UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2004

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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 þ NO o

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

As of February 9, 2005, 64,333,205 shares of the registrant’s common stock, $0.01 par value, were outstanding.

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SEMINIS, INC.

FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 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
(In thousands)

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.

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 2004, the FASB issued SFAS No. 123(R), Share-Based Payment, which establishes standards for transactions in which an entity exchanges its equity instruments for goods or services. This standard requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. SFAS No. 123(R) eliminates the exception to account for such awards using the intrinsic method previously allowable under APB Opinion No. 25. SFAS No. 123(R) will be effective for interim or annual reporting periods beginning on or after June 15, 2005. The Company has adopted FASB Statement No. 123 under the provisions of SFAS No. 148 on October 1, 2003; see Note 9 Benefit Plan (Stock Based Compensation) for related disclosure under this provision. Accordingly, management believes SFAS No. 123(R) will not have a material impact on the Company’s balance sheet or income statements. Management continues to assess the potential impact that the adoption of SFAS No. 123(R) could have on the Company’s statements of cash flows.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, which eliminates the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS No. 153 will be effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Company does not believe the adoption of SFAS No. 153 will have a material impact on its financial statements.

In November 2004, FASB Statement No. 151, Inventory Costs, an Amendment of ARB No. 43, Chapter 4 (“SFAS No. 151”), was issued. The amendments made by SFAS No. 151 clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and require the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. SFAS No. 151 will become effective for the Company beginning in fiscal 2006. Management is in the process of assessing the impact SFAS No. 151 will have on the Company’s financial position and results of operations.

Recent Tax Legislation

The United States Congress passed the American Jobs Creation Act of 2004 (the “Act”), which the President signed into law on October 22, 2004. Key provisions of the Act include a temporary incentive for U.S. multinational corporations to repatriate foreign earnings, a domestic manufacturing deduction, and international tax reforms designed to improve the global competitiveness of U.S. businesses. In accordance with SFAS No. 109, “Accounting for Income Taxes,” we will reflect the effects of the Act, if any, in the first half of fiscal 2005 as part of income tax expense for the period. We are still evaluating the impact of the Act on the Company. Accordingly, we have not yet determined its impact on our effective tax rate and on our deferred tax assets and liabilities.

Note 2 — Acquisition Transactions / Liquidity

Under the acquisition transactions, in September 2003, the Company became a privately held company by acquiring 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. The Company also 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 the revolving loan was outstanding at September 30, 2003), 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.

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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 (none of the revolving credit facility was outstanding at December 31, 2004 and September 30, 2004), 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 December 31, 2004 was $470.5 million, of which $88.6 million were borrowings under Company’s term loan, $341.4 million were borrowings under the senior 10 ¹/4% subordinated notes (including $11.4 million of remaining premium balance, which will be amortized over the life of the notes and reduces interest expense), and $17.0 million, $6.2 million, $1.5 million and $15.8 million were borrowings by its United States, Spanish, Italian and South Korean subsidiaries, respectively. The Company also has $42.0 million of preferred shares subject to mandatory redemption (see Note 11— PIK Preferred Stock). As of December 31, 2004, the Company has cash and cash equivalents of $75.8 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 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 the adjusted carrying values of the net assets acquired as of September 29, 2003:

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 was expected to be over a 16-month period from September 29, 2003, the date of acquisition, based on an estimated inventory turn. The amortization period was subsequently changed to 18 months based on the actual inventory turn of fiscal year 2004.

Depreciation and Amortization

The effect of the negative goodwill allocation to the non-current assets resulted from the acquisition transactions was the write-down of the non-current assets. Therefore, the related depreciation and amortization expense was lowered.

Other

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 $79,818 and $72,409 at December 31, 2004 and September 30, 2004, respectively. As described in Note 3, as part of the acquisition transactions, inventories were stepped-up by $73.2 million. In the quarter ended December 31, 2004, $10.0 million of the inventory step-up was amortized and charged to cost of sales. This non-cash adjustment will continue as the remaining inventory of approximately $16.0 million is expected to be sold over the next 3 months.

Note 5 — Intangible Assets

Intangible assets at December 31, 2004 and September 30, 2004 consist of the following:

Aggregate amortization expense was $2.1 million and $1.9 million for the three months ended December 31, 2004 and December 26, 2003, respectively. Amortization periods for Germplasm and Software are 40 years and 5 years, respectively, and Trademarks, Existing Product Technology, and Customer Relationships are 15 years. The weighted average of the amortization period for intangible assets is approximately 14.5 years. Estimated amortization expense for the next five years is as follows:

The Company had no goodwill recorded in the three months ended December 31, 2004 and the year ended September 30, 2004.

In accordance with SFAS No. 142, impairment for goodwill was analyzed resulting in no impairment in fiscal year 2002. As a result of the acquisition transactions described in Note 3, all goodwill was written off at September 30, 2003. Furthermore, research and development assets totaling $10.6 million, which were determined by an independent appraisal service (after negative goodwill adjustments), were written off as part of research and development expenses during the one-day period ended September 30, 2003.

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Note 6 — Accrued Liabilities

Accrued liabilities consist of the following at December 31, 2004 and September 30, 2004:

Note 7 — Long-Term Debt

Long-term debt consists of the following at December 31, 2004 and September 30, 2004:

As of December 31, 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 guaranteed 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 December 31, 2004 and $3.5 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 or LIBOR plus 3.00% per annum in the case of a LIBOR loan. The applicable rate for the revolving credit facility under

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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.

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 December 31, 2004, the outstanding balance of the term loan under the senior secured credit facility was $88.6 million with a variable interest rate of 4.46%, 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 December 31, 2004, the outstanding balance of the 10¹/4% senior subordinated notes was $330.0 million and a remaining premium balance of $11.4 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 December 31, 2004, the outstanding balance of the mortgage note was $16.7 million with a fixed interest rate of 6.3%, and the market value of the interest rate swap was a liability to Seminis of $0.3 million.

South Korean Borrowings

The Company’s South Korean subsidiary has a number of loan facilities maturing until 2013. Borrowings under these facilities carry interest rates of between 4.0% and 6.0%.

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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 9.82% through 2013 as of December 31, 2004 and September 30, 2004.

For the three months ended December 31, 2004 and fiscal year ended September 30, 2004, the Company incurred interest at a weighted-average rate of 8.66% and 8.68% per annum, respectively.

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

The Company has a policy whereby all stock option grants are priced at fair market value on the date of grant. Prior to October 1, 2003, the Company used the intrinsic value method of accounting for stock-based compensation in accordance with Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees”. Under the intrinsic value method, compensation cost is the excess, if any, of the quoted market price of the stock at the grant date or other measurement date over the amount an employee must pay to acquire the stock.

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.

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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 December 31, 2004, there are approximately 1.7 million options outstanding.

Restricted Stock Units

Upon completion of the acquisition transactions, the Company 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 the 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 the Company 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 three months ended December 31, 2004 and December 26, 2003, the Company recorded $0.3 million of compensation expense in each period 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 mandatorily 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 the Company’s senior secured facility and the notes.

The preferred shares subject to mandatory redemption were stated at $42.0 million and $41.8 million as of December 31, 2004 and September 30, 2004, respectively. The accretion of the preferred shares subject to mandatory redemption and their paid-in-kind dividends are recognized as interest expense through the term of the agreement. For the three months ended December 31, 2004 and December 26, 2003, this interest expense totaled $1.7 million and $1.8 million, respectively.

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Note 12 — Commitments and Contingencies

Contingencies

In mid-October 2003, Seminis was notified by the University of California at Davis (UCD) that 20 grams of tomato seed donated to the university in 1996 by Petoseed (acquired by Seminis) for research purposes was believed to be bioengineered seed. UCD had grown a seed crop from this seed and distributed 30 samples (each including about 25 seeds) to researchers and horticulturists in the United States and abroad over the past seven years. UCD, Seminis and the recipients of this seed were unaware that these seeds carried a biotech trait. Seminis and UCD have investigated this matter, and it is unclear when or where the seeds were mislabeled.

The biotech trait involved here, known as the PG-gene, had been cleared for human consumption by the Food and Drug Administration in 1994, and a different seed variety with this trait was planted commercially until 1999. Federal regulators indicate there is no evidence that the seed in this instance was used for anything other than research.

Seminis and UCD worked with the U.S. Department of Agriculture, as well as similar local agencies in the countries where seed was sent to determine what happened and what actions, if any, needed to be taken. The USDA has now closed its investigation with a minor fine paid by Seminis, and an update to Seminis’ seed handling training.

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 appealed this ruling, but its appeal was denied by a panel of the Ninth Circuit Court of Appeals on August 11, 2004. The U.S. Department of Justice filed a Petition for Panel Rehearing and Suggestion for Rehearing En Bank on September 23, 2004, requesting that the panel’s decision be vacated, and the district court’s order reversed (U.S. v. LSL Biotechnologies, 9th Cir., No. 02-16472, 8/11/04). On October 20, 2004, the government’s petition was denied, and the mandate was issued on November 3, 2004.

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 batches 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. As part of its customer relations initiatives, Seminis has entered into a $2.9 million settlement of this matter with growers in Almeria, and continues to work with its insurance carriers and counsel to investigate and close out this matter in other locations in Spain.

The Company is involved from time to time as a defendant in various other lawsuits arising in the normal course of business. Management believes that no current claims, individually or in the aggregate, will have a material adverse effect on the Company’s 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 8. It is the opinion of management that the ultimate resolution of these matters will not have a

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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 $2.6 million each to Fox Paine and Desarrollo Consolidado De Negocios, S.A. De C.V. in October and December 2004, respectively, for services to be rendered during fiscal year 2005. 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.

Note 14 — Subsequent Events

On January 24, 2005, Seminis Inc. (“Seminis”) and Fox Paine & Company, LLC (“Fox Paine”) announced that Seminis entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among Monsanto Company (“Monsanto”), Monsanto Sub, Inc. (“Merger Sub”), a wholly owned subsidiary of Monsanto, and Seminis, dated as of January 22, 2005, pursuant to which Monsanto would acquire Seminis for approximately $1.4 billion in cash and assumed debt, subject to the contingent value right payment described below.

As of the effective time of the merger, outstanding shares of common stock of Seminis will be converted into the right to receive $10.52 per share. Outstanding options, restricted stock units, co-investment rights and warrants will be converted into the right to receive an amount in cash equal to the common stock cash price per share for the number of shares into which they are convertible, less their conversion price, if any.

Marinet Investments, LLC (“Marinet”), a current holder of co-investment rights in Seminis which are being terminated upon the consummation of the merger, may elect prior to closing to reduce the merger consideration it would otherwise be entitled to receive by $50 million in exchange for a performance-based contingent value right to receive up to $125 million based on the achievement of certain cumulative net sales targets over the thirty-six-month period ending September 30, 2007.

As contemplated by the Merger Agreement, each holder of Seminis common stock and warrants entered into a support agreement agreeing, among other things, to vote in favor of approval of the Merger Agreement and the merger. The holders of Seminis common stock approved the Merger Agreement by written consent on January 22, 2005.

The Merger Agreement is subject to customary terms and conditions, including regulatory approvals. The transaction is expected to be completed during the first half of 2005. There can be no assurance that the transactions contemplated by the Merger Agreement will be consummated.

Note 15 — 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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Condensed Consolidating Balance Sheets
As of December 31, 2004
(Unaudited)

19

Condensed Consolidating Balance Sheets
As of September 30, 2004

20

Condensed Consolidating Statements of Operations
For the Three Months Ended December 31, 2004
(Unaudited)

21

Condensed Consolidating Statements Of Operations
For the Three Months Ended December 26, 2003
(Unaudited)