

Note 6 — Accrued Liabilities

Accrued liabilities consist of the following at June 25, 2004 and September 30, 2003:

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Note 7 — Long-Term Debt

Long-term debt consists of the following at June 25, 2004 and September 30, 2003:

As of June 25, 2004, long-term debt maturities are as follows:

Senior Secured Credit Facility

On September 29, 2003, the Company’s principal domestic operating subsidiary, Seminis Vegetable Seeds, Inc., entered into a senior secured credit facility with a group of lenders. The Company and its other wholly-owned domestic subsidiaries guarantee the obligations under the senior secured credit facility. The senior secured credit facility originally provided for a $190.0 million term loan and a revolving line of credit for borrowings up to an aggregate principal amount of $60.0 million. The Company amended the senior secured credit facility on January 15, 2004 such that it now provides a $90.0 million term loan and a revolving line of credit for borrowings up to an aggregate principal amount of $75.0 million, and amortizes in quarterly installments equal to 1.0% per annum for the first five and 1/2 years, and with the balance of the term loan due in a single payment at the end of the sixth year. The first quarterly payment was paid on March 31, 2004. The $75.0 million revolving credit facility will mature in five years from the closing date of the acquisition transactions and does not amortize (none of which was drawn as of June 25, 2004 and $2.6 million of which was committed under letters of credit). Both facilities may be voluntarily prepaid in whole or in part without premium or penalty. Additionally, based upon formulas stated in the amended senior secured credit facility and subject to certain exceptions, all or a portion of the proceeds from the issuance of equity interests or equity rights, debt issuances, asset sales, proceeds from insurance recoveries and excess cash flow must be used to pay down the outstanding balance under the term loan facility.

In general, borrowings under the amended senior secured credit facility will bear interest, at the Company’s option, on either a London inter-bank offered rate (LIBOR) or an alternate base rate, in each case plus an applicable rate. The alternate base rate is equal to the highest of Citicorp North America, Inc.’s base rate, the three month certificate of deposit rate plus 0.5% and the federal funds effective rate plus 0.5%. The applicable rate for the term loan is based upon the Company’s leverage ratio that ranges from 1.25% to 2.00% per annum in the case of an alternate rate loan and LIBOR plus 3.00% per annum in the case of a LIBOR loan. The applicable rate for the revolving credit facility under the amended senior secured credit facility is based upon the Company’s leverage ratio and ranges from 1.00% to 1.75% per annum in the case of alternate rate loans and LIBOR plus 2.00% to LIBOR plus 2.75% per annum in the case of LIBOR loans, subject, in each case, to adjustments based on the leverage ratio at the time. Subsequent to an event of default under the amended senior secured credit facility, borrowings will bear interest at 2.0% over the rate of interest otherwise applicable and the LIBOR rate will not be available.

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Obligations under the senior secured credit facility are guaranteed by the Company and its domestic subsidiaries. Additionally, borrowings are secured by a perfected lien on all of the capital stock, intercompany notes and all of the tangible and intangible properties and assets, including intellectual property subject to exceptions relating to foreign subsidiaries, of the Company. The Company is subject to certain commitment fees under the facility as well as the maintenance of certain financial ratios and other restrictive covenants, including the payment of dividends in cash.

On June 25, 2004, the outstanding balance of the term loan under the senior secured credit facility was $89.3 million with a variable interest rate of 3.49%, and the Company is in compliance with its financial covenants.

10 1/4% Senior Subordinated Notes

On September 29, 2003, the Company’s principal domestic operating subsidiary, Seminis Vegetable Seeds, Inc., issued $190.0 million of senior subordinated notes. The senior subordinated notes mature on October 1, 2013; interest is payable semi-annually on April 1 and October 1 of each year. The senior subordinated notes are unsecured general obligations of the Company and are subordinated in right of payment to substantially all existing and future senior indebtedness of the Company, including senior credit facility indebtedness. Prior to maturity, the Company may redeem all or some of the senior subordinated notes at defined redemption prices, which may include a premium. In the event of a change in control, the holders may require the Company to repurchase the senior subordinated notes for a redemption price that may also include a premium. The majority of the Company’s domestic subsidiaries have guaranteed the senior subordinating notes.

On January 23, 2004, the Company issued an additional $140.0 million of senior subordinated notes, at a premium of $12.6 million. These notes have identical terms and conditions as the $190.0 million of senior subordinated notes issued as part of the acquisition transactions on September 29, 2003.

On June 25, 2004, the outstanding balance of the 10 1/4% senior subordinated notes was $330.0 million.

Mortgage Notes

In March 2000, the Company issued a $17.2 million promissory note, which was secured by the Company’s global headquarters facility. The variable rate of interest on the original note was based on LIBOR plus 2.5% (4.2% as of September 30, 2002). As of September 29, 2003, principal outstanding on this note totaling $11.6 million was repaid with proceeds from a new $17.0 million mortgage. Interest on the new note is based on LIBOR plus 2.0% (3.1% as of September 30, 2003), adjustable on the first day of each month. Simultaneous with entering into the new mortgage, the Company entered into an interest rate swap agreement (extending for a seven year term) to swap the floating interest rate for a 6.3% fixed interest rate. The loan amortizes in scheduled annual payments of approximately $0.2 million to $0.4 million, with a payment of the final remaining balance due on October 1, 2010.

On June 25, 2004, the outstanding balance of the mortgage note was $16.8 million with a fixed interest rate of 6.3%.

South Korean Borrowings

The Company’s South Korean subsidiary has a number of loan facilities maturing from fiscal year 2004 to 2013. Borrowings under these facilities carry interest rates of approximately 4.0%.

Other Borrowings

Other borrowings consisted of various domestic and foreign, government and non-government loans of less than $1.5 million each, bearing interest annually at average rates of 7.35% through 2013 for fiscal years 2003, and 8.79% through 2007 for fiscal year 2002.

For the nine months ended June 25, 2004 and fiscal year ended September 30, 2003, the Company incurred interest at a weighted-average rate of 8.66% and 7.26% per annum, respectively.

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Note 8 — Pensions and Other Postretirement Benefits

The Company provides a defined-benefit plan in the Netherlands (the “Netherlands Plan”) as required by statute. The components of net pension expense of the Netherlands Plan are as follows:

Note 9 — Stock-Based Compensation

Effective October 1, 2003, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”), for stock-based employee compensation. Under the modified prospective method of adoption selected by the Company under the provisions of SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure”, stock-based employee compensation expense recognized in fiscal year 2004 is the same as that which would have been recognized had the fair value recognition provisions of SFAS No. 123 been applied to all awards from its original effective date. Results of prior years have not been restated. The following table illustrates the effect on net income (loss) if the fair value method had been applied in each period (in thousands) with the approach of SFAS No. 123:

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Note 10 — Equity Interests of Certain Beneficial Owners and Management

Options

Certain executives of the Company have “rolled over” their option rights from pre-acquisition stock option grants, and as of June 25, 2004, there are approximately 1.7 million options outstanding.

Restricted Stock Units

Upon completion of the acquisition transactions, we granted restricted stock units to a group of Company’s senior executives. The restricted stock units will, upon the events described below, be paid in shares of Company common stock on a one-for-one basis and will vest over a five year period depending on the continued employment of the executive and on Company’s performance and the performance of our executives relative to specified goals and objectives.

Upon completion of the acquisition transactions, each of the senior executives was granted an aggregate number of restricted stock units calculated as 2.25 times the initial base salary of the applicable senior executive divided by $3.40. Each of the other key executives was granted an aggregate number of restricted stock units calculated as 1.0 times the initial base salary of the applicable executive divided by $3.40.

If the specified goals and objectives are achieved and the executive is actively employed by us at each applicable vesting date, the restricted stock units will vest with respect to 10.0% of the aggregate award in each of the first two years, 20.0% of the aggregate award in the third year and 30.0% of the aggregate award in each of the fourth and fifth years following the time of grant. To the extent that conditions to vesting are not met and some of the restricted stock units do not vest, the portion of restricted stock units that do not vest will be permanently forfeited and will not be reallocated.

In the event that Fox Paine achieves a designated internal rate of return on its initial investment in the Company prior to the fifth anniversary of the completion of the acquisition transactions, all restricted stock units, other than those permanently forfeited due to a failure to meet specified goals and objectives, will vest.

For the nine months ended June 25, 2004, the Company recorded $0.8 million of compensation expense for restricted stock units.

Co-Investment Rights to Purchase Additional Shares of Company’s Common Stock

In connection with the acquisition transactions, Desarrollo Consolidado de Negocios, S.A. de C.V. received immediately exercisable rights to acquire 13.8% of the outstanding shares of the Company’s common stock on a fully-diluted basis. In addition, Desarrollo Consolidado de Negocios, S.A. de C.V. and Fox Paine received a second tranche of co-investment rights to acquire up to 15.8% and 1.57%, respectively, of the outstanding shares of the Company’s common stock on a fully-diluted basis. The Fox Paine co-investment rights and the second tranche of co-investment rights owned by Desarrollo Consolidado de Negocios, S.A. de C.V. will become exercisable only if Fox Paine achieves a 26.0% internal rate of return on its investment in the Company. Each co-investment right entitles the recipient to acquire one share of Company’s common stock at an exercise price of $3.40 per share. All of the co-investment rights expire on the tenth anniversary of the date of the consummation of the acquisition transactions.

Warrants

See Note 11 –– PIK Preferred Stock

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Note 11 — PIK Preferred Stock

The Company issued shares of PIK Preferred Stock with an aggregate liquidation preference of $50.0 million as part of the acquisition transactions. In connection with the sale of PIK Preferred Stock, the Company issued warrants to purchase shares of Company common stock representing approximately 3.7% of the shares of Company common stock on a fully diluted basis. The shares of PIK Preferred Stock are mandatory redeemable at liquidation value on October 1, 2014.

Holders of shares of the PIK Preferred Stock are entitled to receive paid in kind dividends (or at the sole discretion of the Company, cash dividends) at the annual rate of 12.0% of liquidation preference per share, compounded quarterly, provided that after the occurrence of, and during the continuance of, specified events of default, holders of shares of the PIK Preferred Stock are entitled to receive paid in kind dividends (or in the sole discretion of the Company, cash dividends) at the annual rate of 14.0% of liquidation preference per share, compounded quarterly.

In general, the PIK Preferred Stock is not redeemable at the option of the Company prior to October 1, 2006. For the period from October 1, 2006 to and including October 1, 2008, the PIK Preferred Stock is redeemable by the Company at a per share redemption price payable in cash equal to 102% of the liquidation preference, plus an amount in cash equal to accrued and unpaid dividends. After October 1, 2008, the shares of PIK Preferred Stock are redeemable by the Company at a per share redemption price payable in cash equal to 100% of the liquidation preference, plus an amount in cash equal to accrued and unpaid dividends.

At any time prior to October 1, 2014, following a change of control or an initial public offering of the Company, the Company has the right to redeem the shares of PIK Preferred Stock at a per share redemption price payable in cash equal to 102% of the liquidation preference, plus an amount in cash equal to accrued and unpaid dividends.

Unless the holders of a majority of the then outstanding shares of PIK Preferred Stock otherwise consent, the Company may not approve a change of control unless, in connection with the change of control, the Company is permitted to make and consummate a change of control offer. Upon the occurrence of a change of control, holders of shares of PIK Preferred Stock would have the right to require the Company to repurchase their shares of PIK Preferred Stock at a purchase price equal to 101% of the liquidation preference, plus an amount in cash equal to accrued and unpaid dividends.

Upon the occurrence of certain events of bankruptcy relating to the Company (or the principal borrower of the material indebtedness of Seminis) and, the acceleration and satisfaction of certain material indebtedness of Seminis, holders of shares of the PIK Preferred Stock have the right to require the Company to repurchase their shares of PIK Preferred Stock at a purchase price equal to 102% (if the applicable event occurred prior to October 1, 2008) or 100% (if the applicable event occurred following October 1, 2008) of the liquidation preference, plus an amount in cash equal to accrued and unpaid dividends, provided, however, that the Company’s repurchase obligation would be subject to the prior satisfaction of any and all obligations pursuant to Seminis’ senior secured credit facility (and any replacement financing) and the notes (and any replacement financing).

The ability of the Company to pay cash dividends on the PIK Preferred Stock or to redeem the PIK Preferred Stock is dependent on the ability of Seminis Vegetable Seeds, a subsidiary of the Company, to dividend funds to the Company, which ability is limited by the terms of our senior secured facility and the notes.

The preferred shares subject to mandatory redemption were stated at $41.5 million and $39.3 million as of June 25, 2004 and September 30, 2003, respectively. The accretion of the preferred shares subject to mandatorily redemption and their paid-in-kind dividends are recognized as interest expense through the term of the agreement. For the nine months ended June 25, 2004, this interest expense totaled $5.2 million.

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Note 12 — Commitments and Contingencies

As part of the formation of LSL PlantScience, a joint venture between Seminis and LSL Biotechnologies, LSL Biotechnologies contributed certain agreements between LSL Biotechnologies and a third party. These agreements contain provisions that permanently restrict the third party from engaging in the development or marketing of open field tomato seeds having long-shelf-life characteristics in certain areas in the world, including North America. In September 2000, the Antitrust Division of the U.S. Department of Justice filed suit in the U.S. District Court for the District of Arizona against LSL PlantScience, LSL Biotechnologies and Seminis to delete these restrictive provisions. On March 29, 2002, the U.S. District Court dismissed without prejudice the action against LSL PlantScience, LSL Biotechnologies and Seminis. The U.S. Department of Justice has appealed this ruling and the appeal is pending in the Ninth Circuit Court of Appeals.

In January 2002, melon growers in Costa Rica notified us that our Dorado melon seeds were infected with Watermelon Fruit Blotch. Growers who purchased the infected Seminis seeds and growers whose crops were infected by the bacteria that spread from crops grown with the infected Seminis seeds have claimed damages against us. The claims related to those growers who purchased Seminis seeds have been settled for approximately $5.8 million, of which approximately $2.6 million was recovered under our errors and omissions insurance policy and the remainder of the settlement was paid by us by July 2002. The claims related to the growers with infected crops total approximately $4.7 million and we believe these claims are covered under our general liability insurance policy. We have finalized settlement of all of these claims. We have settled the coverage issue with our general liability insurance carrier to our satisfaction, and proceedings against them have been dismissed. We are now pursuing coverage with our excess general liability insurer, who has informally denied coverage, and we are in the midst of settlement negotiations with them.

In early 2000, we filed suit against Dietrich Schmidt, the former president of Seminis and the current president of United Genetics, a competitor of ours, United Genetics, and two former Seminis breeders, Ken Owen and Wei Ouyang, for trade secret misappropriation and breach of contract. Mr. Schmidt filed a counterclaim for defamation against us. We were unsuccessful on our claims for trade secret misappropriation and breach of contract, and Mr. Schmidt was successful on his counterclaim with the court awarding him $1 in nominal damages. The count subsequently awarded Messrs. Schmidt, Owen and Ouyang their attorney’s fees. We have appealed certain aspects of the judgment, including the fee award. A decision on the appeal was handed down in December, 2003. The California Court of Appeal partially affirmed the lower court’s ruling, and has partially reversed and remanded the case to the lower court for a re-determination of costs and fees, specifying that certain attorney’s fees and costs previously awarded to Messrs. Schmidt, Owens and Ouyang should not be payable by Seminis. Seminis recently settled this matter and all litigation, appeals, and motions have been dismissed.

On December 17, 2002 and January 4, 2003, four purported class action lawsuits were filed relating to the acquisition transactions. Three of these actions — Garry Firth v. Alfonso Romo Garza, et al., Civil Action No. 20085, Boris Pozniak v. Alfonso Romo Garza, et al., Civil Action No. 20097 and Pablo Herranz v. Seminis, Inc., et al., Civil Action No. 20105 — were filed in the Delaware Court of Chancery (New Castle County), while the fourth, Mark Rosales v. Seminis, Inc., Case No. CIV216255, was filed in California Superior Court (Ventura County). Since that time, a fifth case, Haven Capital Management v. Alfonso Romo Garza, et al., Civil Action No. 20140 has also been filed in Delaware. In February 2003, the Firth, Pozniak, Herranz and Haven Capital cases were consolidated into one proceeding entitled In re Seminis, Inc. Shareholders’ Litigation, Consolidated C.A. No. 20140-NC, and the Haven Capital complaint was designated as the operative complaint in the consolidated lawsuit. That complaint names as defendants Savia, Company and its Directors. The Rosales (California) complaint names as defendants Company and its Directors. Both the Delaware consolidated action and the Rosales action purport to be brought on behalf of Company common stockholders or their successors. Both of these actions — which were brought prior to the public announcement of Company entering into the acquisition transactions agreements — allege that the acquisition transactions, when consummated, would provide insufficient consideration to Company’ common stockholders and allege that the defendants breached their fiduciary duties in connection with the acquisition transactions. The complaints sought a preliminary and permanent injunction to enjoin the acquisition transactions and, since the acquisition transactions have been consummated, rescission and damages. On September 24, 2003, the parties reached a memorandum of understanding that settled all of the alleged claims. The parties have finalized the settlement agreement and the California court preliminarily approved the terms of the settlement in April 2004. A hearing for final approval of the settlement was held by the California court in July, 2004,

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and approval of the settlement was granted, and we expect to have all actions in California and Delaware dismissed in the very near future. The proposed settlement does not affect the terms of the acquisition transactions set forth herein.

During the last months of fiscal year 2002, Seminis’ subsidiary in Spain sold Boludo tomato seed to growers in the Canary Islands, Almeria, Murcia, and Granada areas of Spain. Subsequently, some plantings with this seed showed symptoms of the bacteria, Clavibacter michiganses, which can be seed borne, among other possible sources. Seminis has been conducting an investigation of the seeds and until July 31, 2003, all Seminis seed used in these plantings that had been tested, tested negative for the presence of the bacteria. Spanish authorities requested an analysis of all seed lots sold in the Canary Islands. On July 31, 2003, Seminis was notified that after analyzing 89 officially sealed samples of batches of Boludo seed, a single seed batch tested positive for the presence of the bacteria. Seminis believes that other factors that may cause the disease were present at the time of the infection, and could be responsible for, or contributing factors to, the presence of the bacteria and damage to the crops. These factors include, but are not limited to: poor sanitary practices in the growers’ fields (failure to remove debris from prior harvests); bacteria from sources other than Seminis that remained in the plantings from prior seasons; the practice of grafting, which can magnify the effects of minor outbreaks; failure to properly rotate crops from season to season; and third-party sources (different strains) of the disease that may have been present. Seminis continues to investigate this matter vigorously, in particular investigating the single positive test result, which is inconsistent with the findings of all of the other independent laboratories’ test results obtained from testing officially sealed batch samples of Seminis seed. Tomato growers may initiate legal claims against Seminis alleging that Seminis seeds were the source of the bacteria and claiming significant damages and Seminis cannot predict the outcome of any such claim, if initiated. Seminis is currently involved in investigating each of the growers’ complaints, and will work diligently to resolve these issues in a commercially reasonable manner.

We are involved from time to time as a defendant in various other lawsuits arising in the normal course of business. We believe that no current claims, individually or in the aggregate, will have a material adverse effect on our business, results of operations or financial condition.

An accrual for management’s estimate of exposure related to such claims has been recorded in the financial statements and is disclosed in Note 6. It is the opinion of management that the ultimate resolution of these matters will not have a material adverse effect on the Company’s consolidated financial position or results of operations. Historically, resolution of asserted claims has been in line with management’s expectations.

Note 13 — Related Party Transactions

In accordance with the agreement entered in as part of acquisition transactions, the Company paid management fees of $2.4 million each to Fox Paine and Desarrollo Consolidado De Negocios, S.A. De C.V. in October 2003 for services to be rendered during fiscal year 2004. The annual management fee is equal to 1% of previous fiscal year’s net sales and is amortized as services are rendered during the fiscal year.

The Company sold residential property to Bernardo Jimenez, Executive Senior Vice President and Chief Financial Officer. The sales price of $1.1 million was based upon a real estate appraisal of the market value of the property.

In June 2000, a subsidiary of the Company sold residential property, originally acquired in December 1999 for $862,000, to Mr. Bruno Ferrari, Executive Senior Vice President, World Wide Commercial, at the appraised value of $875,000. The purchase price was evidenced by a promissory note secured by a deed of trust on the property. The note had an interest rate of 7.75% per annum and was payable in ten equal annual installments of principal, including interest accrued thereon, commencing December 15, 2000, and annually thereafter. The loan was repaid in December 2003. Under a separate agreement, the Company paid bonuses to Mr. Ferrari that covered the interest payable on the loan and paid Mr. Ferrari the present value of the interest payments that would have been payable to Mr. Ferrari had the loan remained outstanding until its scheduled final maturity. The bonus payments were recognized as compensation expense at the time of the payments.

In connection with the additional senior subordinated notes, the Company paid $1.8 million and $1.5 million for advisory fees to Fox Paine and Geotel S.A. De C.V., a subsidiary of Desarrollo Consolidado De Negocios, S.A. De C.V, in January and July 2004, respectively.

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Note 14 — Supplemental Guarantor/Non-Guarantor Financial Information

In conjunction with the 10 1/4% senior subordinated notes, the following summarized condensed consolidating financial information is presented for the Company, segregating the Company, a guarantor of the notes and the parent of Seminis Vegetable Seeds, Inc. (“Seminis Vegetable”), Seminis Vegetable, the issuer of the notes, guarantor subsidiaries and non-guarantor subsidiaries. The accompanying financial information in the “Guarantor Subsidiaries” column reflects the financial position, results of operations and cash flows for those subsidiaries which guarantee the notes. The guarantor subsidiaries are wholly owned subsidiaries of the Company and the guarantees are full, unconditional, and joint and several. Separate financial statements of the guarantor subsidiaries are not presented because management believes that such financial statements would not be material to investors.

Investments in subsidiaries in the following condensed consolidating financial information are accounted for under the equity method of accounting. Consolidating adjustments include the following:

(1)		elimination of investments in subsidiaries;
(2)		elimination of intercompany accounts;
(3)		elimination of intercompany sales between guarantor and non-guarantor subsidiaries; and
(4)		elimination of equity in earnings of subsidiaries.

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Successor
Condensed Consolidating Balance Sheets
As of June 25, 2004
(Unaudited)

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Successor
Condensed Consolidating Balance Sheets
As of September 30, 2003

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Successor
Condensed Consolidating Statements of Operations
For the Nine Months Ended June 25, 2004
(Unaudited)