Devgen NV ANNUAL REPORT 2011 Table of Content Page Risk factors 4 1. Introduction 15 2. Persons responsible for the content of the registration document 16 3. Statutory auditor 17 4. Selected financial information 18 4.1. Income statement 18 4.2. Comprehensive income statement 19 4.3. Balance sheet 19 4.4. Cash flow statement 21 4.5. Consolidated statement of changes in sharehol ders’ equity 22 5. Information about Devgen 23 5.1. General information 23 5.2. Important events in the development of Devgen’s business 25 5.3. Investments 28 5.4. Legal proceedings 29 5.5. Significant change in the financial or trading position of Devgen since 31 December 29 2011 6. Business overview 30 6.1. General 30 6.2. Devgen 30 6.3. Devgen’s strategy: build the next generation of hybrid 31 rice 6.4. Seed business in India and Southeast Asia 33 6.5. Biotechnology 36 6.6. Nematicides 38 6.7. Patents and intellectual property 41 7. Group structure 42 8. Property, plants and equipment 43 9. Capital resources 47 10. Research and development, patents and licenses 51 11. Corporate governance 53 11.1. General 53 11.2. Compliance with the corporate governance code 53 11.3. Internal controls and risk management 54 11.4. Board of Directors 57 11.5. Executive and senior management 63 11.6. Remuneration report 64 11.7. Litigation statement and conflicts of interests 71 11.8. Transactions with related companies 73 11.9. Internal control and risk management systems 73 11.10. Compliance with the corporate governance code 74 Table of content Devgen Annual Report 2011 2 12. Employees 74 12.1. Number of employees 74 12.2. Arrangements for involving the employees in the capital of Devgen 74 13. Shares and shareholders 75 13.1. History of capital 75 13.2. Authorized capital 78 13.3. Warrants 78 13.4. Transparency 79 13.5. Shareholders: overview of transparency declarations and major shareholders 80 13.6. Paying agent services 81 14. Consolidated financial statement 82 14.1. Consolidated financial statements per 31 December 2011 82 14.2. Annual report of the Board of Directors on the consolidated financial statements of 129 Devgen NV 14.3. Auditor’s report on the consolidated financial statements for the year ended 31 Decem- 153 ber 2011 14.4. Auditor’s report on the consolidated financial statements for the year ended 31 Decem- 155 ber 2010 14.5. Auditor’s report on the consolidated financial statements for the year ended 31 Decem- 157 ber 2009 15. Statutory financial statements 2011-2009 159 15.1. Statutory income statement 2011 – 2009 159 15.2. Statutory balance sheet 2011 – 2009 160 15.3. Annual report of the Board of Directors on the statutory financial statements of Devgen 162 NV 16. Articles of association 186 16.1. Company purpose 186 16.2. Governance and representation 187 16.3. Rights attached to shares 192 16.4. Changes to the share capital 194 16.5. Anti-takeover provisions 195 17. Business objectives and financial outlook 195 18. Available documents 196 Table of content Devgen Annual Report 2011 3 Risk factors The risks that Devgen believes to be material are described below. However, these risks and uncertainties may not be the only ones faced by Devgen. Additional risks, including those currently unknown or deemed immaterial, may also impair the company’s business operations. The risks listed below are not intended to be presented in any assumed order of priority. Early stage of development Devgen’s trait research (RNAi technology to achieve in planta resistance against major crops pests and diseases and other non-RNAi based herbicide tolerance, biotic and a-biotic stress) is in pre-field trial stage. The risks at this stage include potential lack of field efficacy, risk of performance below commercial threshold. Devgen’s hybrid seed products pipeline carries risks in respect of up-scaling of seed production and upon broad cultivation. Some products may reveal defects typically only noticeable during up-scaling or post-market launch. Devgen’s nematicide technology has entered the market in the U.S. and in Turkey for respective ly peanuts and tomatoes, cucurbits, peppers and eggplant. Additionally, Devgen is working towards regulatory approvals in Southern European countries, the Middle East and Africa for launching its products in these markets for selected crops. Risks remain with respect to efficacy under certain environmental conditions such as soil types and temperature and obtaining the regulatory approval which is not solely dependent on elements controlled by the company (e.g. total use limitations of the active ingredient in the market). Successful products based on Devgen’s technologies will require significant development and investment, including testing, to demonstrate their safety and (cost-) effectiveness prior to their commercialization. Problems frequently encountered in connection with the safety, development and utilization of new and unproven technologies and the competitive environment in which Devgen operates, might limit the ability to develop commercially successful products. Highly competitive business environment The agro-biotech industry is characterized by high competition, a changing competitive landscape, rapid technological change and complexity. Devgen’s success, as well as the success of any of the companies in the industry, depends on the ability to establish a competitive position with respect to factors as technology, product offering, intellectual property, crop pests and diseases, geographic area, and time to market. There are many established biotechnology and agro-chemical companies with resources greater than Devgen’s, as well as research and academic institutions that are actively working in similar areas. Competitors may succeed in reaching the market first or in developing technologies and products that are less costly, more effective or more successful than those which are currently being developed by Devgen. Seed manufacturers, such as Devgen, compete on the basis of availability of product, product range, product traits, including disease resistance, plant quality and other factors as we ll as based on price, reputation, availability of marketing and distribution channels, customer service and customer convenience. Seed manufacturers compete for production inputs, such as arable land and contract growers. Further, the introduction of biotechnology has resulted in the entry of various agrochemical companies into the seed industry, thus increasing the competition in the industry. In most segments of the market, the number of products available to the grower is steadily increasing as new products are introduced. As a result, the sector will continuously be faced with new and different competitive Risk factors Devgen Annual Report 2011 4 challenges. The supply of competing products on the market as well as changes in their pricing can result in reduced sales, in competitive price pressure and in reduced profit margins, which may negatively impact the company’s business. Some of Devgen’s competitors may have, or are subsidiaries of large international corporations that have, significantly greater resources than those available to Devgen. If a company is unable to compete effectively, including in terms of pricing or providing quality products, its market share may decline, which could have a material adverse effect on its financial condition and results of operations. Important competitors today are multinational companies like Bayer Crop Science, Pioneer (DuPont), Syngenta, but also local players (India) like Advanta and Nath Seeds. Devgen is not in a position to elaborate on the current status of their pipelines with new products to be launched in the near, medium and / or long term. The seed business is subject to agricultural risks that could affect the results of operations Weather factors, diseases and pests, make operational results relatively unpredictable and can have a material adverse effect on Devgen’s business and operating results in any year. High seasonality of sales; Devgen continues to incur operating expenses while its revenues may be delayed or reduced. The need to accurately forecast and manage seed inventory, the failure of which may result in a shortfall or surplus of seeds, which could harm respectively the growth and the operational result of the business. The risk of further intervention by regulatory authorities and governments, who can block or cause delay or extra costs in the sale or import of Devgen’s products, can regulate pricing of seeds (both towards the farmers producing the seed for Devgen as well to farmers purchasing the final seed products), order recalls, prohibit the planting of seeds, or review their agricultural policies (e.g. with regard to subsidies). Dependency on the stability of a good distribution network and the need to attract additional high- quality dealers. Transportation risks. Dependency on third parties for growing and processing seeds, which is currently almost entirely outsourced by Devgen, and Devgen’s dependency on the commercial rates applied by Devgen’s sub- contractors for such services. Risk of theft of parental lines of seeds, resulting in illegal sales of copycats. Risk of product defects in the seeds, which may expose Devgen to a large number of claims by farmers, and this during the same growing season. The risk that growers attribute poor crop yields or crop failure to perceived seed defects that may not exist, which could still result in claims against Devgen, negative publicity and a decrease in sales. The risk that Devgen’s customers are unable to pay their debts to Devgen due to local or other economic conditions. The risk that commercial or parental seed stored in one or more of Devgen’s seed inventory locations might get damaged and/or become obsolete by reasons out of Devgen’s control such as fungal infections, quality loss due to climatic conditions, power shortage at storage locations and so on. Risk factors Devgen Annual Report 2011 5 Devgen mitigates risks as much as possible with respect to parental seed by storing similar seed at multiple locations.