<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUEENY CHEMICAL COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 43-1781797
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
10300 Olive Boulevard
St. Louis, Missouri 63166-6760
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (314) 674-1000
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
------------------- ------------------------------
<S> <C>
COMMON STOCK, PAR VALUE $0.01 PER SHARE NEW YORK STOCK EXCHANGE
PREFERRED SHARE PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
</TABLE>
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
<PAGE> 2
QUEENY CHEMICAL COMPANY
I. INFORMATION INCLUDED IN PROXY STATEMENT
AND INCORPORATED IN FORM 10 BY REFERENCE
CROSS-REFERENCE SHEET BETWEEN PROXY STATEMENT
AND ITEMS OF FORM 10
<TABLE>
<CAPTION>
ITEM ITEM
NO. CAPTION LOCATION IN PROXY STATEMENT
- ---- ---------------------------------- -------------------------------------------------
<S> <C> <C>
1. Business.......................... "SUMMARY OF CERTAIN INFORMATION;" "THE SPINOFF
PROPOSAL -- Background and Reasons for the
Spinoff;" "BUSINESS AND PROPERTIES OF CHEMICALS
AFTER THE SPINOFF;" and "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF CHEMICALS."
2. Financial Information............. "SUMMARY OF CERTAIN INFORMATION;" "CHEMICALS
SPINCO SELECTED HISTORICAL FINANCIAL DATA;"
"CHEMICALS SPINCO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS;" "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF CHEMICALS;" and "INDEX TO
FINANCIAL STATEMENTS."
3. Properties........................ "BUSINESS AND PROPERTIES OF CHEMICALS AFTER
THE SPINOFF."
4. Security Ownership of Certain
Owners and Management.......... "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
OF COMPANY COMMON STOCK" AT PP. 91-92.
5. Directors and Executive
Officers....................... "MANAGEMENT OF CHEMICALS AFTER THE SPINOFF;" and
"LIABILITY AND INDEMNIFICATION OF OFFICERS AND
DIRECTORS OF CHEMICALS."
6. Executive Compensation............ "MANAGEMENT OF CHEMICALS AFTER THE SPINOFF."
7. Certain Relationships and Related
Transactions................... "RISK FACTORS;" "RELATIONSHIP BETWEEN THE COMPANY
AND CHEMICALS AFTER THE SPINOFF"; "MANAGEMENT OF
CHEMICALS AFTER THE SPINOFF;" and "INDEX TO
FINANCIAL STATEMENTS."
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ITEM ITEM
NO. CAPTION LOCATION IN PROXY STATEMENT
- ---- ---------------------------------- -------------------------------------------------
<S> <C> <C>
8. Legal Proceedings................. "BUSINESS AND PROPERTIES OF CHEMICALS AFTER THE
SPINOFF -- Legal Proceedings."
9. Market Price of and Dividends
on the Registrant's Common
Equity and Related
Stockholder Matters............ "SUMMARY OF CERTAIN INFORMATION;" "RISK FACTORS;"
and "THE SPINOFF PROPOSAL -- Listing and Trading
of Company Common Stock and Chemicals Common
Stock."
11. Description of Registrant's
Securities to be Registered.... "DESCRIPTION OF CHEMICALS CAPITAL STOCK;" and
"CERTAIN ANTITAKEOVER EFFECTS OF CERTAIN CHARTER
AND BY-LAWS PROVISIONS AND THE COMPANY AND
CHEMICALS RIGHTS."
12. Indemnification of Directors
and Officers................... "LIABILITY AND INDEMNIFICATION OF OFFICERS AND
DIRECTORS OF CHEMICALS."
13. Financial Statements and
Supplementary Data............. "SUMMARY OF CERTAIN INFORMATION;" "CHEMICALS
SPINCO SELECTED HISTORICAL FINANCIAL DATA;"
"CHEMICALS SPINCO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS;" "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF CHEMICALS;" and "INDEX TO
FINANCIAL STATEMENTS."
15. Financial Statements and
Exhibits.
(a) Financial Statements and
Schedules...................... "INDEX TO FINANCIAL STATEMENTS."
</TABLE>
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<PAGE> 4
II. INFORMATION NOT INCLUDED IN PROXY STATEMENT
Item 1. Business
In 1997, Chemicals reorganized its businesses into the ten
business units described in the Proxy Statement. Acrilan(R) Acrylic Fiber,
Carpet Fibers, Industrial Nylon Fibers, Industrial Products, Intermediates,
Nylon Plastics & Polymers, Phosphorus Derivatives, Polymer Modifiers, Resins
and Saflex(R) Plastic Interlayer. While sales information for prior years
was not collected on the basis of these ten units, sales information for
four groups of Chemicals' businesses was collected and each accounted for
more than 10% of Chemicals' annual sales during the fiscal years 1994, 1995
and 1996. Each of these four groups included the business activity of one or
more of the current ten units. Chemicals believes that the sales data for
these groups is generally comparable to what would have been recorded had
Chemicals' current ten units been reported as part of these four groups. The
table below shows the percentage of sales derived from each of these four
groups along with the identity of the current units whose business
activities were primarily included within those groups, as well as sales
associated with other businesses which have either been divested or
contributed to joint ventures:
<TABLE>
<CAPTION>
Percent of Sales
----------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Fibers & Intermediates 44% 47% 51%
(generally comparable with
the Acrilan(R) Acrylics Fibers,
Carpet Fibers, Industrial Nylon
Fibers, Intermediates, Nylon
Plastics & Polymers units)
Phosphorus Products 11% 11% 11%
(generally comparable with the
Phosphorus Derivatives unit)
Resins 19% 20% 21%
(generally comparable with
Saflex(R) Plastic Interlayer
and Resins units)
Specialty Chemicals 15% 17% 17%
(generally comparable with
the Industrial Products and
Polymer Modifiers units)
Divested/Joint Ventures 11% 5% --
</TABLE>
Item 10. Recent Sales of Unregistered Securities
On April 28, 1997, Queeny Chemical Company ("Chemicals") issued 10
shares of its common stock to Monsanto Company, its direct parent, for
consideration of $1,000. In the opinion of Chemicals, this transaction
is exempt from registration under the Securities Act of 1933, as
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<PAGE> 5
amended, by virtue of Section 4(2) thereof in that such transaction did
not involve any public offering.
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Item 15. Financial Statements and Exhibits.
(a) Financial Statement Schedules:
The following supplemental schedule for the years ended December
31, 1996, 1995 and 1994 is filed with this report:
II - Valuation and Qualifying Accounts
All other supplemental schedules are omitted because of the
absence of the conditions under which they are required.
(b) Exhibits:
2 Form of Distribution Agreement
3(a) Form of Amended and Restated Certificate of Incorporation
3(b) Form of By-Laws
4 Rights Agreement
10(a) Form of Employee Benefits Allocation Agreement
10(b) Form of Tax Sharing and Indemnification Agreement
10(c) Form of Employment Agreements with certain executive
officers
21 Subsidiaries
27 Financial data schedules
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<PAGE> 6
REPORT OF INDEPENDENT AUDITORS
To the stockholders of Monsanto Company:
We have audited the combined financial statements of the chemical businesses
that will comprise "Chemicals SpinCo" (as described in Note 1 to the combined
financial statements) as of December 31, 1996 and 1995, and for each of the
three years in the period ended December 31, 1996, and have issued our report
thereon dated May 1, 1997, except for the Subsequent Event section of Note 1,
as to which the date is July 10, 1997; such financial statements and report are
included on pages F-2 through F-20 of the Monsanto Company Proxy Statement
dated July 14, 1997, for the Special Meeting of Stockholders to be held on
August 18, 1997, and are incorporated herein by reference. Our audits also
included the financial statement schedules of Chemicals SpinCo, listed in Item
15(a)2. These financial statement schedules are the responsibility of the
company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedules, when considered in
relation to the basic financial statements taken as a whole, present fairly in
all material respects the information shown therein.
DELOITTE & TOUCHE LLP
St. Louis, Missouri
May 1, 1997, except for the
Subsequent Event section of
Note 1, as to which the
date is July 10, 1997
<PAGE> 7
SCHEDULE II
CHEMICALS SPINCO
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS YEAR
<S> <C> <C> <C> <C>
Year Ended December 31, 1996:
Reserves deducted from related assets in the
Statement Of Combined Financial Position:
Valuation accounts, principally for doubtful
receivables and returns and allowances $ 7 $ 2 -- $ 9
Year Ended December 31, 1995:
Reserves deducted from related assets in the
Statement Of Combined Financial Position:
Valuation accounts, principally for doubtful
receivables and returns and allowances $16 $(2) $7 $ 7
Year Ended December 31, 1994:
Reserves deducted from related assets in the
Statement Of Combined Financial Position:
Valuation accounts, principally for doubtful
receivables and returns and allowances $22 $(3) $3 $16
</TABLE>
<PAGE> 8
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
QUEENY CHEMICAL COMPANY
By: /s/ Rodney L. Bishop
-------------------------------
Name: Rodney L. Bishop
Title: Vice President and Treasurer
August 7, 1997
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<PAGE> 9
<TABLE>
<S> <C>
CONFIDENTIAL -- FOR USE OF THE SECURITIES AND EXCHANGE COMMISSION ONLY PRELIMINARY COPY
FILED PURSUANT TO RULE 14a-6(e) FILED JULY , 1997
</TABLE>
Monsanto Letterhead Logo
Dear Shareowner,
As you know, we're proposing to spin off Monsanto's chemical businesses
into a new publicly traded company and to unite our agricultural, food and
pharmaceuticals businesses into a life sciences company. Before completing the
spinoff, we are seeking your approval, as a shareowner, of several matters.
Please join us, then, in a special meeting of shareowners on August 18, 1997 in
K Building at the Company's World Headquarters, 800 N. Lindbergh Boulevard, St.
Louis, Missouri. The meeting will start at 10:00 a.m., Central Time. If
shareowners approve the spinoff and the charter amendments, you will receive one
share of common stock of the chemicals company for every five shares of Monsanto
common stock that you own on the record date for the spinoff.
Although the proposed spinoff has been widely reported in the media and
explained in our 1996 annual report, it bears repeating that the board of
directors believes this spinoff will be beneficial to both the chemical and life
sciences enterprises. These are distinct businesses with significant differences
in their markets, products, research needs, investment needs and plans for
growth. We believe that the potential and value of both can best be achieved by
operating them independently. With the spinoff, you will be able to focus on the
specific growth and value characteristics that best suit your investment
philosophy.
At this special meeting, we will ask you to vote on the spinoff, certain
amendments to Monsanto's charter, election of certain Monsanto directors and an
amendment to the Monsanto Management Incentive Plan of 1996.
The spinoff is subject to shareowner approval of the spinoff and of the
Monsanto charter amendments. The spinoff is also subject to certain governmental
approvals, including the receipt of a ruling from the Internal Revenue Service
that the spinoff will generally be tax free to Monsanto's shareowners for U.S.
federal income tax purposes.
Details of these proposals and other important information, including a
description of the business and management of the chemical operations, are
included in this proxy statement.
We hope you will give serious consideration to these matters. The board
has approved the above proposals and recommends that you vote for these
proposals.
Whether or not you plan to attend the special meeting and regardless of
the number of shares that you own, please complete, sign, date and return the
enclosed proxy card promptly in the enclosed envelope. You may, of course,
attend the special meeting and vote in person, even if you have previously
returned your proxy card.
Sincerely,
Robert B. Shapiro
Chairman and Chief Executive Officer
July , 1997
<PAGE> 10
Monsanto Letterhead Logo
NOTICE OF
SPECIAL MEETING OF STOCKHOLDERS
AUGUST 18, 1997
To Our Stockholders:
A Special Meeting of Stockholders of Monsanto Company (the "Company") will
be held on Monday, August 18, 1997, in K Building at the Company's World
Headquarters, 800 N. Lindbergh Boulevard, St. Louis, Missouri, at 10:00 a.m.,
Central Time (the "Special Meeting"), for the following purposes:
(1) to consider and vote on a proposal to approve the spinoff of the
Company's chemicals business;
(2) to consider and vote on a proposal to amend the Company's Restated
Certificate of Incorporation as described in the attached Proxy
Statement;
(3) to elect the Company's directors named in the accompanying Proxy
Statement to classified terms, subject to approval of the proposal to
amend the Company's Restated Certificate of Incorporation; and
(4) to consider and vote upon a proposal to amend the Monsanto Management
Incentive Plan of 1996 to increase the maximum number of shares of the
Company's common stock available for grants by 19,000,000 shares to
65,250,000 shares.
The record date for determining stockholders entitled to notice of and to
vote at the meeting or any adjournment is June 27, 1997. No business other than
the proposals described in this notice will be considered at the Special Meeting
or any adjournment.
The Board of Directors unanimously recommends that stockholders vote to
approve the four proposals listed above, which are described in detail in the
accompanying Proxy Statement.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY CARD AND PROMPTLY MAIL IT IN THE ENCLOSED STAMPED
ENVELOPE. If you plan to attend the special meeting, you must present your
admission ticket at the door. Your admission ticket and directions to the
special meeting are in this proxy statement on the following page.
/s/ R. William Ide III
Secretary
St. Louis, Missouri
July , 1997
<PAGE> 11
Monsanto Company
Special Meeting of Stockholders
ADMISSION TICKET
10:00 a.m. Central Time
August 18, 1997
K Building at Monsanto Company's World Headquarters
800 N. Lindbergh Boulevard
St. Louis, Missouri
Directions from downtown St. Louis:
Take Highway 40 west to Lindbergh Boulevard north. Go about 2 1/2 miles to the
Olive Boulevard west exit. Follow Olive to the first traffic light. Turn left
and immediately left again into Monsanto's headquarters site. Please follow
signs to parking area and entrance to K Building.
Directions from St. Louis International Airport (Lambert):
Take Interstate 70 west to Lindbergh Boulevard south. Go about 6 miles to Olive
Boulevard west exit. Follow to the first traffic light. Go directly across the
intersection and then immediately turn left into Monsanto's headquarters site.
Please follow signs to parking area and entrance to K Building.
(See map on back of the page.)
<PAGE> 12
[MONSANTO COMPANY MAP]
<PAGE> 13
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE SPINOFF OF CHEMICALS................................... 4
SUMMARY OF CERTAIN INFORMATION......................................................... 5
Summary Selected Historical and Pro Forma Financial Data............................. 8
Monsanto Company and Subsidiaries Selected Historical Financial Data................. 9
Chemicals SpinCo Selected Historical Financial Data.................................. 11
Monsanto Company and Subsidiaries Selected Unaudited Pro Forma Consolidated Financial
Data and Comparative Per Share Data............................................... 13
Chemicals SpinCo Selected Unaudited Pro Forma Combined Financial Data and Comparative
Per Share Data.................................................................... 14
THE SPECIAL MEETING.................................................................... 15
Purpose of the Special Meeting....................................................... 15
Voting Rights and Proxy Information.................................................. 16
No Appraisal Rights.................................................................. 16
RISK FACTORS........................................................................... 17
Lack of Operating History as Separate Entities....................................... 17
Increased Leverage of Chemicals...................................................... 17
Environmental Liabilities............................................................ 18
Risk That the Company or Chemicals Will Be Unable to Satisfy Indemnification
Obligations....................................................................... 19
The Company's Increased Reliance on Agricultural Products Segment.................... 19
No Current Public Market for Chemicals Common Stock.................................. 20
Changes in Trading Prices of Company Common Stock.................................... 20
Certain Tax Risks of the Spinoff..................................................... 20
Dividend Policies.................................................................... 21
Possible Antitakeover Effects of the Company Charter Proposal and Similar Provisions
of the Chemicals Charter.......................................................... 21
THE SPINOFF PROPOSAL................................................................... 22
Background and Reasons for the Spinoff............................................... 22
Required Vote........................................................................ 23
Recommendation of the Company Board.................................................. 23
Manner of Effecting the Spinoff...................................................... 23
Material Federal Income Tax Consequences of the Spinoff.............................. 24
Possible Future Tax Legislation...................................................... 26
Listing and Trading of Company Common Stock and Chemicals Common Stock............... 26
Financing............................................................................ 27
Regulatory Approvals................................................................. 27
Accounting Treatment................................................................. 27
Conditions; Termination.............................................................. 28
BUSINESS OF THE COMPANY AFTER THE SPINOFF.............................................. 29
RELATIONSHIP BETWEEN THE COMPANY AND CHEMICALS AFTER THE SPINOFF....................... 30
Distribution Agreement............................................................... 30
Employee Benefits Allocation Agreement............................................... 30
Tax Sharing and Indemnification Agreement............................................ 31
Intellectual Property Agreements..................................................... 32
Transition Services Agreement........................................................ 32
P4 Joint Venture..................................................................... 32
Operating Agreements................................................................. 33
Raw Material Supply Agreements....................................................... 33
</TABLE>
1
<PAGE> 14
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE COMPANY CHARTER PROPOSAL........................................................... 34
Classification of the Company Board and Related Provisions........................... 34
Elimination of Action by Consent of Stockholders..................................... 35
Requirement of 80% Vote for Stockholders to Amend By-Laws............................ 35
Reasons for the Company Charter Proposal............................................. 35
Increase in Authorized Shares of Company Common Stock................................ 36
Required Vote........................................................................ 37
Recommendation of the Company Board.................................................. 37
ELECTION OF DIRECTORS TO CLASSIFIED TERMS.............................................. 38
Directors to be Elected Terms Expiring in 1999....................................... 38
Directors to be Elected Terms Expiring in 2000....................................... 39
Directors Continuing Current Terms Expiring in 1998.................................. 39
Required Vote........................................................................ 39
Recommendation of the Company Board.................................................. 39
Company Board Meetings and Committees................................................ 40
Compensation of Directors............................................................ 41
INCENTIVE PLAN PROPOSAL................................................................ 43
Reasons for the Incentive Plan Proposal.............................................. 43
Material Features of the Incentive Plan.............................................. 43
Required Vote........................................................................ 45
Recommendation of the Company Board.................................................. 45
MONSANTO COMPANY AND SUBSIDIARIES SELECTED HISTORICAL FINANCIAL DATA................... 46
CHEMICALS SPINCO SELECTED HISTORICAL FINANCIAL DATA.................................... 48
MONSANTO COMPANY AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS FOR THE PERIODS ENDED MARCH 31, 1997 AND DECEMBER 31, 1996................ 49
MONSANTO COMPANY AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS
OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994............................. 55
CHEMICALS SPINCO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS........... 59
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF CHEMICALS......................................................................... 65
Liquidity and Capital Resources...................................................... 65
Results of Operations................................................................ 66
Environmental Matters................................................................ 68
BUSINESS AND PROPERTIES OF CHEMICALS AFTER THE SPINOFF................................. 70
Description of Principal Products and Competitive Situation.......................... 70
Principal Equity Affiliates.......................................................... 75
Sale of Products..................................................................... 75
Raw Materials and Energy Resources................................................... 75
Patents and Trademarks............................................................... 75
Competition.......................................................................... 76
Research and Development............................................................. 76
Environmental Matters................................................................ 76
Employee Relations................................................................... 76
International Operations............................................................. 76
Properties........................................................................... 77
Legal Proceedings.................................................................... 78
Risk Management...................................................................... 79
MANAGEMENT OF CHEMICALS AFTER THE SPINOFF.............................................. 80
Executive Officers of Chemicals...................................................... 80
Directors of Chemicals............................................................... 81
</TABLE>
2
<PAGE> 15
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Committees of the Chemicals Board.................................................... 82
Compensation of Directors............................................................ 83
Executive Compensation............................................................... 84
Chemicals Incentive and Benefit Plans................................................ 89
Certain Relationships and Related Transactions....................................... 90
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF COMPANY COMMON STOCK................ 91
By Management........................................................................ 91
By Others............................................................................ 92
MANAGEMENT OF THE COMPANY.............................................................. 93
Executive Compensation............................................................... 93
Certain Agreements................................................................... 100
Certain Relationships and Related Transactions....................................... 100
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF COMPANY COMMON STOCK................ 102
By Management........................................................................ 102
By Others............................................................................ 103
MARKET INFORMATION CONCERNING COMPANY COMMON STOCK..................................... 104
DESCRIPTION OF CHEMICALS CAPITAL STOCK................................................. 105
Authorized Capital Stock............................................................. 105
Chemicals Common Stock............................................................... 105
Chemicals Preferred Stock............................................................ 105
Chemicals Rights..................................................................... 105
Preemptive Rights.................................................................... 108
CERTAIN ANTITAKEOVER EFFECTS OF CERTAIN CHARTER AND BY-LAWS PROVISIONS AND THE COMPANY
RIGHTS AND THE CHEMICALS RIGHTS...................................................... 108
General.............................................................................. 108
Classified Boards of Directors....................................................... 109
Number of Directors; Removal; Filling Vacancies...................................... 109
Limitations on Stockholder Action by Written Consent; Special Meetings............... 110
Advance Notice Provisions for Stockholder Nominations and Stockholder Proposals...... 110
Preferred Stock...................................................................... 111
Common Stock......................................................................... 112
Amendment of Certain Charter Provisions and the By-Laws.............................. 112
Preferred Share Purchase Rights...................................................... 113
Antitakeover Legislation............................................................. 113
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS OF CHEMICALS................... 115
Limitation of Liability of Chemicals Directors....................................... 115
Indemnification of Directors and Officers............................................ 115
SUBMISSION OF STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING............................ 116
SOLICITATION OF PROXIES................................................................ 116
WHERE STOCKHOLDERS CAN FIND ADDITIONAL INFORMATION..................................... 116
INDEX OF DEFINED TERMS................................................................. 118
INDEX TO FINANCIAL STATEMENTS.......................................................... F-1
Annex A -- Form of Certificate of Amendment of the Monsanto Company Restated
Certificate of Incorporation................................................ A-1
</TABLE>
3
<PAGE> 16
QUESTIONS AND ANSWERS ABOUT
THE SPINOFF OF CHEMICALS
Q: WHY ARE WE PROPOSING THE SPINOFF?
A: Your Board of Directors believes that separating the Life Sciences and
Chemicals Businesses will allow each business to pursue strategies and focus on
objectives appropriate to that business. The Life Sciences Business and the
Chemicals Business are distinct businesses with significant differences in their
markets, products, research needs, investment needs and plans for growth. Your
Board of Directors believes that the separation into two independent public
companies will enhance the ability of each to focus on strategic initiatives and
new business opportunities, and to improve cost structures and operating
efficiencies. For a more detailed discussion of these reasons for the spinoff,
see p. [22]. For information on the Life Sciences Business after the spinoff,
see p. [29] and on the Chemicals Business, see p. [70].
Q: WHEN WILL THE SPINOFF OCCUR?
A: We plan to complete the spinoff as soon as possible after the Special
Meeting, if the conditions to the spinoff are met. Currently, the Company
anticipates completing the spinoff on September 1, 1997.
Q: WHAT BUSINESSES WILL CHEMICALS BE IN AFTER THE SPINOFF?
A: After the spinoff, Chemicals will produce and market a range of
high-performance chemical-based materials, including nylon and acrylic fibers
and fiber intermediates, Saflex(R) plastic interlayer, phosphorus derivatives
and specialty chemicals.
Q: WHAT WILL I RECEIVE IN THE SPINOFF?
A: For every five shares of the Company's common stock you own of record on the
record date for the spinoff, you will receive one share of Chemicals' common
stock. The Company currently intends to distribute the shares of Chemicals'
Common Stock, including any fractional shares, by book entry. If Chemicals uses
the book-entry procedure, Chemicals will not distribute physical stock
certificates representing Chemicals shares. Instead, you will receive a
statement of your book entry account for any Chemicals' shares distributed to
you in the spinoff. Following the spinoff, you may also request physical stock
certificates, if you wish. Instructions for making that request will be
furnished with your account statement. Associated with every share of Chemicals'
common stock will be a preferred share purchase right. These rights are similar
to the Company rights associated with your existing shares of the Company's
common stock and may have certain antitakeover effects similar to the Company's
current rights.
Q: WHAT WILL HAPPEN TO MY DIVIDENDS?
A: Chemicals' dividend policy will be set by Chemicals' board of directors
after the spinoff. Chemicals may decide to return earnings to stockholders
through dividends, stock repurchases, or a combination of both. [If Chemicals'
board of directors determines to pay a dividend shortly after the spinoff, it is
likely that the dividend will be modest.] In addition, the Company is evaluating
an appropriate dividend policy to be followed after the spinoff, recognizing the
Company's need to finance its future growth plans. While no decision has been
made by either company, the combined dividends of the Company and Chemicals
after the spinoff are likely to be less than the Company's current annual
dividend rate of $0.64 per share. The actual amount of such dividends will
depend on the companies' respective operating results, financial requirements
and other factors.
Q: DO I HAVE TO PAY TAXES ON THE RECEIPT OF CHEMICALS' COMMON STOCK?
A: We have applied to the Internal Revenue Service for a ruling that the
spinoff will be tax free to the Company's stockholders for U.S. federal income
tax purposes, except for any tax payable because of any cash stockholders may
receive instead of fractional shares. If the book entry procedure is used, you
will receive cash instead of fractional shares only if you request physical
stock certificates.
Q: WILL MY CHEMICALS STOCK BE LISTED ON THE NEW YORK STOCK EXCHANGE?
A: Yes, Chemicals will apply to list the Chemicals stock on the New York Stock
Exchange. The symbol for Chemicals' common stock will be announced at a later
date.
4
<PAGE> 17
SUMMARY OF CERTAIN INFORMATION
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To better understand
the spinoff and for a more complete understanding of the legal terms of the
spinoff and the other proposals to be presented at the Special Meeting, you
should read this entire document carefully, as well as those additional
documents referred to in this summary and elsewhere. See "Where Stockholders Can
Find Additional Information."
THE SPECIAL MEETING
(SEE PAGE [15])
We will hold the Special Meeting in K Building at the Company's World
Headquarters, 800 N. Lindbergh Boulevard, St. Louis County, Missouri at 10:00
a.m., Central Time, on August 18, 1997.
THE PROPOSALS
(SEE PAGES [22], [34], [38] AND [43])
At the Special Meeting stockholders will vote on the following proposals:
(1) to approve the proposed spinoff of Chemicals;
(2) to approve the following amendments to the Company's Certificate of
Incorporation:
(a) to provide for staggered three-year terms for directors and
certain related matters,
(b) to eliminate stockholder action by written consent,
(c) to require the vote of 80% of the Company's outstanding voting
stock for stockholders to amend the Company's By-Laws,
(d) to increase the authorized number of shares of the Company's
common stock by 150,000,000 shares to 1,000,000,000 shares;
(3) if the amendments to the Company's Certificate of Incorporation are
approved, to elect the directors of the Company who are listed on pages
[38-39] to staggered terms; and
(4) to approve the amendment of the Monsanto Management Incentive Plan
of 1996 to increase by 19,000,000 to 65,250,000 the number of shares of the
Company's common stock available for grants under the plan.
WHAT COMPANY STOCKHOLDERS WILL RECEIVE IN THE SPINOFF
(SEE PAGE [23])
In the spinoff, Company stockholders will receive one share of Chemicals'
common stock and one preferred share purchase right for every five shares of the
Company's common stock that they own on the record date for the spinoff. The
shares and rights represent a continuing interest in the Chemicals Business.
We currently intend to use a book entry system to distribute shares in the
spinoff. In a book entry system, ownership of stock is recorded in the records
maintained by Chemicals' transfer agent, but physical certificates are not
issued unless the stockholder requests a physical certificate. Following the
spinoff, each stockholder of record on the spinoff record date will receive a
statement of the Chemicals shares, including fractional shares, credited to the
stockholder's account. Stockholders may request physical certificates instead of
participating in the book entry system. In that case, certificates will be
issued only for whole numbers of shares, and cash will be given to stockholders
instead of any remaining fractional shares of Chemicals' common stock that they
would otherwise receive.
5
<PAGE> 18
BUSINESSES OF THE COMPANY AND CHEMICALS AFTER THE SPINOFF
(SEE PAGES [22], [29] AND [70-79])
Following the spinoff, the Company will continue to operate its life
sciences businesses, including agricultural products such as Roundup(R)
herbicide and Ortho(R) lawn-and-garden products, pharmaceuticals, and food
ingredients such as NutraSweet(R) brand sweetener. Chemicals will produce and
market a range of high-performance chemical-based materials, including nylon and
acrylic fibers and fiber intermediates, Saflex(R) plastic interlayer, phosphorus
derivatives, and specialty chemicals. As is more fully explained elsewhere in
this proxy statement, certain businesses which have been included historically
in the Company's chemicals segment for financial reporting purposes will not be
contributed to Chemicals in the spinoff. Another business, and certain assets
which have not been reported in the Company's chemicals segment, will be
contributed to Chemicals.
CONDITIONS TO THE SPINOFF
(SEE PAGE [28])
The spinoff is subject to several conditions, including the following:
(1) approval by the Company's stockholders of both the spinoff and the
proposal to amend the Company's Certificate of Incorporation;
(2) receipt by the Company of an Internal Revenue Service ruling that,
for U.S. federal income tax purposes, the spinoff generally will not be
taxable; and
(3) approval of Chemicals' common stock for listing on the New York
Stock Exchange.
Your Board does not intend to waive any of these conditions, except that if
the stockholders approve the spinoff but do not approve the amendments to the
Certificate of Incorporation, your Board will reevaluate its intention to
complete the spinoff. After such review, your Board could decide to cancel the
spinoff or to waive the condition that the amendments be approved and complete
the spinoff despite lack of approval. If the Company does not receive the IRS
ruling and the Board decides to waive the condition, we will circulate a revised
proxy statement and resolicit proxies. Your Board also has the right to cancel
or defer the spinoff even if the stockholders approve the spinoff and the other
conditions to the spinoff are met.
FEDERAL INCOME TAX CONSEQUENCES
(SEE PAGES [24-26])
We have applied to the Internal Revenue Service for a ruling that the
spinoff will be generally tax free to the Company and the Company's stockholders
for U.S. federal income tax purposes. However, any cash stockholders may receive
instead of fractional shares may be taxable.
NO APPRAISAL RIGHTS
(SEE PAGE [16])
Under Delaware law, Company stockholders have no right to an appraisal of
the value of their shares in connection with the spinoff.
ACCOUNTING TREATMENT
Following stockholder approval of the spinoff, we will restate our
consolidated financial statements to reflect Chemicals as a discontinued
operation. In the separate financial statements of Chemicals, the assets and
liabilities contributed to Chemicals will be recorded at the Company's
historical basis.
MANAGEMENT OF CHEMICALS FOLLOWING THE SPINOFF
(SEE PAGES [80-82])
Prior to completing the spinoff, the Company, as the sole stockholder of
Chemicals, plans to elect the following persons to Chemicals' Board of
Directors: Robert T. Blakely, Joan T. Bok, Paul H. Hatfield, John C. Hunter III,
Howard M. Love, Frank A. Metz, Jr., Robert G. Potter, William D. Ruckelshaus and
John B. Slaughter. Mrs. Bok, Messrs. Love and Metz and Dr. Slaughter are
currently directors of the Company and will resign their positions as directors
of the Company as of the spinoff. Mr. Ruckelshaus is also currently a director
of the Company and will be a director of both the Company and Chemicals after
the spinoff. The executive officers of Chemicals, as of the date of the spinoff,
will be persons who are currently employees of the Company. Mr. Potter, an
Executive Vice President of the Company, will be Chairman and Chief Executive
Officer of Chemicals. He has been chief executive of the Company's chemical
businesses since 1986.
6
<PAGE> 19
DIVIDENDS AFTER THE SPINOFF
(SEE PAGE [21])
Chemicals' dividend policy will be set by Chemicals' board of directors
after the spinoff. Chemicals may decide to return earnings to stockholders
through dividends, stock repurchases, or a combination of both. [If Chemicals'
board of directors determines to pay a dividend shortly after the spinoff, it is
likely that the dividend will be modest.]
The Company is evaluating an appropriate dividend policy to be followed
after the spinoff, recognizing the Company's need to finance its future growth
plans. While no decisions has been made by either company, the combined
dividends of the Company and Chemicals after the spinoff are likely to be less
than the Company's current annual dividend rate of $0.64 per share. The actual
amount of such dividends will depend on the companies' respective operating
results, financial requirements and other factors.
LISTING OF CHEMICALS' COMMON STOCK
(SEE PAGE [26])
The shares of Chemicals' common stock to be issued in the spinoff are
expected to be listed on the New York Stock Exchange. However, there is
currently no public trading market for these shares.
VOTE REQUIRED TO APPROVE THE PROPOSALS
(SEE PAGES [23], [37], [39] AND [45])
<TABLE>
<CAPTION>
PROPOSAL VOTE REQUIRED
- ----------------------------------- -----------------------------------
<S> <C>
1. Spinoff Majority of shares present in
person or by proxy at Special
Meeting
2. Amendments to Company's Majority of shares outstanding on
Certificate of Incorporation June 27, 1997
3. Election of Company's directors Plurality of shares present in
to Staggered Terms person or by proxy at Special
Meeting (i.e., the nominees for the
available positions receiving the
greatest number of votes)
4. Amendment to Incentive Plan Majority of shares present in
person or by proxy at Special
Meeting
</TABLE>
As of May 31, 1997, the Company's directors and executive officers as a
group held does not exceed 2.66% of the Company's common stock entitled to vote
at the Special Meeting. The persons who are currently expected to be the
directors and executive officers of Chemicals as a group held does not exceed 1%
of the shares.
7
<PAGE> 20
SUMMARY SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
We are providing the following financial information to aid you in your
consideration of the proposed spinoff. First, we have provided selected
historical financial data for the Company and for Chemicals. Second, we have
provided pro forma financial data for each of the Company and Chemicals which
gives financial data as though the spinoff had already occurred. The pro forma
financial data for the Company treats Chemicals as a discontinued business for
accounting purposes, which reclassifies the historical sales, expenses and
income tax provisions of Chemicals into a single line on the income statement.
The pro forma financial data for Chemicals presents Chemicals as though it had
already become a separate public company, and include certain additions and
adjustments to the historical Chemicals results related to the spinoff. The
principal additions and adjustments are related to (1) intercompany sales and
pricing, (2) assumption of obligations and resulting increased costs for retiree
medical benefits and pensions assumed by Chemicals, (3) transactions with the P4
Joint Venture, (4) costs to run Chemicals as a public company, (5) the
assumption by Chemicals of approximately $1.03 billion in debt, (6) additional
interest expense associated with assumed debt and (7) the contribution of $75
million in cash to Chemicals. You should not rely on the pro forma data as being
indicative of what the historical results would have been for the Company or
Chemicals or the future results of either.
8
<PAGE> 21
MONSANTO COMPANY AND SUBSIDIARIES
SELECTED HISTORICAL FINANCIAL DATA
In the table below, we provide you with selected historical financial data
of the Company. We have prepared this information using the consolidated
financial statements of the Company for the five years ended December 31, 1996
and the three months ended March 31, 1997 and 1996. The financial data below
include Chemicals.
When you read this selected historical financial data, it is important that
you read it together with (1) "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Monsanto Company Consolidated
Financial Statements and the related notes in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996 and (2) the Company's Quarterly
Report on Form 10-Q for the three months ended March 31, 1997. See "Where
Stockholders Can Find Additional Information."
In the opinion of management of the Company, the unaudited consolidated
financial statements as of March 31, 1997 and 1996 and for the three months
ended March 31, 1997 and 1996 contain all adjustments necessary to present
fairly the financial position, results of operations and cash flows for these
interim periods.
Financial information for the first quarter of 1997 should not be
multiplied by four to project results for the full year. The Company's sales and
operating income are historically higher during the first half of the year,
primarily because sales from the generally more profitable agricultural products
segment are concentrated in the first half of the year.
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED FOR THE
OR AS OF MARCH 31, YEARS ENDED
(UNAUDITED) OR AS OF DECEMBER 31,
------------------ ------------------------------------------------
1997 1996 1996(1) 1995(2) 1994(3) 1993(4) 1992(5)
------- ------- ------- ------- ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Net sales....................... $ 2,574 $ 2,304 $ 9,262 $ 8,962 $8,272 $7,902 $7,763
Operating income (6)............ 386 405 597 985 923 810 58
Income (loss) from continuing
operations.................... 274 260 385 739 622 494 (126)
Income from discontinued
operations (7)................ 578
Cumulative effect of accounting
changes (8)................... (540)
Net income (loss)............... 274 260 385 739 622 494 (88)
EARNINGS PER SHARE: (9) and (10)
Income (loss) from continuing
operations.................... $ 0.45 $ 0.43 $ 0.64 $ 1.27 $ 1.06 $ 0.82 $(0.20)
Net income (loss)............... 0.45 0.43 0.64 1.27 1.06 0.82 (0.14)
OTHER STATISTICS:
Total assets.................... $12,122 $11,062 $11,191 $10,611 $8,891 $8,640 $9,085
Capital expenditures............ 157 133 692 500 409 437 586
Depreciation and amortization... 148 146 590 598 561 572 765
Interest expense................ 43 40 171 190 131 129 169
Long-term debt.................. 1,552 1,630 1,608 1,667 1,405 1,502 1,423
Short-term debt (11)............ 1,773 971 654 365 312 223 257
Dividends per share (9)......... 0.150 0.138 0.588 0.540 0.494 0.460 0.440
</TABLE>
9
<PAGE> 22
(1) Net income for 1996 included restructuring and other special charges of
$500 million, or $0.84 per share, associated with the exit from the
Company's chemical businesses, the proposed spinoff, and other unusual
items.
(2) Net income for 1995 included net restructuring expenses and other unusual
items of $105 million, or $0.18 per share, and the gain on the sale of the
styrenics plastics business of $116 million, or $0.20 per share.
(3) Net income for 1994 included a net aftertax loss for restructuring and
other unusual items of $1 million, or less than $0.01 per share.
(4) Net income for 1993 included a net aftertax gain for restructuring and
other unusual items of $15 million, or $0.02 per share.
(5) Loss from continuing operations and net loss for 1992 included a net
aftertax loss for restructuring and other unusual items of $472 million, or
$0.76 per share.
(6) Operating income for the three months ended March 31, 1997 includes $101
million of pretax charges for acquired in-process research and development
and $10 million in pretax charges for an accounting rule change related to
environmental remediation reserves at operating facilities.
(7) Discontinued operations relate to our Fisher Controls business which was
sold in October 1992.
(8) In 1992, we adopted Statement of Financial Accounting Standards (SFAS) No.
106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," and SFAS No. 109, "Accounting for Income Taxes," and, as a
result, recorded a net aftertax charge of $540 million as a cumulative
effect of an accounting change.
(9) We have restated the per share amounts to reflect the May 1996 five-for-one
stock split.
(10) In March 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." Under this new standard, the presentation of
primary and fully diluted earnings per share required by current standards
is replaced by basic and diluted earnings per share. Basic earnings per
share measures operating performance assuming no dilution from securities
or contracts to issue common stock. Diluted earnings per share measures
operating performance giving effect to the dilution that would occur when
securities or contracts to issue common stock are exercised or converted.
Earnings per share computed under the provisions of SFAS No. 128 would have
been:
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED MARCH FOR THE YEARS
31, ENDED DECEMBER 31,
------------------ ------------------
1997 1996 1996 1995
----- ----- ----- -----
<S> <C> <C> <C> <C>
Basic earnings per share................. $0.47 $0.45 $0.66 $1.30
Diluted earnings per share............... $0.45 $0.43 $0.64 $1.27
</TABLE>
(11) The increase in short-term debt as of March 31, 1997 compared with
short-term debt as of March 31, 1996 was primarily attributable to the
funding of higher seasonal working capital levels and the acquisition of
the Asgrow Agronomics seed business by the Company.
10
<PAGE> 23
CHEMICALS SPINCO
SELECTED HISTORICAL FINANCIAL DATA
In the table below, we provide you with selected historical financial data
of Chemicals SpinCo. We have prepared this information using the combined
financial statements of Chemicals SpinCo for the five years ended December 31,
1996 and the three months ended March 31, 1997 and 1996. During this time,
Chemicals has been wholly owned by the Company. The historical financial
information may not reflect Chemicals' future performance or the financial
position and results of operations of Chemicals if Chemicals had operated as a
separate, stand-alone entity during the periods covered. Per share data have not
been presented for the historical information because Chemicals was not a
publicly held company during the periods presented below.
When you read this selected historical financial data, it is important that
you read it together with "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Chemicals" and the Chemicals SpinCo
Combined Financial Statements and the related notes that we have included with
this Proxy Statement. In the opinion of management of the Company, the unaudited
combined financial statements at March 31, 1997 and 1996 and for the three
months ended March 31, 1997 and 1996 contain all adjustments necessary to
present fairly the financial position, results of operations and cash flows for
these interim periods. Principally because of factors related to the spinoff,
you should not multiply results for the first quarter of 1997 by four to project
results for the full year.
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS
ENDED
OR AS OF MARCH FOR THE
31, YEARS ENDED
---------------- OR AS OF DECEMBER 31,
----------------------------------------------
(UNAUDITED) (UNAUDITED)
---------------- ----------------
1997 1996 1996 1995 1994 1993 1992
------ ------ ------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Net sales(1)........................ $ 719 $ 705 $2,977 $2,964 $3,097 $3,028 $3,022
Operating income(2)................. 95 56 33 258 256 300 30
Other income(expense)............... 13 5 36 9 1 8 (11)
Income (loss) before income taxes... 99 53 33 231 228 290 (10)
Net income (loss)(3)................ 65 36 32 147 149 192 (6)
OTHER STATISTICS:
Total assets........................ $2,532 $2,524 $2,483 2,462 $2,435 $2,491 $2,543
Capital expenditures................ 38 45 192 179 187 179 229
Depreciation and amortization....... 45 44 166 162 219 224 262
Intercompany charges................ 12 17 85 72 69 61 77
Interest expense(4)................. 9 8 36 36 29 19 29
Long-term debt(4)................... 0 0 0 0 0 0 0
</TABLE>
11
<PAGE> 24
(1) Net sales for Chemicals included $140 million in 1995, $400 million in 1994,
$407 million in 1993 and $419 million in 1992 for its rubber chemicals
business. In May 1995, this business was contributed to the Flexsys, L.P.
joint venture between the Company and Akzo Nobel N.V. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Chemicals."
(2) Operating income includes charges (credits) for restructuring and other
unusual items of $10 million in the three months ended March 31, 1997 and
$248 million, $46 million, $34 million, $(43) million, and $150 million in
the years ended December 31, 1996, 1995, 1994, 1993 and 1992, respectively.
The 1996 charges are associated with the closure or sale of certain
facilities, asset write-offs and workforce reductions. In addition,
operating income in 1993 and 1992 includes $25 million and $12 million,
respectively, for Chemicals' rubber chemicals business. Operating income for
this business was not significant in 1994 and 1995.
(3) In 1992, the Company adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and SFAS No. 109, "Accounting
for Income Taxes," and, as a result, recorded a net aftertax charge of $540
million as a cumulative effect of an accounting change. This net charge was
not allocated to Chemicals.
(4) The Company uses a centralized approach to cash management and the financing
of its operations. As a result, cash and cash equivalents and debt were not
allocated to Chemicals in the historical financial statements. Interest
expense has been allocated to Chemicals in the Chemicals SpinCo combined
financial statements to reflect Chemicals' pro rata share of the financing
structure of the Company. See Note 1 to the Chemicals SpinCo Combined
Financial Statements.
12
<PAGE> 25
MONSANTO COMPANY AND SUBSIDIARIES
SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
AND COMPARATIVE PER SHARE DATA
In the tables below, we provide you with selected unaudited pro forma
consolidated financial data of the Company. The pro forma information assumes
that the spinoff had occurred on an earlier date and is intended to give you an
idea of what the Company's business would have looked like had the spinoff
already occurred. We have prepared this information using the unaudited pro
forma condensed consolidated financial statements of the Company. You should not
rely on the pro forma information as being indicative of the historical results
that the Company would have had, or the future results that the Company will
experience, after the Spinoff.
When you read this selected pro forma financial data, it is important that
you read it together with the unaudited pro forma condensed consolidated
financial statements and related notes that we have included with this Proxy
Statement. See "Monsanto Company and Subsidiaries Unaudited Pro Forma Condensed
Consolidated Financial Statements for the Periods Ended March 31, 1997 and
December 31, 1996."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
(IN MILLIONS EXCEPT PER SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:(1)
Net sales.............................................. $1,875 $ 6,348
Net income............................................. $ 215 $ 427
Earnings per share..................................... $ 0.36 $ 0.71
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------
<S> <C> <C>
BALANCE SHEET DATA:(2)
Total assets........................................... $9,377
Long-term debt......................................... $1,522
Short-term debt........................................ $ 773
Book value per share................................... $ 7.02
</TABLE>
<TABLE>
<CAPTION>
THE COMPANY
------------------------------------
HISTORICAL PRO FORMA
-------------- -----------------
<S> <C> <C>
COMPARATIVE PER SHARE DATA:
EARNINGS PER SHARE:
Three Months Ended March 31, 1997...................... $0.45 $0.36
Year Ended December 31, 1996........................... $0.64 $0.71
BOOK VALUE PER SHARE:
March 31, 1997......................................... $6.53 $7.02
</TABLE>
- -------------------------
(1) The pro forma consolidated statement of operations data give effect to the
spinoff as if it had occurred at the beginning of the periods presented.
(2) The pro forma consolidated balance sheet data give effect to the spinoff as
if it had occurred as of March 31, 1997.
13
<PAGE> 26
CHEMICALS SPINCO
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
AND COMPARATIVE PER SHARE DATA
In the tables below, we provide you with selected unaudited pro forma
combined financial data of Chemicals. The pro forma information assumes that the
spinoff had occurred on an earlier date. We have prepared this information using
the unaudited pro forma condensed combined financial statements of Chemicals.
You should not rely on the pro forma information as being indicative of the
historical results that Chemicals would have had, or the future results that
Chemicals will experience after the spinoff.
When you read this selected pro forma financial data, it is important that
you read it together with the unaudited pro forma condensed combined financial
statements and related notes that we have included with this Proxy Statement.
See "Chemicals SpinCo Unaudited Pro Forma Condensed Combined Financial
Statements."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
(IN MILLIONS EXCEPT PER SHARE
DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:(1)
Net sales.................................................. $ 715 $ 2,962
Net income................................................. $ 53 $ 22
Earnings per share(2)...................................... $ 0.44 $ 0.18
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------
<S> <C> <C>
BALANCE SHEET DATA:(3)
Total assets............................................... $2,729
Long-term debt............................................. $1,030
Book value (deficit) per share(4).......................... $(2.52)
</TABLE>
<TABLE>
<CAPTION>
CHEMICALS SPINCO
---------------------------------
PRO FORMA
HISTORICAL COMBINED
-------------- -----------------
<S> <C> <C>
COMPARATIVE PER SHARE DATA:
EARNINGS PER SHARE:(2)
Three Months Ended March 31, 1997.......................... $ 0.54 $ 0.44
Year Ended December 31, 1996............................... $ 0.27 $ 0.18
BOOK VALUE PER SHARE:(4)
March 31, 1997............................................. $ 7.26 $ (2.52)
</TABLE>
- -------------------------
(1) The pro forma combined statement of operations data give effect to the
spinoff as if it had occurred at the beginning of the periods presented.
(2) Assuming approximately 120.5 million, as of March 31, 1997, and 119.8
million, as of December 31, 1996, weighted average number of shares of
Chemicals' common stock and Chemicals' common stock equivalents based on the
distribution ratio of one share of Chemicals' common stock for every five
shares of the Company's common stock.
(3) The pro forma combined balance sheet data give effect to the spinoff as if
it had occurred as of March 31, 1997.
(4) Assuming approximately 117.2 million shares of Chemicals' common stock
outstanding at March 31, 1997, based on the distribution ratio of one share
of Chemicals' common stock for every five shares of the Company's common
stock.
14
<PAGE> 27
THE SPECIAL MEETING
This Proxy Statement (the "Proxy Statement")* is being furnished to stockholders
of Monsanto Company, a Delaware corporation (the "Company"), in connection with
the solicitation of proxies by the Company's Board of Directors (the "Company
Board") for use at the Special Meeting of Stockholders of the Company to be held
on Monday, August 18, 1997, at 10:00 a.m., Central Time, in K Building at the
Company's World Headquarters, 800 N. Lindbergh Boulevard, St. Louis, Missouri,
and at any adjournment or postponement thereof (the "Special Meeting"). The
Company's telephone number is (314) 694-1000. The principal executive offices of
the Chemicals Business which, in connection with the Spinoff, will be
consolidated into a newly formed Delaware corporation which is currently a
wholly owned subsidiary of the Company ("Chemicals" or "Chemicals SpinCo"), will
be located at 10300 Olive Boulevard, P.O. Box 66760, St. Louis, Missouri
63166-6760. Its telephone number will be (314) 674-1000.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, holders of shares of common stock, $2.00 par value, of
the Company ("Company Common Stock"), will be asked to consider and vote upon
the following proposals (collectively, the "Proposals"):
(1) To approve the distribution (the "Spinoff") to the holders of Company
Common Stock of all outstanding shares of the common stock, $0.01 par
value, of Chemicals ("Chemicals Common Stock") on the basis of one share of
Chemicals Common Stock and the associated preferred share purchase right
(each, a "Chemicals Right") for every five shares of Company Common Stock
(the "Spinoff Proposal");
(2) To approve the amendments (the "Company Charter Amendments") to the
Restated Certificate of Incorporation of the Company (the "Company
Charter") (a) to provide for a Company Board divided into three classes
serving staggered terms and certain related matters, (b) to eliminate
action by written consent of stockholders, (c) to require the vote of
stockholders holding at least 80% of the outstanding Company Common Stock
for stockholders to amend, alter or repeal the By-Laws of the Company (the
"Company By-Laws") and (d) to increase the number of authorized shares of
Company Common Stock by 150,000,000 to 1,000,000,000 (collectively, the
"Company Charter Proposal");
(3) To elect the directors of the Company named in this Proxy Statement to
staggered terms, subject to approval of the Company Charter Proposal; and
(4) To approve an amendment to the Monsanto Company Management Incentive
Plan of 1996, as amended (the "Incentive Plan"), to increase by 19,000,000
to 65,250,000 the number of shares of Company Common Stock authorized with
respect to grants under the plan (the "Incentive Plan Proposal").
Completion of the Spinoff is conditioned upon, among other things, stockholder
approval of the Spinoff Proposal and the Company Charter Proposal. If the
stockholders approve the Spinoff Proposal but do not approve the Company Charter
Proposal, the Company Board will reevaluate its intention to complete the
Spinoff. After such review, the Company Board could decide to cancel the Spinoff
or waive this condition and complete the Spinoff despite such lack of approval.
The Company Board has further retained discretion, even if stockholders approve
the Spinoff Proposal and the other conditions to the Spinoff are satisfied, to
cancel or defer the Spinoff.
THE COMPANY BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR ALL OF THE PROPOSALS.
For a description of the reasons for the Spinoff, see "THE SPINOFF PROPOSAL --
Background and Reasons for the Spinoff." For a description of the reasons for
the proposed Company Charter Amendments, see "The Company Charter Proposal." For
a description of the proposal to elect directors to staggered terms see
"Election of Directors to Classified Terms." For a description of the reasons
for the proposed amendment to the Incentive Plan, see "Incentive Plan Proposal."
- ---------------
* For the reader's convenience, an Index of Defined Terms has been provided on
p. [118].
15
<PAGE> 28
VOTING RIGHTS AND PROXY INFORMATION
Only holders of record of shares of Company Common Stock as of the close of
business on June 27, 1997 (the "Special Meeting Record Date") will be entitled
to receive notice of and to vote at the Special Meeting. Except for shares owned
by the Company or its subsidiaries, each share of Company Common Stock
outstanding on such Special Meeting Record Date will be entitled to one vote.
The presence, either in person or by properly executed proxy, of the holders of
a majority of the shares of Company Common Stock outstanding on the Special
Meeting Record Date is necessary to constitute a quorum at the Special Meeting.
As of the Special Meeting Record Date, there were shares of Company
Common Stock outstanding and entitled to vote at the Special Meeting.
Abstentions and executed proxies returned by a broker holding shares of Company
Common Stock in street name which indicate that the broker does not have
discretionary authority as to certain shares to vote on one or more matters
("broker non-votes") will be considered present at the Special Meeting for
purposes of establishing a quorum. Abstentions will not be voted. Broker
non-votes will not be counted as votes cast on any matter to which they relate.
Since the Spinoff Proposal and the Incentive Plan Proposal require the
affirmative vote of the majority of shares present in person or represented by
proxy at the Special Meeting, and the Company Charter Proposal requires the
affirmative vote of a majority of the outstanding shares of Company Common
Stock, abstentions and broker non-votes will have the effect of votes cast
against these proposals. The election of the directors named in this Proxy
Statement to classified terms will be determined by the vote of a plurality of
the shares present in person or represented by proxy at the Special Meeting, and
abstentions and broker non-votes will have no effect on the outcome of the vote
on such election.
All shares of Company Common Stock that are represented at the Special Meeting
by properly executed proxies received prior to or at the Special Meeting and not
revoked will be voted at the Special Meeting in accordance with the instructions
indicated in such proxies. If no instructions are indicated, such proxies will
be voted for approval of the Spinoff Proposal, the Company Charter Proposal and
the Incentive Plan Proposal and for the election to staggered terms of the
directors named in this Proxy Statement. No business other than the Proposals
will be considered at the Special Meeting.
The proxy of a stockholder who is a participant in the Company's Dividend
Reinvestment Plan (the "Company DRP") will also serve as an instruction to vote
the shares held for the account of the participant under the Company DRP in the
manner indicated on the proxy. If a stockholder's proxy is not received, the
shares held in that account in the Company DRP will not be voted.
The Company's Savings and Investment Plan (the "Company SIP") and the Company's
Payroll Related Employee Stock Ownership Plan (the "Company PAYSOP") permit plan
participants to direct the plan trustees how to vote Company Common Stock
allocated to their accounts. Under the terms of the Company SIP trust agreement,
the trustee will vote unallocated and uninstructed shares in proportion to the
shares with respect to which instructions have been received. As to shares held
in the Company PAYSOP, the trustee will not vote those shares of Company Common
Stock for which participant voting instructions have not been received.
In the event that a quorum is not present at the time the Special Meeting is
convened, or if for any other reason the Company believes that additional time
should be allowed for the solicitation of proxies, the Company may adjourn the
Special Meeting with or without a vote of the stockholders. If the Company
proposes to adjourn the Special Meeting by a vote of the stockholders, the
persons named in the enclosed form of proxy will vote all shares of Company
Common Stock for which they have voting authority in favor of such adjournment.
A stockholder who wishes to give a proxy to someone other than the proxy
committee of the Company Board may strike out the names appearing on the
enclosed form of proxy, write in the name of any other person, sign the proxy,
and deliver it to the person whose name has been substituted.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted.
NO APPRAISAL RIGHTS
Stockholders of the Company will not be entitled to appraisal rights under
Delaware law in connection with any of the Proposals.
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RISK FACTORS
Stockholders should consider the following factors, as well as the other
information set forth in the Proxy Statement, before voting on the Proposals.
We also caution you that this Proxy Statement includes forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). All statements regarding the Company's
or Chemicals' expected future financial position, results of operations, cash
flows, dividends, financing plans, business strategy, budgets, projected costs
and capital expenditures, competitive positions, growth opportunities for
existing products, benefits from new technology, plans and objectives of
management for future operations, and markets for stock are forward-looking
statements. Although the Company believes its expectations reflected in such
forward-looking statements are based on reasonable assumptions, no assurance can
be given that such expectations will prove to have been correct. Important
factors that could cause actual results to differ materially from the
expectations reflected in the forward-looking statements herein include, among
others, those set forth below as well as general economic and business and
market conditions, customer acceptance of new products, efficacy of new
technology, changes in U.S. and non-U.S. laws and regulations, costs or
difficulties relating to the establishment of Chemicals as an independent entity
and increased competitive and/or customer pressure.
LACK OF OPERATING HISTORY AS SEPARATE ENTITIES
Upon completion of the Spinoff, the Company will own and operate the Life
Sciences Business and Chemicals will own and operate the Chemicals Business.
Neither of these businesses has an operating history as a separate company, and
each has historically been able to rely on the earnings, assets and cash flow of
the other. In addition, Chemicals has not operated as a public company, and
following the Spinoff will incur additional costs and expenses associated with
the management of a public company. The Company is not required to provide
assistance or services to Chemicals except as described in the Distribution
Agreement, the Transition Services Agreement, the Operating Agreements (as such
terms are defined herein) and the other agreements entered into between the
companies. In addition, some of this assistance or these services may be
terminated upon certain events, including a change of control of Chemicals. See
"Relationship Between the Company and Chemicals After the Spinoff."
After the Spinoff, each of the Company and Chemicals will be a smaller and less
diversified company than the Company was prior to the Spinoff. In addition, the
Spinoff may result in some temporary dislocation and inefficiencies to the
business operations, as well as the organization and personnel structure, of
each company.
Finally, the Company will retain the rights to the Monsanto name for its
exclusive use after a transition period. Chemicals has previously had the
benefit of the Monsanto name and reputation in the marketing of its products and
in dealings with government officials. One of the challenges facing Chemicals
will be to develop an identity for itself independent of the Monsanto name.
Chemicals may have to make additional advertising and promotion expenditures to
position its new name in its markets and cannot predict with certainty the
extent to which the substitution of a new name may adversely affect its
retention and acquisition of customers, its relations with governmental agencies
or its financial performance.
INCREASED LEVERAGE OF CHEMICALS
On an historical basis, Chemicals was not allocated any of the Company's debt.
Effective as of the Spinoff, the Chemicals balance sheet will include
approximately $1.03 billion of debt, primarily assumable commercial paper which
will be issued by the Company from time to time prior to the Spinoff and assumed
by Chemicals effective as of the Distribution Date. The proceeds of the
commercial paper issuance will be used by the Company to repay Company debt
maturing simultaneously with the issuance of the commercial paper. Repayment of
the obligation will be Chemicals' responsibility. The amount of debt to be
assumed by Chemicals and the determination of Chemicals' initial capital
structure are based upon the Company's goals of maximizing combined stockholder
value for the Company's present stockholders while enabling Chemicals to receive
an investment grade credit rating, as well as certain tax considerations. See
"The Spinoff Proposal -- Financing." The assumable commercial paper will be
guaranteed by the Company until repaid or
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refinanced by Chemicals at maturity, which may be up to 30 to 60 days following
the Distribution Date. It is expected that after the Spinoff the commercial
paper will be backed by approximately $1.2 billion in revolving credit
facilities of Chemicals. Following the Spinoff, Chemicals expects to have its
own commercial paper program which in part will be used to refinance a portion
of the assumable commercial paper. See "The Spinoff Proposal -- Financing."
Assuming the Spinoff had been consummated as of March 31, 1997, Chemicals would
have had total long-term debt of $1.03 billion and a stockholders' deficit of
$295 million, compared with Chemicals' historical long-term debt of $0 and total
stockholders' equity of $851 million at March 31, 1997. Chemicals' higher debt
levels after the Spinoff can be expected to result in increased interest expense
to Chemicals compared with the amount previously allocated to Chemicals by the
Company. On a proforma basis, Chemicals' annual interest expense would have been
$55 million in 1996 had the Spinoff occurred on January 1, 1996. See "Chemicals
Spinco Unaudited Pro Forma Condensed Combined Financial Statements," and the
Chemicals SpinCo Combined Financial Statements. Chemicals currently plans to
refinance a substantial portion of the commercial paper with medium- and
long-term debt following the Spinoff, subject to market conditions. Such
refinancing is expected to be at higher interest rates than short-term
commercial paper.
ENVIRONMENTAL LIABILITIES
Chemicals is subject to various laws and government regulations concerning
environmental matters and employee safety and health in the United States and
other countries. U.S. state and federal authorities may seek fines and penalties
for violation of these laws.
Expenditures in 1996 were approximately $9 million for Chemicals' environmental
capital projects, and approximately $85 million for the management of
environmental programs, including the operation and maintenance of facilities
for environmental control. Chemicals estimates that during 1997 and 1998
approximately $15 million to $20 million per year will be spent on additional
capital projects for environmental protection and that expenses for the
management of environmental programs in 1997 and 1998 will continue at levels
comparable to 1996.
Chemicals' policy is to accrue costs for remediation of contaminated sites in
the accounting period in which the responsibility is established and the cost is
estimable. Chemicals had an accrued liability of $51 million as of December 31,
1996 for Superfund sites. Because of uncertainties such as the method and extent
of remediation, the percentage of material attributable to Chemicals at the
sites relative to that attributable to other parties, and the financial
capabilities of the other potentially responsible parties (a "PRP") at most
sites, Chemicals currently estimates that potential future expenses could be as
much as an additional $10 million. Chemicals spent approximately $20 million in
1996 for remediation of Superfund sites. Similar expenditures can be expected in
future years.
Chemicals had environmental reserves of $58 million as of December 31, 1996 for
shut-down plants and third-party sites for which Chemicals is assuming
responsibility pursuant to the Distribution Agreement. Chemicals' estimates of
its liabilities are based on evaluations of currently available facts with
respect to each individual site and take into consideration factors such as
existing technology, laws and agency policy, and prior experience in remediation
of contaminated sites. Subject to these uncertainties, Chemicals currently
estimates that potential future expenses could be as much as an additional $50
million for these sites. Chemicals spent approximately $21 million in 1996 for
remediation of these sites. Similar amounts can be expected in the future.
For solid and hazardous waste remediation at Chemicals' operating locations,
Chemicals recognizes post-closure environmental costs and remediation costs over
the estimated remaining useful life of the related facilities, not to exceed 20
years. Chemicals spent $18 million in 1996 for remediation of these facilities
and had an accrued liability of $41 million as of December 31, 1996 for these
sites. Chemicals estimates that closure costs for these facilities will be an
additional $70 million based upon existing technology and other currently
available information.
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Although the ultimate costs and results of remediation of contaminated sites
cannot be predicted with certainty, they are not expected to result in a
material adverse change in Chemicals' liquidity or financial position as
reflected in Chemicals' historical financial statements, but they could have a
material adverse effect on profitability in a given period. The impact of any
future changes in environmental laws and regulations on Chemicals' liquidity,
financial position and profitability cannot be predicted with accuracy.
Effective January 1, 1997, Chemicals adopted the American Institute of Certified
Public Accounts' Statement of Position ("SOP") 96-1, "Environmental Remediation
Liabilities." SOP 96-1 establishes authoritative guidance regarding the
recognition, measurement and disclosure of environmental remediation
liabilities. The primary change in Chemicals' accounting principles associated
with the adoption of this SOP was an acceleration of the recognition of certain
environmental remediation liabilities at operating facilities. As a result,
Chemicals recorded an aftertax charge of $6 million in the first quarter of
1997. Additional aftertax charges in the range of $9 million to $14 million are
anticipated in 1997 as the criteria for recording these liabilities are met.
These charges are in addition to the 1997 and 1998 estimated capital
expenditures for environmental projects previously described.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations of Chemicals -- Environmental Matters."
RISK THAT THE COMPANY OR CHEMICALS WILL BE UNABLE TO SATISFY INDEMNIFICATION
OBLIGATIONS
The Distribution Agreement and various other agreements entered into by the
Company and Chemicals allocate responsibility between them for various debts,
liabilities and obligations. See "Relationship Between the Company and Chemicals
After the Spinoff." The Distribution Agreement provides that Chemicals will
indemnify the Company for the liabilities assumed by Chemicals pursuant to these
agreements (including certain liabilities related to the Chemicals Business
which will be contingent liabilities of the Company by virtue of the structure
of the Spinoff) and the Company will indemnify Chemicals for the liabilities
retained by the Company. However, the availability of such indemnities will
depend upon the future financial strength of Chemicals and the Company. No
assurance can be given that the relevant company will be in a position to fund
such indemnities.
THE COMPANY'S INCREASED RELIANCE ON AGRICULTURAL PRODUCTS SEGMENT
After the Spinoff, the Company's consolidated sales and operating income will
depend significantly on the results of the agricultural products segment. It is
expected that sales and operating income of the agricultural products segment
will represent approximately two-thirds of such consolidated amounts for the
Company's Life Sciences Business compared with approximately one-half of such
amounts before the Spinoff.
Roundup(R) and other glyphosate-based herbicides are major products for the
agricultural products segment and face competition from generic products in
certain markets outside the United States. Patents protecting Roundup(R) in
various countries expired in 1991, while compound per se patent protection for
the active ingredient in Roundup(R) herbicide expires in the United States in
September 2000. However, significant growth potential for Roundup(R) remains in
conservation tillage applications worldwide, and the recent introduction by the
Company of crops tolerant of Roundup(R) opens up major new growth opportunities.
The Company has invested heavily in biotechnology-related plant sciences
products. The Company is addressing issues of consumer acceptance for some of
these products, particularly in Europe, and is involved in patent disputes with
several parties. An adverse outcome on either of these matters could have a
material effect on the Company's results of operations.
The net income of the Company attributable to the Life Sciences Business has
historically been higher during the first half of the year, primarily because of
the concentration of generally more profitable sales of the agricultural
products segment during that part of the year. This trend is expected to be more
apparent for the Life Sciences Business after the Spinoff because of the
increased importance of the results of the agricultural products segment in
relation to the consolidated amounts for the Company.
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NO CURRENT PUBLIC MARKET FOR CHEMICALS COMMON STOCK
There is not currently a public market for Chemicals Common Stock, and there can
be no assurance as to the prices at which trading in Chemicals Common Stock will
occur after the Spinoff. Until Chemicals Common Stock is fully distributed and
an orderly market develops, the prices at which trading in such Chemicals Common
Stock occurs may fluctuate significantly. Chemicals will file applications to
list Chemicals Common Stock and the associated Chemicals Rights on the New York
Stock Exchange, Inc. (the "NYSE"). See "The Spinoff Proposal -- Listing and
Trading of Company Common Stock and Chemicals Common Stock."
CHANGES IN TRADING PRICES OF COMPANY COMMON STOCK
It is expected that Company Common Stock will continue to be listed and traded
on the NYSE after the Spinoff. As a result of the Spinoff, the trading prices of
Company Common Stock are expected to be lower than the trading prices of Company
Common Stock immediately prior to the Spinoff, although the receipt of the
shares of Chemicals Common Stock should mitigate such effect. The combined
trading prices of Company Common Stock and Chemicals Common Stock held by
stockholders after the Spinoff may be less than, equal to or greater than the
trading price of Company Common Stock prior to the Spinoff. See "The Spinoff
Proposal -- Listing and Trading of Company Common Stock and Chemicals Common
Stock."
CERTAIN TAX RISKS OF THE SPINOFF
The Spinoff is conditioned upon the Company's receipt of a ruling from the
Internal Revenue Service (the "IRS") to the effect, among other things, that the
Spinoff will qualify as a tax-free reorganization under Sections 355 and 368 of
the Internal Revenue Code of 1986, as amended (the "Code"). See "THE SPINOFF
PROPOSAL -- Material Federal Income Tax Consequences of the Spinoff." Such a
ruling, while generally binding upon the IRS, is subject to certain factual
representations and assumptions provided by the Company. If these factual
representations and assumptions were incorrect in a material respect, the ruling
would be jeopardized. The Company is not aware of any facts or circumstances
which would cause such representations and assumptions to be untrue. In
addition, Chemicals has agreed to certain restrictions on its future actions to
provide further assurances that the Spinoff will qualify as tax free. If
Chemicals fails to abide by such restrictions and, as a result, the Spinoff
fails to qualify as a tax-free reorganization, then Chemicals will be obligated
to indemnify the Company for any resulting tax liability. However, such tax
liability would be substantial, and there is no assurance that Chemicals would
be able to satisfy its indemnification obligation. If the Company does not
receive the ruling from the IRS, and the Board decides to waive the tax-ruling
condition to the Spinoff, the Company will distribute revised proxy materials
and resolicit proxies. See "-- Risk That the Company or Chemicals Will Be Unable
to Satisfy Indemnification Obligations" and "Relationship Between the Company
and Chemicals After the Spinoff -- Tax Sharing and Indemnification Agreement."
If the Spinoff were not to qualify under Sections 355 and 368 of the Code, then,
in general, a corporate tax would be payable by the consolidated group of which
the Company is the common parent based upon the difference between (1) the
aggregate fair market value of Chemicals Common Stock distributed in the Spinoff
and (2) the adjusted basis of such Chemicals Common Stock. The corporate level
tax would be payable by the Company. However, under certain limited
circumstances, Chemicals has agreed to indemnify the Company for such tax
liabilities. See "Relationship Between the Company and Chemicals After the
Spinoff -- Tax Sharing and Indemnification Agreement." In addition, under the
consolidated return regulations, each member of the consolidated group
(including Chemicals) is severally liable for such tax liability.
Furthermore, if the Spinoff were not to qualify under Sections 355 and 368 of
the Code, then each holder of Company Common Stock who receives shares of
Chemicals Common Stock in the Spinoff would be treated as if such stockholder
received a taxable distribution in an amount equal to the fair market value of
Chemicals Common Stock received, which would result in a dividend to the extent
paid out of the Company's current and accumulated earnings and profits.
For recent legislative developments, see "The Spinoff Proposal -- Possible
Future Tax Legislation."
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DIVIDEND POLICIES
Chemicals' dividend policy will be set by the Chemicals Board after the Spinoff.
Chemicals may decide to return earnings to stockholders through dividends, stock
repurchases, or a combination of both. [If the Chemicals Board determines to pay
a dividend shortly after the Spinoff, it is likely that the dividend will be
modest.]
The Company is evaluating an appropriate dividend policy to be followed after
the Spinoff, recognizing the Company's need to finance its future growth plans.
While no decision has been made by either company, the combined dividends of the
Company and Chemicals after the Spinoff are likely to be less than the Company's
current annual dividend rate of $0.64 per share. The actual amount of such
dividends will depend on the companies' respective operating results, financial
requirements and other factors.
POSSIBLE ANTITAKEOVER EFFECTS OF THE COMPANY
CHARTER PROPOSAL AND SIMILAR PROVISIONS OF THE CHEMICALS CHARTER
The Company Charter Proposal includes amendments to the Company Charter that may
make more difficult an acquisition of control of the Company without the
approval of the Company Board. The Amended and Restated Certificate of
Incorporation of Chemicals (the "Chemicals Charter") and the By-Laws of
Chemicals (the "Chemicals By-Laws") will be comparable to those proposed for the
Company in this Proxy Statement. See "Certain Antitakeover Effects of Certain
Charter and By-Laws Provisions and the Company Rights and the Chemicals Rights."
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THE SPINOFF PROPOSAL
(PROXY ITEM NO. 1)
BACKGROUND AND REASONS FOR THE SPINOFF
The Company was founded as a chemical company in 1901. Since that time, the
Company has grown into an enterprise with net sales in 1996 of $9.3 billion,
operating in four primary business areas: agricultural products,
pharmaceuticals, food ingredients and chemicals. Since the late 1970's, the
Company has worked to streamline its chemical businesses and at the same time to
bring about a transition from the Company's heritage in the chemical industry
toward a focus based on the application of biological science to agriculture,
food and human health. For the reasons set forth below, among other reasons, the
Company Board has determined to separate the Company into two publicly owned
companies: the Company, which will operate its life sciences businesses,
including agricultural products such as Roundup(R) herbicide and Ortho(R)
lawn-and-garden products, pharmaceuticals, and food ingredients such as
NutraSweet(R) brand sweetener (the "Life Sciences Business"); and Chemicals, a
newly formed corporation which will produce and market a range of
high-performance chemical-based materials, including nylon and acrylic fibers
and fiber intermediates, Saflex(R) plastic interlayer, phosphorus derivatives
and specialty chemicals (the "Chemicals Business").
Pursuant to the Distribution Agreement to be entered into by the Company and
Chemicals prior to the Spinoff (the "Distribution Agreement"), Chemicals will
have substantially the same business and operations as the chemicals segment had
while under the ownership of the Company, with the following exceptions. Certain
businesses that have been reported historically in the Company's chemicals
segment are not included in the Chemicals Business and will not be contributed
to Chemicals in connection with the Spinoff. These businesses represented, in
the aggregate, $345 million in net sales for 1996 and $551 million in assets at
December 31, 1996 and include the Company's industrial alginates business and
Enviro-Chem business, as well as the elemental phosphorus production business
which will be contributed to the P4 Joint Venture. Effective as of the Spinoff,
the P4 Joint Venture will be owned 40% by Chemicals and 60% by the Company. In
connection with the Spinoff, the Company will also contribute to Chemicals
certain assets which were not included in the Company's chemicals segment for
financial reporting purposes at December 31, 1996, including the food phosphates
business, which represented $101 million in net sales for 1996 and $66 million
of assets at December 31, 1996, investments in affiliates of $366 million at
December 31, 1996 (principally relating to the Company's interest in the
Flexsys, L.P. ("Flexsys") rubber chemicals and Advanced Elastomer Systems, L.P.
("Advanced Elastomer Systems") joint ventures), and $75 million in cash. The
industrial alginates business was acquired as part of the Company's acquisition
of The Kelco Company ("Kelco") in February 1995. Kelco was reported as part of
the Company's food ingredients segment in that year. The food phosphates
business to be contributed to Chemicals was, prior to 1996, included in the
chemicals segment of the Company. As of January 1, 1996, responsibility for the
industrial alginates business was transferred to Chemicals and the food
phosphates business was transferred to the food ingredients segment. This
transfer was done primarily to integrate marketing and product support for these
businesses, even though manufacturing operations for both of these businesses
remained integrated with those of the former segments. In the Spinoff, the
Company is retaining the industrial alginates business and Chemicals is
receiving the food phosphates business in order not to separate these
manufacturing operations. The Enviro-Chem business was not, historically,
integrated with the other businesses included in the Chemicals Business, and
will be retained by the Company. By contributing the elemental phosphorus
business of the Company to a venture to be jointly owned by the Company and
Chemicals following the Spinoff, each of the Company and Chemicals will be
afforded a supply of a raw material used by both. Although Flexsys and Advanced
Elastomer Systems are managed as part of the Chemicals Business, because they
are accounted for as equity investments, their results were not includable in
the operating income of the Company's chemicals segment for financial reporting
purposes, and their assets were not included in the assets of the Company's
chemicals segment.
References to "Chemicals" or "Chemicals SpinCo" for time periods prior to the
Spinoff mean the chemical businesses operated by the Company which are to be
contributed to Chemicals in connection with the Spinoff pursuant to the
Distribution Agreement and, for time periods following the Spinoff, mean
Chemicals as
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capitalized by the Company pursuant to the Distribution Agreement. See
"Relationship Between the Company and Chemicals After the Spinoff --
Distribution Agreement."
The Spinoff is designed to separate two distinct businesses with significant
differences in their markets, products, research needs, investment needs and
plans for growth. The Company Board believes the separation into two independent
companies will enhance the ability of each to focus on strategic initiatives and
new business opportunities, to improve cost structures and operating
efficiencies and create incentives that are more attractive and appropriate for
the recruitment and retention of key employees. As a consequence, the Company
believes that investors will be able to evaluate better the merits of the two
groups of businesses and their future prospects.
As a separate company, the Company's management will be better able to focus on
the concept of an integrated life sciences company rather than the management of
individual life sciences businesses, each of which uses the biological sciences.
The Company believes that improved cost structures will be realized through
sharing knowledge in new technologies -- such as genomics, bioinformatics and
powerful screening methods -- which can be applied broadly to agriculture,
nutrition and health. Management expects to capture market opportunities by
focusing on the integration of these businesses, the common technologies, and
common goals of better, sustainable nutrition and health.
The Spinoff is also designed to allow Chemicals to reach its maximum potential.
A streamlined management structure and new operating processes will enable
shortened decision times and quicker redeployment of assets and resources to
anticipate and take advantage of market opportunities. Chemicals' cost reduction
efforts will focus on two areas: manufacturing efficiencies and marketing,
administration and technology (MAT) costs. Most of the near-term capital
projects are designed to both lower the cost of manufacturing products and to
increase volumes. A reengineering program based on a technologically advanced
software system that will support every part of the supply chain is expected to
significantly reduce costs and working capital.
In approving the Spinoff, the Company Board also approved the closure or
rationalization of certain facilities and work force reductions. These actions
are expected to have a favorable effect on future net earnings and cash flow in
the range of $120 million to $140 million per year. Approximately one-third of
these cost efficiencies are expected to be realized by Chemicals.
REQUIRED VOTE
Under the Company By-Laws, approval of the Spinoff Proposal requires the
affirmative vote of the majority of shares of Company Common Stock present in
person or represented by proxy at the Special Meeting.
RECOMMENDATION OF THE COMPANY BOARD
THE COMPANY BOARD HAS APPROVED THE SPINOFF PROPOSAL AND RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" THE SPINOFF PROPOSAL.
MANNER OF EFFECTING THE SPINOFF
In the event that the Company's stockholders approve the Spinoff Proposal and
all other conditions to the Spinoff are satisfied, it is expected that the
Spinoff distribution will be made on or about September 1, 1997 (the
"Distribution Date") on a pro rata basis to holders of record of issued and
outstanding Company Common Stock on the date selected by the Company Board (the
"Distribution Record Date"). The Company currently intends to use a direct
registration system to implement the distribution of shares of Chemicals Common
Stock in the Spinoff. On the Distribution Date, a certificate representing all
issued and outstanding shares of Chemicals Common Stock will be delivered by the
Company to First Chicago Trust Company of
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New York, as the distribution agent (the "Distribution Agent"). As soon as
practicable thereafter, account statements will be mailed to stockholders
stating the number of shares of Chemicals Common Stock, including fractional
shares, received by such stockholder in the Spinoff. Following the Spinoff,
stockholders may request physical certificates for their shares of Chemicals
Common Stock. In that case, fractional shares will not be issued but, instead,
cash will be paid with respect to such fractional shares. Holders of record of
Company Common Stock as of the Distribution Record Date will receive shares of
Chemicals Common Stock (and associated Chemicals Rights) on the basis of the
distribution ratio of one share of Chemicals Common Stock for every five shares
of Company Common Stock held on the Distribution Record Date (including shares
held in the Company DRP) (the "Distribution Ratio"). No certificates or scrip
representing fractional interests in a share of Chemicals Common Stock will be
issued regardless of whether a stockholder participates in the direct
registration system or requests physical certificates. Instead, with respect to
shares for which physical certificates are requested, the Distribution Agent
will, as soon as practicable after the Distribution Date, aggregate and sell
such fractional interests at then prevailing prices and distribute the net cash
proceeds to stockholders entitled thereto pro rata based on their fractional
interests in a share of Chemicals Common Stock. See "-- Material Federal Income
Tax Consequences of the Spinoff." All shares issued will be fully paid and
nonassessable and the holders thereof will not be entitled to preemptive rights.
See "Description of Chemicals Capital Stock." Certificates evidencing shares of
Chemicals Common Stock will represent the same number of Chemicals Rights. See
"Description of Chemicals Capital Stock -- Chemicals Rights."
No holder of Company Common Stock will be required to pay any cash or other
consideration for shares of Chemicals Common Stock received in the Spinoff or to
surrender or exchange shares of Company Common Stock in order to receive shares
of Chemicals Common Stock.
Certificates representing outstanding shares of Company Common Stock will
continue to represent rights (the "Company Rights") to purchase shares of the
Company's Series A Junior Participating Preferred Stock pursuant to the Rights
Agreement dated as of January 26, 1990 between the Company and The First
National Bank of Boston, as Rights Agent (the "Company Rights Agreement").
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE SPINOFF
The following discussion summarizes the U.S. federal income tax consequences
resulting from the Spinoff that materially affect the Company and its
stockholders. This discussion is based on current provisions of the Code,
existing and proposed Treasury Regulations thereunder and current administrative
rulings and court decisions, all of which are subject to change.
In December 1996, the Company filed with the IRS an application for a ruling to
the effect that the Spinoff would qualify as tax free to the Company and its
shareholders under Sections 355 and 368 of the Code. Under Sections 355 and 368
of the Code, in general:
(1) Holders of shares of Company Common Stock will not recognize any income,
gain or loss as a result of the Spinoff, except as described below with
respect to any cash such holders may receive in lieu of fractional shares.
(2) Holders of Company Common Stock will apportion the tax basis of their
Company Common Stock among such Company Common Stock and any Chemicals
Common Stock (including fractional interests in shares of Chemicals Common
Stock) received or deemed received by such holder in the Spinoff in
proportion to the relative fair market values of such stock on the
Distribution Date. Such allocation must be calculated separately for each
block of shares of Company Common Stock with respect to which Chemicals
Common Stock is received, that is, separately for each block of shares of
Company Common Stock that was purchased at different times or at different
costs.
(3) The holding period for the Chemicals Common Stock received in the Spinoff by
a holder of Company Common Stock will include the period during which such
holder held Company Common Stock with respect to which the Spinoff was
made, provided that such Company Common Stock is held as a capital asset by
such holder on the Distribution Date.
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(4) Where cash is received by a holder of Company Common Stock as a result of
the sale of accumulated fractional shares by the Distribution Agent on
behalf of such stockholder, it will be treated as if such fractional shares
had been received by such stockholder as part of the Spinoff and then sold
by such stockholder. Accordingly, such stockholder will recognize gain or
loss equal to the difference between the cash received and the amount of
tax basis allocable (as described above) to such fractional shares. Such
gain or loss would be capital gain or loss if such fractional shares would
have been held by such stockholder as a capital asset.
(5) No gain or loss will be recognized by the Company upon the Spinoff.
(6) No gain or loss will be recognized by (and no amount will be included in the
income of) the Company or Chemicals upon the transfer of the Chemicals
Business to Chemicals prior to the Spinoff.
The receipt of a ruling from the IRS confirming these conclusions is a condition
to the Spinoff. As of the date hereof, the IRS has not yet issued the ruling
requested. The Company believes and has been advised by its tax counsel, Arnold
& Porter, that the positions asserted by the Company in requesting the ruling
are consistent with the Code, the applicable legislative history and the related
rules and regulations promulgated thereunder. However, there can be no assurance
that the IRS will issue a favorable ruling. If the Company does not receive the
IRS ruling, and the Company Board decides to waive the condition, the Company
will distribute revised proxy materials and resolicit proxies.
Such a ruling, while generally binding upon the IRS, is subject to certain
factual representations and assumptions. If such factual representations and
assumptions were incorrect in a material respect, such ruling could become
invalid. The Company is not aware of any facts or circumstances which would
cause such representations and assumptions to be untrue. In addition, Chemicals
has agreed to certain restrictions on its future actions to provide further
assurances that Sections 355 and 368 of the Code will apply to the Spinoff. If
Chemicals fails to abide by such restrictions, and, as a result, the Spinoff
fails to qualify as a tax-free reorganization, then Chemicals will be obligated
to indemnify the Company for any resulting tax liability. However, such tax
liability would be substantial, and there is no assurance that Chemicals would
be able to satisfy its indemnification obligation. See "Risk Factors -- Risk
That the Company or Chemicals Will Be Unable to Satisfy Indemnification
Obligations" and "Relationship Between the Company and Chemicals after the
Spinoff -- Tax Sharing and Indemnification Agreement."
If the Spinoff were not to qualify as a tax-free distribution, the fair market
value of the shares of Chemicals Common Stock received by the Company's
stockholders would be taxable as a dividend to the extent paid out of the
Company's current and accumulated earnings and profits. In that event, the tax
basis of the shares of Company Common Stock held by the Company's stockholders
after the Spinoff would not change and the tax basis of the shares of Chemicals
Common Stock would be equal to their fair market value on the Distribution Date.
In addition, the Company would recognize a capital gain equal to the difference
between the fair market value of the shares of Chemicals Common Stock and the
Company's basis in such shares.
The Company has not sought rulings from the IRS as to the U.S. federal income
tax consequences of certain restructurings which were or are to be effected by
the Company prior to the Spinoff. See "-- Possible Future Tax Legislation."
Additional taxes may be asserted against the Company and Chemicals in the course
of audits by the IRS or state, local or foreign taxing authorities with respect
to ongoing business operations or these restructurings of the group of companies
of which the Company is the common parent. Assertions of additional tax
liability in the course of such audits are routine matters, and the Company and
Chemicals believe that they have adequately provided for any such assertions.
Current Treasury Regulations require each holder of Company Common Stock who
receives Chemicals Common Stock pursuant to the Spinoff to attach to his or her
U.S. federal income tax return for the year in which the Spinoff occurs a
detailed statement setting forth such data as may be appropriate in order to
show the applicability of Section 355 to the Spinoff. The Company will convey
the appropriate information to each holder of record of Company Common Stock as
of the Distribution Record Date.
The summary of U.S. federal income tax consequences set forth above is for
general information only and may not be applicable to stockholders who received
their shares of Company Common Stock through the exercise
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of an employee stock option or otherwise as compensation or who are not citizens
or residents of the United States or who are otherwise subject to special
treatment under the Code. All stockholders should consult their own tax advisors
as to the particular tax consequences of the Spinoff to them, including the
applicability and effect of state, local and foreign tax laws.
The IRS has also been asked to rule on the ability of the Company and/or
Chemicals to claim compensation deductions with respect to the exercise of
outstanding stock options after they have been adjusted to reflect the Spinoff.
See "Relationship Between the Company and Chemicals after the Spinoff --
Employee Benefits Allocation Agreement."
For a description of the tax sharing and indemnification agreement which the
Company and Chemicals will enter into prior to the Spinoff (the "Tax Sharing and
Indemnification Agreement") and pursuant to which the Company and Chemicals will
provide for various tax matters, see "Relationship Between the Company and
Chemicals After the Spinoff -- Tax Sharing and Indemnification Agreement." For a
description of certain additional tax considerations, see "Risk Factors --
Certain Tax Risks of the Spinoff."
POSSIBLE FUTURE TAX LEGISLATION
In June 1997, Congress proposed legislation which would require the recognition
of gain where certain distributions of stock are followed by an acquisition (the
"Anti-Morris Trust Proposal"). Under the Anti-Morris Trust Proposal, if greater
than 50% of the voting power or value of the stock of the Company were acquired
by one or more persons (which includes related and affiliated parties and
persons acting in concert) during the four-year period beginning two years
before the date of the Spinoff, then gain would be recognized in an amount equal
to the gain inherent in the Company's assets at the time of the Spinoff. For the
foregoing purposes, if the assets of the Company are acquired by a successor in
a merger or other tax-free reorganization such asset acquisition would be
treated as a stock acquisition. This feature of the Anti-Morris Trust Proposal,
if enacted into law, could limit the Company's ability to enter into a change of
control transaction for a period following the Spinoff.
LISTING AND TRADING OF COMPANY COMMON STOCK AND CHEMICALS COMMON STOCK
It is expected that Company Common Stock will continue to be listed and traded
on the NYSE after the Spinoff. There is not currently a public market for
Chemicals Common Stock. Prices at which Chemicals Common Stock may trade prior
to the Spinoff on a "when-issued" basis or after the Spinoff cannot be
predicted. Until the Chemicals Common Stock is fully distributed and an orderly
market develops, the prices at which trading in Chemicals Common Stock occurs
may fluctuate significantly. The prices at which Chemicals Common Stock trades
will be determined by the marketplace and may be influenced by many factors,
including, among others, the depth and liquidity of the market for Chemicals
Common Stock, investor perception of Chemicals and the chemical industry,
Chemicals' dividend policy and general economic and market conditions. See "RISK
FACTORS -- Dividend Policies." In addition, the combined trading prices of
Company Common Stock and Chemicals Common Stock held by stockholders after the
Spinoff may be less than, equal to or greater than the trading price of Company
Common Stock prior to the Spinoff. See "Risk Factors -- Dividend Policies."
Chemicals will file an application to list Chemicals Common Stock and Chemicals
Rights on the NYSE. Chemicals initially will have approximately
stockholders of record based upon the number of stockholders of record of the
Company as of June 27, 1997. For certain information regarding options to
purchase Chemicals Common Stock ("Chemicals Options") that will be outstanding
after the Spinoff, see "Relationship Between the Company and Chemicals After the
Spinoff -- Employee Benefits Allocation Agreement."
Shares of Chemicals Common Stock distributed to the Company's stockholders in
the Spinoff will be freely transferable, except for securities received by
persons who may be deemed to be "affiliates" of Chemicals pursuant to the
Securities Act. Persons who may be deemed to be "affiliates" of Chemicals after
the Spinoff generally include individuals or entities that control, are
controlled by, or are under common control with, Chemicals and may include
certain officers and directors of Chemicals as well as principal stockholders of
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Chemicals, if any. Persons who are affiliates of Chemicals will be permitted to
sell their shares of Chemicals Common Stock only pursuant to an effective
registration statement under the Securities Act or an exemption from the
registration requirements of the Securities Act.
FINANCING
Effective as of the Distribution Date, the Chemicals balance sheet will include
approximately $1.03 billion of debt, primarily assumable commercial paper that
will be issued by the Company from time to time prior to the Spinoff and assumed
by Chemicals effective as of the Distribution Date. The proceeds of the
commercial paper issuance will be used by the Company to repay Company debt
maturing simultaneously with the issuance of the commercial paper. Repayment of
the obligation will be Chemicals' responsibility. The assumable commercial paper
will be guaranteed by the Company until repaid or refinanced at maturity, which
may be up to 30 to 60 days following the Distribution Date.
The amount of debt to be assumed by Chemicals and the determination of
Chemicals' initial capital structure are based upon the Company's goals of
maximizing combined stockholder value for the Company's present stockholders
while enabling Chemicals to receive an investment grade credit rating. In
addition, the amount of debt that could be assumed by Chemicals without adverse
tax consequences is limited to the tax basis of the assets to be transferred to
Chemicals.
Following the Spinoff, Chemicals expects to have its own commercial paper
program which will be used in part to refinance a portion of the assumable
commercial paper. Interest expense on commercial paper financings by Chemicals
is expected to increase somewhat after the Company's guarantee of the assumable
commercial paper expires. Chemicals currently plans to refinance a substantial
portion of the commercial paper with medium and long-term debt following the
Spinoff, subject to market conditions. Such refinancing is expected to be at
higher interest rates than short-term commercial paper. The determination of the
amount to be refinanced and the terms and conditions of such refinancing have
not yet been determined.
Chemicals also intends to enter into a total of $1.2 billion in revolving credit
facilities (the "Credit Facilities") to support its commercial paper borrowings.
The Credit Facilities would also be available for working capital and other
general corporate purposes. The Credit Facilities will consist of an unsecured
five-year revolving credit facility under which Chemicals may borrow from time
to time on a revolving credit basis an aggregate principal amount of up to $800
million and an unsecured 364-day revolving credit facility under which Chemicals
may borrow on a revolving credit basis an aggregate principal amount of up to
$400 million. The Credit Facilities are expected to contain certain
representations and warranties; conditions; affirmative, negative and financial
covenants; and events of default customary for such facilities. Interest rates
charged on any borrowings outstanding under the Credit Facilities would be based
on market rates that can vary over time. The assumable commercial paper and the
backup credit facilities may be referred to collectively herein as the
"Financing Facility."
REGULATORY APPROVALS
The Company does not believe that any material U.S. federal or state or foreign
regulatory approvals will be required by law in connection with the Spinoff.
ACCOUNTING TREATMENT
Upon receipt of stockholder approval of the Spinoff, the Company will restate
its consolidated financial statements to reflect Chemicals as a discontinued
operation. In the separate financial statements of Chemicals, the assets and
liabilities contributed to Chemicals will be recorded at the Company's
historical basis.
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CONDITIONS; TERMINATION
The Spinoff is conditioned upon the satisfaction of the following conditions:
(1) approval of the Company Charter Proposal and the Spinoff Proposal by the
Company's stockholders at the Special Meeting; (2) certain transactions
(including the transfers of assets and liabilities contemplated by the
Distribution Agreement) having been consummated; (3) Chemicals Common Stock
having been approved for listing on the NYSE, subject to official notice of
issuance; (4) the Registration Statement on Form 10 (the "Registration
Statement") to be filed with the Securities and Exchange Commission (the
"Commission") to register the Chemicals Common Stock under the Exchange Act
having become effective and no stop order being in effect; (5) all material
authorizations, consents, approvals and clearances of U.S. federal, state and
local, and foreign governmental agencies having been obtained; (6) no
preliminary or permanent injunction or other order, decree or ruling issued by a
court of competent jurisdiction or by a government, regulatory or administrative
agency or commission, and no statute, rule, regulation or executive order
promulgated or enacted by any governmental authority, being in effect preventing
the consummation of the Spinoff; (7) the Financing Facility being in place and
all conditions to borrowing thereunder having been satisfied, and all necessary
consents, waivers or amendments to any bank credit agreement, debt security or
other financing facility having been obtained, or each such agreement, security
or facility having been refinanced, in each case, on terms satisfactory to the
Company and to the extent necessary to permit the Spinoff to be consummated
without any material breach of the terms of such agreement, security or
facility; and (8) receipt by the Company of a ruling from the IRS that, among
other things, the Spinoff will be tax free.
The Company Board does not intend to waive any of the conditions, except that if
the stockholders approve the Spinoff but do not approve the Company Charter
Proposal, the Company Board will reevaluate its intention to complete the
Spinoff. After such review, the Company Board could decide to waive the
condition that the Company Charter Proposal be approved and to complete the
Spinoff despite such lack of approval or to cancel the Spinoff. If the Company
does not receive the ruling from the IRS, and the Company Board decides to waive
the tax-ruling condition to the Spinoff, the Company will distribute revised
proxy materials and resolicit proxies. Even if all the above conditions are
satisfied, the Company Board has reserved the right to cancel or defer the
Spinoff and the related transactions described in this Proxy Statement at any
time prior to the Distribution Date. See "Relationship Between the Company and
Chemicals After the Spinoff -- Distribution Agreement."
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BUSINESS OF THE COMPANY AFTER THE SPINOFF
After the Spinoff the Company will operate the Life Sciences Business, which
will consist of its agricultural products, pharmaceuticals, and food ingredients
segments. If the Spinoff had occurred on January 1, 1996, net sales for the
Company for 1996, on a pro forma basis, would have been approximately $6.4
billion compared to $9.3 billion of net sales on an actual historical basis for
1996. If the Spinoff had occurred on December 31, 1996, total assets would have
been approximately $8.7 billion compared to historical total assets at that date
of $11.9 billion. For a more detailed presentation of the pro forma effects of
the Spinoff on the Company's financial position, see "Monsanto Company and
Subsidiaries Unaudited Pro Forma Condensed Consolidated Financial Statements for
the Periods Ending March 31, 1997 and December 31, 1996."
The agricultural products segment is a leading worldwide developer, producer and
marketer of crop protection products and lawn-and-garden products. This group
also develops and markets products enhanced by biotechnology. These products
improve the efficiency of food production and preserve environmental quality for
agricultural, industrial, turf and residential uses. More than half of the
unit's herbicide net sales are made outside the United States. Weather
conditions in agricultural markets worldwide affect sales volumes.
The pharmaceuticals segment reflects the operations of G.D. Searle & Co.
("Searle"). Searle develops, produces and markets prescription pharmaceuticals.
Its products include medications to relieve the symptoms of arthritis, to
control high blood pressure, to relieve insomnia, to prevent the formation of
ulcers, to treat certain infections, and to provide better women's health care.
The food ingredients segment manufactures and markets sweeteners, including
NutraSweet(R) brand sweetener and Equal(R) and Canderel(R) tabletop sweeteners.
It also develops, produces and markets alginates, biogums and other food
ingredients.
Upon consummation of the Spinoff, the Company Board will consist of 10 of the
present 14 directors of the Company. See "Election of Directors to Classified
Terms." In addition, 12 of the present 14 executive officers of the Company
including Robert B. Shapiro, Chairman and Chief Executive Officer of the
Company, will continue as senior executives of the Company following the
Spinoff.
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RELATIONSHIP BETWEEN THE COMPANY AND
CHEMICALS AFTER THE SPINOFF
For the purpose of governing certain of the ongoing relationships between the
Company and Chemicals after the Spinoff and to provide mechanisms for an orderly
transition, the Company and Chemicals or their respective subsidiaries, as
applicable, have entered or will enter into the various agreements described in
this section. Certain of the agreements summarized in this section are included
as exhibits to the Registration Statement, and the following summaries are
qualified in their entirety by reference to the agreements as filed.
DISTRIBUTION AGREEMENT
The Distribution Agreement will provide for, among other things, the principal
corporate transactions required to effect the Spinoff and certain other matters
governing the relationship between Chemicals and the Company with respect to or
in consequence of the Spinoff.
Subject to certain exceptions described below, the Distribution Agreement
contains provisions designed principally to place with Chemicals the assets and
personnel currently involved in the Chemicals Business and financial
responsibility for known and contingent or unknown liabilities of the Chemicals
Business. In addition, certain other assets and liabilities of the Company
described in the Distribution Agreement will be contributed to, or assumed by,
Chemicals. These additional assets include, among others: (1) a joint venture
interest in the elemental phosphorus mining and operations of the Company which
the Company will contribute to the P4 Joint Venture prior to the Spinoff (see
" -- P4 Joint Venture"); (2) the Company's interests in certain existing joint
ventures, including the Flexsys 50/50 joint venture between the Company and Akzo
Nobel N.V. ("Akzo Nobel") and the Advanced Elastomer Systems 50/50 joint venture
between the Company and Exxon Corporation ("Exxon") (see "Business and
Properties of Chemicals After the Spinoff -- Principal Equity Affiliates"); and
(3) $75 million of cash. These additional liabilities include, among others: (1)
most of the remaining liabilities of sold or discontinued businesses conducted
by former chemicals units or divisions of the Company; (2) environmental
remediation liabilities of certain other specified sold or discontinued
businesses of the Company; and (3) liabilities associated with the assumable
commercial paper, as described above under "The Spinoff Proposal -- Financing."
Under the Distribution Agreement, Chemicals will be entitled to the benefit of
liability insurance coverage under certain Company policies, to the extent such
coverage existed and coverage limits are not exhausted, for claims for which it
is assuming responsibility. Such insurance coverage generally will be shared
with the Company for other liabilities existing prior to the Distribution Date
which the Company is retaining, on an as available basis, without allocation.
Pursuant to the Distribution Agreement, the Spinoff is subject to a number of
conditions which are described under "The Spinoff Proposal -- Conditions;
Termination." The Distribution Agreement may be amended or terminated, and the
Spinoff may be cancelled, or certain conditions to the Spinoff may be waived, at
any time prior to the Distribution Date, in the sole discretion of the Company
Board.
EMPLOYEE BENEFITS ALLOCATION AGREEMENT
Prior to the Distribution Date, the Company and Chemicals will enter into an
employee benefits and compensation allocation agreement (the "Employee Benefits
Allocation Agreement") to set forth the manner in which assets and liabilities
under employee benefit plans and other employment-related liabilities will be
divided between them, and to ensure a smooth transition for employees' benefits
in the Spinoff. In general, Chemicals will be responsible for all liabilities
relating to its employees and former employees who last worked at a Chemicals
facility, under employee benefit plans and employment agreements or otherwise
arising out of their employment before or after the Spinoff. Chemicals will
receive corresponding assets under these employee benefit plans qualified under
the Code, but will receive no assets with respect to liabilities under
non-qualified plans. Certain liabilities relating to former employees of
Chemicals will be retained by the Company (along with any corresponding assets),
including liabilities and assets for defined benefit pension plan benefits
accrued by certain retired employees of the Chemicals business, liabilities and
assets under the Company Savings and Investment Plan and the corresponding
supplemental executive plan for such retired
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salaried employees and unfunded deferred compensation liabilities to former
employees of Chemicals. In addition, the Company and Chemicals may create a
multiple employer pension plan, of which they would initially be the joint
sponsors for up to five years, to provide for certain benefits accrued by
certain non-union employees and retirees of the Chemicals Business through
December 31, 1997. Chemicals would be primarily liable for all contributions to
fund this multiple employer pension plan, but the Company would remain
secondarily liable for such funding during the period it is a joint sponsor. The
Company will have the right to withdraw as a joint sponsor at the earlier of a
specified date or upon the occurrence of certain specified events.
The Employee Benefits Allocation Agreement will also provide for the treatment
of options to purchase Company Common Stock ("Company Options"). At the time of
the Spinoff, all Company Options granted during 1997 will be converted into
options of the employee's post-Spinoff employer -- in other words, the 1997
Company Options of Chemicals employees will be converted into Chemicals Options
and the 1997 Company Options of Company employees will continue to be Company
Options, in each case, with adjustments to preserve their value notwithstanding
the Spinoff. These adjustments will be based upon the relative trading values of
the Company Common Stock before giving effect to the Spinoff, and Chemicals
Common Stock or Company Common Stock after giving effect to the Spinoff, as the
case may be. Company Options granted before 1997 (for purposes of this section,
"Pre-Adjustment Options"), whether held by Chemicals employees or Company
employees, will be converted into two awards, one based on Chemicals Common
Stock (for purposes of this section, "New Chemicals Options") and one based on
Company Common Stock (for purposes of this section, "New Company Options" and,
collectively with New Chemicals Options, "Substituted Options"), with the same
overall value at the time of the Spinoff as the old award. Chemicals will be
responsible for delivering shares of Chemicals Common Stock upon exercise of New
Chemicals Options, and the Company will be responsible for the delivery of
shares of Company Common Stock upon exercise of New Company Options, regardless
of whether the optionee is a Chemicals or a Company employee. The holders of
restricted shares of Company Common Stock ("Company Restricted Stock") (whether
employed by the Company or Chemicals after the Spinoff) will be entitled under
the terms of their Company Restricted Stock to receive the distribution of
shares of Chemicals Common Stock in the Spinoff with respect to their Company
Restricted Stock, and such shares of Chemicals Common Stock will generally be
subject to the same restrictions as the Company Restricted Stock. (Restricted
shares of Chemicals Common Stock are referred to in this Proxy Statement as
"Chemicals Restricted Stock".) If foreign rules make any of the foregoing
impossible or impractical, Chemicals and the Company may agree to different
treatment for Company Options and/or Company Restricted Stock of non-U.S.
employees.
On June 17, 1997, the Company received an IRS ruling relating to the Substituted
Options, including (among other things) a ruling that the Company will be
entitled to a compensation deduction with respect to the exercise of New Company
Options and that Chemicals will be entitled to a compensation deduction with
respect to the exercise of New Chemicals Options.
Notwithstanding the foregoing, holders of Company Options should consult their
own tax advisors as to the particular tax consequences of the adjustment of
Company Options in connection with the Spinoff and the exercise of such Company
Options or any New Company Options or New Chemicals Options, including the
applicability and effect of U.S. state and local and foreign tax laws.
TAX SHARING AND INDEMNIFICATION AGREEMENT
Prior to the Distribution Date, Chemicals and the Company will enter into the
Tax Sharing and Indemnification Agreement, which will set forth each party's
rights and obligations with respect to payment and refunds, if any, with respect
to taxes for periods before and after the Distribution Date and related matters
such as the filing of tax returns and the conduct of audits or other proceedings
involving claims made by taxing authorities.
In general, the Company will be responsible for filing consolidated U.S. federal
and consolidated, combined or unified state income tax returns for periods
through the Distribution Date, and for paying the taxes relating to such returns
(including any subsequent adjustments resulting from the redetermination of such
tax liability by the applicable taxing authorities). The Tax Sharing and
Indemnification Agreement will also allocate liability between the Company and
Chemicals for property taxes and for any taxes which may arise in connection
with separating the Chemicals Business from the Life Sciences Business.
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Pursuant to the Tax Sharing and Indemnification Agreement, Chemicals will agree
to refrain from engaging in certain transactions for two years following the
Distribution Date without the Company's written consent unless it shall first
provide the Company with a ruling from the IRS, or in the case of certain
intragroup transfers of assets, an opinion of counsel in a form reasonably
acceptable to the Company, that the transaction will not adversely affect the
tax consequences of the Spinoff. Transactions subject to these restrictions will
include, among other things, liquidation or merger with another corporation,
certain repurchase or issuance of Chemicals Common Stock, sale, distribution or
other disposition of certain assets and the discontinuance of certain
businesses. The Company and Chemicals will agree that, in general, they will
indemnify each other, on an aftertax basis, against any tax liability resulting
from either the Company's or Chemicals' breach of any covenant or
representations contained in the Tax Sharing and Indemnification Agreement.
The Tax Sharing and Indemnification Agreement further provides for cooperation
with respect to certain tax matters, the method of reporting of non-qualified
stock options, indemnification in connection with the income of certain
partnerships, the exchange of information and the retention of records which may
affect the income tax liability of either party.
Though valid as between the parties thereto, the Tax Sharing and Indemnification
Agreement is not binding on the IRS and does not affect the several liability of
the Company, Chemicals and their respective subsidiaries to the IRS for all U.S.
federal taxes of the consolidated group relating to periods prior to the
Distribution Date.
INTELLECTUAL PROPERTY AGREEMENTS
On or prior to the Distribution Date, the Company and Chemicals will enter into
a series of agreements (the "Intellectual Property Agreements") relating to the
transfer of intellectual property, including patents, trademarks, copyrights,
know-how and trade secrets. The Intellectual Property Agreements will include:
(1) an assignment of intellectual property rights to Chemicals which relate
solely to the Chemicals Business, (2) an assignment of intellectual property
rights to Chemicals which relate primarily, but not entirely, to the Chemicals
Business, in which case a license will be granted to the Company for use in the
Life Sciences Business and in certain specified areas outside the Chemicals
Business, and (3) a license to Chemicals of certain of the Company's
intellectual property rights which relate primarily, but not entirely, to the
Life Sciences Business for use by Chemicals in the Chemicals Business and in
certain specified areas which are outside the Life Sciences Business.
TRANSITION SERVICES AGREEMENT
On or prior to the Distribution Date, the Company and Chemicals will enter into
a transitional services agreement (the "Transition Services Agreement"),
pursuant to which the Company and Chemicals will provide each other with
transitional administrative and support services (the "Transition Services") for
a period of time not to exceed 18 months from the Distribution Date. The
Transition Services Agreement will provide that, in consideration for the
performance of a Transition Service, the user of such Transition Service (the
"Service User") will pay to the provider of such Transition Service (the
"Service Provider") the cost incurred by the Service Provider in rendering such
Transition Service.
The Transition Services Agreement will provide that the Service Provider has the
right to terminate the provision of any or all Transition Services under certain
circumstances, including the occurrence of certain changes in the ownership or
beneficial control of the Service User, and also will contain provisions whereby
the Service User will generally agree to indemnify the Service Provider for all
claims, losses, damages, liabilities and other costs incurred by the Service
Provider to a third party which arise in connection with the provision of a
Transition Service, other than those costs resulting from the Service Provider's
own willful misconduct or fraud.
P4 JOINT VENTURE
The Company and Chemicals have agreed to form a joint venture for the mining of
phosphate rock and the production of elemental phosphorus (the "P4 Joint
Venture"). The Company will own 60% of the P4 Joint Venture and Chemicals will
own the remaining 40% of the P4 Joint Venture. The elemental phosphorus
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production facilities are located at Soda Springs, Idaho and will be operated by
Chemicals under an operating agreement with the P4 Joint Venture. The elemental
phosphorus produced by the P4 Joint Venture will be sold to the Company and
Chemicals generally at cost with certain adjustments to reflect ownership. The
Company will have priority for a certain percentage of the production volume.
The phosphorus material acquired by the Company will be used as a raw material
for the manufacture of herbicides (including the Company's Roundup(R) brand).
The phosphorus material acquired by Chemicals will either be used by Chemicals
as a raw material for the manufacture of phosphorus derivatives which will then
be sold by Chemicals or will be resold (as elemental phosphorus) by Chemicals.
In the event of a change of control of Chemicals, the Company has an option to
acquire Chemicals' interest in the P4 Joint Venture at the then book value. The
Company is paying Chemicals an annual fee in consideration of this option.
OPERATING AGREEMENTS
On or prior to the Distribution Date, the Company and Chemicals will enter into
master operating agreements (the "Operating Agreements") with respect to each of
four production facilities located at Chocolate Bayou in Alvin, Texas; Luling,
Louisiana; Antwerp, Belgium; and Sao Jose dos Campos, Brazil. The Company will
be the operator (the "Operator") and Chemicals will be the guest (the "Guest")
at all of the facilities except the Chocolate Bayou facility, at which the
Company will be the Guest and Chemicals will be the Operator.
Pursuant to each of the Operating Agreements, the Operator will, as an
independent contractor, provide, or arrange for the provision of, such
production, utility and certain ancillary services as are reasonably necessary
or required for the Guest's production operations at the facility, and the
Operator will lease to the Guest the real property at the facility that is used
in connection with the Guest's production operations. The Guest is required to
pay all direct and indirect costs incurred by the Operator in the performance or
supply of such services, plus an agreed upon return on the net capital employed
in connection with the respective Operating Agreement. The Guest will own the
production assets related to its operations at the facility.
Unless terminated earlier by either party thereto in accordance with the terms
of the Operating Agreements, the initial term of each of the Operating
Agreements is 20 years. After the initial term, the Operating Agreements
continue indefinitely unless and until terminated by either party upon at least
24 months' prior written notice. Each of the Operating Agreements also provides
that, under certain circumstances, either the Operator or the Guest may
terminate the Operating Agreement prior to the expiration of its initial term.
The Operating Agreements contain provisions requiring the Guest to indemnify the
Operator for all losses (other than environmental liabilities) arising out of
the operation of the facility or the provision of services, except to the extent
that such losses are caused by the Operator's willful misconduct or fraud. The
Operating Agreements also apportion certain environmental liabilities.
RAW MATERIAL SUPPLY AGREEMENTS
On or prior to the Distribution Date, the Company and Chemicals will enter into
a series of raw material supply agreements pursuant to which Chemicals will
provide materials to the Company for the continued manufacture of certain of the
Company's products, including herbicides (such as Roundup(R)) and aspartame. The
raw materials to be provided by Chemicals are as follows: formalin
(formaldehyde), monochlorobenzene (MCB), hexamethylenediamine (HMD),
hexamethylenetetramine (HMTA), hydrogen cyanide (HCN) and L-aspartic acid
(L-Asp).
The raw material supply agreements will have an anticipated term of 10 years and
will provide that the Company will obtain its requirements of the materials for
the facility to which the agreement relates from Chemicals. Chemicals will sell
these materials under formula-based or market-based pricing mechanisms.
Chemicals will also act as the agent for Life Sciences in purchasing additional
quantities of one of these materials.
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<PAGE> 46
THE COMPANY CHARTER PROPOSAL
(PROXY ITEM NO. 2)
The Company Board believes that it is advisable to adopt the Company Charter
Amendments described below, and, accordingly, has adopted a resolution proposing
that such Company Charter Amendments be presented to the stockholders at the
Special Meeting for their approval.
CLASSIFICATION OF THE COMPANY BOARD AND RELATED PROVISIONS
If approved by the stockholders, Article VIII of the Company Charter would be
amended and restated in its entirety to provide for the Company Board to be
divided into three classes, to set forth the range for the number of directors
comprising the Company Board, to establish procedures for filling vacancies on
the Company Board, to provide that directors can only be removed for cause and
by a supermajority vote of the stockholders and to require a supermajority vote
for stockholders to amend such Article VIII ("Amended Article VIII").
Amended Article VIII would divide the Company Board into three separate classes,
as nearly equal in number as possible, each class to serve a three-year term and
until their successors are duly elected and qualified with each class being
elected at different annual stockholder meetings. Following the effectiveness of
the Company Charter Amendments, Class I will consist of directors who will serve
for an initial term expiring at the 1998 Annual Meeting of Stockholders, Class
II will consist of directors who will serve for an initial term expiring at the
1999 Annual Meeting of Stockholders, and Class III will consist of directors who
will serve for an initial term expiring at the 2000 Annual Meeting of
Stockholders. At each annual meeting beginning in 1998, directors will be
elected to succeed those directors whose terms then expire and each newly
elected director will serve for a three-year term. The proposed Amended Article
VIII would replace the current system of electing all of the directors annually
for one-year terms.
The effect of a classified board of directors may be circumvented by increasing
or decreasing the size of the board. The Company Charter currently provides that
the number of directors is to be fixed as provided in the Company By-Laws, and
the Company By-Laws provide that such number is to be fixed by resolution of the
Company Board. Such Company By-Laws can currently be amended by holders of a
majority of the outstanding shares of Company Common Stock. Amended Article VIII
fixes the number of directors at not less than five nor more than twenty, the
specific number to be fixed by resolution of the Company Board. The current
Company Charter likewise provides that any vacancies caused by an increase in
the number of directors or otherwise may be filled by the Company Board in the
manner described in the Company By-Laws. Amended Article VIII provides that such
vacancies may be filled only by the affirmative vote of a majority of the
remaining directors, though less than a quorum, and that directors so chosen
would serve for the remainder of the full term of the class in which the new
directorship was created or the vacancy occurred. The Company Charter also
currently provides that directors may be removed with or without cause by a vote
of the majority of the outstanding shares entitled to vote for directors. Under
the General Corporation Law of the State of Delaware (the "Delaware Law"), if a
board of directors is classified by action of the stockholders, unless the
certificate of incorporation specifies otherwise, members of the board of
directors of each class may be removed by the stockholders before the expiration
of their respective terms only for cause. Amended Article VIII would expressly
provide that directors may be removed only for cause and only by the affirmative
vote of 80% of the stockholders entitled to vote thereon. Finally, Amended
Article VIII would provide that such article cannot be amended except by the
affirmative vote of 80% of the stockholders entitled to vote thereon.
The text of Amended Article VIII is set forth in Annex A to this Proxy
Statement.
In the event that the Company Charter Proposal is approved, the Company Board
has adopted conforming amendments to the Company By-Laws which will become
effective upon the effectiveness of the Company Charter Amendments.
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<PAGE> 47
ELIMINATION OF ACTION BY CONSENT OF STOCKHOLDERS
If approved by the stockholders, Article XI of the Company Charter would be
renumbered as Article XII and a new Article XI would be inserted, which Article
XI would require that all stockholder action be taken at a duly called annual or
special meeting and not by means of a written consent in lieu of such a meeting
("New Article XI").
Pursuant to the Delaware Law, unless otherwise provided in the certificate of
incorporation, any action required or permitted to be taken by the stockholders
of a Delaware corporation may be taken without a meeting, without prior notice
and without a stockholder vote if a written consent setting forth the action to
be taken is signed by the holders of outstanding stock having the requisite
number of shares that would be necessary to authorize such action at a meeting
at which all shares entitled to vote thereon were present and voted. The Company
Charter does not currently preclude stockholder action by written consent.
The text of the proposed New Article XI is set forth in Annex A to this Proxy
Statement.
REQUIREMENT OF 80% VOTE FOR STOCKHOLDERS TO AMEND BY-LAWS
If approved by the stockholders, Article X of the Company Charter would be
amended to require a vote of the holders of 80% of the outstanding stock for
stockholders to adopt, amend or repeal the Company By-Laws ("Amended Article
X"). Amended Article X would also provide that such article cannot be amended
except by the affirmative vote of 80% of the stockholders entitled to vote
thereon.
Pursuant to the Company Charter and the Company By-Laws, the Company By-Laws may
currently be amended by stockholders by a vote of a majority of the outstanding
stock or by the Company Board. If the Company Charter Amendments are approved,
the required vote for stockholders to adopt, amend or repeal the Company By-Laws
would be increased from 50.1% to 80%. The Company Board would continue to have
the power to amend the Company By-Laws.
The text of the proposed Amended Article X is set forth in Annex A to this Proxy
Statement.
REASONS FOR THE COMPANY CHARTER PROPOSAL
The amendments providing for a classified board, the elimination of stockholder
action by written consent, and the requirement of an 80% vote for stockholders
to amend the Company By-Laws may have certain antitakeover effects which the
Company Board believes will help to protect the value of each stockholder's
investment in the Company. Certain current provisions of the Company Charter,
the Company By-Laws and the Company Rights Agreement already provide certain
protections against takeover bids which the Company Board determines are not in
the best interest of stockholders. See "Certain Antitakeover Effects of Certain
Charter and By-Laws Provisions and the Company Rights and the Chemicals Rights."
The Company Board believes that the additional measures are desirable in
connection with the Spinoff for a number of reasons. Following the Spinoff, the
Company will consist solely of the Life Sciences Business and will be an
innovative and growth-oriented agricultural products, food, health and
biotechnology company. The Life Sciences Business has recently undertaken a
number of acquisitions and alliances, and following the Spinoff the Company
intends to continue to aggressively pursue opportunities to build the business
both through internal growth and by strategic acquisitions and alliances. The
Company's strategies for the Life Sciences Business have already yielded
substantial value for stockholders. The proposed Company Charter Amendments are
intended to enable the Company to concentrate on and implement this business
plan following the Spinoff and to foster sustained long-term growth without the
potential disruption caused by the threat of a takeover not considered by the
Company Board to be in the best interests of the Company and its stockholders.
In addition, following the Spinoff, the price of Company Common Stock may not
immediately reflect the full value of the Company as a pure Life Sciences
Business. It may take time for the market fully to appreciate the dynamics of
the Company following the Spinoff and for the Company to realize the long-term
value of focusing on the Life Sciences Business and implementing its business
plan. The additional protective provisions will enable the Company to preserve
for the benefit of the Company's stockholders the advantages of operating as a
pure life sciences company after the Spinoff.
35
<PAGE> 48
A classified Company Board will eliminate the ability of a raider to acquire
control of the Company Board at a single annual stockholder meeting. In some
cases, a raider may not be interested in taking over a corporation, but rather
may use the threat of a proxy fight and/or a takeover bid as a means of forcing
a corporation to adopt the raider's strategy for the corporation. The imminent
threat of removal of the Company Board in a proxy contest or consent
solicitation severely curtails the ability of the Company Board to negotiate
effectively with both a raider and other potential acquirors. The Company Board
may be deprived of the time and information necessary to evaluate an unsolicited
takeover proposal, to study alternative proposals and to help ensure that the
best price for stockholders is obtained in any transaction involving the Company
which may ultimately be undertaken. If the Company Board were to determine that
the best alternative for stockholders was for the Company to remain independent,
a classified Company Board would force the raider to take two annual meetings to
take control of the Company Board and implement its agenda. Accordingly, by
making it more time-consuming for a prospective acquiror to gain control of the
Company Board, a classified Company Board creates some additional negotiating
leverage for the Company Board to seek the best terms for all stockholders and
to resist proposals that the Company Board determines to be contrary to the best
interests of stockholders.
Since directors will be serving for longer terms which expire at different
times, the Company Board also believes that a classified Company Board will
promote continuity of management and thereby enhance the Company's ability to
carry out long-range plans and goals for the benefit of its stockholders.
Elimination of the stockholder consent procedure would prevent the holders of
the majority of Company Common Stock from taking action without giving all
stockholders of the Company entitled to vote on such action the opportunity to
participate in determining that action. Elimination of the ability of the
stockholders to act by written consent will also serve to ensure that the
Company Board will have adequate time and opportunity to evaluate any
stockholder proposals and to avoid the expense and distraction of a proxy fight
arising at times other than at annual meetings of stockholders. As a result of
the provisions of the Company By-Laws requiring stockholders to give advance
notice of their intention to propose nominees for director or to propose
business for action at an annual meeting, the Company Board is afforded more
time to evaluate an unsolicited takeover proposal and to determine what actions
are in the best interests of stockholders.
The requirement for a supermajority vote in order for stockholders to amend the
Company By-Laws will prevent a bare majority of the stockholders from seeking to
eliminate the Company's defenses against takeovers or otherwise frustrate
certain types of corporate action traditionally within the authority of the
Company Board. In recent years, potential acquirors, labor unions and other
stockholders have proposed by-law amendments to require the redemption of a
company's shareholders rights plan, terminate a company's defensive measures to
a takeover or authorize expenditures of corporate funds without board of
director approval. While the validity of such by-law amendments is questionable,
the Company Board believes such proposals to amend the Company By-Laws may
assist a raider in acquiring control of the Company and undermine the efforts of
the Company Board to protect the value of each stockholder's investment in the
Company.
INCREASE IN AUTHORIZED SHARES OF COMPANY COMMON STOCK
The Company Board believes that it is advisable to amend Article IV of the
Company Charter to increase the number of authorized shares of Company Common
Stock from 850,000,000 shares to 1,000,000,000 shares and the total number of
authorized shares of all classes of stock of the Company to 1,010,000,000
Shares. Such amendment would change only the number of authorized shares of
Company Common Stock and the total number of authorized shares of all classes of
stock of the Company.
As of the close of business on June 27, 1997, of the 850,000,000 shares of
Company Common Stock presently authorized by the Company Charter,
shares were issued and outstanding and shares were held in the
Company's treasury. This left approximately authorized but unissued
shares of Company Common Stock available for future use. Adoption of the Company
Charter Proposal would increase the number of authorized, but unissued, shares
of Company Common Stock to 1,000,000,000 shares.
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<PAGE> 49
On April 26, 1996, the Company Board declared a five-for-one stock split in the
form of a stock dividend following approval by the Company's stockholders of an
increase in the authorized number of shares of Company Common Stock from
200,000,000 to 850,000,000. The Company Board has concluded that there is not
currently authorized a sufficient number of shares of Company Common Stock to
give the Company the ability to react quickly to today's competitive, fast
changing environment. The additional authorized shares of Company Common Stock
would provide the Company the necessary flexibility for actions the Company
might wish to take relating to possible financing programs, acquisitions,
mergers, employee benefit plans, future stock splits and other corporate
purposes without the expense and delay of a special stockholders' meeting to
increase authorized capital.
No further action or authorization by the Company's stockholders would be
necessary prior to issuance of the additional shares except as may be required
by applicable law or regulatory agencies or by the rules of any stock exchange
on which the Company's securities may then be listed. For example, the NYSE, on
which the Company Common Stock is listed, currently requires specific
stockholder approval as a prerequisite to listing shares in several instances,
including acquisition transactions where the issuance of shares could result in
a 20% or greater increase in the number of shares of Company Common Stock
outstanding. The Company has no present agreements or commitments for the
issuance of any of the additional shares that would be authorized by the
amendment of Article IV of the Company Charter.
The additional shares for which authorization is sought would be identical to
the shares of Common Stock now authorized and outstanding. The Company Common
Stock has no conversion, preemptive or subscription rights, and is not
redeemable.
The proposed increase in the number of authorized shares of Company Common Stock
is not intended to impede a change of control of the Company. Further, the
Company is not aware of any current efforts to acquire control of the Company.
It should be noted, however, that the additional shares could be issued in
connection with defending the Company against a hostile takeover bid. The
issuance of additional shares of Company Common Stock could have the effect of
diluting earnings and book value of outstanding shares of Company Common Stock,
could be used to dilute the stock ownership of a person or entity seeking to
obtain control of the Company, or could result in a private placement with
purchasers who might side with the Company Board if they chose to oppose a
specific change of control. See "Certain Antitakeover Effects of Certain Charter
and By-Laws Provisions and the Company Rights and the Chemicals Rights -- Common
Stock."
If the Company Charter Proposal is approved by the stockholders, the Company
Charter Amendments will become effective upon the filing of a Certificate of
Amendment in accordance with the Delaware Law. A form of such Certificate of
Amendment is included as Annex A to this Proxy Statement.
REQUIRED VOTE
The affirmative vote of a majority of the shares outstanding and eligible to
vote at the Special Meeting is required for the approval of the Company Charter
Proposal. Approval of the Company Charter Proposal is a condition to
consummation of the Spinoff.
RECOMMENDATION OF THE COMPANY BOARD
THE COMPANY BOARD HAS APPROVED THE COMPANY CHARTER PROPOSAL AND RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" THE COMPANY CHARTER PROPOSAL.
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<PAGE> 50
ELECTION OF DIRECTORS TO CLASSIFIED TERMS
(PROXY ITEM NO. 3)
If the Company Charter Proposal, which includes the proposed amendment to the
Company Charter concerning classification of the Company Board, is adopted, the
terms of three of the following present directors, Nicholas L. Reding, John E.
Robson and William D. Ruckelshaus, will expire at the Annual Meeting in 1998,
the end of the one-year term to which they were elected at the Annual Meeting in
1997. It is proposed at the Special Meeting to elect four present directors to
serve for a term expiring at the Annual Meeting in 1999; and three present
directors to serve for a term expiring at the Annual Meeting in 2000 (or, in all
cases, until their respective successors are elected and qualified). If the
Company Charter Proposal is not approved, all such directors will continue to
hold office until the Annual Meeting in 1998 (or until their respective
successors are elected and qualified). Unless you indicate otherwise on your
proxy, your proxy will be voted to elect to classified terms the following
directors, whose biographical sketches appear below, for the indicated terms. If
any director fails to receive the vote necessary to be elected to a classified
term, the term of such director shall expire at the Annual Meeting in 1998 and
the vacancy so arising will be filled by the Company Board. If the Company
Charter Proposal is approved, in the event of death or disqualification or
inability to serve of any of the directors listed above, the vacancy so arising
will be filled by the Company Board. The directors who are proposed for election
to terms expiring in 1999 and 2000 were elected to terms expiring in 1998 by the
stockholders at the Annual Meeting held in April 1997.
DIRECTORS TO BE ELECTED TO TERMS EXPIRING IN 1999:
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS
- -------------------------- -------------------------------------------------------------------
<S> <C>
Robert B. Shapiro, 58..... Chairman, President and Chief Executive Officer, the Company since
1995; President and Chief Operating Officer, the Company, 1993-95;
Executive Vice President and Advisory Director, the Company, and
President, The Agricultural Group of the Company, 1990-93,
Director: Citicorp; Silicon Graphics, Inc.; Barnes-Jewish Hospital.
Trustee: Missouri Botanical Garden, Washington University. Member:
The Business Council; The Business Roundtable.
Robert M. Heyssel, 68..... Consultant; President Emeritus, The Johns Hopkins Health System
since 1992; President and Chief Executive Officer, The Johns
Hopkins Health System and The Johns Hopkins Hospital, 1972-92.
Professor, The Johns Hopkins Schools of Medicine and Public Health
since 1971 and 1972, respectively.
Philip Leder, 62.......... Chairman, Department of Genetics, Harvard Medical School since
1980; John Emory Andrus Professor of Genetics since 1980. Senior
Investigator, Howard Hughes Medical Institute since 1986. Director:
Genome Therapeutics Corporation. Trustee: The General Hospital
Corporation; The Hadassah Medical Organization; Massachusetts
General Hospital; The Charles A. Revson Foundation; The Rockefeller
University.
Jacobus F.M. Peters, 65... Chairman of the Executive Board and Chief Executive Officer, AEGON
N.V., 1984-93. Director: Kleinwort Endowment Policy Trust Plc.
Member of Supervisory Board: AEGON N.V.; Amsterdam Company for Town
Restoration Ltd.; IBM International Centre for Asset Management
N.V.; Koninklijke Pakhoed Holding N.V.; Randstad Holding N.V.;
SAMAS Group N.V.; United Flower Auctions Aalsmeer.
</TABLE>
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<PAGE> 51
DIRECTORS TO BE ELECTED TO TERMS EXPIRING IN 2000:
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS
- -------------------------- -------------------------------------------------------------------
<S> <C>
Michael Kantor, 57........ Partner, Mayer, Brown & Platt since 1997; U.S. Secretary of
Commerce, 1996-97; U.S. Trade Representative 1993-96; National
Chairman for the Clinton/Gore Campaign, 1992; Partner, Manatt,
Phelps, Phillips and Kantor, 1975-92.
Gwendolyn S. King, 56..... Senior Vice President, Corporate and Public Affairs, PECO Energy
Company (formerly Philadelphia Electric Company) since 1992.
Commissioner, Social Security Administration, 1989-92. Director:
Adwin Equipment Co., Adwin Realty Co.; Eastern Pennsylvania
Development Corp.; Lockheed Martin Corp.
John S. Reed, 58.......... Chairman and Chief Executive Officer, Citicorp and Citibank, N.A.
since 1984. Director: Citicorp; Citibank, N.A.; Philip Morris
Companies, Inc. Trustee: Rand Corporation. Member: The Business
Council; The Business Roundtable.
</TABLE>
DIRECTORS CONTINUING CURRENT TERMS EXPIRING IN 1998:
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS
- -------------------------- -------------------------------------------------------------------
<S> <C>
Nicholas L. Reding, 62.... Vice Chairman of the Board, the Company since 1993; Advisory
Director, 1986-92; Executive Vice President, Environment, Safety,
Health and Manufacturing, 1990-93. Director: CPI Corp.; Meredith
Corporation; Multifoods Corporation; The Keystone Center.
John E. Robson, 67........ Senior Advisor, Robertson, Stephens & Company since 1993;
Distinguished Faculty Fellow, Yale University School of Management
and Visiting Fellow, The Heritage Foundation, 1993; Deputy
Secretary of the U.S. Department of the Treasury, 1989-92; Dean,
Emory University Business School, 1986-89; President and Chief
Executive Officer, G.D. Searle & Co., 1985-86; Executive Vice
President, G.D. Searle & Co., 1978-85. Director: Northrop Grumman
Corp.; Rand McNally Company; Security Capital Industrial Trust
(REIT).
William D.
Ruckelshaus, 64......... Chairman, Browning-Ferris Industries, Inc., since 1995; Principal,
Madrona Investment Group L.L.C., since 1996; Chairman and Chief
Executive Officer, Browning-Ferris Industries, Inc., 1988-95. Of
Counsel, Perkins Coie since 1985. Administrator, Environmental
Protection Agency, 1983-85. Director: Browning-Ferris Industries,
Inc.; Cummins Engine Co., Inc.; Gargoyles Inc.; Nordstrom, Inc.;
Weyerhaeuser Company.
</TABLE>
Joan T. Bok, Howard M. Love, Frank A. Metz, Jr. and John B. Slaughter will
resign as directors of the Company as of the Distribution Date and will become
directors of Chemicals at that time. In addition, Mr. Ruckelshaus will be a
director of both the Company and Chemicals at and after the Distribution Date.
REQUIRED VOTE
Directors will be elected to their respective classified terms if they receive
the vote of a plurality of the shares present in person or represented by proxy.
RECOMMENDATION OF THE COMPANY BOARD
THE COMPANY BOARD HAS APPROVED THE ELECTION OF EACH OF THE DIRECTORS NAMED
HEREIN TO CLASSIFIED TERMS AND RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
ELECTION OF EACH OF THESE DIRECTORS TO CLASSIFIED TERMS.
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<PAGE> 52
COMPANY BOARD MEETINGS AND COMMITTEES
The Company Board met eight times during 1996. To assist the Company Board in
carrying out its duties, the Company Board has established an Executive
Committee and seven functional committees with responsibilities in specific
areas of Company Board activity. All nominees attended 75% or more of the
aggregate meetings of the Company Board and of the Company Board committees on
which they served during the period they held office in 1996 except that, due to
unavoidable circumstances, Mr. Reed attended one meeting less than 75% of such
meetings. A description of each Company Board committee and its current
membership follows.
Audit Committee. The Audit Committee is composed of non-employee directors and
met four times in 1996. The committee reviews and monitors the Company's
internal accounting controls, financial reports, accounting practices and the
scope and effectiveness of the audits performed by the independent auditors and
internal auditors. The committee also recommends to the full Company Board the
appointment of the Company's principal independent auditors and approves in
advance all significant audit and non-audit services provided by such auditors.
The committee discusses audit and financial reporting matters with
representatives of the Company's financial management, its internal auditors and
its principal independent auditors. The internal auditors and the principal
independent auditors meet with the committee, with and without management
representatives present, to discuss the results of their examinations, the
adequacy of the Company's internal accounting controls and the quality of the
Company's financial reporting. The committee encourages the internal auditors
and the principal independent auditors to communicate directly with the
committee. The members of the committee are: Mr. Metz, Chairman; Dr. Heyssel,
Mrs. King, Mr. Ruckelshaus and Dr. Slaughter.
Corporate Social Responsibility Committee. The Corporate Social Responsibility
Committee met four times in 1996. The committee reviews and monitors the
Company's performance as it affects employees, communities, customers, and the
environment and recommends Company policies for consideration when appropriate.
The committee also identifies and investigates emerging issues. The members of
the committee are: Mrs. Bok, Chairman; Mr. Kantor, Mrs. King, Mr. Ruckelshaus
and Dr. Slaughter.
Executive Committee. The Executive Committee has the powers of the Company
Board in directing the management of the business and affairs of the Company in
the intervals between meetings of the Company Board (except for certain matters
reserved for the Company Board). The matters acted upon by the Executive
Committee are typically of a routine nature; thus, the committee meets
infrequently. During 1996, all actions were taken by unanimous written consent
after the committee's review of proposals circulated to the members. Actions of
the committee are reported at the Company Board's next regular meeting. The
members of the committee are: Mr. Shapiro, Chairman; Drs. Leder and Slaughter.
Executive Compensation and Development Committee. The Executive Compensation
and Development Committee (the "ECDC") is composed of non-employee directors and
met four times in 1996. The ECDC recommends to the Company Board the
establishment and modification of the Company's management incentive plans. The
ECDC also administers and interprets the Company's management incentive plans
and approves the establishment, modification and termination of other executive
compensation plans and agreements. The ECDC has delegated authority to a
compensation committee composed of senior management to make grants and awards
under the incentive plans and to approve and administer other compensation plans
for all employees except executive officers. The ECDC also reviews plans for
executive succession and determines the salaries of all executive officers of
the Company. The members of the committee are: Mr. Love, Chairman; Dr. Heyssel,
Messrs. Metz and Ruckelshaus.
Finance Committee. The Finance Committee met three times in 1996. The committee
reviews and monitors the Company's financial planning and structure to insure
compatibility with the Company's requirements for growth and sound operation.
The committee provides advice regarding the worldwide financing programs of the
Company and reviews specific financing plans as requested by management. The
committee makes recommendations to the Company Board concerning the increase or
retirement of debt, issuance and repurchase of capital stock, foreign currency
management, dividend policy and commercial and investment
40
<PAGE> 53
banking relationships. The members of the committee are: Mr. Reed, Chairman;
Mrs. Bok, Messrs. Metz, Peters and Robson.
Nominating Committee. The Nominating Committee is composed of non-employee
directors and met twice in 1996. At its meeting in January 1997, it approved for
submission to the Company Board the slate of directors who were elected at the
1997 Annual Meeting of Stockholders. In addition, the committee considers
candidates for the Company Board in case of retirements or other vacancies. The
committee also develops internal criteria for the selection of non-employee
directors and criteria by which an evaluation of all directors is made. In
performing its responsibilities, the committee consults with the Chairman of the
Board. This committee will consider stockholder nominations, which should be
submitted in writing by year-end to the Company's Secretary. The members of the
committee are: Mr. Ruckelshaus, Chairman; Dr. Heyssel, Messrs. Love and Metz.
Pension and Savings Funds Committee. The Pension and Savings Funds Committee
met four times in 1996. The committee's specific responsibilities include
approving the actuarial assumptions and annual contributions for certain pension
and benefit plans (the "Company Plans"), selecting trustees and investment
managers for the Company Plans, and establishing policies for the approval of
related pension trust agreements and other funding instruments. Although the
professional trustees and investment managers have primary investment
responsibility with respect to these funds, the committee monitors the
investment performance of the Company Plans and the investment managers. The
members of the committee are: Dr. Heyssel, Chairman; Dr. Leder, Messrs. Love and
Peters.
Special Committee of the Board Regarding Agricultural Biotechnology
Matters. The Special Committee of the Board Regarding Agricultural
Biotechnology Matters was formed to review and approve acquisitions by the
Company of assets or securities or other business combination transactions, or
contributions of capital or loans to third parties, in the area of agricultural
biotechnology, either directly or indirectly. The committee met twice in 1996
via telephone conference and took one action by unanimous written consent after
the committee's review of proposals circulated to the members. Actions of the
committee are reported at the Company Board's next regular meeting. The members
of the committee are: Mr. Shapiro, Chairman; Mrs. King, Dr. Leder, Messrs. Metz
and Ruckelshaus.
COMPENSATION OF DIRECTORS
Employee directors receive neither retainers nor fees for attendance at Company
Board or Company Board committee meetings. Non-employee directors receive an
annual retainer of $30,000 plus $1,300 per Company Board meeting attended. In
addition, non-employee chairmen of the Executive and the Nominating committees
receive $4,000 per year, and non-employee chairmen of all other Company Board
committees receive $5,000 per year. Each other non-employee director serving as
a member of Company Board committees receives $3,000 per year for each Company
Board committee on which such director serves. Committee members, including
chairmen, receive a fee of $1,300 per meeting attended, except that this fee is
paid for attendance at only one committee meeting on the day of a Company Board
meeting. Each non-employee director receives $20,000 of the annual retainer in
cash and the $10,000 balance in Company Common Stock. The shares representing
the Company Common Stock portion of the annual retainer for a five-year period
are transferred to each director at the beginning of the period. These shares
are, however, subject to forfeiture to the Company unless "earned out" by the
director through continued service on the Company Board during the five years.
Thus, the forfeiture condition is removed on one-fifth of the shares on the
respective dates of the five annual meetings following transfer of the shares if
the director is still serving on the Company Board. Although the directors have
voting and dividend rights, none of their shares may be sold prior to the date
of the fifth such annual meeting so long as the director continues serving on
the Company Board. Appropriate adjustments are made for directors whose
retirement will occur in less than five years. The Company Board has approved
the suspension of such grants of Company Common Stock to directors pending
further consideration of the Company's policy regarding director compensation.
In 1993, the Company Board adopted a guideline which provides that non-employee
directors should own Company Common Stock having a value of three times their
annual retainer by the fifth anniversary of their election to the Company Board.
41
<PAGE> 54
Non-employee directors do not participate in any of the Company's incentive,
stock option, pension or benefit plans except that they are covered under the
Company's business travel accident insurance policy while traveling on Company
business. The normal retirement date for non-employee directors is the annual
meeting following their 70th birthday. Non-employee directors who retire with
five or more years of service receive an annual retirement benefit for life paid
in cash and equal to their annual retainer at the time of retirement. If a
non-employee director dies within 15 years after retirement, a designated
beneficiary will be entitled to receive the annual benefit for the remainder of
the 15-year period. Reduced benefits will be paid to a director who ceases for
any reason to be a director with fewer than five years of service and to a
director who commences receiving benefits prior to normal retirement. The
Company purchases Company-owned life insurance contracts on the lives of the
non-employee directors. Thus, the cost of this retirement benefit program,
including a factor for use of money, should be substantially recoverable through
the proceeds of such insurance, depending on realization of the assumptions as
to mortality experience, policy dividends and other factors. The Company Board
intends to review the compensation arrangements for non-employee directors
contemporaneously with the Spinoff with a view toward discontinuing this
retirement plan with respect to all continuing directors. Compensation for
non-employee directors is expected to be increasingly based on Company Common
Stock.
The Company has established a Directors' Charitable Contribution Program for all
non-employee directors of the Company which will be funded through life
insurance policies which have been purchased on each of the directors. Upon the
death of a director with five or more years of service, the Company will
contribute a total of $1,000,000 to one or more qualifying charitable
institutions recommended by the director. A reduced contribution will be made
upon the death of a director with fewer years of service. Directors derive no
direct financial benefit from this program since all charitable deductions
accrue to the Company.
The Company has a consulting agreement with Dr. Leder, a director of the
Company, who provides consulting services and the benefit of his considerable
professional skills, knowledge, experience and judgment in areas of interest to
the Company, particularly in the field of biological sciences. In 1996, Dr.
Leder received $132,600 under this contract.
Mr. Robson, a director of the Company, served on the board of directors of
Calgene, Inc. ("Calgene") at the request of the Company prior to the acquisition
by the Company in May 1997 of 100% of the common stock of Calgene (the "Calgene
Acquisition"). In consideration of such service, in May 1996, the Company
transferred to Mr. Robson 15,000 shares of common stock of Calgene valued at
$6.00 per share at the time of transfer. These shares were originally subject to
a three-year vesting period, under which one-third of the shares would become
non-forfeitable on each March 31, commencing March 31, 1997. These shares were
in addition to the standard director compensation arrangements that Calgene had
with its non-employee directors. Vesting of these restricted shares was
accelerated upon consummation of the Calgene Acquisition.
42
<PAGE> 55
INCENTIVE PLAN PROPOSAL
(PROXY ITEM NO. 4)
At the 1996 Annual Meeting, the Company's stockholders approved the Incentive
Plan. The Incentive Plan authorizes up to 46,250,000 shares of Company Common
Stock for grants of non-qualified and incentive stock options, stock
appreciation rights, restricted stock awards and bonus stock awards. The number
of shares authorized is subject to adjustment for stock dividends, stock splits
and other changes in capitalization, and the number of shares set forth above
reflects the five-for-one stock split in 1996. As of April 30, 1997,
approximately 11,895,597 shares of Company Common Stock remained available for
grants under the Incentive Plan. The Company Board, upon recommendation of the
ECDC, has amended the Incentive Plan, subject to stockholder approval, to
authorize 19,000,000 additional shares for future awards. Pursuant to the
Incentive Plan, the total number of shares available under the Incentive Plan
will be adjusted to reflect the effect of the Spinoff. For the effect of the
Spinoff on Company Options and Company Restricted Stock granted under the
Incentive Plan and its predecessor plans, see "MANAGEMENT OF CHEMICALS AFTER THE
SPINOFF -- Executive Compensation."
REASONS FOR THE INCENTIVE PLAN PROPOSAL
Because of the limited number of remaining shares, the Company Board believes it
is appropriate and necessary at this time to authorize additional shares for
future awards. Authorization of these additional shares will allow grants to
both mid-level and senior management employees in furtherance of the Company's
goal of continuing to achieve significant gains in stockholder value and
operating results. The Company intends to continue the practice begun in 1993 of
linking the exercisability of Company Options to the achievement of
performance-based targets.
MATERIAL FEATURES OF THE INCENTIVE PLAN
The material features of the Incentive Plan are outlined below and are qualified
by reference to the terms of the Incentive Plan. The Incentive Plan, as
previously amended, was filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the period ended March 31, 1997. Copies of the Incentive Plan will
be provided to stockholders without charge upon telephone request to (314)
694-4306 or upon written request to Monsanto Company E2ND, 800 N. Lindbergh
Boulevard, St. Louis, Missouri 63167. Copies will also be available at the
Special Meeting.
Authorized Shares. The Incentive Plan Proposal would authorize the use of up to
65,250,000 shares of Company Common Stock (subject to proportional adjustment in
the event of a stock split, stock dividend, spinoff or other change in
capitalization) for grants of non-qualified and incentive stock options, stock
appreciation rights, awards of Company Restricted Stock and bonus stock awards.
Pursuant to the Incentive Plan, the total number of shares available under the
Incentive Plan will be adjusted to reflect the effect of the Spinoff.
Administration. The Incentive Plan is administered by the ECDC, which is
composed of two or more non-employee directors. The ECDC may delegate the
administration of the plan except as it relates to those officers subject to the
reporting requirements of Section 16(a) of the Exchange Act.
Eligible Employees. The ECDC may grant awards under the Incentive Plan to any
employee of the Company or its subsidiaries or associated companies. In February
1997, awards were made to a group of approximately 3,125 management employees.
In any three-year period, the total number of shares for which awards may be
made to any one participant under the Incentive Plan cannot exceed 15% of the
total number of shares for which awards may be made under the Incentive Plan.
Grants in 1996 and 1997. As of April 30, 1997, non-qualified Company Options
have been granted under the Incentive Plan as follows: Mr. Shapiro, 3,022,727,
shares; Mr. De Schutter, 489,102 shares; Mr. Potter, 831,818 shares; Mr. Reding,
832,773 shares; Mr. Verfaillie, 831,818 shares; all current executive officers
as a group, 10,787,004 shares; and all other employees, 23,567,399 shares. These
numbers include Company
43
<PAGE> 56
Options granted in 1996 as set forth in the Company Option Grant table. See
"MANAGEMENT OF THE COMPANY -- Executive Compensation."
Company Options. The ECDC establishes the terms and conditions of the Company
Options granted under the Incentive Plan, subject to certain limitations
specified in the Incentive Plan. Under the Incentive Plan, the exercise price of
any Company Option granted must be no less than the fair market value of the
Company Common Stock at the grant date (or such later date as the ECDC shall
determine). Subsequent repricing of options to decrease the exercise price is
expressly prohibited.
The Incentive Plan permits the ECDC to include various terms in Company Options
in order to enhance the linkage between stockholder and management interests.
These include escalation of the option price over the term of the Company
Option, permitting participants to deliver shares of Company Common Stock in
payment of the exercise price, offering participants the opportunity to elect to
receive a grant of Company Options instead of a salary increase or bonus,
offering participants the opportunity to purchase Company Options, and making
the exercise or vesting of Company Options contingent upon the satisfaction of
performance criteria. The Incentive Plan permits the granting of dividend
equivalent units in connection with Company Option grants; none have been
granted to date under the Incentive Plan.
The Incentive Plan also provides that the term of any Company Option granted may
not exceed ten years and, additionally, may not exceed twelve months following
the termination of employment unless the termination is the result of
retirement, death or disability, provided that employees of the Company who
become employees of Chemicals in conjunction with the Spinoff shall not be
deemed to have terminated their employment for purposes of the Incentive Plan
until they have terminated their employment with Chemicals.
Company Options granted under the Incentive Plan are not transferable except by
will, the laws of descent and distribution, or, in the case of a non-qualified
option, pursuant to a qualified domestic relations order as defined by the Code,
or in circumstances permitted under Section 16 of the Exchange Act. All Company
Options may be exercised during the holder's lifetime only by the holder or the
holder's guardian or legal representative.
Incentive stock options may be granted provided they meet the requirements of
the Code. The Company has not granted, and has no plans to grant, incentive
stock options.
U.S. Tax Consequences of Company Options. No taxable income is realized by the
participant upon the grant of a non-qualified stock option, and no deduction is
then available to the Company. Upon exercise of the option, the excess of the
fair market value of the shares on the date of exercise over the option price
will be taxable to the participant and deductible by the Company. For the
treatment of deductibility with respect to Company Options in the Spinoff, see
"RELATIONSHIP BETWEEN THE COMPANY AND CHEMICALS AFTER THE SPINOFF -- Employee
Benefits Allocation Agreement." The tax basis of shares acquired will be the
fair market value on the date of exercise. For shares held for more than one
year following exercise of the option, the participant will realize long-term
capital gain or loss upon disposition.
No taxable income is realized by a participant, and no tax deduction is
available to the Company, upon either the grant or exercise of an incentive
stock option. If a participant holds the shares acquired upon the exercise of an
incentive stock option for more than one year after the stock option exercise
and more than two years after the date of the option grant (the "holding
period"), the difference between the option price and the amount realized upon
the sale of the shares will be treated as long-term capital gain or loss and no
deduction will be available to the Company. If the shares are transferred before
the expiration of the holding period, the participant will realize ordinary
income, and the Company will be entitled to a deduction on a portion of the
gain, if any, equal to the difference between the option price and the lesser of
the fair market value of the shares on the date of exercise or the amount
realized on the disposition. Any further gain or loss will be taxable as
long-term or short-term capital gain or loss depending upon the holding period
before disposition. For shares held for more than one year, the participant will
realize long-term capital gain or loss upon disposition.
The Company believes that compensation received by participants on the exercise
of non-qualified options or the disposition of shares acquired upon the exercise
of any incentive stock options will be considered performance-based compensation
and thus not subject to the $1 million limit on deductibility of compensation
under Section 162(m) of the Code.
44
<PAGE> 57
Participants are responsible for the payment of all withholding taxes due in
connection with the exercise or disposition of a Company Option or the vesting
of a Company Restricted Stock award. The ECDC has provided that all participants
may direct the Company to withhold shares to be issued on an option exercise or
stock award to satisfy the withholding obligation.
Stock Appreciation Rights. The Incentive Plan authorizes the grant of stock
appreciation rights, but only in tandem with Company Options. Any stock
appreciation right granted must be exercisable only to the same extent as the
related Company Options. The Company has no stock appreciation rights currently
outstanding and no present plans to grant any stock appreciation rights.
Restricted and Unrestricted Shares. The Incentive Plan authorizes the ECDC to
use up to one-half of 1% of the outstanding shares (or approximately
shares as of June 27, 1997) for restricted or unrestricted share grants. The
ECDC may set the terms and conditions of Company Restricted Stock awards
including restrictions against sale, transfer or other disposition, and may make
the lapse of such restrictions contingent on the achievement of performance
goals. The ECDC also may grant an award of dividend equivalent units in
connection with a Company Restricted Stock award. In 1996, one award of 15,000
shares of Company Restricted Stock was made to an executive officer of the
Company who was not a Company Named Executive Officer (as defined herein).
Change of Control. The Incentive Plan specifically authorizes the ECDC to take
such action as it determines to be necessary or advisable, and fair and
equitable to participants, with respect to Company Options, stock appreciation
rights and Company Restricted Stock awards in the event of a merger,
consolidation, acquisition, sale or transfer of assets, tender or exchange offer
or other reorganization in which the Company will not survive as an independent,
publicly owned company. Provisions for acceleration of vesting of Company
Options and Company Restricted Stock in connection with a change of control have
been incorporated in grants of Company Options and Company Restricted Stock
grants under the Incentive Plan.
REQUIRED VOTE
To be adopted, the Incentive Plan Proposal requires the affirmative vote of a
majority of the shares present in person or represented by proxy at the Special
Meeting. If the stockholders do not approve the amendment, only shares remaining
in the Incentive Plan will be available for awards.
RECOMMENDATION OF THE COMPANY BOARD
THE COMPANY BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE AMENDMENT
INCREASING THE NUMBER OF SHARES OF COMPANY COMMON STOCK AVAILABLE UNDER THE
INCENTIVE PLAN.
45
<PAGE> 58
MONSANTO COMPANY AND SUBSIDIARIES
SELECTED HISTORICAL FINANCIAL DATA
The following table summarizes certain selected consolidated financial data of
the Company which has been derived from the Monsanto Company Consolidated
Financial Statements for the five years ended December 31, 1996 and the three
months ended March 31, 1997 and 1996. The consolidated financial data set forth
below includes Chemicals. Following stockholder approval of the Spinoff, the
Company will restate its consolidated financial statements to reflect Chemicals
as a discontinued operation. The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Monsanto Company Consolidated Financial
Statements and the Notes thereto incorporated by reference into this Proxy
Statement from the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and the Company's Quarterly Report on Form 10-Q for the three
months ended March 31, 1997. See "Where Stockholders Can Find Additional
Information." In the opinion of management of the Company, the unaudited
consolidated financial statements at March 31, 1997 and 1996 and for the three
months ended March 31, 1997 and 1996 contain all adjustments necessary to
present fairly the financial position, results of operations and cash flows for
such interim periods. Financial information for the first quarter of 1997 should
not be annualized. The Company's sales and operating income are historically
higher during the first half of the year, primarily because of the concentration
of generally more profitable sales from the agricultural products segment in the
first half of the year.
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED FOR THE
OR AS OF MARCH 31, YEARS ENDED
(UNAUDITED) OR AS OF DECEMBER 31,
------------------ ------------------------------------------------
1997 1996 1996(1) 1995(2) 1994(3) 1993(4) 1992(5)
------- ------- ------- ------- ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Net sales....................... $ 2,574 $ 2,304 $ 9,262 $ 8,962 $8,272 $7,902 $7,763
Operating income (6)............ 386 405 597 985 923 810 58
Income (loss) from continuing
operations.................... 274 260 385 739 622 494 (126)
Income from discontinued
operations (7)................ 578
Cumulative effect of accounting
changes (8)................... (540)
Net income (loss)............... 274 260 385 739 622 494 (88)
EARNINGS PER SHARE: (9) and (10)
Income (loss) from continuing
operations.................... $ 0.45 $ 0.43 $ 0.64 $ 1.27 $ 1.06 $ 0.82 $(0.20)
Net income...................... 0.45 0.43 0.64 1.27 1.06 0.82 (0.14)
OTHER STATISTICS:
Total assets.................... $12,122 $11,062 $11,191 $10,611 $8,891 $8,640 $9,085
Capital expenditures............ 157 133 692 500 409 437 586
Depreciation and amortization... 148 146 590 598 561 572 765
Interest expense................ 43 40 171 190 131 129 169
Long-term debt.................. 1,552 1,630 1,608 1,667 1,405 1,502 1,423
Short-term debt (11)............ 1,773 971 654 365 312 223 257
Dividends per share (9)......... 0.150 0.138 0.588 0.540 0.494 0.460 0.440
</TABLE>
46
<PAGE> 59
(1) Net income for 1996 included restructuring and other special charges of
$500 million, or $0.84 per share, associated with the exit from the
Company's chemical businesses, the proposed Spinoff and other unusual
items.
(2) Net income for 1995 included net restructuring expenses and other unusual
items of $105 million, or $0.18 per share, and the gain on the sale of the
styrenics plastics business of $116 million, or $0.20 per share.
(3) Net income for 1994 included a net aftertax loss for restructuring and
other unusual items of $1 million, or less than $0.01 per share.
(4) Net income for 1993 included a net aftertax gain for restructuring and
other unusual items of $15 million, or $0.02 per share.
(5) Loss from continuing operations and net loss for 1992 included a net
aftertax loss for restructuring and other unusual items of $472 million, or
$0.76 per share.
(6) Operating income for the three months ended March 31, 1997 includes $101
million of pretax charges for acquired in-process research and development
and $10 million in pretax charges for an accounting rule change related to
environmental remediation reserves at operating facilities.
(7) Discontinued operations relate to the Company's Fisher Controls business
which was sold in October 1992.
(8) In 1992, the Company adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and SFAS No. 109, "Accounting
for Income Taxes," and, as a result, recorded a net aftertax charge of $540
million as a cumulative effect of an accounting change.
(9) Per share amounts were restated to reflect the May 1996 five-for-one stock
split.
(10) In March 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." Under this new standard, the presentation of
primary and fully diluted earnings per share required by current standards
is replaced by basic and diluted earnings per share. Basic earnings per
share measures operating performance assuming no dilution from securities
or contracts to issue common stock. Diluted earnings per share measures
operating performance giving effect to the dilution that would occur when
securities or contracts to issue common stock are exercised or converted.
Earnings per share computed under the provisions of SFAS No. 128 would have
been:
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED MARCH FOR THE YEARS
31, ENDED DECEMBER 31,
------------------ ------------------
1997 1996 1996 1995
----- ----- ----- -----
<S> <C> <C> <C> <C>
Basic earnings per share................. $0.47 $0.45 $0.66 $1.30
Diluted earnings per share............... $0.45 $0.43 $0.64 $1.27
</TABLE>
(11) The increase in short-term debt as of March 31, 1997 compared with
short-term debt as of March 31, 1996 was primarily attributable to the
funding of higher seasonal working capital levels and the acquisition of
the Asgrow Agronomics seed business by the Company.
47
<PAGE> 60
CHEMICALS SPINCO
SELECTED HISTORICAL FINANCIAL DATA
The following table summarizes certain selected combined financial data of
Chemicals which has been derived from the Chemicals SpinCo Combined Financial
Statements for the five years ended December 31, 1996 and the three months ended
March 31, 1997 and 1996. The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Chemicals" and the Chemicals SpinCo Combined
Financial Statements and the Notes thereto included in this Proxy Statement. The
historical financial information may not be indicative of Chemicals future
performance and does not necessarily reflect what the financial position and
results of operations of the Company would have been had the Company operated as
a separate, stand-alone entity during the periods covered. Per share data for
dividends have not been presented for the historical information as Chemicals
was not a publicly held company during the periods presented below. In the
opinion of management of the Company, the unaudited combined financial
statements at March 31, 1997 and 1996 and for the three months ended March 31,
1997 and 1996 contain all adjustments necessary to present fairly the financial
position, results of operations and cash flows for such interim periods. Results
for the first quarter of 1997 may not be indicative of results for the entire
fiscal year.
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS
ENDED
OR AS OF MARCH
31, FOR THE YEARS
---------------- ENDED OR AS OF DECEMBER 31,
----------------------------------------------
(UNAUDITED) (UNAUDITED)
---------------- ----------------
1997 1996 1996 1995 1994 1993 1992
------ ------ ------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Net sales(1)........................ $ 719 $ 705 $2,977 $2,964 $3,097 $3,028 $3,022
Operating income(2)................. 95 56 33 258 256 300 30
Other income(expense)............... 13 5 36 9 1 8 (11)
Income (loss) before income taxes... 99 53 33 231 228 290 (10)
Net income (loss)(3)................ 65 36 32 147 149 192 (6)
OTHER STATISTICS:
Total assets........................ $2,532 $2,524 $2,483 $2,462 $2,435 $2,491 $2,543
Capital expenditures................ 38 45 192 179 187 179 229
Depreciation and amortization....... 45 44 166 162 219 224 262
Intercompany charges................ 12 17 85 72 69 61 77
Interest expense(4)................. 9 8 36 36 29 19 29
Long-term debt(4)................... 0 0 0 0 0 0 0
</TABLE>
- ---------------
(1) Net sales for Chemicals included $140 million in 1995, $400 million in 1994,
$407 million in 1993 and $419 million in 1992 for its rubber chemicals
business. In May 1995, this business was contributed to the Flexsys joint
venture between the Company and Akzo Nobel. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Chemicals."
(2) Operating income includes charges (credits) for restructuring and other
unusual items of $10 million in the three months ended March 31, 1997 and
$248 million, $46 million, $34 million, $(43) million and $150 million in
the years ended December 31, 1996, 1995, 1994, 1993 and 1992, respectively.
The 1996 charges are associated with the closure or sale of certain
facilities, asset write-offs and workforce reductions. In addition,
operating income in 1993 and 1992 includes $25 million and $12 million,
respectively, for Chemicals' rubber chemicals business. Operating income for
this business was not significant in 1994 and 1995.
(3) In 1992, the Company adopted SFAS No. 106, "Employers' Accounting for
Post-retirement Benefits Other Than Pensions," and SFAS No. 109, "Accounting
for Income Taxes," and, as a result, recorded a net aftertax charge of $540
million as a cumulative effect of an accounting change. This net charge was
not allocated to Chemicals.
(4) The Company uses a centralized approach to cash management and the financing
of its operations. As a result, cash and cash equivalents and debt were not
allocated to Chemicals in the historical financial statements. Interest
expense has been allocated to Chemicals in the combined financial statements
to reflect Chemicals' pro rata share of the financing structure of the
Company. See Note 1 to the Chemicals SpinCo Combined Financial Statements.
48
<PAGE> 61
MONSANTO COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 1997 AND DECEMBER 31, 1996
The following unaudited pro forma condensed consolidated statement of financial
position as of March 31, 1997 and the unaudited pro forma condensed consolidated
statement of income for the three months ended March 31, 1997 and for the year
ended December 31, 1996 give effect to the Spinoff. The pro forma condensed
consolidated statement of financial position is presented as if the Spinoff had
occurred on March 31, 1997, and the pro forma condensed consolidated statement
of income is presented as if the Spinoff had occurred as of the beginning of the
periods presented. "The Company Restated" amounts show the effects on reported
results of operations and financial position of the Company assuming the
proposed Spinoff was consummated and, as a result, the Chemicals Business is
reported as discontinued operations. These financial statements are presented on
a pro forma basis pending the occurrence of the event that would establish the
measurement date for treatment of the Chemicals Business as discontinued
operations, namely the approval of the Spinoff by the Company's stockholders.
"The Company Adjusted" amounts represent the estimated effect on reported
results of operations and financial position of the Company of various
agreements which will govern ongoing relationships between the Company and
Chemicals after the Spinoff. See "Relationships Between the Company and
Chemicals After the Spinoff." The pro forma information is presented for
illustrative purposes only and may not be indicative of the results that would
have been obtained had the Spinoff actually occurred on the dates assumed nor is
it necessarily indicative of the future consolidated results of operations.
The pro forma condensed consolidated financial statements should be read in
conjunction with the historical financial statements and the related notes
thereto of the Company incorporated by reference into this Proxy Statement from
the Company's Annual Report on Form 10-K for the year ended December 31, 1996
and the Company's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1997. See "Where Stockholders Can Find Additional Information."
49
<PAGE> 62
MONSANTO COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
----------------------------------------------------------------------------------------------
HISTORICAL
----------------------------------------------------------------- PRO FORMA
DISCONTINUED OPERATIONS(A) --------------------------
----------------------------------------- THE THE
THE ADDITIONS COMPANY ADDITIONS COMPANY
COMPANY CHEMICALS (DEDUCTIONS) SUBTOTAL RESTATED (DEDUCTIONS) ADJUSTED
------- ------------ ------------ -------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES................... $ 2,574 $ 719 $ (20)(B) $ 699 $ 1,875 $ 1,875
Cost of goods sold.......... 1,321 543 (20)(B) 523 798 $ (2)(H) 795
(1)(C) (1)(I)
1(D)
------ ---- ---- ---- ------ ---- ------
Gross profit................ 1,253 176 176 1,077 3 1,080
Marketing, administrative
and technological
expenses.................. 730 81 (7)(C) 81 649 (1)(H) 648
7(D)
Acquired In-Process Research
and Development........... 101 101 101
Amortization of intangible
assets.................... 36 36 36
------ ---- ---- ---- ------ ---- ------
OPERATING INCOME (LOSS)..... 386 95 95 291 4 295
Interest expense............ (43) (9) (6)(F) (15) (28) (28)
Interest income............. 11 11 11
Other income
(expense) -- net.......... 40 13 13 27 27
------ ---- ---- ---- ------ ---- ------
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES..................... 394 99 (6) 93 301 4 305
Income taxes................ 120 34 (2)(G) 32 88 2(J) 90
------ ---- ---- ---- ------ ---- ------
INCOME FROM CONTINUING
OPERATIONS................ 274 65 (4) 61 213 2 215
INCOME (LOSS) FROM
DISCONTINUED OPERATIONS... 61 (61) --
------ ------ ---- ------
NET INCOME.................. $ 274 $ 274 $ (59) $ 215
====== ====== ==== ======
Earnings per share:
Continuing operations..... $ 0.35 $ 0.36
Discontinued operations... 0.10 --
------ ------
Total............. $ 0.45 $ 0.36
====== ======
Weighted average number of
shares used in the
calculation of earnings
per share................. 602.6 602.6
====== ======
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
50
<PAGE> 63
MONSANTO COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
UNAUDITED
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------------------------------------
HISTORICAL
------------------------------------------------------------- PRO FORMA
DISCONTINUED OPERATIONS(A) -------------------------
---------------------------------------- THE THE
THE ADDITIONS COMPANY ADDITIONS COMPANY
COMPANY CHEMICALS (DEDUCTIONS) SUBTOTAL RESTATED (DEDUCTIONS) ADJUSTED
------- ------------ ------------ -------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES...................... $ 9,262 $2,977 $ (63)(B) $ 2,914 $ 6,348 $ 6,348
Cost of goods sold............. 4,918 2,325 (63)(B) 2,260 2,658 $(10)(H) 2,645
(5)(C) (3)(I)
3(D)
------ ------ ---- ------ ------ ---- ------
Gross profit................... 4,344 652 2 654 3,690 13 3,703
Marketing, administrative and
technological expenses....... 2,964 427 (59)(C) 382 2,582 (2)(H) 2,580
14(D)
Amortization of intangible
assets....................... 151 151 151
Restructuring expenses and
other special
charges -- net............... 632 192 84(E) 276 356 356
------ ------ ---- ------ ------ ---- ------
OPERATING INCOME (LOSS)........ 597 33 (37) (4) 601 15 616
Interest expense............... (171) (36) (16)(F) (52) (119) (119)
Interest income................ 51 51 51
Other income
(expense) -- net............. 63 36 36 27 27
------ ------ ---- ------ ------ ---- ------
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES........................ 540 33 (53) (20) 560 15 575
Income taxes................... 155 1 12(G) 8 147 6(J) 153
------ ------ ---- ------ ------ ---- ------
INCOME FROM CONTINUING
OPERATIONS................... 385 32 (65) $ (33) $ 418 $ 9 $ 427
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS................... (33) 33 --
------ ------ ---- ------
NET INCOME..................... $ 385 $ 385 50 $ 427
====== ====== ==== ======
Earnings (Loss) per share:
Continuing operations........ $ 0.70 $ 0.71
Discontinued operations...... (0.06) --
------ ------
Total................ $ 0.64 $ 0.71
====== ======
Weighted average number of
shares used in the
calculation of earnings per
share........................ 598.9 598.9
====== ======
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
51
<PAGE> 64
MONSANTO COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS OF MARCH 31, 1997
(IN MILLIONS)
UNAUDITED
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------------------------- ----------------------------
LESS THE COMPANY ADDITIONS THE COMPANY
THE COMPANY CHEMICALS(K) RESTATED (DEDUCTIONS) ADJUSTED
----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents........... $ 106 $ 106 $ (75)(L) $ 31
Trade receivables................... 2,583 $ 430 2,153 2,153
Miscellaneous receivables and
prepaid expenses.................. 508 73 435 (8)(M) 427
Deferred income tax benefit......... 406 106 300 (2)(M) 304
Inventories......................... 1,563 321 1,242 (7)(M) 1,235
------- ------ ------ ------- ------
TOTAL CURRENT ASSETS.............. 5,166 930 4,236 (86) 4,150
------- ------ ------ ------- ------
Net property........................ 3,117 906 2,211 (50)(M) 2,161
Investments in affiliates........... 627 378 249 39(M) 288
Intangible assets................... 2,168 2,168 2,168
Other assets........................ 1,044 318 726 (113)(O) 610
(13)(M)
10(N)
------- ------ ------ ------- ------
TOTAL ASSETS........................ $12,122 $2,532 $ 9,590 $ (213) $ 9,377
======= ====== ====== ======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable.................... $ 694 $ 212 $ 482 $ (8)(M) $ 474
Accrued liabilities................. 1,776 434 1,342 (7)(M) 1,308
(19)(O)
(8)(N)
Short-term debt..................... 1,773 1,773 (1,000)(P) 773
------- ------ ------ ------- ------
TOTAL CURRENT LIABILITIES......... 4,243 646 3,597 (1,042) 2,555
------- ------ ------ ------- ------
Long-term debt...................... 1,552 1,552 (30)(P) 1,522
Post-retirement liabilities......... 1,522 628 894 (281)(O) 613
Deferred income taxes and other
liabilities....................... 978 407 571 571
Stockholders' equity................ 3,827 851 2,976 1,140(Q) 4,116
------- ------ ------ ------- ------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY............................ $12,122 $2,532 $ 9,590 $ (213) $ 9,377
======= ====== ====== ======= ======
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
52
<PAGE> 65
MONSANTO COMPANY AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 31, 1997 AND DECEMBER 31, 1997
UNAUDITED
(A) The "Discontinued Operations" columns in the unaudited pro forma condensed
consolidated statements of income represent the historical results of
operations of the Chemicals Business plus the effects of certain
adjustments, which are reasonable in the opinion of the Company's
management, to properly present such results as discontinued operations.
For the historical information see Chemicals SpinCo Combined Statements of
Income for the three months ended March 31, 1997 on page F-20 and for the
year ended December 31, 1996 on page F-3.
(B) To account for intercompany sales and costs from Chemicals to the Company.
These sales and costs were eliminated in the Company's consolidated
financial statements, but are included in Chemicals' historical financial
results and must be added back to properly reflect the Company's sales to
external parties after the Spinoff.
(C) To reverse the historical Company corporate allocation net of estimated
corporate costs retained by Chemicals after the Spinoff because Chemicals
will no longer be subject to the allocation of corporate expenses from the
Company after the Spinoff. For purposes of the historical Chemicals
financial statements such expenses were allocated on the basis of the net
capital employed by the Chemicals Business. For the three months ended
March 31, 1997 and the year ended December 31, 1996, $12 million and $85
million, respectively, of such expenses were allocated to Chemicals. The
estimated portions of such corporate costs directly attributable to
Chemicals were $5 million and $21 million, respectively, for the three
months ended March 31, 1997 and the year ended December 31, 1996.
(D) To record the assumed reduction in retiree medical and pension costs as a
result of the Spinoff. For the purpose of the Chemicals historical
financial statements, the annual costs for retiree medical and pension
liabilities generally have been allocated based upon the percentage of
payroll costs to the total Company payroll costs. In connection with the
Spinoff, Chemicals will assume retiree medical liabilities for its active
employees and former employees who last worked at a Chemicals facility. In
addition, in connection with the Spinoff, Chemicals will assume the U.S.
pension liabilities, and receive related assets, for its active employees
and for certain former employees of Chemicals who left the Company in
earlier years. The amount of these liabilities to be assumed by Chemicals
is greater than the amounts allocated historically. As a result, pension
and postretirement liabilities and costs for the Company will further
decrease after the Spinoff. See "Relationship Between the Company and
Chemicals After the Spinoff -- Employee Benefits Allocation Agreement."
(E) To exclude from continuing operations the exit costs incurred by the
Company prior to stockholder approval to separate the Chemicals Business.
Upon receipt of stockholder approval of the Spinoff, the Company will
restate its consolidated financial statements to reflect Chemicals as a
discontinued operation. These exit costs will be classified with
discontinued operations. The exit costs were not tax effected.
(F) To record additional interest expense allocated to discontinued operations
as a result of Chemicals' assumption of $1.03 billion of indebtedness
primarily assumable commercial paper. The weighted average short-term
commercial paper interest rates for the Company for the three months ended
March 31, 1997 and the year ended December 31, 1996, were 5.65% and 5.35%,
respectively. See "The Spinoff Proposal -- Financing."
(G) To record the estimated provision for income tax as a result of the pro
forma adjustments referred to in Notes (B) through (D) and (F) above at an
estimated combined U.S. federal and state income tax rate of 38%.
(H) To record the estimated effect of new selling prices and arrangements on
former intercompany sales from Chemicals to the Company and the effect of
continuing service agreements. Chemicals will sell
53
<PAGE> 66
certain products to the Company under arms-length long-term contracts with
formula-based or market-based pricing mechanisms. Chemicals will also act
as the agent for Life Sciences in purchasing additional quantities of one
of these products. The net effect of these changes in supply arrangements
and prices is to reduce the Company's cost of goods sold. See "Relationship
Between the Company and Chemicals After the Spinoff -- Raw Material Supply
Agreements" and "-- Operating Agreements."
(I) To record the estimated effect of transactions with the P4 Joint Venture.
The amounts reflect assumed accrued expenses for option fee payments from
the Company to Chemicals for the three months ended March 31, 1997 and the
year ended December 31, 1996, of $0.5 million and $2 million, respectively.
These amounts are offset by assumed payments from Chemicals to the Company
of $1.5 million and $5 million for the three months ended March 31, 1997
and the year ended December 31, 1996, respectively, for premiums related to
production taken over certain specified levels. See "Relationship Between
the Company and Chemicals After the Spinoff -- P4 Joint Venture."
(J) To record the estimated provision for income tax as a result of the pro
forma adjustments referred to in Notes (H) and (I) above at an estimated
combined U.S. federal and state income tax rate of 38%.
(K) To eliminate the historical assets, liabilities and equity of Chemicals as
of March 31, 1997. For the historical information, see the Chemicals SpinCo
Statement of Combined Financial Position as of March 31, 1997, included in
this Proxy Statement.
(L) To record the assumed contribution of $75 million in cash to Chemicals. See
"Relationship Between the Company and Chemicals After the
Spinoff -- Distribution Agreement."
(M) To record the transfer of certain assets and liabilities to, and to record
the Company's 60% investment in, the P4 Joint Venture. This venture will be
accounted for as an equity affiliate by the Company. The remaining 40%
interest will be contributed to Chemicals in connection with the Spinoff.
See "Relationship Between the Company and Chemicals After the Spinoff -- P4
Joint Venture."
(N) To record the increase in the Company's deferred tax assets resulting from
Chemicals' having an estimated combined statutory U.S. Federal and state
income tax rate of 36%, which is less than the Company's estimated combined
statutory U.S. federal and state income tax rate of 38%. In addition, this
adjustment records the assumption by Chemicals of certain tax liabilities
in accordance with the tax sharing agreement. See "Relationship Between the
Company and Chemicals After the Spinoff -- Tax Sharing and Indemnification
Agreement."
(O) To record the assumption of additional postretirement liabilities,
principally for retiree medical and pensions, by Chemicals and to eliminate
the related deferred tax asset. See "Relationship Between the Company and
Chemicals After the Spinoff -- Employee Benefits Allocation Agreement." See
Note (I) above for additional information.
(P) To record the assumption of $1.03 billion of debt by Chemicals, principally
assumable commercial paper, from the Company. See "The Spinoff
Proposal -- Financing."
(Q) To record the effect on stockholders' equity related to the pro forma
adjustments referred to in Notes (L), (M), (N), (O) and (P) above as
follows (in millions of dollars):
<TABLE>
<S> <C>
Transfer of debt................................................ $1,030
Contribution of cash............................................ (75)
Contribution of 40% interest in P4 Joint Venture................ (26)
Effect of Chemicals' assumed lower state tax rates on deferred
tax balances and transfer of certain tax liabilities.......... 24
Assumption of additional post-retirement liabilities (net of
deferred tax benefit of $113)................................. 187
------
$1,140
======
</TABLE>
54
<PAGE> 67
MONSANTO COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
The following unaudited pro forma condensed consolidated statements of income
for the years ended December 31, 1995 and 1994 show the effects on reported
results of operations of the Company of assuming the proposed Spinoff was
consummated and, as a result, the results of operations of Chemicals are
presented as discontinued operations. These income statements are presented on a
pro forma basis pending the occurrence of the event that would establish the
measurement date for treatment of Chemicals as discontinued operations, namely
approval by the Company's stockholders.
The unaudited pro forma condensed consolidated statements of income should be
read in conjunction with the historical financial statements and the related
notes thereto of the Company incorporated by reference into this Proxy Statement
from the Company's Annual Report on Form 10-K for the year ended December 31,
1996. See "Where Stockholders Can Find Additional Information." The unaudited
pro forma condensed consolidated statements of income are not necessarily
indicative of the results that actually would have occurred if the Spinoff had
been consummated or of the results which may be attained in the future.
55
<PAGE> 68
MONSANTO COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
UNAUDITED
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------------------------
HISTORICAL
---------------------------------------------------------------------------------
DISCONTINUED OPERATIONS(A)
---------------------------------------------------------
STYRENICS THE
THE PLASTICS ADDITIONS COMPANY
COMPANY CHEMICALS BUSINESS(B) (DEDUCTIONS) SUBTOTAL RESTATED(C)
------- ------------ ----------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales................. $8,962 $2,964 $ 663 $ (75)(D) $ 3,552 $ 5,410
Cost of goods sold........ 5,109 2,243 577 (75)(D) 2,722 2,387
1(E)
(24)(F)
------ ------ ---- ----- ------ ------
GROSS PROFIT.............. 3,853 721 86 23 830 3,023
Marketing, administrative
and technological
expenses................ 2,593 410 74 6(E) 465 2,128
(25)(F)
Amortization of intangible
assets.................. 119 119
Restructuring expenses and
other special charges
-- net................. 156 53 (11)(G) 42 114
------ ------ ---- ----- ------ ------
Operating income.......... 985 258 12 53 323 662
Interest expense.......... (190) (36) (17)(H) (53) (137)
Interest income........... 59 59
Gain on sale of styrenics
plastics business....... 189 189(I) 189
Other income (expense) --
net..................... 44 9 (4) 5 39
------ ------ ---- ----- ------ ------
Income from continuing
operations before income
taxes................... 1,087 231 8 225 464 623
Income taxes.............. 348 84 3 86(J) 172 176
------ ------ ---- ----- ------ ------
Income from continuing
operations.............. 739 147 5 140 292 447
INCOME (LOSS) FROM
DISCONTINUED
OPERATIONS.............. 292
------ ------
NET INCOME................ $ 739 $ 739
====== ======
Earnings per share:
Continuing operations... $ 0.77
Discontinued
operations........... 0.52
------
Total........... $ 1.27
======
Weighted average number of
shares used in the
calculation of earnings
per share............... 580.6
======
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
56
<PAGE> 69
MONSANTO COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
UNAUDITED
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
-------------------------------------------------------------------------
HISTORICAL
-------------------------------------------------------------------------
CHEMICALS DISCONTINUED OPERATIONS(A)
------------------------------------------------------
STYRENICS THE
THE PLASTICS ADDITIONS COMPANY
COMPANY CHEMICALS BUSINESS(B) (DEDUCTIONS) SUBTOTAL RESTATED(C)
------- ------------ ----------- ------------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Net sales....................... $8,272 $3,097 $ 576 $ (80)(D) $3,593 $4,679
Cost of goods sold.............. 4,774 2,368 490 (80)(D) 2,780 1,994
2(E)
------ ------ ---- ----- ------ ------
GROSS PROFIT.................... 3,498 729 86 (2) 813 2,685
Marketing, administrative and
technological expenses........ 2,454 439 71 (35)(F) 486 1,968
11(E)
Amortization of intangible
assets........................ 81 81
Restructuring expenses and other
special charges -- net........ 40 34 34 6
------ ------ ---- ----- ------ ------
Operating income................ 923 256 15 22 293 630
Interest expense................ (131) (29) (6)(H) (35) (96)
Interest income................. 81 81
Other income (expense) -- net... 22 1 (11) 11(F) 1 21
------ ------ ---- ----- ------ ------
Income from continuing
operations before income
taxes......................... 895 228 4 27 259 636
Income taxes.................... 273 79 2 10(J) 91 182
------ ------ ---- ----- ------ ------
INCOME FROM CONTINUING
OPERATIONS.................... 622 149 2 17 168 454
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS.................... 168
------ ------
NET INCOME...................... $ 622 $ 622
====== ======
Earnings per share:
Continuing operations......... $ 0.78
Discontinued operations....... 0.28
------
Total................. $ 1.06
======
Weighted average number of
shares used in the calculation
of earnings per share......... 584.9
======
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
57
<PAGE> 70
MONSANTO COMPANY AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 UNAUDITED
(A) The "Discontinued Operations" columns in the unaudited pro forma condensed
consolidated statements of income represent the historical results of
operations of the Chemicals Business plus the effects of certain
adjustments, which are reasonable in the opinion of the Company's
management, to properly present such results as discontinued operations. For
historical information see Chemicals SpinCo Combined Statement of Income for
the years ended December 31, 1995 and 1994 included in this Proxy Statement.
(B) To reclassify the historical sales, expenses and income tax provision of
the styrenics plastics business to discontinued operations. In December
1995, the Company sold its worldwide styrenics plastics business. In a
separate but related transaction, the Company sold its shares in Monsanto
Premier Kasei Co. Ltd., a styrenics plastics manufacturing joint venture in
Thailand, to one of its joint venture partners. As a result of these
transactions, the Company received $580 million, which resulted in a pretax
gain of $189 million. The styrenics plastics business was included with
Chemicals in the Company's segment reporting for periods prior to 1996, but
is not included in the Chemicals historical financial statements included
in this Proxy Statement.
(C) To present the historical operating results of the Company with Chemicals
reclassified as a discontinued operation.
(D) To account for intercompany sales and costs from Chemicals to the Company.
These sales and costs were eliminated in the Company's consolidated
financial statements, but are included in Chemicals' historical financial
results and must be added back to properly reflect the Company's sales to
external parties after the Spinoff.
(E) To record the assumed reduction in retiree medical and pension costs as a
result of the Spinoff. For the purpose of the Chemicals historical
financial statements, the annual costs for retiree medical and pension
liabilities have been allocated generally based upon the percentage of
payroll costs to the total Company payroll costs. In connection with the
Spinoff, Chemicals will assume retiree medical liabilities for its active
employees and former employees who last worked at a Chemicals facility. In
addition, in connection with the Spinoff, Chemicals will assume the U.S.
pension liabilities, and receive related assets, for its active employees
and for certain former employees of Chemicals who left the Company in
earlier years. The amount of these liabilities to be assumed by Chemicals
is significantly greater than the amounts allocated historically. As a
result, pension and postretirement liabilities and costs for the Company
will further decrease after the Spinoff. See "Relationship Between the
Company and Chemicals After the Spinoff -- Employee Benefits Allocation
Agreement."
(F) To reverse the historical Company corporate allocation to Chemicals
included in the Chemicals historical financial statements net of estimated
corporate costs retained by Chemicals after the Spinoff because Chemicals
will no longer be subject to the allocation of corporate expenses from the
Company after the Spinoff. For purposes of the historical Chemicals
financial statements, such expenses were allocated on the basis of the net
capital employed by Chemicals. For 1995 and 1994, $72 million and $69
million, respectively, of such expenses were allocated to Chemicals. The
estimated portion of such corporate costs directly attributable to
Chemicals was $23 million for 1995 and 1994.
(G) To reverse the historical Company corporate allocation of restructuring
expenses included in the Chemicals historical financial statements. For
purposes of the historical Chemicals financial statements, such expenses
were allocated on the basis of the net capital employed by the Chemicals
Business.
(H) To record additional interest expense allocated to discontinued operations
as a result of Chemicals' assumption of $1.03 billion of indebtedness. For
purposes of the historical Chemicals financial statements, the Company's
consolidated interest expense was allocated based on the percentage
relationship between the net assets utilized in the Chemicals operations and
the Company's net assets. See "The Spinoff Proposal -- Financing."
(I) To reclassify the pretax gain from the sale of the styrenics business to
discontinued operations. See Note (B) above.
(J) To record the estimated provision for income tax as a result of the
historical adjustments referred to in Notes (D) through (I) above at an
estimated combined U.S. federal and state income tax rate of 38%.
58
<PAGE> 71
CHEMICALS SPINCO
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined statement of financial
position as of March 31, 1997 and the unaudited pro forma condensed combined
statement of income for the three months ended March 31, 1997 and for the year
ended December 31, 1996 give effect to Chemicals as a stand-alone entity. The
pro forma condensed combined statement of financial position is presented as if
the Spinoff had occurred on March 31, 1997, and the pro forma condensed combined
statement of income is presented as if the Spinoff had occurred as of the
beginning of the periods presented. The pro forma information is presented for
illustrative purposes only and may not be indicative of the results that would
have been obtained had the transactions actually occurred on the dates assumed,
nor is it necessarily indicative of the future combined results of operations.
The pro forma condensed combined financial statements should be read in
conjunction with the historical financial statements and the related notes
thereto of Chemicals SpinCo included in this Proxy Statement.
59
<PAGE> 72
CHEMICALS SPINCO
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
------------------------------------
HISTORICAL PRO FORMA
--------- -------------------------
CHEMICALS ADJUSTMENTS CHEMICALS
--------- ----------- ---------
<S> <C> <C> <C>
NET SALES...................................................... $ 719 $ (4)(A) $ 715
Cost of goods sold............................................. 543 1 (B) 542
1 (C)
(3)(D)
------- ------- -------
GROSS PROFIT................................................... 176 (3) 173
Marketing, administrative and technological expenses........... 81 7 (B) 91
(9)(D)
12 (E)
------- ------- -------
OPERATING INCOME............................................... 95 (13) 82
Interest expense............................................... (9) (6)(F) (15)
Other income (expense) -- net.................................. 13 13
------- ------- -------
INCOME BEFORE INCOME TAXES..................................... 99 (19) 80
Income taxes................................................... 34 (7)(G) 27
------- ------- -------
NET INCOME..................................................... $ 65 $ (12) $ 53
======= ======= =======
EARNINGS PER SHARE............................................. $ 0.54 $ 0.44
======= =======
Shares used in the calculation of earnings per share(1)........ 120.5 120.5
======= =======
</TABLE>
- ---------------
(1) Based on the Distribution Ratio of one share of Chemicals Common Stock for
every five shares of Company Common Stock.
See Notes to Pro Forma Condensed Combined Financial Statements.
60
<PAGE> 73
CHEMICALS SPINCO
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
UNAUDITED
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------
HISTORICAL PRO FORMA
--------- -------------------------
CHEMICALS ADJUSTMENTS CHEMICALS
--------- ----------- ---------
<S> <C> <C> <C>
NET SALES.................................................... $ 2,977 $ (15)(A) $ 2,962
Cost of goods sold........................................... 2,325 3 (B) 2,313
3 (C)
(18)(D)
------- ------- -------
GROSS PROFIT................................................. 652 (3) 649
Marketing, administrative and technological expenses......... 427 14 (B) 420
(67)(D)
46 (E)
Restructuring expenses....................................... 192 192
------- ------- -------
OPERATING INCOME(1).......................................... 33 4 37
Interest expense............................................. (36) (19)(F) (55)
Other income (expense) -- net................................ 36 36
------- ------- -------
INCOME BEFORE INCOME TAXES................................... 33 (15) 18
Income taxes................................................. 1 (5)(G) (4)
------- ------- -------
NET INCOME................................................... $ 32 $ (10) $ 22
======= ======= =======
EARNINGS PER SHARE........................................... $ 0.27 $ 0.18
======= =======
Shares used in the calculation of earnings per share(2)...... 119.8 119.8
======= =======
</TABLE>
- ---------------
(1) Chemicals' historical operating income in 1996 was negatively affected by
restructuring and other unusual charges which totaled $248 million. For a
description of these charges, see Note 4 to the Chemicals SpinCo Combined
Financial Statements.
(2) Based on the Distribution Ratio of one share of Chemicals Common Stock for
every five shares of Company Common Stock.
See Notes to Pro Forma Condensed Combined Financial Statements.
61
<PAGE> 74
CHEMICALS SPINCO
PRO FORMA STATEMENT OF CONDENSED COMBINED FINANCIAL POSITION
AS OF MARCH 31, 1997
(IN MILLIONS)
UNAUDITED
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------ ---------------------------
CHEMICALS ADJUSTMENTS CHEMICALS
------------ ----------- ---------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............................. $ 75 (H) $ 75
Trade receivables..................................... $ 430 430
Miscellaneous receivables and prepaid expenses........ 73 73
Deferred income tax benefit........................... 106 (6)(I) 100
Inventories........................................... 321 321
------ ------- -------
TOTAL CURRENT ASSETS............................. 930 69 999
------ ------- -------
Net property, plant and equipment..................... 906 906
Investment in affiliates.............................. 378 26 (J) 404
Other assets.......................................... 318 107 (K) 415
(10)(I)
------ ------- -------
TOTAL ASSETS.......................................... $2,532 $ 192 $ 2,724
====== ======= =======
LIABILITIES AND MONSANTO COMPANY EQUITY
Accounts payable...................................... $ 212 $ 212
Accrued liabilities................................... 434 $ 19 (K) 461
8 (I)
------ ------- -------
TOTAL CURRENT LIABILITIES........................ 646 27 673
------ ------- -------
Long-term debt........................................ 1,030 (L) 1,030
Post-retirement liabilities........................... 628 281 (K) 909
Deferred income taxes and other liabilities........... 407 407
Monsanto Company equity (deficit)..................... 851 75 (H) (295)
(24)(I)
26 (J)
(1,030)(L)
(193)(M)
------ ------- -------
TOTAL LIABILITIES AND MONSANTO COMPANY EQUITY......... $2,532 $ 192 $ 2,724
====== ======= =======
</TABLE>
See Notes to Pro Forma Condensed Combined Financial Statements.
62
<PAGE> 75
CHEMICALS SPINCO
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
UNAUDITED
(A) To record the estimated effect of new selling prices and arrangements on
former intercompany sales from Chemicals to the Company. Chemicals will
sell certain products to the Company under arms-length long-term contracts
with formula-based or market-based pricing mechanisms. Chemicals will also
act as the agent for Life Sciences in purchasing additional quantities of
one of these products. The net effect of these changes in supply
arrangements and prices is to reduce the overall net sales of Chemicals.
See "Relationship Between the Company and Chemicals After the
Spinoff -- Raw Material Supply Agreements."
(B) To record the assumed increase in retiree medical and pension costs as a
result of the Spinoff. For the purpose of the Chemicals historical
financial statements, the annual costs for retiree medical and pension
liabilities have been allocated generally based upon the percentage of
payroll costs to total Company payroll costs. In connection with the
Spinoff, Chemicals will assume retiree medical liabilities for its active
employees and former employees who last worked at a Chemicals facility. In
addition, in connection with the Spinoff, Chemicals will assume the U.S.
pension liabilities, and receive related assets, for its active employees
and for certain former employees of Chemicals who left the Company in
earlier years. The amount of these liabilities to be assumed by Chemicals
is significantly greater than the amounts allocated historically. As a
result pension and postretirement costs for Chemicals will increase
significantly after the Spinoff. See "Relationship Between the Company and
Chemicals After the Spinoff -- Employee Benefits Allocation Agreement."
(C) To record the estimated effect of transactions with the P4 Joint Venture.
The amounts reflect assumed payments from Chemicals to the Company of $1.5
million and $5 million, for the three months ended March 31, 1997 and the
year ended December 31, 1996, respectively, for premiums related to
production taken over certain specified levels. These amounts are offset by
assumed accrued income for option fee payments from the Company to
Chemicals for the three months ended March 31, 1997 and the year ended
December 31, 1996, of $0.5 million and $2 million, respectively. See
"Relationship Between the Company and Chemicals After the Spinoff -- P4
Joint Venture."
(D) To reverse the historical Company corporate expense allocation to Chemicals
because Chemicals will no longer be subject to the allocation of corporate
expenses from the Company after the Spinoff. The allocated corporate
expenses include, among other items, executive administration, the
Company's business and organizational development initiatives, and the cost
of corporate incentives. For purposes of the historical Chemicals financial
statements, such expenses were allocated on the basis of the net capital
employed by the Chemicals Business. For the three months ended March 31,
1997 and the year ended December 31, 1996, $12 million and $85 million,
respectively, of such expenses were allocated to Chemicals.
(E) Because Chemicals will no longer be subject to the allocation of corporate
expenses from the Company after the Spinoff, a pro forma adjustment was
made to record estimated general corporate costs that Chemicals believes it
would have incurred had Chemicals been a separate public company for the
periods presented.
(F) To record additional interest expense as a result of the assumption of debt
by Chemicals from the Company. The interest rates used for the three months
ended March 31, 1997 and the year ended December 31, 1996, were 5.85% and
5.70%, respectively, and are based on weighted average short-term
commercial paper rates consistent with Chemicals' expected commercial paper
rating of A2/P2. See "The Spinoff Proposal -- Financing."
(G) To record the estimated provision for income tax as a result of the pro
forma adjustments referred to in Notes (A) through (F) above at an
estimated combined U.S. federal and state income tax rate of 36%.
(H) To record the assumed contribution of $75 million in cash to Chemicals from
the Company. See "Relationship Between the Company and Chemicals After the
Spinoff -- Distribution Agreement."
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(I) To record the reduction in deferred tax assets to an estimated combined
U.S. Federal and state income tax rate of 36% for Chemicals and to reflect
the assumption of certain tax liabilities in accordance with the Tax
Sharing and Indemnification agreement. See "Relationship Between the
Company and Chemicals After the Spinoff -- Tax Sharing and Indemnification
Agreement."
(J) To record the contribution by the Company of a 40% interest in the P4 Joint
Venture to Chemicals. See "Relationship Between the Company and Chemicals
After the Spinoff -- P4 Joint Venture."
(K) To record the assumption of additional post-retirement liabilities by
Chemicals, principally for retiree medical and pensions, and to record the
related deferred tax asset. See "Relationship Between the Company and
Chemicals After the Spinoff -- Employee Benefits Allocation Agreement." See
Note (B) above for additional information.
(L) To record the assumption of $1.03 billion of debt by Chemicals, principally
assumable commercial paper, from the Company. See "The Spinoff
Proposal -- Financing." This debt has been classified as long-term based
upon Chemicals' ability and intent to refinance these obligations on a
long-term basis.
(M) To record the effect on Monsanto Company equity related to the pro forma
adjustment referred to in Note (K) above.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF CHEMICALS
In December 1996, the Company Board approved in principle a plan to spin off the
Company's chemical operations to the Company's stockholders. In the Spinoff,
each of the Company's stockholders will receive a pro rata share of Chemicals
Common Stock and Chemicals will become a separately traded, publicly held
company. See "The Spinoff Proposal -- Background and Reasons for the Spinoff."
The Spinoff is subject to several conditions, including stockholder approval.
See "The Spinoff Proposal -- Conditions; Termination." The Spinoff is also
conditioned upon the Company's receipt of a ruling from the IRS that the Spinoff
would generally be free from U.S. federal income taxes. See "The Spinoff
Proposal -- Material Federal Income Tax Consequences of the Spinoff."
The combined financial statements of Chemicals generally reflect the results of
operations, financial position and cash flows of the operations expected to be
transferred to Chemicals in connection with the Spinoff. Accordingly, Chemicals'
combined financial statements have been carved out from the consolidated
financial statements of the Company using the historical results of operations
and historical basis of the assets and liabilities of the Chemicals Business and
the allocation methodology described in Note 1 to the Chemicals SpinCo Combined
Financial Statements. The combined financial statements of Chemicals do not
include certain assets and liabilities which will be transferred to Chemicals in
connection with the Spinoff. See "Chemicals Spinco Unaudited Pro Forma Condensed
Combined Financial Statements" and Note 1 to the Chemicals SpinCo Combined
Financial Statements. Management believes the assumptions underlying Chemicals'
financial statements are reasonable.
The combined financial statements, however, may not necessarily reflect the
results of operations, cash flows or financial position of Chemicals in the
future, or what the results of operations, cash flows or financial position
would have been had Chemicals been a separate stand-alone public entity.
LIQUIDITY AND CAPITAL RESOURCES
Historically, Chemicals has generated sufficient cash from its operations to
fund its capital needs, including working capital. Capital expenditures averaged
$186 million per year for the past three years and were used to fund various
maintenance and capacity expansion projects. Chemicals expects that its capital
requirements for 1997 will be approximately $210 million and could increase to
between approximately $275 million and $450 million annually over the following
few years as a result of capacity expansion projects. In addition, environmental
remediation expenditures have averaged $62 million per year over the past three
years, and Chemicals expects to incur similar amounts per year over the next
several years.
Chemicals' working capital at March 31, 1997 increased to $284 million from $121
million at December 31, 1996, primarily because of lower accrued liabilities.
This increase was also affected by increases in trade receivables and
inventories. The 1997 decrease in accrued liabilities, principally wages and
benefits, and the corresponding increase in cash used in operations, was
principally the result of payouts associated with employee incentive programs
that were significantly higher than those in the prior year. The increased
incentive payouts, included the final payment of certain deferred amounts
related to the third year of a three-year incentive plan.
Effective as of the Distribution Date, the Chemicals balance sheet will include
approximately $1.03 billion of debt, primarily assumable commercial paper which
will be issued by the Company and assumed by Chemicals effective as of the
Distribution Date. The assumable commercial paper will be guaranteed by the
Company until repaid or refinanced at maturity, which may be up to 30 to 60 days
following the Distribution Date. After the Spinoff, the commercial paper will be
backed by approximately $1.2 million in revolving credit facilities of
Chemicals.
Chemicals believes that its cash flow from operations, supplemented by periodic
additional borrowings, provides it with sufficient resources to finance
operations and planned capital needs.
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RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 Compared With Three Months Ended March
31, 1996
For the three months ended March 31, 1997, Chemicals' net sales of $719 million
increased $14 million, or 2%, as compared with the same period in 1996.
Approximately $11 million of the increase can be attributed to higher average
selling prices, with the remainder of the increase attributable to higher sales
volumes and an improved sales mix. The sales increase was principally the result
of higher sales of Saflex(R) plastic interlayer which was driven by increased
demand. In addition, the sales increase benefited from higher carpet fiber sales
as a result of higher average selling prices. First quarter 1997 sales of the
other product lines were essentially even with the first quarter of the prior
year.
Chemicals' operating income for the first quarter of 1997 increased $39 million,
or 70%, versus the first quarter of 1996. However, as further discussed in Note
2 of "Notes to Interim Combined Financial Statements," operating income includes
$10 million of pretax charges associated with the adoption of SOP 96-1 for
environmental reserves at operating locations. If this charge was excluded,
operating income in the first quarter of 1997 would have increased 88% compared
with a weak operating income performance in the same quarter last year. Lower
administrative expenses, the effect of increased sales described above, and
improved manufacturing performance all contributed to the significant increase
in operating income. The decrease in administrative expenses can be attributed
primarily to cost savings realized through the various restructuring actions
taken in recent years. In addition, higher capacity utilization contributed to
the improved manufacturing performance.
The increase in "Other income (expense) -- net" was primarily the result of
higher earnings from equity affiliates, principally associated with the Flexsys
joint venture.
1996 Compared with 1995
Chemicals' net sales increased $13 million in 1996. However, as further
discussed in the Notes to the Chemicals SpinCo Combined Financial Statements,
prior year operations reflect four month sales and operating income from the
rubber chemicals business that was contributed to the formation in May 1995 of
the Flexsys 50-50 joint venture between the Company and Akzo Nobel which is
described below. Sales and operating results for the rubber chemicals business
are no longer included in Chemicals' combined totals. If the sales from this
business were excluded in 1995, Chemicals' sales would have increased $153
million, or 5%, in 1996. Approximately $204 million of the increase can be
attributed to higher sales volumes and an improved sales mix. This increase was
partially offset by the effect of lower average selling prices which totaled
approximately $51 million.
Most of the sales growth was driven by increased sales for fibers products,
primarily because of higher sales volumes of nylon and acrylic fibers. Nylon
fiber sales were considerably higher than sales in 1995 because of higher demand
in the carpet industry. Increased demand in U.S. markets and higher export
sales, particularly into China, drove the sales volume growth for acrylic
fibers. A decline in average selling prices partially offset the increase in
nylon and acrylic fiber sales. Nylon polymer sales also contributed to the sales
increase on the strength of higher sales volumes. Sales of intermediates and
phosphorus and derivative products were essentially even with the prior year.
Sales of industrial products in 1996 were up moderately from those in 1995,
principally because of higher sales volumes, led by higher sales volumes for
Therminol(R) heat transfer fluids. Higher sales volumes, partially offset by
lower average selling prices, resulted in a modest increase in the net sales of
Saflex(R) plastic interlayer in 1996. Polymer modifier sales declined slightly
in 1996, primarily due to lower sales volumes.
In 1996, operating income for Chemicals decreased $225 million from operating
income in 1995. However, profitability in both years was affected by unusual
items. Operating income in 1996 included a net charge of $248 million for
restructuring and other actions, primarily for the costs of work force
reductions, asset write-offs and facility rationalizations. Operating income in
1995 was reduced by $46 million, principally as a result of restructuring
charges for employment reductions and the costs to close several facilities. If
the unusual
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items in 1996 and 1995 and the results of the rubber chemicals business were
excluded, 1996 operating income for Chemicals would have decreased $20 million
from the comparable amount in 1995.
The positive effect of higher sales volumes and lower raw material costs on
operating income was offset by lower average selling prices, by significantly
higher administrative expenses and by higher manufacturing costs. The
manufacturing cost increase was principally associated with maintenance downtime
and capacity expansion projects. Customer demands and worldwide competitive
pressures limited Chemicals' pricing flexibility on most of its products. Future
reductions or increases in average selling prices will continue to be contingent
upon these demands and pressures.
The 1996 increase in administrative expenses was primarily due to higher costs
associated with various employee incentive programs, as well as to increased
allocations related to the Company's business and organizational development
initiatives.
The increase in "Other income (expense) -- net" was primarily the result of
higher earnings from equity affiliates, principally associated with the Flexsys
and Advanced Elastomer Systems joint ventures.
The 1996 effective income tax rate of 3% compared to the U.S. federal statutory
rate of 35% can be attributed primarily to the joint venture after tax earnings
included in "Other income (expense) -- net" and benefits from the foreign sales
corporation. It is expected that the effective income tax rate in future periods
will be significantly higher and will approximate the U.S. federal statutory
rate.
Chemicals is affected by economic conditions, particularly as they relate to the
automotive and housing industries, which are cyclical businesses. In addition,
global competition and customer demands for efficiency will continue to make
price increases difficult. The prices of purchased raw materials used by
Chemicals fluctuate in the short term and are affected by factors such as plant
outages, oil prices and supply and demand. However, in the long term, Chemicals
believes that the addition of new worldwide capacity should exert downward
pressure on raw material costs.
1995 Compared with 1994
Chemicals' net sales decreased $133 million in 1995. However, net sales and
operating results for the first four months of 1995 and for all of 1994 include
the results from Chemicals' rubber chemicals business. As further discussed in
Note 4 to the Chemicals SpinCo Combined Financial Statements, on May 1, 1995,
the Company contributed the rubber chemicals business to the Flexsys joint
venture. Operations for Flexsys commenced on May 1, 1995. As a result, sales and
operating results for the rubber chemicals business are no longer included in
Chemicals' results. If the sales from this business were excluded in both 1995
and 1994, Chemicals' sales in 1995 would have increased $127 million, or 5
percent. Approximately $105 million of this increase can be attributed to the
effects of higher average selling prices, with the remainder of the increase
attributable to higher sales volumes.
Nylon intermediate sales in 1995 increased significantly from sales in 1994,
primarily on the strength of higher selling prices. In addition, Chemicals' 1995
sales increase benefited from higher sales of polymer modifiers and nylon
polymers as a result of higher average selling prices. Net sales of Saflex(R)
plastic interlayer increased modestly from sales in 1994, principally because of
favorable exchange rates. Sales volumes were essentially even with those in 1994
as expected growth in the global automotive markets failed to materialize in
1995. The 1995 increase in net sales was partially offset by lower nylon and
carpet fiber sales, as the carpet industry experienced lower consumer demand in
1995. Demand for acrylic fibers in U.S. markets was soft during 1995 and
negatively affected sales volumes. This decline was partially offset by higher
export sales, particularly in China.
Operating income for Chemicals increased slightly in 1995 from operating income
in 1994. However, unusual items affected profitability in both years. Operating
income in 1995 was reduced by $46 million, principally the result of
restructuring charges for employment reductions and the costs to close several
facilities. Operating income in 1994 was reduced by $34 million in restructuring
charges, principally related to work force reductions and costs to close several
facilities. If these unusual items and the results of the rubber chemicals
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business were excluded, operating income for Chemicals would have increased by
3% from operating income in 1994.
Operating income was positively affected by higher selling prices, the effect of
continued cost-reduction efforts, and manufacturing efficiencies, but was hurt
by higher raw material costs. Competitive pressures worldwide limited Chemicals'
ability to recover the increased raw material costs fully through increased
selling prices.
The decrease in marketing expenses was principally due to the inclusion of only
four months of marketing expenses associated with the rubber chemicals business
in 1995 operating results.
ENVIRONMENTAL MATTERS
Chemicals continues to make a strong commitment to comply with various laws and
government regulations concerning environmental matters and employee safety and
health in the United States and other countries. U.S. federal environmental
legislation having particular effect on Chemicals includes the Toxic Substances
Control Act; the Resource Conservation and Recovery Act ("RCRA"); the Clean Air
Act; the Clean Water Act; the Safe Drinking Water Act; and the Comprehensive
Environmental Response, Compensation and Liability Act (commonly known as
"Superfund"), as amended by the Superfund Amendments and Reauthorization Act.
Chemicals is also subject to the Occupational Safety and Health Act and
regulations of the Occupational Safety and Health Administration ("OSHA")
concerning employee safety and health matters. The Environmental Protection
Agency ("EPA"), OSHA and other federal agencies have the authority to promulgate
regulations which have an effect on Chemicals' operations. In addition to these
federal activities, various states have been delegated certain authority under
the aforementioned federal statutes. Many state and local governments have
adopted environmental and employee safety and health laws and regulations, some
of which are similar to federal requirements. State and federal authorities may
seek fines and penalties for violation of these laws and regulations.
Chemicals is dedicated to long-term environmental protection and compliance
programs that reduce and monitor emissions of hazardous materials into the
environment as well as to the remediation of identified existing environmental
concerns. Chemicals is among the leaders in the chemical industry's Responsible
Care performance enhancement program.
Expenditures in 1996 were approximately $9 million for environmental capital
projects and approximately $85 million for the management of environmental
programs, including the operation and maintenance of facilities for
environmental control. Chemicals estimates that during 1997 and 1998
approximately $15 million to $20 million per year will be spent on additional
capital projects for environmental protection and that expenses for the
management of environmental programs in 1997 and 1998 will continue at levels
comparable to 1996.
The Company intermittently receives notices from the EPA alleging that it is a
PRP under Superfund. In 1996, two such notices were received for Chemicals. With
respect to many of Chemicals' notices, the Company has resolved disputes,
entered partial and complete consent decrees, and executed administrative orders
with the EPA settling a portion or all of Chemicals' liability. Remediation
pursuant to such settlements is ongoing.
Chemicals' policy is to accrue costs for remediation of contaminated sites in
the accounting period in which the responsibility is established and the cost is
estimable. Chemicals' estimates of its liabilities for Superfund sites are based
on evaluations of currently available facts with respect to each individual site
and take into consideration factors such as existing technology, laws and agency
policy, and prior experience in remediation of contaminated sites. As
assessments and remediation activities progress at individual sites, these
liabilities are reviewed periodically and adjusted to reflect additional
technical, engineering and legal information that becomes available. Chemicals
had an accrued liability of $51 million as of December 31, 1996 for Superfund
sites. Major Superfund sites in this category include the noncompany-owned sites
at Brio and MOTCO in Texas, Fike/Artel in West Virginia and Woburn in
Massachusetts, which account for $34 million of the accrued amount. Because of
uncertainties primarily related to the method and extent of remediation,
potential future expenses could be as much as an additional $10 million for
these sites based upon existing technology and other currently available
information. These potential future expenses may be incurred over the next
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decade. Chemicals spent approximately $20 million in 1996 for remediation of
Superfund sites. Similar amounts can be expected in future years.
Chemicals had environmental reserves of $58 million as of December 31, 1996 for
shut-down plants and third-party sites for which Chemicals is assuming
responsibility pursuant to the Distribution Agreement. Chemicals' estimates of
its liabilities are based on evaluations of currently available facts with
respect to each individual site and take into consideration factors such as
existing technology, laws and agency policy and prior experience in remediation
of contaminated sites. Subject to these uncertainties, Chemicals currently
estimates that potential future expenses could be as much as an additional $50
million for these sites. Chemicals spent $21 million in 1996 for remediation of
these sites. Similar amounts can be expected in the future.
For solid and hazardous waste remediation at Chemicals' operating locations,
Chemicals recognizes post-closure environmental costs and remediation costs over
the estimated remaining useful life of the related facilities, not to exceed 20
years. Chemicals spent $18 million in 1996 for remediation of these facilities
and had an accrued liability of $41 million as of December 31, 1996 for these
sites. Uncertainties related to these costs are evolving government regulations,
the methods and extent of remediation and future changes in technology.
Chemicals estimates that closure costs for these facilities will be an
additional $70 million, based upon existing technology and other currently
available information.
Although the ultimate costs and results of remediation of contaminated sites
cannot be predicted with certainty, they are not expected to result in a
material adverse change in Chemicals' liquidity or financial position as
reflected in Chemicals' historical financial statements, but they could have a
material adverse effect on profitability in a given period. The impact of any
future changes in environmental law and regulation on Chemicals' liquidity,
financial position and profitability cannot be predicted with accuracy.
Effective January 1, 1997, Chemicals adopted SOP 96-1, "Environmental
Remediation Liabilities." SOP 96-1 establishes authoritative guidance regarding
the recognition, measurement and disclosure of environmental remediation
liabilities. The primary change in Chemicals' accounting principles associated
with the adoption of this SOP was an acceleration of the recognition of certain
environmental remediation liabilities at operating facilities. As a result,
Chemicals recorded an aftertax charge of $6 million in the first quarter of
1997. Additional aftertax charges in the range of $9 million to $14 million are
anticipated in 1997 as the criteria for recording these liabilities are met.
These charges are in addition to the 1997 and 1998 estimated capital
expenditures for environmental projects previously described.
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BUSINESS AND PROPERTIES OF CHEMICALS
AFTER THE SPINOFF
Chemicals produces and markets a range of high performance chemical-based
materials, including nylon and acrylic fibers and fiber intermediates, Saflex(R)
plastic interlayer, phosphorus derivatives, and specialty chemicals. These
materials are used by customers to make consumer, household, automotive and
industrial products.
Chemicals' strategic focus is built on four key technology strengths: polymer
chemistry, phosphorus chemistry, fiber technology, and process engineering
expertise. These technologies are used in various combinations to create
value-added products in ten business units: Acrilan(R) Acrylic Fibers, Carpet
Fibers, Industrial Nylon Fibers, Industrial Products, Intermediates, Nylon
Plastics & Polymers, Phosphorus Derivatives, Polymer Modifiers, Resins, and
Saflex(R) Plastic Interlayer. Chemicals has achieved leading market positions in
its key target markets. Three business units -- Carpet Fibers, Intermediates and
Saflex(R) Plastic Interlayer -- combined to provide over 50% of Chemicals' total
sales in 1996.
To compete effectively in its markets, Chemicals plans to employ a strategy
which emphasizes the following key elements:
CORE PRODUCTS AND TECHNOLOGIES: Chemicals intends to focus on its core
products and technologies throughout its ten business units. Chemicals will
continue to invest in manufacturing technology, product research and
technical and marketing support in order to continually improve its cost
and quality positions as well as its applications support and technical
service.
AGGRESSIVE COST CONTROLS AND FOCUS ON PROFITABILITY: Over the past several
years, Chemicals has restructured its product portfolio to exit
underperforming businesses. Chemicals believes that additional expense
reductions can be achieved in manufacturing and administrative functions.
SELECTED GROWTH INITIATIVES: Chemicals intends to develop the growth
potential of its core chemistries and technologies through targeted new
product introductions, innovations in related fields and selective
expansions of its presence in international markets.
PERFORMANCE INCENTIVES: Chemicals plans to provide incentives for
employees to improve cash flow, profitability and economic and shareholder
value.
In 1996, Chemicals had revenues of approximately $3.0 billion and operating
earnings of approximately $281 million, excluding restructuring costs and
unusual items. Currently, approximately one-third of Chemicals' sales are made
into markets outside the United States. See the Chemicals SpinCo Combined
Financial Statements.
Prior to June 1, 1997, the Company conducted the Chemicals Business through
various divisions and subsidiaries. On June 1, 1997, the Company began to
execute its decision to separate Chemicals into a stand-alone company by
beginning the transfer to Chemicals of the assets and liabilities related to the
Chemicals Business. The separation is expected to be substantially complete
prior to the date of the Special Meeting.
DESCRIPTION OF PRINCIPAL PRODUCTS AND COMPETITIVE SITUATION
Set forth below are descriptions of Chemicals' ten business units, in
alphabetical order.
1. Acrilan(R)Acrylic Fiber
Chemicals is the largest producer of acrylic fiber in North America. It
manufactures and markets a full line of commodity and specialty grades of this
fiber, which is used to make apparel, craft yarns, cloth for home furnishings,
and brake fibers, among other uses.
Chemicals' Acrilan(R) trademark is widely recognized in the industry, as are the
following brand names which are used to identify products made with Acrilan(R):
Wear-Dated(R) upholstery; DuraSpun(R) fibers, the Smart Yarns fibers (for
socks); and Wintuk(R), Sayelle(R) and Bounce Back(R) (fibers for craft yarn).
The principal competitor for acrylic fiber in North America is Sterling
Chemicals, Inc. Worldwide, competitors include MonteFibre S.p.A. (Italy), AKSA
Akrilik Kimya Sanayii A.S. (Turkey), Courtalds plc
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(United Kingdom) and Mitsubishi Chemicals Corporation (Japan). Acrylic fiber
also competes against other fibers such as cotton and polyester.
The primary raw material for acrylic fiber is acrylonitrile, which is produced
internally by Intermediates and supplemented with external purchases.
There are a variety of differentiated Acrilan(R) brand products, including
producer-colored fiber, pigmented UV resistant fibers, bi-component Bounce
Back(R) fibers, DuraSpun(R) abrasion-resistant fibers and technical fibers used
in friction applications, as well as precursor chemicals for carbon fibers.
These products -- and the opportunity to develop sales in other parts of the
Western Hemisphere -- represent the business unit's best opportunity for growth.
In addition, Chemicals generates significant income from the licensing of its
proprietary wet spinning acrylic technology, primarily in Asian markets.
2. Carpet Fibers
Chemicals is the largest supplier of nylon staple to the North American carpet
industry, for the residential market (new construction and replacement), the
contract market (offices, hospitality, retail and institutions) and the rug
market. Its product portfolio includes nylon 6,6 staple, bulk continuous
filament ("BCF") and acrylic staple fibers -- offering carpet mills a wide range
of performance and styling characteristics.
Chemicals' products are marketed under two of the industry's most respected
brand names: Wear-Dated(R) carpets (residential) and Ultron(R) VIP nylon
(contract). The Wear-Dated(R) name is widely recognized by consumers in North
America for its guarantee of the finished carpet's outstanding quality and
exceptional performance.
Competitive success is determined by different factors in different segments of
the market. Overall, Carpet Fibers benefits from vertical integration with
Intermediates. In the residential segment, branded products compete based on
technical advances and marketing programs, such as Chemicals' warranty offered
on Wear-Dated(R) carpets, retailer sales incentives and similar activities.
In contract markets, the basis for competition is product performance and
downstream marketing programs. The Ultron(R) VIP nylon brand offers carpet
makers an innovative mix of fiber shapes and sizes that are specifically
engineered for features such as soil-hiding ability and extra bulk and cover.
Carpet Fibers works closely with the building design community to develop new
products which address the contract market's needs. It also sells Ultron(R) SD
Solution-Dyed nylon 6,6, which offers superior colorfastness and protection
against harsh chemicals, bacterial growth and stains.
Chemicals also plans to introduce DyeNAMIX(TM) technology in 1997, a
substantially improved fiber system which permits rich, deep colors and enhances
the print clarity of carpets. This proprietary technology is environmentally
friendly, while also allowing carpet mills to achieve higher efficiencies and
lower dye costs.
The principal competitors for nylon carpet fiber in the United States are E.I.
DuPont De Nemours and Company ("DuPont"), AlliedSignal Inc. ("AlliedSignal") and
BASF AG ("BASF"). Chemicals and AlliedSignal offer both nylon staple and BCF
products, while DuPont and BASF are primarily BCF suppliers. Chemicals owns and
operates the world's largest integrated nylon manufacturing plant in Pensacola,
Florida.
A majority of Carpet Fibers' sales are generated by a few major customers in the
carpet mill industry.
Carpet Fibers receives almost all of its major raw materials from Intermediates.
3. Industrial Nylon Fibers
Chemicals makes and supplies a line of industrial-strength nylon fibers to a
variety of manufacturing customers. Industrial Nylon Fibers' product line
features continuous filament nylon 6,6 yarns in thicknesses ranging from 60 to
2000 deniers. Heavier yarns are used for applications such as bias tires for
earth movers, NASA space shuttles, aircraft and trucks; mining conveyor belts;
and cargo slings. Lighter weight yarns are used to make backpacks, ribbons,
sewing threads and dental floss. Cost per unit of performance, service
(including the ability to tailor the properties of yarns for use in specific
applications) and breadth of product
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line are the major drivers of success in the industrial fibers market. Chemicals
has built a strong presence in the bias tire and other heavy-denier segments and
in industrial sewing threads. Sales to five major tire companies account for
about 50% of total Industrial Nylon Fibers volume.
Chemicals is currently investing capital to increase spinning capacity and to
enhance spinning technology at its Greenwood, South Carolina plant. This project
will use proprietary technology (licensed from Toray Industries Inc.) to improve
product quality, enhance yarn performance and tenacity and enable Chemicals to
achieve a low-cost position in key segments of the market, including automotive
airbags and high performance tires.
Industrial Nylon Fibers receives almost all of its major raw materials from
Intermediates. Competitors in the United States include DuPont (the market
leader) and AlliedSignal.
4. Industrial Products
Chemicals is a leading producer of specialty industrial fluids and lubricants.
Its products are widely recognized in their market segments for specific
performance characteristics which result from proprietary formulations.
Substantially all of the products in this business unit are trademarked, and
include the following brands: Skydrol(R) aviation fluids; Therminol(R) heat
transfer fluids; Dequest(R) water treatment chemicals; and Glacier(R)
metalworking fluids.
The Skydrol(R) product line includes fire-resistant hydraulic fluids which are
used in more than half of the world's commercial aircraft. A new product,
Skydrol(R) 5, was introduced in 1996. It offers a range of enhanced performance
characteristics, such as improved thermal stability, improved corrosion
protection and reduced weight. The Skydrol(R) brand's major competitor is
manufactured by Exxon.
Therminol(R) heat transfer fluids are leaders in the worldwide high temperature
liquid phase market. These products, used in various types of capital equipment,
are known for remaining thermally stable at high temperatures and for their low
temperature pumping characteristics. Competitors include The Dow Chemical
Company and Nippon Steel Chemical Co., Ltd.
Dequest(R) water treatment chemicals are used to solve problems in a number of
heavy and light industrial applications. These products offer functional
properties such as sequestration, scale inhibition and corrosion control.
Competing products are marketed by Albright & Wilson plc ("Albright & Wilson")
and Bayer Corporation ("Bayer").
Launched in 1996, Glacier(R) metalworking fluids are the industry's first
environmentally safe lubricants designed for machining operations such as
grinding, drilling and threading. The fluids are biodegradable and practically
non-toxic.
Chemicals' specialty industrial fluids are sold throughout the world, with no
single customer accounting for a significant level of sales.
Industrial Products expects to develop new opportunities in its niche markets by
continuing to develop and introduce new products such as Glacier(R) and by
pursuing sales in additional geographic areas such as Asia and Latin America.
Chemicals recently formed a joint venture in Suzhou, China, to manufacture
Therminol(R) heat transfer fluids.
Industrial Products relies on a number of raw materials such as benzene, phenol
and phosphorus trichloride, most of which are produced internally by
Intermediates.
5. Intermediates
Intermediates manufactures more than three dozen "building block" chemicals
which are used by Chemicals and by other companies to make a wide variety of
finished products. Intermediates' product lines include nylon intermediates,
sold to a number of fibers and plastics manufacturers worldwide; chlorobenzenes,
used in applications such as rubber chemicals, pigments, antioxidants,
herbicides, solvents and resins; and other intermediates which are used to
produce fertilizers, detergents and animal feed supplements.
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<PAGE> 85
Intermediates relies on aggressive cost control, exceptional product quality,
world-class manufacturing scale and proprietary manufacturing technology to
drive its competitive success. Its strategy is to support the competitiveness of
other Chemicals products by achieving the low-cost position on their critical
"building block" chemicals and to pursue profitable external sales of these
products. Intermediates has achieved a leading position in nylon intermediates
through a combination of proprietary technology and scale.
Intermediates obtains its key raw materials, including natural gas, cyclohexane,
propylene, benzene and chlorine, from a number of suppliers.
To meet internal demand and address external sales opportunities, Intermediates
is planning an expansion of its acrylonitrile manufacturing capacity, which will
also reduce its manufacturing costs.
The majority of the production of Intermediates is used internally, with most of
the external sales made to a limited number of customers. In some product lines,
external sales are dependent on a major customer. However, in each of these
cases, sales to internal customers account for the majority of the business
unit's production capacity.
Competitors vary by product line and by world region and include DuPont,
Rhone-Poulenc Rorer Inc. ("Rhone-Poulenc") and BASF.
6. Nylon Plastics & Polymers
Chemicals manufactures and markets a line of Vydyne(R) nylon 6,6 molding resins
and extrusion polymers and nylon 6,6 polymers for fiber applications. Vydyne(R)
nylon gives plastics manufacturers the ability to provide their products with
enhanced performance characteristics, such as heat resistance, chemical
resistance and toughness. Vydyne(R) nylon molding resins are used in
under-the-hood automotive components, electrical connectors for telephone
systems and computers, medical devices and similar applications.
Product performance, technical service, vertical integration and breadth of
product line are the major drivers of success in this market. Nylon Plastics &
Polymers relies on nylon 6,6 salt as its primary raw material. This material is
produced internally by Intermediates. The business unit's primary competitor is
DuPont.
7. Phosphorus Derivatives
Chemicals has developed an extensive franchise in phosphorus chemistry. It also
has a joint venture in Brazil using Purified Wet Acid technology to produce many
of these products. Chemicals is a low-cost producer of phosphorus-based
chemicals, and most of its product technologies are proprietary. Chemicals
manufactures products for a wide range of industries:
Food and Beverage. Its phosphates are used in many food products to
improve texture, appearance and flavor. Branded products include
Levn-Lite(R), Pan-O-Lite(R) and Leverage(R) brand leavening agents, used in
baking; Nutrifos(R) sodium tripolyphosphate, used in meat and poultry
processing; and Katch Fish(R) phosphate, used to extend the shelf life of
fish products.
Personal Care Products. Major toothpaste manufacturers around the world
rely on Chemicals' oral care phosphates to improve the performance of their
products. Chemicals has been a leader in the development of dentrifice
agents which are used to control tartar and to polish and whiten teeth.
Specialty Chemicals. Chemicals manufactures a number of phosphorus-based
intermediates which serve as key ingredients in oil additives, pesticides
and mining chemicals. Chemicals also offers high-purity phosphoric acid,
used as a building block in the manufacture of high-purity phosphate salts.
Industrial Cleaners and Fire Retardants. Chemicals provides specialized
cleaning ingredients for commercial laundries, restaurant and hospital
dishwashing systems and vehicle wash facilities. Chemicals also makes and
sells Phos-Chek(R) fire fighting agent, used in aerial spraying to control
forest fires and wildfires.
Elemental Phosphorus. Chemicals will also offer for sale elemental
phosphorus sourced from the P4 Joint Venture.
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<PAGE> 86
Its primary competitors are FMC Corporation, Albright & Wilson and
Rhone-Poulenc. The business unit's primary raw material is elemental phosphorus,
which is mined and processed in Soda Springs, Idaho, at facilities which will be
jointly owned by Chemicals and the Company through the P4 Joint Venture. See
"Relationship Between the Company and Chemicals After the Spinoff -- P4 Joint
Venture."
8. Polymer Modifiers
Chemicals manufactures and markets a line of polymer modifiers and specialty
plasticizers which are used to improve the performance of flooring products,
sealants, caulks, adhesives and other goods. Unit brands include Santicizer(R)
polymer modifiers and plasticizers, and Santotac MRS(R), a flooring additive.
Polymer Modifiers is focused on specialty applications, where technical
expertise and processing knowledge can be used to help customers obtain valuable
performance attributes in their products (e.g., mar/scratch resistance, stain
resistance, enhanced gloss and flame retardance). Competitors vary by product
line and include Bayer and Akzo Nobel.
Polymer Modifiers obtains its key raw materials from U.S. and European markets.
New products (such as Santotac MRS(R)) and geographic expansion (particularly
into central Europe and Asia) are expected to be the primary drivers of growth.
9. Resins
This business unit manufactures and markets a line of specialty resins which are
used in the manufacture of thermoset paints and coatings, pressure sensitive
adhesives, paper coatings, plastic products and other applications. Brands
include Resimene(R) amino crosslinkers, Gelva(R) pressure sensitive adhesives,
Santosol(R) solvents which have certain environmentally friendly
characteristics, Scripset(R) resins for paper sizing, Butvar(R) specialty
binders, Modaflow(R) flow and leveling agents, ClearPass(R) spray control
systems and other fabricated products.
Resins provides technical expertise to help customers obtain value-added
performance characteristics. Major competitors vary by product line and include
Cytec Industries, Inc. (coatings and surface size); National Starch and Chemical
Co. and Ashland Inc. (solution acrylic adhesives); Rohm and Haas Company and Air
Products and Chemicals, Inc. (emulsion water-based adhesives); and DuPont
(solvents which have certain environmentally friendly characteristics).
Resins relies on a number of commodity chemicals as raw materials, all of which
are readily available. New products (such as di-methyl esters, a solvent with
certain environmentally-friendly characteristics) and geographic expansion
(particularly into Europe, Latin America and Asia) are expected to be the
primary drivers of growth.
10. Saflex(R) Plastic Interlayer
Chemicals is the world's largest producer of polyvinyl butyral ("PVB"), a
plastic interlayer used in the manufacture of laminated glass for automotive and
architectural applications. The business unit's product is marketed under the
Saflex(R), Saflex SV(R) (superior value) and KeepSafe(TM) (for residential
security windows) trademarks. In 1997, Saflex(R) Plastic Interlayer will
commercialize a patented, reformulated product which is designed to provide
superior processing and application performance. Continued business development
will be driven by the introduction of the reformulated PVB product, by increased
penetration of geographic markets (especially Asia) and by the creation of new
primary demand for PVB in laminated glass worldwide. A Saflex(R) finishing plant
is scheduled to start up in Singapore in late 1997.
Six customers account for 65% to 70% of total sales of Saflex(R) products
worldwide. Saflex(R) Plastic Interlayer relies on vinyl acetate monomer,
polyvinyl alcohol and butanol as raw materials, all of which are readily
available in the U.S. and European markets. Sales volumes are influenced by
shifts in automotive production and commercial building construction, which are
cyclical businesses. The principal competitor in the manufacture of PVB is
DuPont.
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<PAGE> 87
PRINCIPAL EQUITY AFFILIATES
Chemicals participates in a number of joint ventures in which it shares
management control with other companies. Principal joint ventures include
Flexsys and Advanced Elastomer Systems. Chemicals' share of the unconsolidated
net sales of Chemicals' joint ventures was $445 million in 1996. In connection
with the Spinoff, the Company and Chemicals will enter into the P4 Joint
Venture.
Flexsys, headquartered in Belgium, is the world's leading supplier of process
chemicals to the rubber industry. Its product line includes a number of branded
accelerators (Santocure(R), Thiofide(R), Thiotax(R)), pre-vulcanization
inhibitors (Santogard(R)), antidegradants and antioxidants (Flectol(R),
Santowhite(R)), and insoluble sulphur (Crystex(R)). Flexsys is a 50/50 joint
venture between Chemicals and Akzo Nobel.
Advanced Elastomer Systems, headquartered in the United States, produces and
sells thermoplastic elastomers -- materials which combine the processability of
thermoplastic and the functional performance of thermoset rubber products. The
joint venture's product lines include Santoprene(R) thermoplastic rubber and
Vistaflex(R) thermoplastic elastomer. Advanced Elastomer Systems is a 50/50
joint venture between Chemicals and Exxon.
See "Relationship Between the Company and Chemicals After the Spinoff -- P4
Joint Venture" for information about the P4 Joint Venture with the Company.
SALE OF PRODUCTS
Chemicals' products are sold directly to end users in various industries, and to
wholesalers, principally by Chemicals' own sales force. Chemicals' marketing and
distribution practices do not result in unusual working capital requirements on
a consolidated basis. Inventories of finished goods, goods in process and raw
materials are maintained to meet customer requirements and Chemicals' scheduled
production. In general, Chemicals does not manufacture its products against a
backlog of firm orders; production is geared to the level of incoming orders and
to projections of future demand. Chemicals generally is not dependent upon one
or a group of customers, and it has no material contracts with the government of
the United States, or any U.S. state or local, or foreign government. In
general, Chemicals' sales are not subject to seasonality.
RAW MATERIALS AND ENERGY RESOURCES
Chemicals is a significant purchaser of basic, commodity raw materials,
including propylene, cyclohexane, benzene and natural gas. Major requirements
for key raw materials and fuels are typically purchased pursuant to long-term
contracts. Chemicals is not dependent on any one supplier for a material amount
of its raw materials or fuel requirements, but certain important raw materials
are obtained from a few major suppliers. In general, where Chemicals has limited
sources of raw materials, it has developed contingency plans to minimize the
effect of any interruption or reduction in supply. Information regarding
specific raw materials is provided under "-- Description of Principal Products
and Competitive Situation."
While temporary shortages of raw materials and fuels may occasionally occur,
these items are generally sufficiently available to cover current and projected
requirements. However, their continuing availability and price are subject to
unscheduled plant interruptions occurring during periods of high demand, or due
to domestic and world market and political conditions, as well as to the direct
or indirect effect of U.S. and other countries' government regulations. The
impact of any future raw material and energy shortages on Chemicals' business as
a whole or in specific world areas cannot be accurately predicted. Operations
and products may, at times, be adversely affected by legislation, shortages or
international or domestic events.
PATENTS AND TRADEMARKS
As of the Spinoff, Chemicals will own a large number of patents currently owned
by the Company or its subsidiaries which relate to a wide variety of products
and processes, will have pending a substantial number of patent applications,
and will be licensed under a small number of patents owned by others. Also,
Chemicals will own a considerable number of established trademarks currently
owned by the Company or its subsidiaries
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<PAGE> 88
in many countries under which it markets its products. Such patents and
trademarks in the aggregate are of material importance in the operations of the
Chemicals Business.
COMPETITION
Chemicals encounters substantial competition with respect to each of its product
lines. This competition, from other manufacturers of the same products and from
manufacturers of different products designed for the same uses, is expected to
continue in both U.S. and ex-U.S. markets. Depending on the product involved,
various types of competition are encountered, including price, delivery,
service, performance, product innovation, product recognition and quality.
Overall, Chemicals regards its principal product groups to be competitive with
many other products of other producers, and believes that it is an important
producer of many such product groups. For information regarding competition in
specific markets, see "-- Description of Principal Products and Competitive
Situation."
RESEARCH AND DEVELOPMENT
Research and development constitute an important part of Chemicals' activities.
In recent years, Chemicals' research and development expenses amounted to
approximately 2.6% of sales on average, or $76 million, $77 million and $81
million in 1994, 1995 and 1996, respectively. Chemicals focuses its research and
development expenditures on process improvements and select product development.
Chemicals actively pursues technologies from around the world that are expected
to bring value to its business. Recent examples include new technology for
converting benzene to phenol, which was licensed from Boreskov Institute of
Catalysis in Russia, and which Chemicals is actively seeking to license to third
parties; and nylon industrial spinning technology, licensed from Toray
Industries Inc. in Japan.
The Chemicals Business also licenses technologies to other firms. For example,
it recently agreed to license acrylonitrile technology to Tae Kwang Industrial
Company in Korea.
ENVIRONMENTAL MATTERS
For a discussion of environmental matters, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations of
Chemicals -- Environmental Matters."
EMPLOYEE RELATIONS
As of May 1, 1997, Chemicals had approximately 8,800 employees worldwide.
Satisfactory relations have prevailed between Chemicals and its employees.
Chemicals uses self-directed work teams, gainsharing programs, and other
initiatives to keep employees actively involved in the success of the business.
As of the Distribution Date, substantially all of the Chemicals employees will
have Chemicals Options. About 25% of the Chemicals workforce is represented by
various labor unions.
INTERNATIONAL OPERATIONS
Chemicals and affiliated companies are engaged in manufacturing, sales and
research and development in areas outside the United States, including Europe,
Canada, Latin America and Asia. Approximately one-third of Chemicals' 1996 sales
were made into markets outside the United States. Operations outside the United
States are potentially subject to a number of risks and limitations which are
not present in domestic operations, including fluctuations in currency values,
trade restrictions, investment regulations, governmental instability and other
potentially detrimental governmental practices or policies affecting U.S.
companies doing business abroad.
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<PAGE> 89
PROPERTIES
The General Offices of Chemicals are located in St. Louis County, Missouri.
Chemicals also has research laboratories, research centers and manufacturing
locations worldwide. Chemicals' principal facilities as of the Spinoff, all of
which will be owned, will include:
<TABLE>
<CAPTION>
PLANT SITE BUSINESS UNITS SERVED
- ----------------------------------- ------------------------------------------------------
<S> <C>
Anniston, Alabama Industrial Products
Augusta, Georgia Phosphorus Derivatives
Carondelet Phosphorus Derivatives
(St. Louis, Missouri)
Chocolate Bayou Industrial Products, Intermediates
(Alvin, Texas)
Decatur, Alabama Acrilan(R) Acrylic Fiber, Industrial Nylon Fibers,
Intermediates, Research Center
Delaware River Industrial Products, Intermediates, Polymer Modifiers
(Bridgeport, New Jersey)
Foley, Alabama Carpet Fibers, Nylon Plastics & Polymers
Ghent, Belgium Resins, Saflex(R) Plastic Interlayer
Greenwood, South Carolina Carpet Fibers, Industrial Nylon Fibers, Intermediates,
Nylon Plastics & Polymers
Indian Orchard Research Center, Resins, Saflex(R) Plastic Interlayer
(Springfield, Massachusetts)
Krummrich Intermediates, Phosphorus Derivatives
(Sauget, Illinois)
LaSalle, Canada Polymer Modifiers, Resins
Newport, Wales (U.K.) Industrial Products, Polymer Modifiers, Resins
Pensacola, Florida Carpet Fibers, Industrial Nylon Fibers, Intermediates,
Nylon Plastics & Polymers, Research Center
Queeny Industrial Products, Polymer Modifiers, Resins
(St. Louis, Missouri)
Trenton, Michigan Phosphorus Derivatives, Resins, Saflex(R) Plastic
Interlayer
Westport Resins
(St. Louis, Missouri)
</TABLE>
Following the Spinoff, Chemicals will own certain buildings and production
equipment, and will lease the underlying real estate, used to produce products
for the indicated business units at the following Company sites:
<TABLE>
<CAPTION>
PLANT SITE BUSINESS UNITS SERVED
- ----------------------------------- ------------------------------------------------------
<S> <C>
Antwerp, Belgium Industrial Products, Polymer Modifiers, Saflex(R)
Plastic Interlayer
Luling, Louisiana Intermediates
Sao Jose dos Campos, Brazil Industrial Products, Phosphorus Derivatives, Saflex(R)
Plastic Interlayer
</TABLE>
The Company will operate these facilities pursuant to arrangements described
under "Relationship Between the Company and Chemicals After the
Spinoff -- Operating Agreements."
Chemicals' principal plants are suitable and adequate for their use. Utilization
of these facilities may vary with seasonal, economic and other business
conditions, but none of the principal plants is substantially idle. The
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<PAGE> 90
facilities generally have sufficient capacity for existing needs and expected
near-term growth. Chemicals operates several facilities for third parties,
principally within the Chocolate Bayou and Pensacola sites, under long-term
lease and operating agreements. In connection with the Spinoff, Chemicals will
enter into an Operating Agreement with the Company relating to a portion of the
Chocolate Bayou site. See "Relationship Between the Company and Chemicals After
the Spinoff -- Operating Agreements."
Chemicals is an active participant in the VPP Star program, a voluntary safety
and health program administered by OSHA. Through 1996, nine of Chemicals' sites
had qualified for the VPP Star and one site for the Merit designation. In
addition, 16 of Chemicals' locations have been certified wholly or in part under
the ISO 9000 quality program.
LEGAL PROCEEDINGS
At the time of the Spinoff, Chemicals will assume from the Company, pursuant to
the Distribution Agreement, liabilities related to specified legal proceedings.
As a result, although the Company will remain the named defendant, Chemicals
will manage the litigation and indemnify the Company for costs, expenses and
judgments arising from such litigation. Most of these proceedings have arisen in
the ordinary course of business and involve claims for money damages. While the
results of litigation cannot be predicted with certainty, Chemicals does not
believe these matters or their ultimate disposition will have a material adverse
effect on Chemicals' combined financial position, profitability or liquidity in
any one year, as applicable. The following describes certain proceedings to
which the Company is a party and for which Chemicals will assume any
liabilities, pursuant to the Distribution Agreement as of the Distribution Date.
On April 12, 1985, the Company was named as a defendant in Alanis et al. v. Farm
& Home Savings, et al., filed in the District Court in Harris County, Texas, the
first of a number of lawsuits in which plaintiffs claim injuries resulting from
alleged exposure to substances present at or emanating from the Brio Superfund
site near Houston, Texas. The Company is one of a number of companies that has
sold materials to the chemical reprocessor at that site. Currently pending are
the following matters: (1) the Company is one of a number of defendants in 11
cases brought in Harris County District Court or the United States District
Court for the Southern District of Texas on behalf of 960 plaintiffs who owned
homes or lived in subdivisions near the Brio site or along Clear Creek
downstream from the site, attended school near the site or used nearby
recreational baseball fields. Plaintiffs claim to have suffered various personal
injuries and fear future disease; they assert the need for medical monitoring,
and, in the case of the homeowners, claim property damage. In addition to their
claims of personal injury, four plaintiffs in one of these cases allege business
losses. Plaintiffs seek compensatory and punitive damages in an unspecified
amount; and (2) the Company is one of a number of defendants in two actions
brought in Harris County District Court and one action brought in Galveston
County District Court on behalf of 409 plaintiffs, who are former employees of
the owners/operators of the Brio site, and members of the employees' families or
persons who worked near the Brio site. Plaintiffs in one of these actions also
owned homes or lived in subdivisions near the site, attended schools near the
site or used nearby recreational ball fields. Plaintiffs claim physical and
emotional injury and seek compensatory and punitive damages in an unspecified
amount. The Company believes that it has meritorious defenses to all of these
lawsuits including lack of proximate cause, lack of negligent or other improper
conduct on the part of the Company, and negligence of plaintiffs (or their
parents) and/or of builders and developers of the Southbend subdivision. The
Company is vigorously defending these actions.
On November 15, 1993, the Company was named in Dyer et al. v. Monsanto Company,
et al., filed in the Circuit Court in St. Clair County, Alabama, the first of a
number of lawsuits in which plaintiffs claim to have sustained personal injuries
or property damage as a result of the discharge of hazardous substances,
including polychlorinated biphenyls ("PCBs"), from its Anniston, Alabama, plant
site. The following matters are currently pending: (1) the Company is a
defendant in a case pending in Circuit Court in St. Clair County, Alabama which
has been certified as a class action on behalf of all property owners in a
specified area along waterways near the plant. Plaintiffs claim loss in the
value of their property and seek compensatory and punitive damages in an
unspecified amount; (2) the Company is a defendant in eight additional cases
brought in Circuit Court in Calhoun County, Circuit Court in St. Clair County,
Circuit Court in Taladega County or in U.S. District Court in the Northern
District of Alabama on behalf of 1,641 individual plaintiffs who own or
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rent homes or own or operate businesses along waterways near the plant or who
attend churches near the plant. One of the cases pending in U.S. District Court
seeks certification of a plaintiff class. An additional case has been filed in
Circuit Court in Calhoun County by one of the churches near the plant. The
individual plaintiffs claim to have suffered various personal injuries and fear
future disease; they assert the need for medical monitoring and claim to have
suffered loss in the value of their property or commercial injury. They seek
compensatory and punitive damages of $3 million or in unspecified amounts for
each individual, and $20 million for the church; and (3) the Company has also
received notice of a potential Citizen Suit pursuant to RCRA Section
7002(a)(1)(B) on behalf of four individuals who are plaintiffs in one of the
suits pending in Circuit Court in Calhoun County. The notice claims that
hazardous substances, including PCBs, have been released from the Anniston plant
and pose an imminent threat to health and the environment. The notice seeks
statutory penalties of $25,000 per day for a period of more than five years, for
a total of $45,625,000. The Company believes that it has meritorious defenses to
all of these matters, including lack of proximate cause of any physical injury
or property damage, lack of imminent threat to health or the environment and
lack of negligence or other improper conduct. The Company is vigorously
defending these actions.
RISK MANAGEMENT
Chemicals has evaluated risk retention and insurance levels for product
liability, property damage and other potential areas of risk. Chemicals will
continue to devote significant effort to maintaining and improving safety and
internal control programs, which reduce its exposure to certain risks.
Management will decide the amount of insurance coverage to purchase from
unaffiliated companies and the appropriate amount of risk to retain based on the
cost and availability of insurance and the likelihood of a loss. Management
believes that the levels of risk retention which it decides to implement will be
consistent with those of other companies in the chemical industry. There can be
no assurance that Chemicals will not incur losses beyond the limits, or outside
the coverage, of its insurance. Chemicals' combined financial position,
profitability and liquidity are not expected to be affected materially by the
levels of risk retention that it accepts. For treatment of Chemicals coverage
under existing Company insurance policies in connection with the Spinoff, see
"Relationship Between the Company and Chemicals After the
Spinoff -- Distribution Agreement."
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<PAGE> 92
MANAGEMENT OF CHEMICALS AFTER THE SPINOFF
EXECUTIVE OFFICERS OF CHEMICALS
Set forth below are the names, ages, future titles with Chemicals and present
and past positions of the persons who are expected to serve as executive
officers of Chemicals immediately following the Spinoff. Each such individual
will be elected to the indicated office with Chemicals in anticipation of the
Spinoff and will serve at the pleasure of the Chemicals' Board of Directors (the
"Chemicals Board"). Those persons named below who are currently officers or
employees of the Company will resign from their positions with the Company by
the Distribution Date.
<TABLE>
<CAPTION>
PRESENT AND PAST POSITIONS
NAME AND AGE FUTURE POSITION WITH CHEMICALS SINCE JANUARY 1, 1992
- ------------------------- ----------------------------- ----------------------------------
<S> <C> <C>
Robert G. Potter, 58..... Chairman, Chief Executive Chief executive of the Company's
Officer and Director chemical businesses, since 1986.
Executive Vice President of the
Company, since 1990. Advisory
Director of the Company, since
1986.
Karl R. Barnickol, 55.... Senior Vice President, General General Counsel of the Chemicals
Counsel and Secretary Business, since 1997. Associate
General Counsel and Assistant
Secretary of the Company, since
1985.
Rodney L. Bishop, 56..... Vice President and Treasurer Treasurer of the Chemicals
Business, since 1997. General
Auditor of the Company, since
1993. Assistant Controller of the
Company, 1982-1993.
Dennis L. Cavner, 43..... Vice President, Operational Vice President, Operational
Excellence Excellence of the Chemicals
Business, since 1997. Director,
Manufacturing, Saflex(R) Plastic
Interlayer, of the Company,
1996-1997. Director,
Manufacturing, Phosphorus and
Derivatives, of the Company,
1995-1996. Plant Manager of the
Company's Muscatine, Iowa
facility, 1992-1995.
Robert A. Clausen, 52.... Senior Vice President and Chief Financial Officer of the
Chief Financial Officer Chemicals Business, since 1997.
President, Monsanto Business
Services, 1994-1997. Vice
President, Asset Management of the
Company, 1992-1994.
Sheila Feldman, 42....... Vice President, Human Vice President, Human Resources,
Resources of the Chemicals Business, since
1997. Director, Human Resources,
Monsanto Business Services and
Stewardship, 1995-1997. Director,
Human Resources, The Chemical
Group of the Company, 1993-1995.
Manager, Human Resources Planning,
1991-1993.
</TABLE>
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<PAGE> 93
<TABLE>
<CAPTION>
PRESENT AND PAST POSITIONS
NAME AND AGE FUTURE POSITION WITH CHEMICALS SINCE JANUARY 1, 1992
- ------------------------- ----------------------------- ----------------------------------
<S> <C> <C>
G. Bruce Greer, 36....... Vice President, Growth and Vice President, Growth and Commer-
Commercial Development cial Development of the Chemicals
Business, since 1997. Senior
Director, Strategic Change, of the
Company, 1996-1997. Associate
Manager and Principal of Gemini
Consulting, a management
consulting firm, 1992-1996.
Roger S. Hoard, 52....... Vice President and Controller Controller of the Chemicals
Business, since 1997. Senior
Director, Finance, Monsanto
Business Services, 1995-1997.
Controller, Fibers Division, The
Chemical Group of the Company,
1990-1995.
John C. Hunter III, 50... President, Chief Operating Chief Operating Officer of the
Officer and Director Chemicals Business, since 1997.
President, Fibers Business Unit of
the Company, 1995-1997. Vice
President and General Manager,
Fibers Division and Asia-Pacific,
The Chemical Group of the Company
1993-1995. Vice President and
General Manager, Asia-Pacific,
Monsanto Chemical Company,
1989-1993.
Michael E. Miller, 55.... Vice President, Shared Vice President, Shared Services
Services and Supply Chain and Supply Chain of the Chemicals
Business, since 1997. President,
Specialty Products Business Unit
of the Company, 1995-1997. Group
Vice President, Industrial
Products of the Company,
1993-1995. Senior Vice President,
Operations, The Chemical Group of
the Company, 1993-1995. Corporate
Vice President, Administration of
the Company, 1989-1993.
O. Jerry Mullis, 54...... Vice President, Growth and Vice President, Growth and Commer-
Commercial Development and cial Development and Chief
Chief Technical Officer Technical Officer of the Chemicals
Business, since 1997. Director of
Technology and MTS for Specialty
Products Division, The Chemical
Group of the Company, 1993-1997.
Director of Technology, Fibers
Division, The Chemical Group of
the Company, 1991-1993.
</TABLE>
DIRECTORS OF CHEMICALS
Prior to the Distribution Date, the Company, as sole stockholder of Chemicals,
plans to elect the persons named in the table below to constitute the Chemicals
Board. The Chemicals Board will be divided into three classes. Directors for
each class will be elected at the annual meeting of stockholders held in the
year in which the term for such class expires and will serve thereafter for
three years.
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<PAGE> 94
Information with respect to the persons who are expected to serve as directors
is set forth below.
<TABLE>
<CAPTION>
INITIAL
TERM
NAME AND AGE PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS EXPIRES
- ----------------------------- -------------------------------------------------------- -------
<S> <C> <C>
Robert T. Blakely, 55........ Executive Vice President and Chief Financial Officer, 2000
Tenneco Inc. since 1981. Director: New York City Ballet;
Manhattan and Bronx Council of the Boy Scouts of
America.
Joan T. Bok, 67.............. Chairman of the Board, New England Electric System since 1999
1984. Director: Avery Dennison Corporation; John Hancock
Mutual Life Insurance Company; New England Electric
System and its subsidiaries Massachusetts Electric
Company, The Narragansett Electric Company, and New
England Power Company. Trustee: National Osteoporosis
Foundation; Woods Hole Oceanographic Institution;
Worcester Foundation for Biomedical Research.
Paul H. Hatfield, --......... Chairman of the Board, President and Chief Executive 2000
Officer, Petrolite Corporation since 1995. Vice
President: Ralston Purina Co. CEO: Protein Technologies
International, 1977-1995. Director: DeKalb Genetics
Corporation; Penwest, Ltd.; Petrolite Corporation.
John C. Hunter III, 50....... Director: Missouri Baptist Hospital. See also 1998
"-- Executive Officers of Chemicals."
Howard M. Love, 67........... Chief Executive Officer, National Intergroup, Inc., 1999
1981-91; Honorary Chairman, National Steel Corporation,
formerly a subsidiary of National Intergroup, Inc.,
since 1990; Chairman and Chief Executive Officer,
1984-90. Director: AEA Investors; COMSAT Corp. Member:
The Business Council.
Frank A. Metz, Jr., 63....... Senior Vice President, Finance and Planning, and Chief 2000
Financial Officer, International Business Machines
Corporation, 1986-93; Director, 1991-93. Director:
Allegheny Power System, Inc.; Norrell Corporation.
Robert G. Potter, 58......... Director: Southdown Inc.; Stepan Company. See also 1999
"-- Executive Officers of Chemicals."
William D. Ruckelshaus, 64... See "Election of Directors to Classified Terms." 1998
John B. Slaughter, 63........ President, Occidental College since 1988. Director, 1998
National Science Foundation, 1980-82. Director: Atlantic
Richfield Company; Avery Dennison Corporation;
International Business Machines Corporation; Northrop
Grumman Corp. Member: American Academy of Arts and
Sciences; National Academy of Engineering. Fellow:
American Association for the Advancement of Science;
Institute of Electrical and Electronic Engineers.
</TABLE>
Mrs. Bok, Messrs. Love and Metz and Dr. Slaughter will resign as directors of
the Company as of the Spinoff. In addition, Mr. Ruckelshaus will continue as a
director of the Company at and after the Spinoff.
COMMITTEES OF THE CHEMICALS BOARD
The Chemicals Board is expected to establish several committees including an
Audit and Finance Committee, an Executive Compensation Committee (the "Chemicals
Executive Compensation Committee"), and a
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<PAGE> 95
Governance Committee. The membership of these committees will be established at
the initial meeting of the Chemicals Board. A description of each committee
follows:
Audit and Finance Committee. The Audit and Finance Committee will be composed
of non-employee directors. It will review and monitor Chemicals' internal
controls, financial reports and accounting practices and the scope and extent of
the audits to be performed by the independent auditors and internal auditors.
The committee will also recommend to the full Chemicals Board the selection of
Chemicals' principal independent auditors. The internal auditors and the
principal independent auditors will meet with this committee, with and without
management representatives present, to discuss the results of their examination,
the adequacy of Chemicals' internal accounting control and the quality of
Chemicals' financial reporting.
The Audit and Finance Committee will also review and monitor Chemicals'
financial planning and structure so that they conform to the corporation's
requirements for growth and sound operation. The committee will also review
proposed equity and debt offerings and financial policies such as the level of
dividend payout.
Executive Compensation Committee. The Chemicals Executive Compensation
Committee will be composed of non-employee directors. It will recommend to the
Chemicals Board the establishment and modification of management incentive plans
for Chemicals. The committee will make grants and awards under these plans to
senior management of Chemicals (including its executive officers) and will
administer and interpret these plans. It is anticipated that the committee will
delegate authority to a compensation committee composed of senior managers to
make grants and awards under the incentive plans to other employees other than
senior management. The Chemicals Executive Compensation Committee will also have
authority to approve the establishment, modification, and termination of other
executive compensation programs and agreements. The committee will also review
plans for executive succession and determine the salaries of the senior
management of Chemicals (including its executive officers).
Governance Committee. The Governance Committee will be composed of non-employee
directors. It will serve as a nominating committee to consider candidates for
the Chemicals Board. As such, it will develop internal criteria for the
selection of directors and criteria by which sitting directors will be
evaluated. In performing these responsibilities, the committee will consult with
the Chairman of the Chemicals Board. The committee will consider nominations of
candidates for election as director recommended by stockholders. Any such
recommendation, together with the nominee's qualifications and consent to being
considered as a nominee, should be submitted in writing by year-end to the
Secretary of Chemicals.
The committee will also develop principles and procedures for the Chemicals
Board. These principles and procedures will be reevaluated periodically to
ensure that the Chemicals Board is fulfilling its responsibilities in a manner
that effectively serves the interests of the stockholders of Chemicals. The
Governance Committee will also review and monitor the performance of Chemicals
as it affects employees, communities, customers and the environment.
COMPENSATION OF DIRECTORS
Employee directors of Chemicals will not receive a retainer or other
compensation for attendance at Chemicals Board or Chemicals Board committee
meetings. Chemicals anticipates that non-employee directors will receive an
annual retainer of $ , at least half of which will be paid in deferred
stock units ("DSUs") or restricted stock and the remainder of which will be
paid, in accordance with the director's election, in cash, DSUs, restricted
stock or a combination thereof. In addition, non-employee directors will receive
an option to purchase Chemicals Common Stock upon their initial election and a
smaller option grant annually. [Chemicals anticipates that there will be no fees
paid for committee meetings held in connection with regularly scheduled meetings
of the Chemicals Board.] Chemicals does not expect to have a retirement program
for its directors. Actual compensation will be determined by the Chemicals Board
after the Spinoff.
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<PAGE> 96
EXECUTIVE COMPENSATION
Historical Compensation
The following table sets forth compensation paid by the Company in 1996 to the
Chief Executive Officer of Chemicals and the individuals who will be executive
officers of Chemicals as of the Distribution Date and were, based on such
compensation, the most highly compensated such employees for the fiscal year
ended December 31, 1996 (the "Chemicals Named Executive Officers"). The
principal positions listed in the table are those which will be held by the
Chemicals Named Executive Officers as of the Distribution Date.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
- ----------------------------------------------------------------------- ----------------------- -------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
OTHER SECURITIES ALL
ANNUAL RESTRICTED UNDER- OTHER
COMPEN- STOCK LYING LTIP COMPEN-
SATION AWARDS OPTIONS PAYOUTS SATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) ($)(2) ($)(3) (#)(4) ($)(4) ($)(5)
- ----------------------------- ---- --------- ----------- ------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R. G. Potter................. 1996 500,000 940,000 -0- -0- 800,000 -0- 54,138
Chairman, Chief
Executive Officer and
Director
K. R. Barnickol.............. 1996 197,925 207,789 -0- 491,500 -0- -0- 19,022
Senior Vice President,
General Counsel and
Secretary
R. A. Clausen................ 1996 230,000 307,150 -0- -0- 250,000 -0- 21,762
Senior Vice President and
Chief Financial Officer
J. C. Hunter III............. 1996 250,000 340,000 -0- -0- 250,000 -0- 28,077
President, Chief Operating
Officer and Director
M. E. Miller................. 1996 260,000 362,000 -0- -0- 250,000 -0- 24,337
Vice President, Shared
Services and Supply Chain
</TABLE>
- ---------------
(1) 30% of the 1996 bonus amounts shown above (excluding the portion
attributable to achievement of the Company's return on equity ("ROE") goal
for each of the Chemicals Named Executive Officers) was adjusted to
recognize sustained long-term performance as described in footnote 1 to the
Long-Term Incentive Plans -- Awards in 1996 table, below, and paid in March
1997.
(2) Applicable regulations set reporting levels for certain non-cash
compensation.
(3) On December 31, 1996, Mr. Barnickol held 20,000 shares of Company Restricted
Stock having a value on that date of $788,760. These shares were received on
January 24, 1996, when they had the value shown in the table above. The
restrictions on these shares are scheduled to lapse as to one-fourth of the
shares on the first business day following each of the first four
anniversaries of the date of grant. In accordance with this schedule, 5,000
shares vested on January 27, 1997. Dividends are paid on these shares of
Company Restricted Stock at the same rate as paid to all stockholders.
(4) These columns reflect grants and payouts made under various option programs
and long-term incentive plans ("LTIPs"), respectively. No LTIP payments were
made in 1996.
(5) Amounts shown for 1996 include contributions to thrift/savings plans of the
Company as follows: Mr. Potter, $21,000; Mr. Barnickol, $8,313; Mr. Clausen,
$9,660; Mr. Hunter, $10,500; and Mr. Miller, $10,920; split dollar life
insurance premiums paid as follows: Mr. Potter, $32,468; Mr. Barnickol,
$10,563; Mr. Clausen, $11,618; Mr. Hunter, $17,577; and Mr. Miller, $13,417;
costs for supplemental medical plans of the Company as follows: Mr. Potter,
$524 and Mr. Clausen, $338; and costs for executive travel accident plans of
the Company, as follows: Mr. Potter, $146; Mr. Barnickol, $146; and Mr.
Clausen, $146.
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<PAGE> 97
The following table shows grants of Company Options under the Incentive Plan to
the Chemicals Named Executive Officers during the 1996 fiscal year. In
accordance with Commission rules, the Black-Scholes option pricing model was
chosen to estimate the grant date present value of the options set forth in this
table. The Company's use of this model should not be construed as an endorsement
of its accuracy at valuing options. Accordingly, there is no assurance that the
value realized by an executive, if any, will be at or near the value estimated
by the Black-Scholes model. The following assumptions were made for purposes of
calculating the original grant date present value of the Company Options: an
option term of 4.5 years, volatility of 25%, dividend yield of 1.5%, and a
risk-free interest rate of 6.28%. As a result of the Spinoff, subject to the
receipt of an IRS ruling, each Company Option granted to the Chemicals Named
Executive Officers listed below prior to January 1, 1997 will be replaced with a
New Company Option and a New Chemicals Option pursuant to adjustments provided
in the Employee Benefits Allocation Agreement, and, as a result, their value
will depend, in part, on the future value of Chemicals Common Stock as well as
on the future value of Company Common Stock. See "Relationship Between the
Company and Chemicals After the Spinoff -- Employee Benefits Allocation
Agreement."
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
GRANT
DATE
VALUE
INDIVIDUAL GRANTS ---------
- -------------------------------------------------------------------------------------------
(B) (C) (F)
NUMBER OF % OF TOTAL (D) GRANT
SECURITIES OPTIONS EXERCISE DATE
UNDERLYING GRANTED TO OR BASE (E) PRESENT
OPTIONS EMPLOYEES IN PRICE EXPIRATION VALUE
(A) GRANTED(#) FISCAL YEAR ($/SHARE) DATE ($)
---------- ------------ --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
R. G. Potter 160,000(1) 0.6 30.338 04/25/06 1,459,200
240,000 1.0 35.000 04/25/06 1,735,200
240,000 1.0 40.000 04/25/06 1,351,200
160,000 0.6 45.000 04/25/06 985,600(2)
K. R. Barnickol -0- -0- -- -- --
R. A. Clausen 50,000(1) 0.2 30.338 04/25/06 456,080
75,000 0.3 35.000 04/25/06 542,250
75,000 0.3 40.000 04/25/06 422,250
50,000 0.2 45.000 04/25/06 308,000(2)
J. C. Hunter III 50,000(1) 0.2 30.338 04/25/06 456,080
75,000 0.3 35.000 04/25/06 542,250
75,000 0.3 40.000 04/25/06 422,250
50,000 0.2 45.000 04/25/06 308,000(2)
M. E. Miller 50,000(1) 0.2 30.338 04/25/06 456,080
75,000 0.3 38.000 04/25/06 542,250
75,000 0.3 40.000 04/25/06 422,260
50,000 0.2 45.000 04/25/06 308,000(2)
</TABLE>
- ---------------
(1) The exercise price of $30.338 for this tranche of Company Options was the
fair market value per underlying share on April 26, 1996, the date of grant.
The three succeeding tranches have pre-established "premium" exercise prices
(prices higher than the fair market value per underlying share on the date
of grant) which must be attained within four, five, and six years,
respectively, from the date of grant and maintained for ten consecutive
trading days in order to avoid forfeiture of the Company Options in the
tranche. The $35 and $40 pre-established exercise prices have been met. All
Company Options must be held for a minimum of one year from the date of
grant before they may be exercised. These Company Options expire on the
tenth anniversary of the grant date unless forfeited earlier. The Company
Options carry stock tax withholding rights.
(2) Two of the assumptions used to calculate the grant date present value of
these Company Options varied from the assumptions set forth above because
the pre-established exercise price of these Company Options has not yet been
attained. The option term was assumed to be six years, and the risk-free
interest rate 6.37%.
85
<PAGE> 98
The following table provides information with respect to Company Options
exercised by the Chemicals Named Executive Officers during the 1996 fiscal year
and the value of unexercised Company Options held by Chemicals Named Executive
Officers at fiscal year end. The amounts set forth in the two columns relating
to unexercised Company Options, unlike the amounts set forth in the column
headed "Value Realized," have not been, and might never be, realized. The
underlying Company Options might not be exercised; and actual gains on exercise,
if any, would depend on the value of Company Common Stock and Chemicals Common
Stock on the date of exercise, and there can be no assurance that these values
would be realized. As a result of the Spinoff, subject to the receipt of an IRS
ruling, each Company Option granted to the Chemicals Named Executive Officers
listed below prior to January 1, 1997 will be replaced with a New Company Option
and a New Chemicals Option, pursuant to adjustments provided in the Employee
Benefits Allocation Agreement and, as a result, their value will, in part,
depend on the future value of Chemicals Common Stock. See "Relationship Between
the Company and Chemicals After the Spinoff -- Employee Benefits Allocation
Agreement."
AGGREGATED OPTION EXERCISES IN 1996 AND
OPTION VALUES ON DECEMBER 31, 1996
<TABLE>
<CAPTION>
(D) (E)
---------------------- --------------------
(B) NUMBER OF SECURITIES VALUE OF UNEXERCISED
----------- (C) UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES --------- OPTIONS AT AT
(A) ACQUIRED VALUE FY-END(#)(2) FY-END ($)(2)
----- ON EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($)(1) UNEXERCISABLE UNEXERCISABLE
- --------------------------- ----------- --------- ---------------------- --------------------
<S> <C> <C> <C> <C>
R. G. Potter............... - 0 - - 0 - 947,390/800,000 25,961,332/2,521,120
K. R. Barnickol............ 22,000 503,800 434,000/0 12,017,131/0
R. A. Clausen.............. - 0 - - 0 - 229,305/250,000 5,735,595/787,850
J. C. Hunter III........... 60,000 1,272,000 114,500/250,000 3,133,914/787,850
M. E. Miller............... 115,000 1,542,449 318,000/250,000 8,941,810/787,850
</TABLE>
- ---------------
(1) The amounts in column (c) reflect the value of shares received on the
exercises of Company Options granted up to ten years earlier at fair market
values ranging from $6.90 to $11.50.
(2) Unexercised Company Options shown in columns (d) and (e) reflect grants
received over an extended period of time.
86
<PAGE> 99
The following table includes information with respect to awards made pursuant to
the Monsanto Executive Stock Purchase Incentive Plan (the "Company Executive
Stock Purchase Incentive Plan") to Chemicals Named Executive Officers in 1996.
LONG-TERM INCENTIVE PLANS -- AWARDS IN 1996
<TABLE>
<CAPTION>
PERFORMANCE
NUMBER OF OR OTHER ESTIMATED FUTURE PAYOUTS UNDER
SHARES, PERIOD NON-STOCK PRICE-BASED PLANS
UNITS OR UNTIL -----------------------------------------
OTHER RIGHTS MATURATION THRESHOLD TARGET MAXIMUM
NAME (#) OR PAYOUT ($) ($) ($)
(A) (B) (C) (D) (E) (F)
- --------------------- --------------- ----------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
R. G. Potter......... N/A(1) N/A N/A 242,813 N/A
65,000 units(2) 12/31/00 799,976(3) 1,199,964(3) 2,399,927(3)
K. R. Barnickol...... N/A(1) N/A N/A 47,715 N/A
R. A. Clausen........ N/A(1) N/A N/A 72,750 N/A
20,000 units(2) 12/31/00 246,146(3) 369,220(3) 738,439(3)
J. C. Hunter III..... N/A(4) N/A N/A 468,313 N/A
20,000 units(2) 12/31/00 246,146(3) 369,220(3) 738,439(3)
M. E. Miller......... N/A(4) N/A N/A 498,620 N/A
20,000 units(2) 12/31/00 246,146(3) 369,220(3) 738,439(3)
</TABLE>
- ---------------
(1) The amount shown in this line represents the sustained performance
adjustment applied this year to both the portion of the 1996 bonus described
in footnote 1 to the Summary Compensation Table and the portion of the
annual bonus withheld for 1995 because net income and capital employed
objectives were met for all three performance years under the Company's
annual incentive program for the years 1994-1996. The total of all
adjustments for sustained performance relative to an individual's cumulative
incentive awards over the 1994-1996 performance period paid in March 1997
ranges from 20% to 25% of the awards paid for the three-year period.
(2) The units represent shares purchased under the Company Executive Stock
Purchase Incentive Plan. Pursuant to this plan, each Chemicals Named
Executive Officer purchased with a full-recourse interest-bearing loan from
the Company the number of shares of the Company Common Stock equal to the
number of units next to his name. The interest rate was 6.36%, the
applicable U.S. federal rate (as determined by Section 1274(d) of the Code)
in effect at the time of purchase. The estimated future payouts shown in
this table are based upon the principal amount of the loan plus unpaid
interest at the end of the performance period (the "Ending Loan Amount") and
cannot exceed the amount to be repaid. The threshold payout represents
33 1/3% of the estimated Ending Loan Amount. In order to achieve the
threshold payout, the Chemicals Named Executive Officer must not sell the
stock purchased and must remain employed with the Company during the entire
performance cycle (which ends December 31, 2000), and the Company must have
positive cumulative net income for this period ("Service Award"). Each
Chemicals Named Executive Officer may also receive an additional award of up
to the remaining 66 2/3% of the Ending Loan Amount ("Performance Award").
The size of this Performance Award depends upon the total shareholder return
to the Company's stockholders through the year 2000 as compared with the
total shareholder return for companies in the Standard & Poor's Industrials
(the "Index"). In order to achieve the maximum payout shown in the table,
the Chemicals Named Executive Officer must earn the full Service Award, and
the Company's total shareholder return through the year 2000 must be at or
above the total shareholder return of companies at the 75th percentile of
the Index, entitling the Chemicals Named Executive Officer to the maximum
Performance Award. To achieve the target award shown in the table, the
Chemicals Named Executive Officer must earn the full Service Award, and the
Company's total shareholder return through the year 2000 must be at or above
the 50th percentile of the Index, entitling the executive to the minimum
Performance Award. Amounts paid must be applied by the Chemicals Named
Executive Officer towards payment of the outstanding principal and accrued
interest on the loan. If only the threshold or target award is received, the
outstanding loan balance would significantly exceed the payment to the
Chemicals Named Executive Officers under the
87
<PAGE> 100
Company Executive Stock Purchase Incentive Plan, and the executive would be
required to either sell some or all of the shares or use other personal
assets to pay off the remainder of the loan.
(3) Assumes the Company's annual dividend in effect as of December 31, 1996
remains unchanged through December 31, 2000. An increase in the dividend
would reduce the amount of the deferred incentive award. Similarly, a
decrease in the dividend would increase the amount of the deferred incentive
award. Assumes also that the Chemicals Named Executive Officer keeps the
shares of Company Common Stock purchased under the Company Executive Stock
Purchase Incentive Plan and remains an employee of the Company until
December 31, 2000. As a result of the Spinoff and the executive's consequent
termination of employment with the Company, the executive will receive a
prorated Service Award based on the number of months of service with the
Company during the performance period and be eligible to receive a prorated
Performance Award based upon the Company's relative stock price performance
through the date of termination. In addition, if the balance outstanding on
his loan after applying the aftertax proceeds of his deferred incentive
award toward repayment of the loan exceeds the value of his shares, the
Company will reimburse the participant on an aftertax basis for the amount
of such excess, provided that the amount of this payment together with the
executive's Service Award does not exceed one-third of the Ending Loan
Amount.
(4) The amount shown in this line represents the sum of (a) the award for
recognition of performance in 1996 under the 1994-1996 long-term incentive
program applicable to the executive and (b) the sustained performance
adjustment applied this year to the total of the long-term incentive award
for 1996 and the portion of the annual bonuses withheld for 1995 and 1996
because net income and capital employed objectives were met for all three
performance years under both the annual and the long-term incentive programs
for the years 1994-1996. The total of all adjustments for sustained
performance relative to an individual's cumulative incentive awards over the
1994-1996 performance period paid in March 1997 ranges from 20% to 25% of
the awards paid for the three-year period.
Pension Plans
Prior to the Spinoff, the Chemicals Named Executive Officers are eligible to
receive benefits payable under the Company's defined benefit pension plans.
Those benefits are described under "Management of the Company -- Executive
Compensation."
Average final compensation and the respective years of service at the Company as
of December 31, 1996 for the Chemicals Named Executive Officers are as follows:
Mr. Potter, $1,073,223 (31.1 years); Mr. Barnickol, $333,120 (26.4 years); Mr.
Clausen, $368,244 (27.8 years); Mr. Hunter, $423,408 (27.3 years); and Mr.
Miller, $530,604 (31.4 years).
Following the Spinoff, the Company and Chemicals will generally each be
responsible for providing pension benefits to their own employees through their
own separate pension plans. However, the Company and Chemicals may create a
multiple employer pension plan, of which they would initially be the joint
sponsors for up to five years, to provide for certain benefits accrued by
certain non-union employees and retirees of the Chemicals Business. Chemicals
would be primarily liable for all contributions to fund this multiple employer
pension plan, but the Company would remain secondarily liable for such funding.
In addition, the Company's pension plan will continue to be responsible for
benefits accrued under that plan and the corresponding non-qualified pension
plan by certain other retirees of the Chemicals Business through December 31,
1997.
Treatment of Outstanding Company Stock Awards
Pursuant to the Employee Benefits Allocation Agreement, at the time of the
Spinoff, all Company Options granted during 1997 to Chemicals employees will be
converted into New Chemicals Options with adjustments to preserve their value.
These adjustments will be based upon the pre-Spinoff trading value of the
Company Common Stock and the post-Spinoff trading value of the Chemicals Common
Stock. Company Options granted before 1997, whether held by Chemicals employees
or Company employees, will be converted into two awards, one based on Chemicals
Common Stock and one based on Company Common Stock, with the same overall value
as the old award. Chemicals will be responsible for delivering shares of
Chemicals
88
<PAGE> 101
Common Stock upon exercise of Chemicals Options, and the Company will be
responsible for the delivery of shares of Company Common Stock upon exercise of
Company Options, regardless of whether the optionee is a Chemicals or a Company
employee. See "Relationship Between the Company and Chemicals After the
Spinoff -- Employee Benefits Allocation Agreement." The holders of Company
Restricted Stock (whether employed by the Company or Chemicals after the
Spinoff) will be entitled under the terms of the Company Restricted Stock to
receive the distribution of shares of Chemicals Restricted Stock with respect to
their Company Restricted Stock, and such shares of Chemicals Restricted Stock
will be subject to the same restrictions as the Company Restricted Stock. If
foreign rules make any of the foregoing impossible or impracticable, Chemicals
and the Company may agree to different treatment for Company Options and/or
Company Restricted Stock of non-U.S. employees.
Employment and Change of Control Arrangements
Each of the Chemicals Named Executive Officers and certain other key executives
of Chemicals is a party to a change of control employment agreement (a "Change
of Control Employment Agreement") as described in "Management of the
Company -- Certain Agreements." The Spinoff will not be considered to be a
change of control that triggers the effectiveness of these Change of Control
Agreements. These Change of Control Agreements with Chemicals executives will be
assumed by Chemicals at the time of the Spinoff, and each will terminate six
months after the Spinoff unless before that time there is either a change of
control of Chemicals or the Chemicals Board ratifies such Change of Control
Agreement.
CHEMICALS INCENTIVE AND BENEFIT PLANS
Prior to the Spinoff, Chemicals will adopt an incentive plan for its management
which will authorize the Chemicals Board or the Chemicals Executive Compensation
Committee to grant non-qualified stock options, incentive stock options meeting
the requirements of the Code, stock appreciation rights, and restricted and
unrestricted shares. The total number of shares of Chemicals Common Stock
authorized for such grants and awards will be . This plan is
anticipated to authorize grants and awards similar to those authorized by the
Incentive Plan. See "Incentive Plan Proposal -- Material Features of the
Incentive Plan." In addition, Chemicals will grant non-qualified stock options
on approximately shares, contemporaneously with the Spinoff, to
provide for the conversion of certain Company Options into Chemicals Options in
conjunction with the Spinoff. See "-- Treatment of Outstanding Company Stock
Awards."
Prior to or shortly after the Spinoff, Chemicals intends to adopt pension,
thrift and welfare plans generally comparable to those currently applicable to
most Company employees in the respective countries where they are employed.
Chemicals may elect to change these plans in the future as necessary or
desirable to respond to changes in economic or industry conditions or regulatory
requirements.
89
<PAGE> 102
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Indebtedness
During 1996, Mr. Potter, Mr. Clausen, Mr. Hunter and Mr. Miller all received
full-recourse, interest-bearing loans for the purchase price of the Company
Common Stock they purchased pursuant to the terms of the Company Executive Stock
Purchase Incentive Plan. The loans have an eight-year term and accrue interest
at the applicable U.S. federal rate (as determined by Section 1274(d) of the
Code) on the purchase date for loans of such maturity, compounded annually. The
applicable U.S. federal rate in effect on the purchase date was 6.36%. In
addition, the loans are secured by a pledge of the shares of Company Common
Stock acquired under the Company Executive Stock Purchase Incentive Plan.
Interest is payable prior to maturity to the extent of dividends paid on the
shares purchased, with the balance due at the maturity of the loan. The proceeds
of the deferred cash incentives awarded during the performance cycle under the
Company Executive Stock Purchase Incentive Plan must also be applied to prepay
the loans. Following such prepayment, the balance of the loans at the end of the
performance cycle, together with accrued and unpaid interest thereon, will
generally be payable in three equal installments (plus interest) on the first
three anniversaries of the end of the performance cycle. The payment of the loan
will be accelerated if an executive officer's service is terminated during the
performance cycle for any reason other than retirement or following a change of
control. In the event of retirement, there is no loan acceleration. In the event
of a change of control, the loan must be repaid over a three-year period
following such event. The loan may also be prepaid at any time at the executive
officer's option. As a result of the Spinoff and the executive's consequent
termination of employment with the Company, the executive will receive a
prorated Service Award based on the number of months of service with the Company
during the performance period and be eligible to receive a prorated Performance
Award based upon the Company's relative stock price performance through the date
of termination. In addition, if the balance outstanding on his loan after
applying the aftertax proceeds of his deferred incentive award toward repayment
of the loan exceeds the value of his shares, the Company will reimburse the
participant on an aftertax basis for the amount of such excess, provided that
the amount of this payment together with the executive's Service Award does not
exceed one-third of the Ending Loan Amount. The executive will be required to
repay the remaining Ending Loan Amount.
On May 10, 1996, Mr. Potter and the other three Chemicals Named Executive
Officers who received loans were given loans in the following amounts: Mr.
Potter, $1,962,194; Mr. Clausen, $603,752; Mr. Hunter, $603,752; and Mr. Miller,
$603,752. As of December 31, 1996, the aggregate principal balance of these
loans was $3,870,634.
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<PAGE> 103
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF
COMPANY COMMON STOCK
BY MANAGEMENT
The following table sets forth the number of shares of Company Common Stock
beneficially owned, directly or indirectly, by each director of Chemicals, each
Chemicals Named Executive Officer and all directors and executive officers of
Chemicals as a group, as of May 31, 1997. A list of the individuals who are
expected to be executive officers of Chemicals immediately following the Spinoff
is set forth under "Management of Chemicals After the Spinoff -- Executive
Officers of Chemicals." Except as otherwise indicated, each individual named has
sole investment and voting power with respect to the securities shown. In
accordance with the Distribution Ratio, the persons listed below will receive
one share of Chemicals Common Stock for every five shares of Company Common
Stock held by them on the Distribution Date. In addition, as a result of the
Spinoff, the Company Options referenced in the table below, all of which were
granted prior to 1997, will be converted into New Company Options and New
Chemicals Options, with the same overall value at the time of the Spinoff as the
old award. See "Relationship Between the Company and Chemicals After the
Spinoff -- Employee Benefits Allocation Agreement."
<TABLE>
<CAPTION>
SHARES OF SHARES UNDERLYING
COMMON STOCK OPTIONS EXERCISABLE
OWNED DIRECTLY OR WITHIN 60
NAME INDIRECTLY (A)(B) DAYS (C) TOTAL
- ------------------------------------------------- ----------------- ------------------- -----------
<S> <C> <C> <C>
Karl R. Barnickol................................ 54,115(d) 384,000 438,115
Robert T. Blakely................................ 0 0 0
Joan T. Bok...................................... 13,398 13,398
Robert A. Clausen................................ 38,101 330,000 368,101
Paul H. Hatfield................................. 2,000 2,000
John C. Hunter III............................... 50,078(e) 306,500 356,578
Howard M. Love................................... 19,785(f) 19,785
Frank A. Metz, Jr................................ 10,154 10,154
Michael E. Miller................................ 38,048 468,000 506,048
Robert G. Potter................................. 251,881(g) 1,587,390 1,839,271
William D. Ruckelshaus........................... 14,610(h) 14,610
John B. Slaughter................................ 9,646(i) 9,646
All directors and executive officers
([18] persons)................................. [517,329(j)] [3,399,555] [3,916,884]
</TABLE>
- -------------------------
(a) Includes shares held under the Company SIP: Mr. Potter, 31,406; Mr.
Barnickol, 13,583; Mr. Clausen, 166 ; Mr. Hunter, 10,366; Mr. Miller,
12,637; and directors and executive officers as a group, 91,211. With
respect to shares held under the Company SIP, employee directors and
officers have sole discretion as to voting and, within limitations provided
by the Company SIP, investment of shares. Shares are voted by the trustees
of the Company SIP in accordance with instructions from participants. If
instructions are not received by the trustees as to the voting of particular
shares, shares are to be voted in proportion to instructions actually
received from other participants in the Company SIP. Also includes shares
held under other benefit and incentive plans of the Company: Mr. Potter,
1,390; Mr. Barnickol, 16,026 ; Mr. Clausen, 1,040; Mr. Hunter, 712; and
directors and executive officers as a group, 23,299 . With respect to shares
held under other benefit and incentive plans of the Company, employee
directors and officers have sole voting power and no current investment
power.
(b) Includes the following shares received from the Company by Mrs. Bok, Messrs.
Love, Metz, and Ruckelshaus and Dr. Slaughter, who are currently directors
of the Company, as a portion of the non-employee director annual retainer.
Mrs. Bok, 660 shares; Mr. Love, 1,625 shares; Mr. Metz, 3,245 shares; Mr.
Ruckelshaus, 1,500 shares; and Dr. Slaughter, 1,625 shares. With respect to
those shares, these directors have sole voting power and no current
investment power. A number of these shares will be forfeited by four of
these directors (Mrs. Bok, Messrs. Love and Metz and Dr. Slaughter) as a
result of their resignation from the Company Board at the Spinoff. Mrs. Bok,
495; Mr. Love, 650; Mr. Metz, 1,310; and Dr. Slaughter, 650.
91
<PAGE> 104
(c) The Commission deems a person to have beneficial ownership of all shares
which that person has the right to purchase within 60 days. The shares
indicated represent Company Options granted under Company incentive plans.
(d) Includes 8,890 shares owned jointly by Mr. Barnickol and his wife.
(e) Includes 165 shares owned by Mr. Hunter's son.
(f) Includes 6,000 shares held in trust in which Mr. Love has an income interest
as to which he expressly disclaims beneficial ownership.
(g) Includes 32,600 shares owned by Mr. Potter's wife as to which he expressly
disclaims beneficial ownership and 495 shares owned jointly by Mr. Potter
and his wife.
(h) Includes 1,000 shares owned jointly by Mr. Ruckelshaus and his wife.
(i) Includes 681 shares owned by Dr. Slaughter's wife as to which he expressly
disclaims beneficial ownership.
(j) Includes 450 shares beneficially owned by a member of the household of an
executive officer not named above.
The percentage of shares of outstanding Company Common Stock, including Company
Options exercisable within 60 days of May 31, 1997, beneficially owned by all
persons who will be directors and executive officers of Chemicals as a group
does not exceed 1%. The percentage of such shares beneficially owned by any one
director or Chemicals Named Executive Officer does not exceed 1%.
BY OTHERS
The following table sets forth each person or entity that, to the knowledge of
the Company, beneficially owned more than 5% of the outstanding Company Common
Stock as of May 31, 1997.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
OWNERSHIP
OF COMPANY PERCENT OF
NAME OF BENEFICIAL OWNER COMMON STOCK CLASS
- ------------------------------------------------------------- ----------------- ----------
<S> <C> <C>
Oppenheimer Group, Inc....................................... 31,232,321(a) 5.31%
Oppenheimer Tower
World Financial Center
New York, New York 10281
FMR Corp..................................................... 29,935,145 5.09%
82 Devonshire Street
Boston, Massachusetts 02109
</TABLE>
- -------------------------
(a) The ownership information disclosed herein is based on a Schedule 13G with
respect to Company Common Stock filed with the Commission on February 4,
1997 by Oppenheimer Group, Inc., on behalf of itself and related companies
and certain investment advisory clients. Such 13G reports the beneficial
ownership of 31,232,321 shares of Company Common Stock. Power to vote and
dispose of all 31,232,321 shares, including 30,923,115 shares (5.26%) held
by Oppenheimer Capital, is shared. Oppenheimer Group, Inc. and the related
companies and investment advisory clients disclaim beneficial ownership and
shared voting and dispositive power with respect to all 31,232,321 shares.
According to a Schedule 13F filed by Oppenheimer Group, Inc. on
, 1997, the 31,232,321 has been decreased to 31,116,110.
(b) The ownership information disclosed herein is based on a Schedule 13G with
respect to Company Common Stock filed on February 12, 1997 with the
Commission by FMR Corp. ("FMR") on behalf of itself, certain related
companies, and certain shareholders. Such 13G reports beneficial ownership
of 29,935,145 shares of Company Common Stock. FMR, through its subsidiaries,
Fidelity Management & Research Company and Fidelity Management Trust
Company, and through Fidelity International Limited, had sole dispositive
power over all 29,935,145 shares, shared voting power as to none of these
shares, and sole voting power as to 4,483,385 of these shares. According to
a Schedule 13F filed by FMR on , 1997, the 29,935,145 has
increased to 32,441,650.
92
<PAGE> 105
MANAGEMENT OF THE COMPANY
EXECUTIVE COMPENSATION
The following Company Summary Compensation Table sets forth compensation earned
by the Chief Executive Officer of the Company, and the four other most highly
compensated executive officers of the Company and its subsidiaries (the "Company
Named Executive Officers") for services rendered in all capacities to the
Company during the three fiscal years ended December 31, 1996. Each of such
executives will continue as a senior executive of the Company following the
Spinoff, with the exception of Mr. Potter who will become Chairman and Chief
Executive Officer of Chemicals. Information regarding shares of Company Common
Stock and Company Options reported in this table and in the succeeding tables
has been adjusted to reflect the Company's five-for-one stock split in 1996.
COMPANY SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION AWARDS
----------------------------------- ----------------------- PAYOUTS
(E) (G) ------- (I)
OTHER (F) SECURITIES ALL
ANNUAL RESTRICTED UNDER- (H) OTHER
(A) COMPEN- STOCK LYING LTIP COMPEN-
NAME AND (B) (C) (D) SATION AWARDS OPTIONS PAYOUTS SATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) ($)(2) ($)(3) (#)(4) ($)(4) ($)(5)
- ----------------------------- ---- --------- ----------- ------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R. B. Shapiro................ 1996 800,000 2,120,000 -0- -0- 2,950,000 -0- 89,709
Chairman and 1995 685,417 1,235,600 -0- -0- 262,500 -0- 50,627
Chief Executive Officer 1994 567,500 893,905 -0- -0- 616,665 560,000 42,956
and Director
R. U. De Schutter(6)......... 1996 500,000 806,000(7) -0- -0- 350,000 -0- 50,856
Chairman and 1995 453,635 556,000 -0- -0- 200,000 -0- 61,719
Chief Executive Officer 1994 -- -- -- -- -- -- --
G. D. Searle & Co.
R. G. Potter................. 1996 500,000 940,000 -0- -0- 800,000 -0- 54,138
Executive Vice President 1995 470,834 807,926 -0- -0- 351,390 -0- 51,240
1994 456,667 645,720 -0- -0- -0- 785,000 52,778
N. L. Reding................. 1996 515,000 944,200 -0- -0- 800,000 -0- 51,135
Vice Chairman of the Board 1995 515,000 869,200 -0- -0- -0- -0- 60,742
and Director 1994 504,583 741,825 -0- -0- 466,665 -0- 56,421
H. A. Verfaillie............. 1996 500,000 940,000 -0- -0- 800,000 -0- 61,633
Executive Vice President 1995 393,333 715,200 -0- -0- 351,390 -0- 42,461
1994 320,000 459,650 -0- -0- -0- 500,000 39,295
</TABLE>
- -------------------------
(1) 30% of the 1996 bonus amounts shown above (excluding the portion
attributable to achievement of the Company's ROE goal) for each of the
Company Named Executive Officers were adjusted to recognize sustained
long-term performance as described in footnote 1 to the Company Long-Term
Incentive Plans -- Awards in 1996 table below and paid in March 1997.
(2) Applicable regulations set reporting levels for certain non-cash
compensation.
(3) There were no grants of Company Restricted Stock to Company Named Executive
Officers during the period covered in this table. Company Restricted Stock
holdings on December 31, 1996 were as follows:
- Mr. Shapiro held 125,000 shares of Company Restricted Stock having a
value on December 31, 1996, of $4,929,750. These were the remaining
shares of Company Restricted Stock from an award of 250,000 shares
received on January 22, 1993, when the award had a value of $2,621,900.
Dividends on these shares of Company Restricted Stock accrue at the
same rate as paid to all stockholders. In each of February 1995 and
February 1996, 62,500 shares and the related dividends vested because
the Company achieved its 20% ROE goal for 1994 and 1995, respectively.
An additional 62,500 shares of Company Restricted Stock and the related
dividends vested in February 1997 because the ECDC determined that the
effect of the significant charges taken in connection with the Spinoff
would not be utilized in determining whether the Company achieved its
1996 ROE goal. The final 62,500 shares of Company Restricted Stock will
vest in February 1998 if the
93
<PAGE> 106
Company achieves 20% ROE for 1997. Failure to achieve 20% ROE for 1997
will result in forfeiture of the final 62,500 shares along with any
related dividends.
- Mr. Verfaillie held 31,250 shares of Company Restricted Stock having a
value on December 31, 1996, of $1,232,438. These were the remaining
restricted shares from an award of 75,000 shares received on January
22, 1993, when the award had a value of $786,570. Dividends on these
shares accrue at the same rate as paid to all stockholders. In February
1995, 12,500 shares and the related dividends vested because the return
on capital goal for his business unit was achieved for 1994. In
February 1996, 31,250 shares and the related dividends vested because
the Company achieved its 20% ROE goal for 1995. These remaining 31,250
restricted shares vested in February 1997 because the ECDC determined
that the effect of the significant restructuring charges taken in
connection with the Spinoff would not be utilized in determining
whether the Company achieved its 1996 ROE goal.
- On December 31, 1996, no shares of Company Restricted Stock were held
by any of Messrs. De Schutter, Potter, or Reding.
(4) These columns reflect grants and payouts made under various option programs
and LTIPs, respectively. No LTIP payments were made in 1996.
(5) Amounts shown for 1996 include contributions to the Company's thrift/savings
plans as follows: Mr. Shapiro, $33,600; Mr. De Schutter, $24,930; Mr.
Potter, $21,000; Mr. Reding, $21,630; and Mr. Verfaillie, $21,000; split
dollar life insurance premiums paid as follows: Mr. Shapiro, $55,963; Mr. De
Schutter, $16,145; Mr. Potter, $32,468; Mr. Reding, $29,359; and Mr.
Verfaillie, $40,487; costs for supplemental medical plans as follows: Mr. De
Schutter, $6,463; and Mr. Potter, $524; costs for executive disability, as
follows: Mr. De Schutter, $3,211; and costs for executive travel accident
plans of the Company, as follows: Mr. Shapiro, $146; Mr. De Schutter, $107;
Mr. Potter, $146; Mr. Reding, $146; and Mr. Verfaillie, $146.
(6) Mr. De Schutter became an executive officer of the Company during 1995.
(7) Consistent with the policy in the Searle business unit of the Company, the
portion of Mr. De Schutter's bonus attributable to achievement of the
Company's ROE goal was capped at $6,000.
The following table provides information with respect to Company Options granted
to the Company Named Executive Officers in 1996. In accordance with Commission
rules, the Black-Scholes option pricing model was chosen to estimate the grant
date present value of the Company Options set forth in this table. Except as set
forth in footnote 3 below, the following assumptions were made for purposes of
calculating the original grant date present value: an option term of 4.5 years,
volatility of 25%, dividend yield of 1.5%, and a risk-free interest rate of
6.28%. The Company's use of this model should not be construed as an endorsement
of its accuracy at valuing Company Options. Accordingly, there is no assurance
that the value realized by an executive, if any, will be at or near the value
estimated by the Black-Scholes model. Future compensation resulting from option
grants is based solely on the price performance of the underlying stock. As a
result of the Spinoff, subject to receipt of an IRS ruling, each Company Option
granted to the Company Named Executive Officers listed below prior to January 1,
1997 will be replaced with a New Company Option and a New Chemicals Option
pursuant to adjustments provided in the Employee Benefits Allocation Agreement,
and, as a result, their value will depend, in part, on the future value of
Company Common Stock and in part, on the future value of Chemicals Common Stock.
See "Relationship Between the Company and Chemicals After the Spinoff --
Employee Benefits Allocation Agreement."
94
<PAGE> 107
COMPANY OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
GRANT
DATE
VALUE
INDIVIDUAL GRANTS ---------
- -----------------------------------------------------------------------------------------------
(B) (C) (F)
NUMBER OF % OF TOTAL (D) GRANT
SECURITIES OPTIONS EXERCISE DATE
UNDERLYING GRANTED TO OR BASE (E) PRESENT
(A) OPTIONS EMPLOYEES IN PRICE EXPIRATION VALUE
NAME GRANTED(#) FISCAL YEAR ($/SHARE) DATE ($)
- --------------------------------------- ---------- ------------ --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
R. B. Shapiro.......................... 590,000(1) 2.4 30.338 04/25/06 5,380,800
885,000 3.5 35.000 04/25/06 6,398,550
885,000 3.5 40.000 04/25/06 4,982,550
590,000 2.4 45.000 04/25/06 3,634,400(3)
R. U. De Schutter...................... 100,000(2) 0.4 27.125 02/21/06 719,000
50,000(1) 0.2 30.338 04/25/06 456,000
75,000 0.3 35.000 04/25/06 542,250
75,000 0.3 40.000 04/25/06 422,250
50,000 0.2 45.000 04/25/06 308,000(3)
R. G. Potter........................... 160,000(1) 0.6 30.338 04/25/06 1,459,200
240,000 1.0 35.000 04/25/06 1,735,200
240,000 1.0 40.000 04/25/06 1,351,200
160,000 0.6 45.000 04/25/06 985,600(3)
N. L. Reding........................... 160,000(1) 0.6 30.338 04/25/06 1,459,200
240,000 1.0 35.000 04/25/06 1,735,200
240,000 1.0 40.000 04/25/06 1,351,200
160,000 0.6 45.000 04/25/06 985,600(3)
H. A. Verfaillie....................... 160,000(1) 0.6 30.338 04/25/06 1,459,200
240,000 1.0 35.000 04/25/06 1,735,200
240,000 1.0 40.000 04/25/06 1,351,200
160,000 0.6 45.000 04/25/06 985,600(3)
</TABLE>
- -------------------------
(1) The exercise price of $30.338 for this tranche of Company Options was the
fair market value per underlying share on April 26, 1996, the date of grant.
The three succeeding tranches have pre-established "premium" exercise prices
(prices higher than the fair market value per underlying share on the date
of grant) which must be attained within four, five and six years,
respectively, from the date of grant and maintained for ten consecutive
trading days in order to avoid forfeiture of the Company Options in the
tranche. The $35 and $40 pre-established exercise prices have been met. All
Company Options must be held for a minimum of one year from the date of
grant before they may be exercised. These Company Options expire on the
tenth anniversary of the grant date unless forfeited earlier. The Company
Options carry stock tax withholding rights.
(2) The exercise price of $27.125 was the fair market value per underlying share
on February 22, 1996, the date of grant. These Company Options were to
become exercisable upon the earliest of the attainment of the Company's 20%
ROE target for 1996, the attainment of other criteria as specified by the
ECDC or the ninth anniversary of the option grant date, but in no event
earlier than the first anniversary of the option grant date. The Company
Options have now become exercisable because the ECDC determined that the 20%
ROE goal for 1996 would have been achieved but for the significant charges
taken in connection with the Spinoff. The Company Options have a ten-year
term and carry stock tax withholding rights.
(3) Two of the assumptions used to calculate the grant date present value of
these Company Options varied from the assumptions set forth above because
the pre-established exercise price of these Company Options has not yet been
attained. The option term was assumed to be six years and the risk-free
interest rate was assumed to be 6.37%.
95
<PAGE> 108
The following table provides information with respect to exercises of Company
Options by Company Named Executive Officers in 1996 and the value of Company
Options held by Company Named Executive Officers at year-end. The amounts set
forth in the two columns relating to unexercised Company Options, unlike the
amounts set forth in the column headed "Value Realized," have not been, and
might never be, realized. The underlying Company Options might not be exercised,
and actual gains on exercise, if any, would depend on the value of Company
Common Stock and Chemicals Common Stock on the date of exercise. As a result of
the Spinoff, subject to the receipt of an IRS ruling, each Company Option
granted prior to January 1, 1997 to the Company Named Executive Officers listed
below will be replaced with a New Company Option and a New Chemicals Option,
pursuant to adjustments provided in the Employee Benefits Allocation Agreement
and, as a result, their value will, in part, depend on the future value of
Chemicals Common Stock. See "Relationship Between the Company and Chemicals
After the Spinoff -- Employee Benefits Allocation Agreement."
AGGREGATED COMPANY OPTION EXERCISES IN 1996 AND
COMPANY OPTION VALUES ON DECEMBER 31, 1996
<TABLE>
<CAPTION>
(D)
-------------------
(E)
NUMBER OF --------------------
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
(B) (C) AT AT
----------- --------- FY-END(#)(2) FY-END($)(2)
(A) SHARES VALUE ------------------- --------------------
- -------------------------------- ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) ($)(1) UNEXERCISABLE UNEXERCISABLE
- -------------------------------- ----------- --------- ------------------- --------------------
<S> <C> <C> <C> <C>
R. B. Shapiro................... 82,500 1,492,739 1,758,835/2,950,000 46,418,358/9,296,630
R. U. De Schutter............... 84,500 1,295,434 302,000/350,000 7,354,426/2,019,150
R. G. Potter.................... -0- -0- 947,390/800,000 25,961,332/2,521,120
N. L. Reding.................... 64,000 153,756 1,398,000/800,000 36,913,500/2,521,120
H. A. Verfaillie................ -0- -0- 675,890/800,000 17,919,762/2,521,120
</TABLE>
- -------------------------
(1) The amounts in column (c) reflect the value of shares received on the
exercises of Company Options granted up to nine years ago at fair market
values ranging from $8.706 to $11.600.
(2) Unexercised Company Options shown in columns (d) and (e) reflect grants
received over an extended period of time.
96
<PAGE> 109
The following table includes information with respect to awards made pursuant to
the Company Executive Stock Purchase Incentive Plan and the Searle Phantom Stock
Option Plan of 1986 (the "Searle Phantom Plan") to Company Named Executive
Officers in 1996.
COMPANY LONG-TERM INCENTIVE PLANS -- AWARDS IN 1996
<TABLE>
<CAPTION>
PERFORMANCE
OR OTHER ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF SHARES, PERIOD UNTIL NON-STOCK PRICE-BASED PLANS
UNITS OR OTHER MATURATION -----------------------------------------
NAME RIGHTS OR PAYOUT THRESHOLD TARGET MAXIMUM
(A) (#)(B) (C) ($)(D) ($)(E) ($)(F)
- ---------------- ----------------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C>
R. B. Shapiro... N/A(1) N/A N/A 424,500 N/A
180,000 units(2) 12/31/00 2,215,317(3) 3,322,976(3) 6,645,951(3)
R. U. De
Schutter...... N/A(1) N/A N/A 243,000 N/A
20,000 units(2) 12/31/00 246,146(3) 369,220(3) 738,439(3)
25,000 "options" N/A N/A -0-(0%) N/A
for units(4) 630,000(5%)
1,590,000(10%)
R. G. Potter.... N/A(1) N/A N/A 242,813 N/A
65,000 units(2) 12/31/00 799,976(3) 1,199,964(3) 2,399,927(3)
N. L. Reding.... N/A(1) N/A N/A 228,750 N/A
65,000 units(2) 12/31/00 799,976(3) 1,199,964(3) 2,399,927(3)
H. A.
Verfaillie.... N/A(1) N/A N/A 224,250 N/A
65,000 units(2) 12/31/00 799,976(3) 1,199,964(3) 2,399,927(3)
</TABLE>
- -------------------------
(1) The amount shown in this line represents the sustained performance
adjustment applied this year to both the portion of the 1996 bonus described
in footnote 1 to the Company Summary Compensation Table and the portion of
the annual bonus withheld for 1995 because net income and capital employed
objectives were met for all three performance years under the annual
incentive program for the years 1994-1996. These sustained performance
adjustments are as follows: Mr. Shapiro, $424,500; Mr. De Schutter,
$243,000; Mr. Potter, $242,813; Mr. Reding, $228,750; and Mr. Verfaillie,
$224,250. The total of all adjustments for sustained performance relative to
an individual's cumulative incentive awards over the 1994-1996 performance
period that were paid in March 1997 ranges from 20% to 25% of the awards
that will actually be paid for the three-year period.
(2) The units represent shares purchased under the Company Executive Stock
Purchase Incentive Plan. Pursuant to this plan, each Company Named Executive
Officer purchased with a full-recourse interest-bearing loan from the
Company the number of shares of the Company Common Stock equal to the number
of units next to his name. The interest rate was 6.36%, the applicable U.S.
federal rate (as determined by Section 1274(d) of the Code), in effect at
the time of purchase. The estimated future payouts shown in this table are
based upon the Ending Loan Amount and cannot exceed the amount to be repaid.
The threshold payout represents a Service Award equal to 33 1/3% of the
estimated Ending Loan Amount. In order to receive the Service Award, the
Company Named Executive Officer must not sell the stock purchased and must
remain employed with the Company during the entire performance cycle (which
ends December 31, 2000), and the Company must have positive cumulative net
income for this period. Each Company Named Executive Officer may also
receive a Performance Award of up to the remaining 66 2/3% of the Ending
Loan Amount. The size of this Performance Award depends upon the total
shareholder return to the Company's stockholders through the year 2000 as
compared with the total shareholder return for companies in the Index. In
order to achieve the maximum payout shown in the table, the Company Named
Executive Officer must earn the full Service Award, and the Company's total
shareholder return through the year 2000 must be at or above the total
shareholder return of companies at the 75th percentile of the Index,
entitling the Company Named Executive Officer to the maximum Performance
Award. To achieve the target award shown in the table, the Company Named
Executive
97
<PAGE> 110
Officer must earn the full Service Award, and the Company's total
shareholder return through the year 2000 must be at or above the 50th
percentile of the Index, entitling the executive to the minimum Performance
Award. Amounts paid must be applied by the Company Named Executive Officer
towards payment of the outstanding principal and accrued interest on the
loan. If only the threshold or target award is received, the outstanding
loan balance would significantly exceed the payment to the Company Named
Executive Officers under the Company Executive Stock Purchase Incentive
Plan, and the executive would be required to either sell some or all of the
shares or use other personal assets to pay off the remainder of the loan.
(3) Assumes the Company's annual dividend in effect at December 31, 1996 remains
unchanged through December 31, 2000. An increase in the dividend would
reduce the amount of the deferred incentive award. Similarly, a decrease in
the dividend would increase the amount of the deferred incentive award.
Assumes also that the Company Named Executive Officer keeps the shares of
Company Common Stock purchased under the Company Executive Stock Purchase
Incentive Plan and remains an employee of the Company until December 31,
2000.
(4) Mr. De Schutter's "options" were awarded under the Searle Phantom Plan,
which gave participants the opportunity to receive the appreciation in the
value of a hypothetical share of Searle stock. Such "shares" represented
units of valuation created solely for purposes of measuring the increase, if
any, in the value of Searle as determined by using such factors and methods
as deemed appropriate, including analyses by independent investment bankers.
Company Options to receive the appreciation in the value of these units were
granted for a ten-year period. The target values shown above assume various
hypothetical rates of appreciation over the original term of the grant. In
February 1997, the ECDC decided to terminate the Searle Phantom Plan and to
credit Mr. De Schutter and other active participants in the Searle Phantom
Plan with a combination of cash and Company Options representing current and
anticipated future appreciation of the units.
Pension Plans
The following table illustrates the annual normal retirement benefits payable
under the Company's defined benefit pension plans in effect in 1996 and
applicable to Messrs. Shapiro, De Schutter, Potter, Reding and Verfaillie. The
benefit levels in the table assume retirement at age 65 and payment in the form
of a single life annuity.
<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------------------------------------------------------------------------------
REMUNERATION 5 10 15 20 25 30 35 40
------------ -------- -------- -------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 400,000 $ 28,000 $ 56,000 $ 84,000 $112,512 $142,512 $172,512 $ 202,512 $ 252,512
600,000 42,000 84,000 127,512 172,512 217,512 262,512 307,512 352,512
800,000 56,000 112,512 172,512 232,512 292,512 352,512 412,512 472,512
1,000,000 70,000 142,512 217,512 292,512 367,512 442,512 517,512 592,512
1,200,000 84,000 172,512 262,512 352,512 442,512 532,512 622,512 712,512
1,400,000 98,000 202,512 307,512 412,512 517,512 622,512 727,512 832,512
1,600,000 112,512 232,512 352,512 472,512 592,512 712,512 832,512 952,512
1,800,000 127,512 262,512 397,512 532,512 667,512 802,512 937,512 1,072,512
2,000,000 142,512 292,512 442,512 592,512 742,512 892,512 1,042,512 1,192,512
</TABLE>
Generally, compensation utilized for pension formula purposes includes salary
and annual bonus reported in columns (c) and (d) of the Summary Compensation
Table and the Company Summary Compensation Table, respectively. However, the
portion of the annual bonus attributable to achievement of 20% ROE is not
included in the pension formula.
The annual normal retirement benefits payable under the Company's pension plans
to the Company Named Executive Officers are the greater of 1.4% of average final
compensation multiplied by years of service, without reduction for Social
Security or other offset amounts, or 1.5% of average final compensation
multiplied by years of service, less a 50% Social Security offset. Average final
compensation for purposes of these plans is
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<PAGE> 111
the greater of (1) average compensation received during the final 36 months of
employment or (2) average compensation received during the highest three of the
final five calendar years of employment.
Average final compensation and the respective years of service at the Company as
of December 31, 1996, are as follows: Mr. Shapiro, $1,582,795 (6.6 years); Mr.
Potter, $1,073,223 (31.1 years); Mr. Reding, $1,188,695 (41.3 years); and Mr.
Verfaillie, $789,222 (13.0 years). Mr. De Schutter's benefit under the Company's
defined benefit pension plans will be based on his years of service with the
Company and his average final compensation at Searle, which were as of December
31, 1996, $888,722 (21.5 years); Mr. Shapiro and Mr. De Schutter also accrue
benefits under the Searle and NutraSweet defined benefit pension plans described
below. Mr. Shapiro's benefit will be based on his years of service at NutraSweet
and his average final compensation at the Company. Mr. De Schutter's benefit
will be based on both his years of service and average final compensation at
Searle.
In addition to the retirement benefits for Mr. Verfaillie based on his 13 years
of service as a U.S. employee, Mr. Verfaillie is also eligible for regular
retirement benefits based on his 7.8 years of service as a non-U.S. employee. In
addition, he participates in the Company's regular, non-qualified pension plan
designed to protect retirement benefits for employees serving in more than one
country. However, his total retirement benefits from the combined plans when
considering his total service of 20.8 years are expected to be generally
comparable to the benefits described in this section.
The following table illustrates the annual normal retirement benefits payable
under the Searle and NutraSweet defined benefit pension plans applicable to Mr.
De Schutter and Mr. Shapiro. The benefit levels in the table assume retirement
at age 65 and payment in the form of a single life annuity.
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------------------------------------------
REMUNERATION 5 10 15 20 25 30 35
------------ -------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 600,000 $ 52,664 $105,328 $157,992 $210,656 $263,320 $315,984 $ 315,984
800,000 70,664 141,328 211,992 282,656 353,320 423,984 423,984
1,000,000 88,664 177,328 265,992 354,656 443,320 531,984 531,984
1,200,000 106,664 213,328 319,992 426,656 533,320 639,984 639,984
1,400,000 124,664 249,328 373,992 498,656 623,320 747,984 747,984
1,600,000 142,664 285,328 427,992 570,656 713,320 855,984 855,984
</TABLE>
The annual normal retirement benefits payable under the Searle and NutraSweet
pension plans are (1) 1.8% of average final compensation (the average
compensation for the highest consecutive 60 of the last 120 months of employment
preceding retirement) multiplied by years of service (up to a maximum of 30
years) less (2) 1.67% of estimated annual Social Security benefits at age 65
multiplied by years of service (up to a maximum of 30 years). Generally,
compensation utilized for pension formula purposes includes salary and bonus
reported in columns (c) and (d) of the Company Summary Compensation Table.
However, the portion of the annual bonus attributable to achievement of 20% ROE
is not included in the pension formula.
Average final compensation under the pension formula and years of service at
Searle or NutraSweet as of December 31, 1996 for Mr. De Schutter and Mr. Shapiro
are as follows: Mr. De Schutter, $731,700 (11.5 years) and Mr. Shapiro,
$1,303,661 (11.5 years).
Effective January 1, 1997, the defined benefit pension plans for the Company,
Searle and NutraSweet were changed. The new defined benefit pension plans
consist of two accounts: a "Prior Plan Account" and a "Cash Balance Account."
The opening balance of the Prior Plan Account was the lump sum value of the
executive's December 31, 1996 monthly retirement benefit earned prior to January
1, 1997 under the old defined benefit pension plans described above, calculated
using the assumption that the monthly benefit would be payable at age 55 with no
reduction for early payment. For each year of the executive's continued
employment with the Company, the executive's Prior Plan Account will be
increased by 4% to recognize that prior plan benefits would have grown as a
result of pay increases. For each year following December 31, 1996 during which
the executive is employed, 3% of annual compensation in excess of the Social
Security wage base and a percentage (based on age) of annual compensation
(salary and annual bonus) will be credited to the Cash Balance Account. The
applicable percentages and age ranges are: 3% before age 30, 4% for ages 30 to
39, 5% for ages
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<PAGE> 112
40 to 44, 6% for ages 45 to 49, and 7% for age 50 and over. In addition, the
Cash Balance Account of executives who earned benefits under the Company's old
defined benefit pension plans will be credited each year (for up to 10 years
based on prior years of service with the Company) following December 31, 1996
during which the executive is employed with an amount equal to a percentage
(based on age) of annual compensation. The applicable percentages and age ranges
are: 2% before age 30, 3% for ages 30 to 39, 4% for ages 40 to 44, 5% for ages
45 to 49, and 6% for age 50 and over.
Mr. Shapiro will be provided supplemental retirement benefits which recognize
his experience prior to employment by the Company. Subject to certain service
requirements, the Company will provide Mr. Shapiro with supplemental retirement
benefits equal to 12% of average final compensation. The supplemental retirement
benefits become vested in the event of a change of control of the Company. The
estimated annual supplemental benefits payable to Mr. Shapiro upon retirement at
age 65 are $253,194. Mr. Shapiro will also receive the same Company contribution
to the retiree medical plan as an eligible retiree with 30 years of service. The
value of this benefit will be determined at retirement based on age, the premium
paid for medical coverage, and projected premium cost increases.
If the total of the benefits payable to Mr. De Schutter under the Company's and
Searle's defined benefit pension plans described above do not equal the benefit
Mr. De Schutter would have received if all his service had been with the
Company, he will be provided supplemental retirement benefits in an amount equal
to the benefits he would have received under the Company's plans had all his
years of service been with the Company less the benefits provided by the Searle
plans. It is estimated that there will be no annual supplemental benefit payable
to Mr. De Schutter if he retires at age 65.
CERTAIN AGREEMENTS
The Company has entered into Change of Control Employment Agreements with each
of the Company Named Executive Officers and certain other key executives. These
Change of Control Employment Agreements replace the Key Executive Employment
Agreements previously in effect for the executive officers and such other key
executives. Each such Change of Control Employment Agreement becomes effective
upon a "change of control" of the Company (as defined in the Change of Control
Employment Agreement). Each Change of Control Employment Agreement provides for
the continuing employment of the executive after the change of control on terms
and conditions no less favorable than those in effect before the change of
control. If the executive's employment is terminated by the Company without
"cause" or if the executive terminates his or her own employment for "good
reason" (each as defined in the Change of Control Employment Agreement), the
executive is entitled to severance benefits equal to a "multiple" of his or her
annual compensation (including bonus) and continuation of certain benefits for a
number of years equal to the multiple. The multiple is three for the Company
Named Executive Officers and two or three for the other executives (or, in
either case, the shorter number of years until the executive's normal retirement
date). In addition, each of the Company Named Executive Officers and the other
executives who are entitled to a severance multiple of three is entitled to
receive the severance benefits if he or she voluntarily terminates his or her
own employment during the 30-day period beginning on the first anniversary of
certain changes of control. Finally, the executives are entitled to an
additional payment, if necessary, to make them whole as a result of any excise
tax imposed by the Code on certain change of control payments (unless the safe
harbor below which the excise tax is imposed is not exceeded by more than 10%,
in which event the payments will be reduced to avoid the excise tax).
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Robson, Senior Advisor, Robertson, Stephens & Company, was first elected a
director of the Company on September 26, 1996. Robertson, Stephens & Company has
provided investment banking services to the Company in 1996 and is continuing to
provide similar services to the Company in 1997.
Mr. Kantor, who was elected director of the Company on April 25, 1997, is a
partner at the law firm of Mayer, Brown & Platt, which provided services to the
Company in 1996 and is providing services to the Company in 1997.
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Consistent with applicable regulations, no information has been solicited or
provided regarding transactions between the Company and any individual for the
period during which the individual did not serve as a director or executive
officer.
During 1996, Mr. Shapiro, the other Company Named Executive Officers, and the
other nine executive officers of the Company received full-recourse,
interest-bearing loans for the purchase price of the Company Common Stock they
purchased pursuant to the terms of the Company Executive Stock Purchase Plan.
The loans have an eight-year term and accrue interest at the applicable U.S.
federal rate (as determined by Section 1274(d) of the Code) on the purchase date
for loans of such maturity, compounded annually. For Mr. Shapiro and the other
Company Named Executive Officers the applicable U.S. federal rate is 6.36%. For
two other executive officers who purchased shares at a later date because of
promotion or hiring into a position eligible for participation in the Company
Executive Stock Purchase Plan, the rates are 6.72% and 6.60%, respectively. In
addition, the loans are secured by a pledge of the shares of Company Common
Stock acquired under the Company Executive Stock Purchase Plan.
Interest is payable prior to maturity to the extent of dividends paid on the
shares purchased, with the balance due at the maturity of the loan. The proceeds
of the deferred cash incentives awarded during the performance cycle under the
Company Executive Stock Purchase Plan must also be applied to prepay the loans.
Following such prepayment, the balance of the loans at the end of the
performance cycle, together with accrued and unpaid interest thereon, will
generally be payable in three equal installments (plus interest) on the first
three anniversaries of the end of the performance cycle. The payment of the loan
will be accelerated if an executive officer's service is terminated during the
performance cycle for any reason other than retirement or following a change of
control. In the event of retirement, there is no loan acceleration. In the event
of a change of control, the loan must be repaid over a three-year period
following such event. The loan may also be prepaid at any time at the executive
officer's option.
On May 10, 1996, Mr. Shapiro and the other Company Named Executive Officers
received loans in the following amounts: Mr. Shapiro, $5,433,768; Mr. De
Schutter, $603,752; Mr. Potter, $1,962,194; Mr. Reding, $1,962,194; and Mr.
Verfaillie, $1,962,194. The aggregate amount of loans made pursuant to the
Company Executive Stock Purchase Plan to all executive officers as a group
(including the Company Named Executive Officers) during 1996 was $21,902,996. As
of December 31, 1996, the aggregate principal balance of such loans was
$22,436,741.
In addition, one executive officer (not a Company Named Executive Officer) who
participates in the Company Executive Stock Purchase Plan also has a loan from
the Company pursuant to the terms of the Company's Employee Stock Purchase Plan
(the "Company ESPP"), a plan open generally to all regular full-time and regular
part-time employees of the Company, for shares of Company Common Stock he
contracted to purchase over a 40-month period by means of payroll deductions. No
interest is charged on loans under the Company ESPP. The executive has two
contracts to purchase shares outstanding, one entered into on December 21, 1994
and the other entered into on June 28, 1996. The executive's largest aggregate
amount of indebtedness outstanding during 1996 under the Company ESPP was
$32,792, and the aggregate amount outstanding as of December 31, 1996 under the
Company ESPP was $24,741.
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<PAGE> 114
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
OF COMPANY COMMON STOCK
BY MANAGEMENT
Information is set forth below regarding beneficial ownership of Company Common
Stock by (1) each person who is a director of the Company; (2) each Company
Named Executive Officer; and (3) all directors and executive officers as a
group. Except as otherwise noted, each person has sole voting and investment
power as to his or her shares. All information is as of May 31, 1997.
<TABLE>
<CAPTION>
SHARES OF SHARES UNDERLYING
COMMON STOCK OPTIONS EXERCISABLE
OWNED DIRECTLY OR WITHIN 60
NAME INDIRECTLY (A)(B) DAYS (C) TOTAL
- ------------------------------------------------- ----------------- ------------------- -----------
<S> <C> <C> <C>
Joan T. Bok...................................... 13,398 -- 13,398
Richard U. De Schutter........................... 108,312 542,000 650,312
Robert M. Heyssel................................ 14,071(d) -- 14,071
Michael Kantor................................... 800(e) -- 0
Gwendolyn S. King................................ 4,555 -- 4,555
Philip Leder..................................... 8,884 -- 8,884
Howard M. Love................................... 19,785(f) -- 19,785
Frank A. Metz, Jr................................ 10,154 -- 10,154
Jacobus F. M. Peters............................. 4,705 -- 4,705
Robert G. Potter................................. 251,881(g) 1,587,390 1,839,271
Nicholas L. Reding............................... 299,117(h) 2,038,000 2,337,117
John S. Reed..................................... 37,305 -- 37,305
John E. Robson................................... 1,359 -- 1,359
William D. Ruckelshaus........................... 14,610(i) -- 14,610
Robert B. Shapiro................................ 567,524 3,740,619 4,308,143
John B. Slaughter................................ 9,646(j) -- 9,646
Hendrik A. Verfaillie............................ 157,279(k) 1,315,890 1,473,169
25 directors and executive officers as a group... 2,066,973(l) 13,764,794 15,831,767
</TABLE>
- -------------------------
(a) Includes shares held under the Company SIP: Mr. De Schutter, 14,732; Mr.
Potter, 31,406; Mr. Reding, 37,869; Mr. Shapiro, 3,732; Mr. Verfaillie,
14,924; and directors and executive officers as a group, 133,630. With
respect to shares held under the Company SIP, employee directors and
officers have sole discretion as to voting and, within limitations provided
by the Company SIP, investment of shares. Shares are voted by the trustees
of the Company SIP in accordance with instructions from participants. If
instructions are not received by the trustees as to the voting of particular
shares, shares are to be voted in proportion to instructions actually
received from other participants in the Company SIP. Also includes shares
held under other benefit and incentive plans of the Company: Mr. De
Schutter, 1,080; Mr. Potter, 1,390; Mr. Reding, 1,570; Mr. Shapiro, 62,500;
Mr. Verfaillie, 235; and directors and executive officers as a group,
92,626. With respect to shares held under other benefit and incentive plans
of the Company, employee directors and officers have sole voting power and
no current investment power.
(b) Includes the following shares received on varying dates as a portion of the
non-employee director annual retainer and with the restrictions on sale
described under "Election of Directors to Classified Terms -- Compensation
of Directors": Mrs. Bok, 660 shares; Dr. Heyssel, 4,555 shares; Mrs. King,
4,225 shares; Dr. Leder, 3,245 shares; Mr. Love, 1,625 shares; Mr. Metz,
3,245 shares; Mr. Reed, 1,500 shares; Mr. Robson, 1,350 shares; Mr.
Ruckelshaus, 1,500 shares; and Dr. Slaughter, 1,625 shares. With respect to
such shares, non-employee directors have sole voting power and no current
investment power.
(c) The Commission deems a person to have beneficial ownership of all shares
which that person has the right to acquire within 60 days. The shares
indicated represent Company Options granted under Company incentive plans.
The shares under option cannot be voted.
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(d) Includes 1,500 shares owned by Dr. Heyssel's wife.
(e) Mr. Kantor was elected a director of the Company on April 25, 1997.
Consistent with the Company Board's determination to suspend annual retainer
stock grants pursuant to a review of the Company's director compensation
policy, Mr. Kantor did not receive a grant upon his election.
(f) Includes 6,000 shares held in trusts in which Mr. Love has an income
interest as to which he expressly disclaims beneficial ownership.
(g) Includes 32,600 shares owned by Mr. Potter's wife as to which he expressly
disclaims beneficial ownership and 495 shares owned jointly by Mr. Potter
and his wife.
(h) Includes 1,056 shares owned by Mr. Reding's son and 416 shares owned by Mr.
Reding's daughter.
(i) Includes 1,000 shares owned jointly by Mr. Ruckelshaus and his wife.
(j) Includes 681 shares owned by Dr. Slaughter's wife as to which he expressly
disclaims beneficial ownership.
(k) Includes 77,120 shares owned jointly by Mr. Verfaillie and his wife.
(l) Includes 26,930 shares as to which certain executive officers not named
above have shared voting and investment power; and 873 shares under contract
pursuant to the Company ESPP.
The percentage of shares of outstanding Company Common Stock, including Company
Options exercisable within 60 days of May 31, 1997, beneficially owned by all
directors and executive officers as a group is 2.66%. The percentage of such
shares beneficially owned by any one director of the Company or Company Named
Executive Officer does not exceed 1%.
-------------------------
BY OTHERS
See the table under "Security Ownership of Certain Beneficial Owners of
Chemicals Common Stock and Company Common Stock -- By Others" for certain
information regarding the only known beneficial owners of more than 5% of the
Company Common Stock.
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MARKET INFORMATION CONCERNING COMPANY COMMON STOCK
The Company Common Stock is listed and traded principally on the NYSE. As of the
close of business on June 27, 1997, the Special Meeting Record Date, there were
shares of Company Common Stock outstanding and held of record by
holders. The following table sets forth, for the fiscal periods
indicated, the high and low sales prices per share of Company Common Stock on
the NYSE Composite Tape and the amounts of cash dividends paid per share of
Company Common Stock. Information provided below is adjusted for the Company's
five-for-one stock split in 1996.
<TABLE>
<CAPTION>
CASH
DIVIDENDS
FISCAL HIGH LOW PAID
------------------------------------------------------- --- --- ---------
<S> <C> <C> <C>
1995
First Quarter........................................ 161/8 135/8 .126
Second Quarter....................................... 181/4 157/8 .138
Third Quarter........................................ 207/8 18 .138
Fourth Quarter....................................... 25 191/2 .138
1996
First Quarter........................................ 313/4 23 .138
Second Quarter....................................... 341/2 281/8 .150
Third Quarter........................................ 377/8 261/8 .150
Fourth Quarter....................................... 431/4 361/2 .150
1997
First Quarter........................................ 411/2 343/4 .150
Second Quarter....................................... 461/2 37 .160
Third Quarter through July , 1997..................
</TABLE>
On December 6, 1996, the last trading day prior to the public announcement of
the proposed Spinoff, the high and low sales prices of Company Common Stock were
$41.875 and $40.125, respectively. On , 1997, the last trading day
for which quotations were available at the time of the printing of this Proxy
Statement, the closing sale price per share of Company Common Stock on the NYSE
Composite Tape was . Stockholders should obtain current market quotations
for Company Common Stock.
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DESCRIPTION OF CHEMICALS CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Chemicals' present authorized capital stock consists of ten shares of Chemicals
Common Stock, of which all ten shares are issued and outstanding and are owned
by the Company. Prior to the Distribution Date, the Chemicals Charter will be
amended by the Chemicals Board and by the Company, as sole stockholder of
Chemicals. Under the amended Chemicals Charter, which will be substantially in
the form set forth as an exhibit to the Registration Statement, the total number
of shares of all classes of stock that Chemicals will have authority to issue
under the Chemicals Charter will be 610,000,000, of which 10,000,000 will be
shares of preferred stock, $0.01 par value (the "Chemicals Preferred Stock"),
and 600,000,000 will be shares of Chemicals Common Stock. No shares of Chemicals
Preferred Stock will be issued in connection with the Spinoff. Based on the
number of shares of Company Common Stock outstanding at , 1997,
approximately million shares of Chemicals Common Stock, constituting
approximately % of the authorized Chemicals Common Stock, will be issued to
stockholders of the Company in the Spinoff. All of the shares of Chemicals
Common Stock issued in the Spinoff will be validly issued, fully paid and
nonassessable.
CHEMICALS COMMON STOCK
The holders of Chemicals Common Stock will be entitled to one vote for each
share on all matters voted on by stockholders, including elections of directors,
and, except as otherwise required by law or provided in any resolution adopted
by the Chemicals Board with respect to any series of Chemicals Preferred Stock,
the holders of Chemicals Common Stock will exclusively possess all voting power.
The Chemicals Charter does not provide for cumulative voting for the election of
directors. Subject to any preferential rights of any outstanding series of
Chemicals Preferred Stock designated by the Chemicals Board from time to time,
the holders of Chemicals Common Stock will be entitled to such dividends as may
be declared from time to time by the Chemicals Board from funds available
therefor, and, upon liquidation, will be entitled to receive pro rata all assets
of Chemicals available for distribution to such holders. See "RISK
FACTORS -- Dividend Policies."
CHEMICALS PREFERRED STOCK
The Chemicals Board will be authorized to provide for the issue of shares of
Chemicals Preferred Stock, in one or more series, and to fix for each such
series such voting powers, designations, preferences and relative,
participating, optional and other special rights, and such qualifications,
limitations or restrictions, as are stated in the resolutions adopted by the
Chemicals Board providing for the issue of such series and as are permitted by
the Delaware Law. See "Certain Antitakeover Effects of Certain Charter and
By-Laws Provisions and the Company Rights and the Chemicals Rights -- Preferred
Stock." In connection with the Chemicals Rights Agreement between Chemicals and
First Chicago Trust Company of New York, as rights agent, to be adopted by
Chemicals and to be effective as of the Distribution Date (the "Chemicals Rights
Agreement"), the Chemicals Board will designate a series of Chemicals Preferred
Stock. For a description of the terms of such Preferred Stock, see "-- Chemicals
Rights."
CHEMICALS RIGHTS
In connection with the Spinoff, the Chemicals Board intends to adopt the
Chemicals Rights Agreement, effective as of the Distribution Date. Prior to the
Distribution Date, the Chemicals Board will declare a dividend of one Chemicals
Right to be paid on the Distribution Date in respect of each share of the
Chemicals Common Stock to the holder of record thereof as of the Distribution
Date. Each Chemicals Right will entitle the registered holder to purchase from
Chemicals one one-hundredth of a share of Series A Junior Participating
Preferred Stock, $0.01 par value, of Chemicals ("Chemicals Junior Preferred
Stock") at a price per one one-hundredth of a share to be determined by the
Chemicals Board prior to the Distribution Date (the "Purchase Price"), subject
to adjustment. The terms of the Chemicals Rights will be set forth in the
Chemicals Rights Agreement.
Until the earlier to occur of (1) ten days following a public announcement that
a person or group of affiliated or associated persons (an "Acquiring Person")
has acquired beneficial ownership of 20% or more of the then
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<PAGE> 118
outstanding shares of Chemicals Common Stock or (2) ten business days (or such
later date as may be determined by action of the Chemicals Board prior to such
time as any person or group becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 20% or more of the outstanding shares of
Chemicals Common Stock (the earlier of such dates being called the "Chemicals
Rights Distribution Date"), the Chemicals Rights will be evidenced by the
certificates representing shares of Chemicals Common Stock.
The Chemicals Rights Agreement will provide that until the Chemicals Rights
Distribution Date (or earlier redemption or expiration of the Chemicals Rights),
the Chemicals Rights will be transferred with and only with the shares of
Chemicals Common Stock. Until the Chemicals Rights Distribution Date (or earlier
redemption or expiration of the Chemicals Rights), certificates representing
shares of Chemicals Common Stock will contain a notation incorporating the terms
of the Chemicals Rights by reference. Until the Chemicals Rights Distribution
Date (or earlier redemption or expiration of the Chemicals Rights), the
surrender for transfer of any certificates representing shares of Chemicals
Common Stock will also constitute the transfer of the Chemicals Rights
associated with the shares of Chemicals Common Stock represented by such
certificate. As soon as practicable following the Chemicals Rights Distribution
Date, separate certificates evidencing the Chemicals Rights ("Chemicals Rights
Certificates") will be mailed to holders of record of the shares of Chemicals
Common Stock as of the close of business on the Chemicals Rights Distribution
Date and such separate Chemicals Rights Certificates alone will evidence the
Chemicals Rights.
The Chemicals Rights will not be exercisable until the Chemicals Rights
Distribution Date. The Chemicals Rights will expire on the tenth anniversary of
the Distribution Date (the "Final Expiration Date"), unless the Final Expiration
Date is extended or unless the Chemicals Rights are earlier redeemed or
exchanged by Chemicals, in each case, as described below.
The Purchase Price payable, and the number of shares of Chemicals Junior
Preferred Stock or other securities or property issuable, upon exercise of the
Chemicals Rights are subject to adjustment from time to time to prevent dilution
(1) in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the shares of Chemicals Junior Preferred Stock, (2) upon
the grant to holders of the shares of Chemicals Junior Preferred Stock of
certain rights or warrants to subscribe for or purchase shares of Chemicals
Junior Preferred Stock at a price, or securities convertible into shares of
Chemicals Junior Preferred Stock with a conversion price, less than the
then-current market price of the shares of Chemicals Junior Preferred Stock or
(3) upon the distribution to holders of the shares of Chemicals Junior Preferred
Stock of evidences of indebtedness or assets (excluding regular periodic cash
dividends paid out of earnings or retained earnings or dividends payable in
shares of Chemicals Junior Preferred Stock) or of subscription rights or
warrants (other than those referred to above).
The number of outstanding Chemicals Rights and the number of one one-hundredths
of a share of Chemicals Junior Preferred Stock issuable upon exercise of each
Chemicals Right are also subject to adjustment in the event of a stock split of
Chemicals Common Stock or a stock dividend on Chemicals Common Stock payable in
Chemicals Common Stock or subdivisions, consolidations or combinations of
Chemicals Common Stock occurring, in any such case, prior to the Chemicals
Rights Distribution Date.
Shares of Chemicals Junior Preferred Stock purchasable upon exercise of the
Chemicals Rights will not be redeemable. Each share of Chemicals Junior
Preferred Stock will be entitled to a minimum preferential quarterly dividend
payment of $1.00 per share but will be entitled to an aggregate dividend equal
to 100 times the dividend declared per share of Chemicals Common Stock. In the
event of liquidation, the holders of the Chemicals Junior Preferred Stock will
be entitled to a minimum preferential liquidation payment of $100 per share but
will be entitled to an aggregate payment equal to 100 times the payment made per
share of Chemicals Common Stock. Each share of Chemicals Junior Preferred Stock
will have 100 votes, together with Chemicals Common Stock. Finally, in the event
of any merger, consolidation or other transaction in which Chemicals Common
Stock is exchanged, each share of Chemicals Junior Preferred Stock will be
entitled to receive an amount equal to 100 times the amount received per share
of Chemicals Common Stock. These rights are protected by customary antidilution
provisions.
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<PAGE> 119
Because of the nature of the dividend, liquidation and voting rights of
Chemicals Junior Preferred Stock, the value of the one one-hundredth interest in
a share of Chemicals Junior Preferred Stock purchasable upon exercise of each
Chemicals Right should approximate the value of one share of Chemicals Common
Stock.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, proper provision will be made so that each holder
of a Chemicals Right, other than Chemicals Rights beneficially owned by the
Acquiring Person (which will thereafter be void), will thereafter have the right
to receive upon exercise thereof at the then-current exercise price that number
of shares of Chemicals Common Stock having a market value of two times the
exercise price of the Chemicals Right (such right being referred to as a "Flip-
in-Right"). In the event that, at any time on or after the date that any person
has become an Acquiring Person, Chemicals is acquired in a merger or other
business combination transaction or 50% or more of consolidated assets or
earning power are sold, proper provision will be made so that each holder of a
Chemicals Right will thereafter have the right to receive, upon the exercise
thereof at the then-current exercise price of the Chemicals Right, that number
of shares of common stock of the acquiring company which at the time of such
transaction will have a market value of two times the exercise price of the
Chemicals Right.
At any time after any person or group of affiliated or associated persons
becomes an Acquiring Person and prior to the acquisition by such person or group
of 50% or more of the outstanding shares of Chemicals Common Stock, the
Chemicals Board may exchange the Chemicals Rights (other than Chemicals Rights
owned by such person or group which will have become void), in whole or in part,
at an exchange ratio of one share of Chemicals Common Stock, or one
one-hundredth of a share of Chemicals Junior Preferred Stock, per Chemicals
Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be required
until cumulative adjustments require an adjustment of at least 1% in such
Purchase Price. No fractional shares of Chemicals Junior Preferred Stock will be
issued (other than fractions which are integral multiples of one one-hundredth
of a share of Chemicals Junior Preferred Stock, which may, at the election of
the Chemicals Board, be evidenced by depositary receipts) and in lieu thereof,
an adjustment in cash will be made based on the market price of the shares of
Chemicals Junior Preferred Stock on the last trading day prior to the date of
exercise.
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 20% or more of the outstanding
shares of Chemicals Common Stock, the Chemicals Board may redeem the Chemicals
Rights in whole, but not in part, at a price of $.01 per Chemicals Right (the
"Redemption Price"). The redemption of the Chemicals Rights may be made
effective at such time, on such basis and with such conditions as the Chemicals
Board in its sole discretion may establish. Immediately upon any redemption of
the Chemicals Rights, the right to exercise the Chemicals Rights will terminate
and the only right of the holders of Chemicals Rights will be to receive the
Redemption Price.
The terms of the Chemicals Rights may be amended by the Chemicals Board without
the consent of the holders of the Chemicals Rights, including an amendment to
lower (1) the threshold at which a person becomes an Acquiring Person and (2)
the percentage of Chemicals Common Stock proposed to be acquired in a tender or
exchange offer that would cause the Chemicals Rights Distribution Date to occur,
to not less than the greater of (a) the sum of .001% and the largest percentage
of the outstanding Chemicals Common Stock then known to Chemicals to be
beneficially owned by any person or group of affiliated or associated persons
and (b) 10%, except that, from and after such time as any person or group of
affiliated or associated persons becomes an Acquiring Person, no such amendment
may adversely affect the interests of the holders of the Chemicals Rights.
Until a Chemicals Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of Chemicals, including, without limitation, the right
to vote or to receive dividends.
The Chemicals Rights will have certain antitakeover effects. See "Certain
Antitakeover Effects of Certain Charter and By-Laws Provisions and the Company
Rights and the Chemicals Rights -- Preferred Share Purchase Rights."
The foregoing summary of certain terms of the Chemicals Rights is qualified in
its entirety by reference to the form of the Chemicals Rights Agreement, a copy
of which will be filed as an exhibit to the Registration Statement. The
Chemicals Rights are being registered under the Exchange Act, together with
Chemicals
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Common Stock, pursuant to the Registration Statement. In the event that the
Chemicals Rights become exercisable, Chemicals will register the shares of
Chemicals Junior Preferred Stock for which the Chemicals Rights may be exercised
in accordance with applicable law.
PREEMPTIVE RIGHTS
No holder of any stock of Chemicals of any class authorized at the Distribution
Date will then have any preemptive right to subscribe to any securities of
Chemicals of any kind or class.
CERTAIN ANTITAKEOVER EFFECTS OF CERTAIN
CHARTER AND BY-LAWS PROVISIONS AND THE
COMPANY RIGHTS AND THE CHEMICALS RIGHTS
GENERAL
Both the Company Charter, including certain of the Company Charter Amendments,
if the Company Charter Proposal is approved, and the Chemicals Charter contain
provisions that will make more difficult the acquisition of control of the
Company or Chemicals, respectively, by means of a tender offer, open market
purchases, a proxy fight or otherwise that are not approved by their respective
boards. The Company By-Laws and the Chemicals By-Laws also contain provisions
that could have an antitakeover effect.
The purposes of such provisions of the Company Charter and the Company By-Laws
and the Chemicals Charter and the Chemicals By-Laws are to discourage certain
types of transactions, described below, which may involve an actual or
threatened change of control of the Company or Chemicals and to encourage
persons seeking to acquire control of the Company or Chemicals to negotiate the
terms of any proposed business combination or offer with their respective
boards. The provisions are designed to reduce the vulnerability of the Company
or Chemicals to an unsolicited proposal for a takeover that does not contemplate
the acquisition of all outstanding shares or is otherwise unfair to stockholders
of the Company or Chemicals, or an unsolicited proposal for the restructuring or
sale of all or part of the Company or Chemicals. The Company believes that, as a
general rule, such proposals would not be in the best interests of the Company,
Chemicals and the stockholders of each. These provisions will help ensure that
the Company Board or the Chemicals Board, if confronted by a surprise proposal
from a third party which has acquired a block of stock, will have sufficient
time to review the proposal and appropriate alternatives to the proposal and to
act in what it believes to be the best interests of the stockholders.
There has been a marked increase in hostile takeover activity during the last
three years. The Company believes that the provisions discussed herein may
provide some measure of protection for stockholders against certain potentially
coercive takeover tactics. Such takeover tactics include the accumulation of
substantial stock positions in public companies by third parties as a prelude to
proposing a takeover, a restructuring or a sale of all or part of the company or
another similar extraordinary corporate action. Such actions are often
undertaken by a third party without advance notice to, or consultation with, the
management or board of directors of a company. In many cases, the purchaser
seeks representation on a company's board of directors in order to increase the
likelihood that its proposal will be implemented by a company. If a company
resists the efforts of the purchaser to obtain representation on the company's
board, a purchaser may commence a proxy contest to have its nominees elected to
the board of directors in place of certain directors or in place of the entire
board of directors. In some cases, a purchaser may not truly be interested in
taking over a company, but may use the threat of a proxy fight and/or a bid to
take over a company as a means of forcing the company to repurchase its equity
position at a substantial premium over market price.
The Company believes that the imminent threat of removal of the Company's or
Chemicals' management or board of directors in such situations would severely
curtail the ability of management or the board of directors to negotiate
effectively with such purchasers. Management or the board of directors would be
deprived of the time and information necessary to evaluate the takeover
proposal, to study alternative proposals and to help ensure that the best price
is obtained in any transaction involving the Company or Chemicals which may
ultimately be undertaken. If the real purpose of a takeover bid were to force
the Company or Chemicals to repurchase an accumulated stock interest at a
premium price, management or the board of directors would
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face the risk that, if it did not repurchase the purchaser's stock interest, the
Company's or Chemicals' business and management would be disrupted, perhaps
irreparably.
These provisions, individually and collectively, will make difficult and may
discourage a merger, tender offer or proxy fight, even if such transaction or
occurrence may be favorable to the interests of the stockholders, and may delay
or frustrate the assumption of control by a holder of a large block of Chemicals
Common Stock or Company Common Stock and the removal of incumbent management,
even if such removal might be beneficial to stockholders. Furthermore, these
provisions may deter or could be used to frustrate a future takeover attempt
which is not approved by the incumbent board of directors, but which the holders
of a majority of the shares may deem to be in their best interests or in which
stockholders may receive a substantial premium for their stock over prevailing
market prices of such stock. By discouraging takeover attempts these provisions
might have the incidental effect of inhibiting certain changes in management
(some or all of the members of which might be replaced in the course of a change
of control) and also the temporary fluctuations in the market price of the stock
which often result from actual or rumored takeover attempts.
Set forth below is a description of such provisions in the Company Charter
Amendments, the Company Charter and the Company By-Laws, and the Chemicals
Charter and the Chemicals By-Laws. Such description is intended as a summary
only and is qualified in its entirety by reference to the Company Charter
Amendments set forth herein under "The Company Charter Proposal," and the
Company Charter and the Company By-Laws, which are exhibits to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996 and the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997,
respectively, and the Chemicals Charter and the Chemicals By-Laws, which are
filed as exhibits to the Registration Statement. Capitalized terms used and not
defined herein are defined in the Company Charter or the Company By-Laws and the
Chemicals Charter or the Chemicals By-Laws, as the case may be.
CLASSIFIED BOARDS OF DIRECTORS
The Company Charter Proposal provides for the Company Board to be divided into
three classes serving staggered terms. In addition, the Chemicals Charter
provides for the Chemicals Board to be divided into three classes serving
staggered terms so that directors' initial terms will expire either at the 1998,
1999 or 2000 Annual Meeting of Chemicals stockholders. Starting with the 1998
Annual Meeting of Chemicals stockholders, one class of directors would be
elected each year for three-year terms. See "Management of Chemicals After the
Spinoff -- Directors of Chemicals" and "The Company Charter Proposal --
Classification of the Company Board and Related Provisions."
The classification of directors will have the effect of making it more difficult
for stockholders to change the composition of the Company Board or the Chemicals
Board, as the case may be, in a relatively short period of time. At least two
annual meetings of stockholders, instead of one, will generally be required to
effect a change in a majority of the Company Board or the Chemicals Board. Such
a delay may help ensure that the Company Board or the Chemicals Board, if
confronted by a stockholder's attempt to force a stock repurchase at a premium
above market price, a proxy contest or an extraordinary corporate transaction,
will have sufficient time to review the proposal and appropriate alternatives to
the proposal and to act in what they believe are the best interests of the
stockholders. The Company also believes that a classified board of directors
will help to assure the continuity and stability of the Company Board and the
Chemicals Board and the Company's or Chemicals' business strategies and policies
as determined by their respective boards of directors, because generally a
majority of the directors at any given time will have had prior experience as
directors of the Company or Chemicals, as the case may be.
The classified board provision could have the effect of discouraging a third
party from making a tender offer or otherwise attempting to obtain control of
the Company or Chemicals, as the case may be, even though such an attempt might
be beneficial to the company and its stockholders. The classified board
provision could thus increase the likelihood that incumbent directors will
retain their positions.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The Company Charter currently provides that the number of directors constituting
the whole Company Board is to be fixed as provided in the Company By-Laws by the
Company Board or the stockholders and that
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vacancies caused by an increase in the number of directors or otherwise may be
filled by the Company Board in the manner provided in the Company By-Laws. The
Company Charter Amendments and the Chemicals Charter provide that the number of
directors will be fixed from time to time, in each case, exclusively by the
Company Board or the Chemicals Board, respectively. In addition, the Company
Charter Amendments and the Chemicals Charter each provide that, subject to any
rights of the holders of preferred stock, $ par value, of the Company
("Company Preferred Stock") or Chemicals Preferred Stock, only a majority of the
board of directors then in office shall have the authority to fill any vacancies
on the board of directors. Accordingly, the Company Board or the Chemicals Board
could prevent any stockholder from obtaining majority representation on the
respective board of directors by enlarging such board of directors and filling
the new directorships with its own nominees.
Moreover, while the Company Charter currently permits removal of directors with
or without cause by vote of the holders of a majority of the outstanding stock,
the Chemicals Charter and the Company Charter Amendments each provide that
directors may be removed only for cause and only by the affirmative vote of
holders of at least 80% of the voting power of all of the then-outstanding
shares of Chemicals Common Stock or Company Common Stock, as the case may be,
voting together as a single class. This provision, when coupled with the
provisions of the Chemicals Charter and the Company Charter Amendments
authorizing only their respective board of directors to fill vacant
directorships, would preclude stockholders from removing incumbent directors
without cause and filling the vacancies created by such removal with their own
nominees.
LIMITATIONS ON STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
Under the Delaware Law, unless otherwise provided in the certificate of
incorporation, any action required or permitted to be taken by the stockholders
of a Delaware corporation may be taken without a meeting, without prior notice
and without a stockholder vote if a written consent setting forth the action to
be taken is signed by the holders of outstanding stock having the requisite
number of shares that would be necessary to authorize such action at a meeting
at which all shares entitled to vote thereon were present and voted. The Company
Charter does not currently preclude stockholder action by written consent. The
Company Charter Amendments and the Chemicals Charter provide that stockholder
action can be taken only at an annual or special meeting of stockholders, and
prohibit stockholder action by written consent in lieu of a meeting. If the
Company Charter Proposal is approved, conforming changes would be made to the
Company By-Laws. The Company By-Laws and the Chemicals By-Laws each provide
that, subject to the rights of holders of any series of the relevant preferred
stock, special meetings of stockholders can be called only by the Chairman of
the Board, the President or pursuant to resolution of the respective board of
directors. Stockholders are not permitted to call a special meeting or to
require that the respective board of directors call a special meeting of
stockholders. Moreover, the business permitted to be conducted at any special
meeting of stockholders is limited to the purpose or purposes of the meeting as
stated in the notice of the meeting.
The provisions of the Company Charter Amendments and the Chemicals Charter
restricting stockholder action by written consent may have the effect of
delaying consideration of a stockholder proposal until the next annual meeting
unless a special meeting is called by the Chairman of the Board, the President
or pursuant to a board resolution. These provisions would also prevent the
holders of a majority of the voting power of Company Common Stock or Chemicals
Common Stock, as the case may be, from using the written consent procedure to
take stockholder action and from taking action by consent without giving all the
stockholders of the Company or Chemicals entitled to vote on a proposed action
the opportunity to participate in determining such proposed action. Moreover, a
stockholder could not force stockholder consideration of a proposal over the
opposition of the Company Board or the Chemicals Board, as the case may be, by
calling a special meeting of stockholders prior to the time the board believed
such consideration to be appropriate.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER PROPOSALS
The Company By-Laws and the Chemicals By-Laws each establish an advance notice
procedure with regard to the nomination, other than by or at the direction of
the respective board of directors, of candidates for election as directors (the
"Nomination Procedure") and with regard to certain matters to be brought before
an annual meeting of stockholders (the "Business Procedure").
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Pursuant to the Company By-Laws and the Chemicals By-Laws, the Nomination
Procedure provides that only persons who are nominated by, or at the direction
of, the board of directors or by a stockholder of record who has given timely
prior written notice to the Secretary of the Company or Chemicals, respectively,
prior to the meeting at which directors are to be elected will be eligible for
election as directors. The Business Procedure provides that at an annual meeting
only such business can be conducted as has been brought before the meeting
pursuant to the notice of the meeting, by, or at the direction of, the board of
directors or by a stockholder of record who has given timely prior written
notice to the Secretary of such stockholder's intention to bring such business
before the meeting. To be timely, notice must generally be received by the
Company or Chemicals, as applicable, not less than 60 days nor more than 90 days
prior to the first anniversary of the previous year's annual meeting. For notice
of a stockholder nomination to be made at a special meeting at which directors
are to be elected to be timely, such notice must be received not earlier than
the 90th day before such meeting and not later than the later of (1) the 60th
day prior to such meeting and (2) the tenth day after public announcement of the
date of such meeting is first made.
Under the Nomination Procedure, notice to the Company or Chemicals, as the case
may be, from a stockholder who proposes to nominate a person at a meeting for
election as director must contain certain information about that person,
including such person's consent to be nominated and such information as would be
required to be included in a proxy statement soliciting proxies for the election
of the proposed nominee, and certain information about the stockholder proposing
to nominate that person or the beneficial owner, if any, on whose behalf the
nomination is made. Under the Business Procedure, notice relating to the conduct
of business must contain certain information about such business and about the
stockholder who proposes to bring the business before the meeting including a
brief description of the business the stockholder proposes to bring before the
meeting, the reasons for conducting such business at such meeting, the class and
number of shares of stock beneficially owned by such stockholder, and by the
beneficial owner, if any, on whose behalf the proposal is made, and any material
interest of such stockholder, and such beneficial owner in the business so
proposed. If the Chairman or other officer presiding at a meeting determines
that a person was not nominated in accordance with the Nomination Procedure,
such person will not be eligible for election as a director, or if he or she
determines that other business was not properly brought before such meeting in
accordance with the Business Procedure, such business will not be conducted at
such meeting.
The purpose of the Nomination Procedure is, by requiring advance notice of
nominations by stockholders, to afford the Chemicals Board or the Company Board,
as the case may be, a meaningful opportunity to consider the qualifications of
the proposed nominees and, to the extent deemed necessary or desirable by such
boards, to inform stockholders about such qualifications. The purpose of the
Business Procedure is, by requiring advance notice of proposed business, to
provide a more orderly procedure for conducting annual meetings of stockholders
and, to the extent deemed necessary or desirable by the Chemicals Board or the
Company Board to provide such board with a meaningful opportunity to inform
stockholders, prior to such meetings, of any business proposed to be conducted
at such meetings, together with any recommendation as to the board's position or
belief as to action to be taken with respect to such business, so as to enable
stockholders better to determine whether they desire to attend such meeting or
grant a proxy to the board as to the disposition of any such business. Although
the Chemicals By-Laws and the Company By-Laws do not give the Chemicals Board or
the Company Board, as the case may be, any power to approve or disapprove
stockholder nominations for the election of directors or of any other business
desired by a stockholder to be conducted at an annual meeting, the Chemicals
By-Laws and the Company By-Laws may have the effect of precluding a nomination
for the election of directors or precluding the conducting of business at a
particular annual meeting if the proper procedures are not followed, and may
discourage or deter a third party from conducting a solicitation of proxies to
elect its own slate of directors or otherwise attempting to obtain control of
the Company or Chemicals, as the case may be, even if the conduct of such
solicitation or such attempt might be beneficial to the Company or Chemicals and
their stockholders.
PREFERRED STOCK
Both the Company Charter and the Chemicals Charter authorize the Company Board
and the Chemicals Board, respectively, to establish series of preferred stock
and to determine, with respect to any series of preferred stock, the voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative,
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participating, optional or other special rights and such qualifications,
limitations or restrictions thereof as are stated in the board resolutions
providing for such series. The number of authorized shares of Company Preferred
Stock is 10,000,000 and the number of authorized shares of Chemicals Preferred
Stock is .
The Company and Chemicals believe that the availability of such preferred stock
will provide the Company and Chemicals with increased flexibility in structuring
possible future financings and acquisitions, and in meeting other corporate
needs which might arise. Having such authorized shares available for issuance
will allow the Company and Chemicals to issue shares of preferred stock without
the expense and delay of a special stockholder's meeting. The authorized shares
of preferred stock, as well as shares of common stock, will be available for
issuance without further action by stockholders, unless such action is required
by applicable law or the rules of any stock exchange on which the Company and
Chemicals securities may be listed. Although neither the Company Board nor the
Chemicals Board has any intention at the present time of doing so, they could
issue a series of preferred stock that could, subject to certain limitations
imposed by the securities laws and stock exchange rules, depending on the terms
of such series, impede the completion of a merger, tender offer or other
takeover attempt. For instance, such series of preferred stock might impede a
business combination by including class voting rights that would enable the
holder to block such a transaction. The Company Board and the Chemicals Board
will make any determination to issue such shares based on their judgment as to
the best interests of either company and its then existing stockholders. The
Company Board or the Chemicals Board, in so acting, could issue preferred stock
having terms which could discourage an acquisition attempt or other transaction
that some, or a majority, of the stockholders might believe to be in their best
interests or in which stockholders might receive a premium for their stock over
the then market price of such stock. The terms of the Company Rights Agreement
are similar to the terms of the Chemicals Rights Agreement described under the
caption "Description of Chemicals Capital Stock -- Chemicals Rights." The
authorized and unissued preferred stock of each of the Company and Chemicals, as
well as the authorized and unissued common stock of the Company and Chemicals,
would be available, and the Company Charter and the Chemicals Charter explicitly
authorize use of their capital stock, for the above purposes.
COMMON STOCK
The Company Charter presently authorizes the issuance of 850 million shares of
Company Common Stock and, if the Company Charter Proposal is approved, the
Company Charter will authorize one billion shares of Company Common Stock. The
Chemicals Charter authorizes the Chemicals Board to issue up to 600 million
shares of Chemicals Common Stock of which approximately million are
expected to be issued in the Spinoff.
The increased number of authorized shares of Company Common Stock will provide
the Company, and the authorized but unissued Chemicals Common Stock will provide
Chemicals, with the ability to meet future capital needs and to provide shares
for possible acquisitions and stock dividends or stock splits. The Company Board
and the Chemicals Board would each have the ability, in the event of a proposed
merger, tender offer or other attempt to gain control of the company that was
not approved by such board, to issue additional common stock that would dilute
the stock ownership of the acquiror. Except as provided under the terms of the
Company Rights Agreement and the Chemicals Rights Agreement, the Company and
Chemicals do not currently contemplate any issuance of common stock that might
be deemed to have an antitakeover purpose.
AMENDMENT OF CERTAIN CHARTER PROVISIONS AND THE BY-LAWS
The Company Charter and the Company By-Laws may currently be amended by the
affirmative vote of the majority of the outstanding shares of Company Common
Stock. The Company Charter Amendments and the Chemicals Charter each contain
provisions requiring the affirmative vote of the holders of at least 80% of the
outstanding Company Common Stock or the Chemicals Common Stock, respectively, to
amend the provisions of such charters pertaining to classification of the
respective boards of directors, the number of directors, filling vacancies in
the respective boards of directors, removal of directors and the requirement
that stockholders can act only at annual or special meetings and not by written
consent. The Company Charter Amendments and the Chemicals Charter and the
Chemicals By-Laws also require the vote of at least 80% of the outstanding
Company Common Stock and the Chemicals Common Stock, respectively, for
stockholders to adopt, amend or repeal any provision of the Company By-Laws or
the Chemicals By-Laws, respectively.
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These provisions will make it more difficult for stockholders to make changes in
the Company Charter and the Company By-Laws or the Chemicals Charter and the
Chemicals By-Laws, respectively, including changes designed to facilitate the
exercise of control over the Company or Chemicals. In addition, the requirement
for approval by at least an 80% stockholder vote will enable the holders of a
minority of the Company's or Chemicals' capital stock to prevent holders of a
less-than-80% majority from amending the indicated provisions of the Company
Charter and the Company By-Laws or the Chemicals Charter and the Chemicals
By-Laws, respectively.
PREFERRED SHARE PURCHASE RIGHTS
The Company has entered into the Company Rights Agreement and Chemicals will
enter into the Chemicals Rights Agreement. Each of the Company Rights and the
Chemicals Rights will have certain antitakeover effects. Each of the Company
Rights and the Chemicals Rights will cause substantial dilution to a person or
group that attempts to acquire the Company or Chemicals and thereby effect a
change in the composition of the Company Board or Chemicals Board on terms not
approved by the Company Board or the Chemicals Board, respectively, including by
means of a tender offer at a premium to the market price, other than an offer
conditioned on a substantial number of Rights being acquired. The Company Rights
and the Chemicals Rights should not interfere with any merger or business
combination approved by the Company Board or Chemicals Board, as the case may
be, since the Company Rights or the Chemicals Rights may be redeemed by the
Company or Chemicals, respectively, at the applicable redemption price prior to
the time that a person or group has become an Acquiring Person. See "Description
of Chemicals Capital Stock -- Chemicals Rights."
ANTITAKEOVER LEGISLATION
Business Combinations (as defined herein) of either the Company or Chemicals
would be subject to the applicable voting requirements, if any, specified under
the Delaware Law, the Company Charter or the Chemicals Charter, as the case may
be, and the rules of the NYSE or other applicable stock exchange. In general,
under current provisions of the Delaware Law, most mergers and consolidations,
the sale of substantially all of the assets and any reclassification of
securities or plan for the dissolution of a corporation must be approved by the
board of directors of the corporation and by the vote of the holders of a
majority of the outstanding shares entitled to vote thereon. Under each of the
Company Charter and the Chemicals Charter, the holder of each currently
outstanding share of Company Common Stock and Chemicals Common Stock,
respectively, is entitled to one vote per share on all such matters. Under the
rules of the NYSE, acquisitions involving substantial security holders or the
issuance of additional shares of common stock aggregating 20% or more of the
outstanding shares of common stock require the approval of the holders of a
majority of the shares voting thereon.
In addition, Section 203 of the Delaware Law ("Section 203") prohibits certain
"Business Combination" (as defined in Section 203) transactions between a
publicly held Delaware corporation, such as the Company or Chemicals, and any
Interested Stockholder (as defined herein) for a period of three years after the
date the Interested Stockholder became an Interested Stockholder, unless (1)
prior to the Interested Stockholder becoming an Interested Stockholder, either
the proposed Business Combination or the proposed acquisition of stock which
would make such Interested Stockholder an Interested Stockholder was approved by
the company's board of directors, (2) in the same transaction in which the
Interested Stockholder becomes an Interested Stockholder, the Interested
Stockholder acquires at least 85% of the voting stock of the company (excluding
shares owned by directors who are also officers and certain shares held in
employee stock plans), or (3) the Interested Stockholder obtains the approval of
a company's board of directors and the approval of the holders of at least
two-thirds of the outstanding shares of a company's voting stock other than any
shares of voting stock held by the Interested Stockholder.
For purposes of Section 203, an "Interested Stockholder" is any person that (1)
beneficially owns 15% or more of the outstanding voting stock of the company or
(2) is an affiliate or associate of the company and at any time within the
preceding three-year period was the beneficial owner of 15% or more of the
outstanding voting stock of the company, together, in each case, with the
affiliates and associates of such person.
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The Business Combination transactions to which Section 203 applies include: (1)
any merger or consolidation with an Interested Stockholder; (2) any sale, lease,
exchange, or other disposition to or with an Interested Stockholder (except
proportionately as a stockholder of the company) of 10% or more of the company's
assets; (3) any issuance or transfer of stock to the Interested Stockholder
except pursuant to the exercise of previously outstanding options or rights; (4)
any transaction involving the company that has the effect of increasing the
Interested Stockholder's percentage ownership; and (5) any loan, guarantee, or
other financial benefit provided by or through the company to the Interested
Stockholder, except proportionately as a stockholder of such company.
Section 203 should encourage persons interested in acquiring the Company or
Chemicals to negotiate in advance with the relevant board of directors since the
higher stockholder voting requirements imposed would not be invoked if such
person, prior to acquiring 15% of the Company's or Chemicals' voting stock, as
the case may be, obtains the approval of the relevant board of directors for
such stock acquisition or for the proposed business combination transaction
(unless such person acquires 85% or more of such voting stock in the
transaction). As stated above, in the event of a proposed acquisition of the
Company or Chemicals, the Company believes that the interests of the Company's
or Chemicals' stockholders will best be served by a transaction that results
from negotiations based upon careful consideration of the proposed terms, such
as the price to be paid to minority stockholders, the form of consideration paid
and tax effects of the transaction.
In addition, Section 203 should tend to prevent certain of the potential
inequities of business combinations which are part of a two-tier transaction.
Any merger, consolidation or similar transaction following a partial tender
offer not approved by a board of directors under Section 203 would have to be
approved by the holders of at least two-thirds of the remaining shares of stock
unless the acquiror obtains 85% or more of Company's voting stock in such
partial tender offer. Section 203 should also tend to discourage the
accumulation of large blocks of the Company's or Chemicals' stock by third
parties which each of the respective boards of directors believes can be
disruptive to the stability of each of the respective companies' important
relationships with its employees, customers and major lenders, since the
acquiror would run the risk of being required to wait three years in order to
eliminate the remaining public stockholders of the Company or Chemicals if the
two-thirds stockholder vote could not be obtained.
Section 203 will not prevent a hostile takeover of the Company or Chemicals. It
may, however, make more difficult or discourage a takeover of the Company or
Chemicals or the acquisition of control of the Company or Chemicals by a
principal stockholder and thus the removal of incumbent management. Some
stockholders may find this disadvantageous in that they may not be afforded the
opportunity to participate in takeovers which are not approved by the board of
directors, but in which they might receive, for at least some of their shares, a
substantial premium above the market price at the time of a tender offer or
other acquisition transaction. Section 203 should not prevent or discourage
transactions in which an acquiring person is willing to negotiate in good faith
with the Company Board or the Chemicals Board, as the case may be, and is
prepared to pay the same price to all stockholders of each class of the
Company's or Chemicals' voting stock, respectively.
114
<PAGE> 127
LIABILITY AND INDEMNIFICATION OF OFFICERS AND
DIRECTORS OF CHEMICALS
LIMITATION OF LIABILITY OF CHEMICALS DIRECTORS
The Chemicals Charter provides that a director of Chemicals will not be
personally liable to Chemicals or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (1) for any breach
of the director's duty of loyalty to Chemicals or its stockholders, (2) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) under Section 174 of the Delaware Law, which
concerns unlawful payments of dividends, stock purchases or redemptions, or (4)
for any transaction from which the director derived an improper personal
benefit.
While the Chemicals Charter provides directors with protection from awards for
monetary damages for breaches of their duty of care, it does not eliminate such
duty. Accordingly, the Chemicals Charter will have no effect on the availability
of equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care. The provisions of the Chemicals Charter
described above apply to an officer of Chemicals only if he or she is a director
of Chemicals and is acting in his or her capacity as director, and do not apply
to officers of Chemicals who are not directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Chemicals Charter provides that each person who is or was or has agreed to
become a director or officer of Chemicals, or each such person who is or was
serving or has agreed to serve at the request of Chemicals as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, will be indemnified by Chemicals, in accordance with
the Chemicals By-Laws, to the fullest extent permitted from time to time by the
Delaware Law, as the same exists or may hereafter be amended or any other
applicable laws as presently or hereafter in effect. Chemicals may be required
to indemnify any person seeking indemnification in connection with a proceeding
(or part thereof) initiated by such person only if such proceeding (or part
thereof) was authorized by the Chemicals Board or is a proceeding to enforce
such person's claim to indemnification pursuant to the rights granted by the
Chemicals Charter or otherwise by Chemicals. In addition, Chemicals may enter
into one or more agreements with any person providing for indemnification
greater than or different from that provided in the Chemicals Charter.
The Chemicals By-Laws provide that each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit, or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative is or was a director, officer or employee of
Chemicals or any such person who is or was serving at the request of Chemicals
as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such Proceeding is
alleged action in an official capacity as a director, officer or employee or in
any other capacity while serving as a director, officer or employee, will be
indemnified and held harmless by Chemicals to the fullest extent authorized by
the Delaware Law as the same exists or may in the future be amended against all
expense, liability and loss (including attorneys' fees, judgments, fines,
Employee Retirement Income Security Act of 1974, as amended, excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith; provided, however, except as
described in the next paragraph with respect to Proceedings to enforce rights to
indemnification, Chemicals will indemnify any such person seeking
indemnification in connection with a Proceeding (or part thereof) initiated by
such person only if such Proceeding (or part thereof) was authorized by the
Chemicals Board.
Pursuant to the Chemicals By-Laws, if a claim is not paid in full by Chemicals
within 30 days after a written claim has been received by Chemicals, the
claimant may at any time thereafter bring suit against Chemicals to recover the
unpaid amount of the claim and, if successful in whole or in part, the claimant
will also be entitled to be paid the expense of prosecuting such claim. The
Chemicals By-Laws provide that it will be a defense to any such action (other
than an action brought to enforce a claim for expenses incurred in defending any
Proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to Chemicals) that the claimant has not
met the standard of conduct which makes it permissible
115
<PAGE> 128
under the Delaware Law for Chemicals to indemnify the claimant for the amount
claimed, but the burden of proving such defense will be on Chemicals.
The Chemicals By-Laws provide that the right to indemnification conferred
therein is a contract right and includes the right to be paid by Chemicals the
expenses incurred in defending any Proceeding in advance of its final
disposition, subject to certain exceptions.
The Chemicals By-Laws provide that the right to indemnification and the payment
of expenses incurred in defending a Proceeding in advance of its final
disposition conferred in the Chemicals By-Laws will not be exclusive of any
other right which any person may have or may in the future acquire under any
statute, provision of the Chemicals Charter, the Chemicals By-Laws, agreement,
vote of stockholders or disinterested directors or otherwise.
SUBMISSION OF STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
For inclusion in the Company's proxy statement and form of proxy, any proposals
of stockholders intended to be presented at the 1998 Annual Meeting of the
Company must be received by the Company no later than November 13, 1997.
Subject to completion of the Spinoff, it is expected that the 1998 Annual
Meeting of Chemicals will be held on April , 1998. For inclusion in Chemicals'
proxy statement and form of proxy, any proposals of stockholders intended to be
presented at the 1998 Annual Meeting of Chemicals must be received by Chemicals
no later than November , 1997.
SOLICITATION OF PROXIES
The Company will bear the expense of preparing, printing and mailing this proxy
material, as well as the cost of any required solicitation. The Company has
engaged Georgeson & Co., a proxy solicitation firm, to assist by mail or
telephone, in person or otherwise in the solicitation of proxies. The fee of
Georgeson & Co. is expected to be approximately $35,000 plus expenses. A few
regular employees of the Company may also participate in the solicitation,
without additional compensation. In addition, the Company will reimburse banks,
brokerage firms and other custodians, nominees and fiduciaries for reasonable
expenses incurred in forwarding proxy materials to beneficial owners of the
Company's stock and obtaining their proxies.
WHERE STOCKHOLDERS CAN FIND ADDITIONAL INFORMATION
The Company files annual, quarterly and special reports, proxy statements and
other information with the Commission. You may read and copy any reports, proxy
statements and other information we file at the Commission's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call
the Commission at 1-800-SEC-0330 for further information on the public reference
rooms. Our filings with the Commission are also available to the public from
commercial document retrieval services and at the Commission's site on the
Internet's world wide web at "http://www.sec.gov". Reports and other information
concerning the Company can also be read and copied at the offices of the NYSE,
20 Broad Street, New York, New York 10005.
Under the Exchange Act, Chemicals will file with the Commission the Registration
Statement covering the shares of Chemicals Common Stock and Chemicals Rights to
be issued in connection with the Spinoff. It is expected that Chemicals will
file the Registration Statement with the Commission prior to the date of the
Special Meeting and request effectiveness of the Registration Statement prior to
the Spinoff. As allowed by Commission rules, this Proxy Statement does not
contain all of the information you can find in the Registration Statements or
the exhibits to the Registration Statement. Once those exhibits are filed, you
will be able to read and copy them by the means described above. The
descriptions in this Proxy Statement of the documents filed as exhibits to the
Registration Statement are summaries, and you should read the exhibits
themselves for further information.
The Commission allows the Company to "incorporate by reference" information into
this Proxy Statement. This means that the Company can disclose important
information to you by referring you to another document filed separately with
the Commission. The information incorporated by reference is deemed to be part
of this
116
<PAGE> 129
Proxy Statement, except for any information superseded by information contained
directly in this Proxy Statement. This Proxy Statement incorporates by reference
the documents set forth below that the Company has previously filed with the
Commission. These documents contain important information about the Company and
its financial condition.
<TABLE>
<CAPTION>
COMPANY COMMISSION FILINGS (FILE NO. 1-2516) PERIOD
- --------------------------------------------------------------------------------------------
<S> <C>
Annual Report on Form 10-K................................... Year ended December 31, 1996
Quarterly Report on Form 10-Q................................ Period ended March 31, 1997
</TABLE>
The Company is also incorporating by reference additional documents that it
files with the Commission pursuant to Section 13(a), 13(c), 14 or 15 of the
Exchange Act between the date of this Proxy Statement and the date of the
Special Meeting. These include Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K.
The Company may have previously sent you some of the documents incorporated by
reference, but Company stockholders can obtain any of them through the Company,
the Commission, the Commission's Internet web site or the NYSE as described
above. The Company will provide these documents, without charge, excluding the
exhibits, if you call us at (314) 694-3655 or write to us at:
Monsanto Company -- D2000
800 N. Lindbergh Boulevard
St. Louis, Missouri 63167
U.S.A.
Exhibits which are specifically incorporated by reference into any information
contained in the Proxy Statement will also be provided without charge by the
Company. There will be a charge sufficient to defray copying costs for other
exhibits.
117
<PAGE> 130
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Acquiring Person.................................. 105
Advanced Elastomer Systems........................ 22
affiliates........................................ 26
Akzo Nobel........................................ 30
Albright & Wilson................................. 72
AlliedSignal...................................... 71
Amended Article VIII.............................. 34
Amended Article X................................. 35
Anti-Morris Trust Proposal........................ 26
BASF.............................................. 71
BCF............................................... 71
Bayer............................................. 72
broker non-votes.................................. 16
Business Combination.............................. 113
Business Procedure................................ 110
Calgene........................................... 42
Calgene Acquisition............................... 42
Change of Control Employment Agreement............ 89
Chemicals......................................... 15
Chemicals Board................................... 80
Chemicals Business................................ 22
Chemicals By-Laws................................. 21
Chemicals Charter................................. 21
Chemicals Common Stock............................ 15
Chemicals Executive Compensation Committee........ 82
Chemicals Junior Preferred Stock.................. 105
Chemicals Named Executive Officers................ 84
Chemicals Options................................. 26
Chemicals Preferred Stock......................... 105
Chemicals Restricted Stock........................ 31
Chemicals Right................................... 15
Chemicals Rights Agreement........................ 105
Chemicals Rights Certificates..................... 106
Chemicals Rights Distribution Date................ 106
Chemicals SpinCo.................................. 15
Code.............................................. 20
Commission........................................ 28
Company........................................... 15
Company Board..................................... 15
Company By-Laws................................... 15
Company Charter................................... 15
Company Charter Amendments........................ 15
Company Charter Proposal.......................... 15
Company Common Stock.............................. 15
Company DRP....................................... 16
Company ESPP...................................... 101
Company Executive Stock Purchase Incentive Plan... 87
Company Named Executive Officers.................. 93
Company Options................................... 31
Company PAYSOP.................................... 16
Company Plans..................................... 41
Company Preferred Stock........................... 110
Company Restricted Stock.......................... 31
Company Rights.................................... 24
Company Rights Agreement.......................... 24
Company SIP....................................... 16
Credit Facilities................................. 27
Delaware Law...................................... 34
Distribution Agent................................ 24
Distribution Agreement............................ 22
Distribution Date................................. 23
Distribution Ratio................................ 24
Distribution Record Date.......................... 23
DSUs.............................................. 83
<CAPTION>
PAGE
----
<S> <C>
DuPont............................................ 71
ECDC.............................................. 40
Employee Benefits Allocation Agreement............ 30
Ending Loan Amount................................ 87
EPA............................................... 68
Exchange Act...................................... 17
Exxon............................................. 30
Final Expiration Date............................. 106
Financing Facility................................ 27
Flexsys........................................... 22
Flip-in-Right..................................... 107
FMR............................................... 92
Guest............................................. 33
holding period.................................... 44
Incentive Plan.................................... 15
Incentive Plan Proposal........................... 15
Index............................................. 87
Intellectual Property Agreements.................. 32
Interested Stockholder............................ 113
IRS............................................... 20
Kelco............................................. 22
Life Sciences Business............................ 22
LTIPs............................................. 84
New Article XI.................................... 35
New Chemicals Options............................. 31
New Company Options............................... 31
Nomination Procedure.............................. 110
NYSE.............................................. 20
Operating Agreements.............................. 33
Operator.......................................... 33
OSHA.............................................. 68
P4 Joint Venture.................................. 30
PCBs.............................................. 78
Performance Award................................. 87
Pre-Adjustment Options............................ 31
Proceeding........................................ 115
Proposals......................................... 15
Proxy Statement................................... 15
PRP............................................... 18
Purchase Price.................................... 105
PVB............................................... 74
Redemption Price.................................. 107
RCRA.............................................. 68
Registration Statement............................ 28
Rhone-Poulenc..................................... 73
ROE............................................... 84
Searle............................................ 29
Searle Phantom Plan............................... 97
Section 203....................................... 113
Securities Act.................................... 17
Service Award..................................... 87
Service Provider.................................. 32
Service User...................................... 32
SFAS.............................................. 10
SOP............................................... 19
Special Meeting................................... 15
Special Meeting Record Date....................... 16
Spinoff........................................... 15
Spinoff Proposal.................................. 15
Substituted Options............................... 31
Superfund......................................... 68
Tax Sharing and Indemnification Agreement......... 26
Transition Services............................... 32
Transition Services Agreement..................... 32
</TABLE>
118
<PAGE> 131
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CHEMICALS SPINCO
Report of Independent Auditors...................................................... F-2
Statement of Combined Income for the three years ended December 31, 1996............ F-3
Statement of Combined Financial Position at December 31, 1996 and December 31,
1995............................................................................. F-4
Statement of Combined Cash Flow for the three years ended December 31, 1996......... F-5
Notes to Combined Financial Statements.............................................. F-6
Interim Combined Financial Statements (Unaudited):
Statement of Combined Income for the three months ended March 31, 1997 and 1996..... F-20
Statement of Combined Financial Position at March 31, 1997.......................... F-21
Statement of Combined Cash Flow for the three months ended March 31, 1997 and
1996............................................................................. F-22
Notes to Interim Combined Financial Statements...................................... F-23
</TABLE>
F-1
<PAGE> 132
REPORT OF INDEPENDENT AUDITORS
To the stockholders of Monsanto Company:
We have audited the accompanying statement of combined financial position of the
chemicals business that will comprise "Chemicals SpinCo" (as described in Note 1
to the combined financial statements) as of December 31, 1996 and 1995, and the
related statements of combined income and cash flow for each of the three years
in the period ended December 31, 1996. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements referred to above present
fairly, in all material respects, the financial position of "Chemicals SpinCo"
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
St. Louis, Missouri
May 1, 1997
F-2
<PAGE> 133
CHEMICALS SPINCO
STATEMENT OF COMBINED INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
NET SALES........................................................... $2,977 $2,964 $3,097
Cost of goods sold.................................................. 2,325 2,243 2,368
------ ------ ------
GROSS PROFIT........................................................ 652 721 729
Marketing expenses.................................................. 172 179 202
Administrative expenses............................................. 167 136 138
Technological expenses.............................................. 88 95 99
Restructuring expenses -- net....................................... 192 53 34
------ ------ ------
OPERATING INCOME.................................................... 33 258 256
Interest expense.................................................... (36) (36) (29)
Other income (expense) -- net....................................... 36 9 1
------ ------ ------
INCOME BEFORE INCOME TAXES.......................................... 33 231 228
Income taxes........................................................ 1 84 79
------ ------ ------
NET INCOME.......................................................... $ 32 $ 147 $ 149
====== ====== ======
</TABLE>
See Notes to Combined Financial Statements.
F-3
<PAGE> 134
CHEMICALS SPINCO
STATEMENT OF COMBINED FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1995
------ ------
(IN MILLIONS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Trade receivables, net of allowances of $7 in 1996 and $6 in 1995........... $ 412 $ 369
Miscellaneous receivables and prepaid expenses.............................. 80 113
Deferred income tax benefit................................................. 108 92
Inventories................................................................. 291 311
------ ------
TOTAL CURRENT ASSETS........................................................ 891 885
PROPERTY, PLANT AND EQUIPMENT:
Land........................................................................ 18 15
Buildings................................................................... 367 368
Machinery and equipment..................................................... 2,622 2,581
Construction in progress.................................................... 121 88
------ ------
Total property, plant and equipment......................................... 3,128 3,052
Less accumulated depreciation............................................... 2,217 2,140
------ ------
NET PROPERTY, PLANT AND EQUIPMENT........................................... 911 912
INVESTMENTS IN AFFILIATES................................................... 366 344
LONG-TERM DEFERRED INCOME TAX BENEFIT....................................... 194 172
OTHER ASSETS................................................................ 121 149
------ ------
TOTAL ASSETS................................................................ $2,483 $2,462
====== ======
LIABILITIES AND MONSANTO COMPANY EQUITY
CURRENT LIABILITIES:
Accounts payable............................................................ $ 223 $ 230
Wages and benefits.......................................................... 156 114
Restructuring reserves...................................................... 79 39
Miscellaneous accruals...................................................... 312 271
------ ------
TOTAL CURRENT LIABILITIES................................................... 770 654
POST-RETIREMENT LIABILITIES................................................. 634 632
OTHER LIABILITIES........................................................... 423 421
MONSANTO COMPANY EQUITY..................................................... 656 755
------ ------
TOTAL LIABILITIES AND MONSANTO COMPANY EQUITY............................... $2,483 $2,462
====== ======
</TABLE>
See Notes to Combined Financial Statements.
F-4
<PAGE> 135
CHEMICALS SPINCO
STATEMENT OF COMBINED CASH FLOW
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS OPERATING ACTIVITIES:
Net income............................................................ $ 32 $ 147 $ 149
Adjustments to reconcile to Cash Provided by Operations:
Items that did not use (provide) cash:
Deferred income taxes............................................ (45) 25 (23)
Depreciation and amortization.................................... 166 162 219
Restructuring expenses........................................... 192 53 34
Other............................................................ 43 1 (7)
Working capital changes that provided (used) cash:
Accounts receivable.............................................. (43) 64 (27)
Inventories...................................................... 20 (78) 48
Accounts payable and accrued liabilities......................... (33) (61) (59)
Other............................................................ 24 (13) 12
Other items......................................................... (20) 20 8
----- ----- -----
TOTAL CASH PROVIDED BY OPERATIONS..................................... 336 320 354
----- ----- -----
INVESTING ACTIVITIES:
Property, plant and equipment purchases............................... (192) (179) (187)
Acquisition and investment payments................................... (17) (51) (4)
Investment and property disposal proceeds............................. 4 51 73
----- ----- -----
CASH USED IN INVESTING ACTIVITIES..................................... (205) (179) (118)
----- ----- -----
FINANCING ACTIVITIES:
Net transactions with Monsanto Company................................ (131) (141) (236)
----- ----- -----
CASH USED IN FINANCING ACTIVITIES..................................... (131) (141) (236)
----- ----- -----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...................... -- -- --
CASH AND CASH EQUIVALENTS:
BEGINNING OF YEAR..................................................... -- -- --
----- ----- -----
END OF YEAR........................................................... $ -- $ -- $ --
===== ===== =====
</TABLE>
See Notes to Combined Financial Statements.
F-5
<PAGE> 136
CHEMICALS SPINCO
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
1. BASIS OF PRESENTATION
Combined Financial Statements
The accompanying combined financial statements have been prepared on a basis
which reflects the historical financial statements of Chemicals SpinCo
("Chemicals") assuming that the operations of Monsanto Company (the "Company")
expected to be contributed to Chemicals prior to the spinoff of Chemicals to the
Company's stockholders (the "Spinoff") were organized as a separate legal
entity, owning certain net assets of the Company. Generally, only those assets
and liabilities of the ongoing chemicals business expected to be transferred to
Chemicals prior to the Spinoff were included in the Statement of Combined
Financial Position.
The Company provided certain general and administrative services to Chemicals,
including finance, legal, treasury, information systems and human resources. The
cost for these services was allocated to Chemicals based upon the percentage
relationship between the net assets utilized in Chemicals' operations and the
Company's total net assets, as well as other methods which management believes
to be reasonable. These allocations were $85 million, $72 million and $69
million in 1996, 1995 and 1994, respectively. As a result of the Spinoff,
Chemicals will be required to perform these general and administrative services
using its own resources or purchased services and will be responsible for the
costs and expenses associated with the management of a public company.
As described in Notes 9, 10 and 11, Chemicals employees and retirees participate
in various Company pension, health care, savings and other benefit plans. The
costs and certain obligations related to these plans are included in Chemicals
combined financial statements generally based on the percentage of Chemicals
payroll costs to total Company payroll cost.
Certain assets and liabilities related to the Chemicals operations have been
managed and controlled by the Company on a centralized basis. Such assets and
liabilities have been allocated to Chemicals in the manner described in
preceding paragraphs for allocating general and administrative expenses and
benefit plans. A portion of the following assets and liabilities have been
determined in this manner : other assets, accounts payable, post-retirement
liabilities, miscellaneous accruals and other liabilities.
The Company uses a centralized approach to cash management and the financing of
its operations. As a result, cash and cash equivalents and debt were not
allocated to Chemicals in the historical financial statements. Chemicals
generally has not had borrowings except amounts due to the Company. Interest
expense has been allocated to Chemicals in the combined financial statements to
reflect Chemicals' pro rata share of the financing structure of the Company.
This allocation in the combined financial statements is based upon the
percentage relationship between the net assets utilized in the Chemicals
operations and the Company's net assets.
The allocation methodology followed in preparing the combined financial
statements may not necessarily reflect the results of operations, cash flows, or
financial position of Chemicals in the future, or what the results of
operations, cash flows, or financial position would have been had Chemicals been
a separate stand-alone public entity.
Pending Spinoff
In December 1996, the Company's board of directors approved in principle a plan
to spin off the Company's chemical operations to the stockholders of the
Company. In the Spinoff, each of the Company's stockholders will receive a pro
rata share of the voting common stock of Chemicals in a special dividend and
Chemicals will become a separately traded, publicly held company. The Spinoff is
subject to several conditions, including stockholder approval. The Company has
filed a request for a ruling from the U.S. Internal Revenue Service (the "IRS")
that this transaction generally would be free from U.S. federal income taxes.
F-6
<PAGE> 137
The Spinoff will be accomplished through a distribution agreement that will
provide for, among other things, the assets to be contributed to Chemicals and
the liabilities to be assumed by Chemicals, certain of which assets and
liabilities have not been included in the accompanying Statement of Combined
Financial Position. Those assets and liabilities include, among other things: a
joint venture interest in the Company's elemental phosphorus business and a
defined amount of cash and debt.
The Company and Chemicals will also enter into an employee benefits and
compensation allocation agreement to set forth the manner in which assets and
liabilities under employee benefit plans and other employment-related
liabilities will be divided between them. Certain assets and liabilities related
to the plans have not been included in the accompanying Statement of Financial
Position. These include, among other things, assets and liabilities for: the
U.S. defined benefit pension plans, workers' compensation and additional
obligations for health care and other post-retirement benefits that Chemicals is
expected to retain for substantially all retired U.S. employees.
The final determination of the assets to be contributed to Chemicals and the
liabilities to be assumed by Chemicals will be made pursuant to the agreements
to be entered into between the Company and Chemicals in connection with the
Spinoff. As of the date of the Spinoff, the effect of the final transfer will be
treated as a direct increase or decrease in "Monsanto Company Equity" in the
Statement of Combined Financial Position.
Regardless of the allocation of the assets and liabilities described in the
preceding paragraphs, Chemicals' Statement of Combined Income includes all of
the related costs of doing business including an allocation of certain general
corporate expenses from the Company which were not directly related to
Chemicals.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Combination
The combined financial statements include the accounts of Chemicals as described
in Note 1. Other companies in which Chemicals has a significant interest (20 to
50 percent) are included in "Investments in Affiliates" in the Statement of
Combined Financial Position. Chemicals' share of these companies' net earnings
or losses is included in "Other income (expense) -- net" in the Statement of
Combined Income.
Use of Estimates
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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
that affect revenues and expenses during the period reported. Estimates are
adjusted when necessary to reflect actual experience. Significant estimates are
used when accounting for the allocation of financial statement amounts between
the Company and Chemicals, restructuring reserves, environmental reserves,
self-insurance reserves, employee benefit plans, asset impairments, and
contingencies.
Currency Translation
The financial statements for most of Chemicals' ex-U.S. operations are
translated into U.S. dollars at current exchange rates. Unrealized currency
adjustments in the Statement of Combined Financial Position are accumulated in
equity. The financial statements of ex-U.S. operations in hyperinflationary
economies, principally Brazil, are translated at either current or historical
exchange rates, as appropriate. These currency adjustments are included in net
income.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. The cost of plant and
equipment is depreciated over weighted average periods of 18 years for buildings
and 10 years for machinery and equipment, by the straight-line method.
F-7
<PAGE> 138
Impairment of Long-lived Assets
Impairment tests of long-lived assets are made when conditions indicate a
possible loss. Such impairment tests are based on a comparison of undiscounted
cash flows to the recorded value of the asset. If an impairment is indicated,
the asset value is written down to its fair value based upon discounted cash
value, using an appropriate discount rate.
Inventory Valuation
Inventories are stated at cost or market, whichever is less. Actual cost is used
to value raw materials and supplies. Standard cost, which approximates actual
cost, is used to value finished goods and goods in process. Standard cost
includes direct labor and raw materials, and manufacturing overhead based on
practical capacity. The cost of certain inventories (76 percent as of December
31, 1996) is determined by using the last-in, first-out "LIFO" method, which
generally reflects the effects of inflation or deflation on cost of goods sold
sooner than other inventory cost methods. The cost of other inventories
generally is determined by using the first-in, first-out "FIFO" method.
Income Taxes
Chemicals does not file separate tax returns. It is included in the consolidated
returns filed by the Company and its subsidiaries in various U.S. and ex-U.S.
jurisdictions. The tax provisions reflected in the Statement of Combined Income
have been computed as if Chemicals was a separate company. The accompanying
Statement of Combined Financial Position includes deferred tax amounts
applicable to Chemicals. Taxes currently payable and income tax payments are
recorded directly by the Company and, as a result, amounts related to Chemicals
are included in "Net transactions with Monsanto Company" in the Statement of
Combined Cash Flow.
Earnings per Share
Historical earnings per share have not been presented as Chemicals was wholly
owned by the Company.
Environmental Remediation
Costs for remediation of waste disposal sites are accrued in the accounting
period in which the responsibility is established and when the cost is
estimable. Post-closure and remediation costs for hazardous and other waste
facilities at operating locations are accrued over the estimated life of the
facility as part of its anticipated closure cost. Environmental liabilities are
not discounted, and they have not been reduced for any claims for recoveries
from insurance or third parties. In those cases where insurance carriers or
third-party indemnitors have agreed to pay any amounts and management believes
that collectability of such amounts is probable, the amounts are reflected as
receivables in the combined financial statements.
3. TRANSACTIONS WITH THE COMPANY
Chemicals participates in the Company's centralized cash management system.
Under this system, cash received from Chemical's operations is transferred to
the Company's centralized cash accounts and cash disbursements are funded from
the centralized cash accounts.
Included in the Statement of Combined Income are sales to the Company of $63
million, $75 million, and $80 million in 1996, 1995, and 1994, respectively.
Such sales are made at the Company's established transfer prices.
As specified in Note 1, the Company provided certain general and administrative
services to Chemicals. The cost of these services, also included in such
statement, are $85 million, $72 million, and $69 million in 1996, 1995, and
1994, respectively. Interest expense charged to Chemicals represents an
allocation from the Company of its total interest expense. The allocated
interest expense to Chemicals was $36 million, $36 million, and $29 million in
1996, 1995, and 1994, respectively.
F-8
<PAGE> 139
4. RESTRUCTURING AND OTHER ACTIONS
In December 1996, Chemicals recorded pretax restructuring and other special
charges totaling $256 million ($164 million aftertax) to cover the costs
associated with the closure or sale of certain facilities, asset write-offs, and
workforce reductions. Approximately 900 positions are expected to be eliminated
by these actions. Included in these charges were pretax amounts for asset
impairments totaling $56 million. These write-offs were necessary primarily
because of excess production capacity, coupled with insufficient demand for
certain products. Asset values were written down to their discounted cash
values, using appropriate discount rates.
In December 1995, the Company's board of directors approved a restructuring
plan. The pretax charge associated with these actions was $66 million ($57
million aftertax) and covered the costs of work force reductions, business
consolidations, facility closures and the exit from nonstrategic businesses and
facilities. This plan was substantially completed by the end of 1996 and reduced
employment by approximately 100 people.
In December 1994, the Company and Akzo Nobel N.V. agreed to form a 50-50 joint
venture by combining their respective rubber chemicals businesses. The venture
partners agreed to bear the one-time costs required to integrate their
respective rubber chemicals businesses into the joint venture. For Chemicals,
these integration costs, which totaled $40 million pretax ($25 million
aftertax), were primarily for the cost of reducing the work force by
approximately 120 people and for special termination benefits for approximately
300 people transferring from Chemicals to the joint venture. The charge for
these actions was recorded in the first quarter of 1995. On May 1, 1995, the
joint venture, known as Flexsys, L.P. ("Flexsys"), began operations and is
accounted for as an equity affiliate. Accordingly, Chemicals share of the
earnings of Flexsys after that date has been reflected in "Other income
(expense) -- net" in the Statement of Combined Income. Chemicals' results of
operations for 1995 and 1994 included net sales of $140 million and $400
million, respectively, from the rubber chemicals business. Operating income for
this business during these periods was not significant.
Other items that affected Chemicals' results of operations in 1995 included the
receipt in the first and third quarters of settlement payments from various
insurers related to environmental and other insurance litigation. The combined
effect of these settlements totaled $88 million pretax ($55 million aftertax).
In addition, the Company settled a lawsuit related to a Comprehensive
Environmental Response, Compensation and Liability site, commonly known as
"Superfund," in La Marque, Texas. The suit was brought by IT Corporation ("IT"),
a subsidiary of International Technology Corp., and claimed, among other things,
breach of a contract calling for IT to perform incineration and remediation work
at the site. The Company settled the suit by paying $41 million pretax ($25
million aftertax), and Chemicals recorded the payment in the third quarter of
1995.
In December 1994, the Company's board of directors approved a plan to eliminate
redundant staff activities and to consolidate certain staff and administrative
business functions. The plan, which was substantially completed by the end of
1995, reduced worldwide employment by approximately 140 people. In addition,
Chemicals closed certain facilities and terminated certain programs. The pretax
expense related to these actions was $34 million ($21 million aftertax).
F-9
<PAGE> 140
The components of the pretax expense (income) related to the restructuring
programs and the other actions included in the accompanying Statement of
Combined Income were:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cost of employee reductions................................ $157 $ 22 $27
Shutdown and consolidation of various facilities and
departments.............................................. 33 44 7
Asset impairments.......................................... 56
Insurance-related settlement (income)...................... (88)
Litigation settlement...................................... 41
Joint venture integration costs............................ 40
Other costs................................................ 10
---- ---- ----
Total............................................... $256 $ 59 $34
==== ==== ====
</TABLE>
Restructuring expenses are recorded based on estimates prepared at the time the
restructuring actions are approved by the board of directors. The balance in
restructuring reserves as of December 31, 1996, was $265 million. It is
earmarked primarily for work force reduction costs, asset impairments, and the
costs associated with shutdowns and consolidation of various facilities and
departments. Management believes that the balance of these reserves as of
December 31, 1996, is adequate for completion of those activities. Restructuring
actions during the last three years have reduced these liabilities by
approximately $300 million. Approximately two-thirds of these reductions were
recorded for write-offs and expenditures related to the termination or sale of
nonstrategic products and facilities. The remaining reductions were primarily
related to the cost of work force reduction programs, most of which have been
completed.
The pretax expenses (income) related to the restructuring programs and the other
unusual items were recorded in the Statement of Combined Income in the following
categories:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cost of goods sold.......................................... $ 56 $(7)
Restructuring expenses -- net............................... 192 53 $34
---- ---- ----
Decrease in operating income.............................. 248 46 34
Other expense(1)............................................ 8 13
---- ---- ----
Total decrease in income before income taxes.............. $256 $59 $34
==== ==== ====
</TABLE>
- -------------------------
(1) In 1996 and 1995, other expense includes Chemicals' share of restructuring
actions undertaken by Flexsys.
Net income decreased by $164 million, $52 million and $21 million, in 1996, 1995
and 1994, respectively, because of these restructurings and unusual items.
5. INVESTMENTS IN AFFILIATES
At December 31, 1996, Chemicals' investments in affiliates consisted principally
of its 50 percent interests in Flexsys, the rubber chemicals joint venture, and
the Advanced Elastomer Systems, L.P. ("AES") joint venture for which Chemicals
uses the equity method of accounting. Summarized combined financial information
for the Flexsys and AES joint ventures follows (results of operations for 1995
reflects eight months of operations for Flexsys):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Results of operations
Net sales........................................ $ 779 $ 628 $ 200
Net income....................................... 64 3 21
Financial position
Total assets..................................... $ 853 $ 854
Total liabilities................................ $ 237 $ 290
</TABLE>
F-10
<PAGE> 141
6. INVENTORY VALUATION
The components of inventories were:
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Finished goods................................................ $ 258 $ 266
Goods in process.............................................. 47 53
Raw materials and supplies.................................... 126 145
----- -----
Inventories, at FIFO cost..................................... 431 464
Excess of FIFO over LIFO cost................................. (140) (153)
----- -----
TOTAL......................................................... $ 291 $ 311
===== =====
</TABLE>
Inventories at FIFO approximate current cost. The effect of LIFO inventory
liquidations increased pretax income by $5 million in 1996 and was not material
in 1995.
7. INCOME TAXES
The components of income before income taxes were:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
United States.............................................. $11 $221 $138
Outside United States...................................... 22 10 90
---- ---- ----
TOTAL...................................................... $33 $231 $228
==== ==== ====
</TABLE>
The components of income tax expense charged to operations were:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
U.S. federal............................................ $ 13 $ 39 $ 72
U.S. state.............................................. 2 7 5
Outside United States................................... 31 13 25
---- ---- ----
46 59 102
---- ---- ----
Deferred:
U.S. federal............................................ (21) 23 (28)
U.S. state.............................................. (1) 3 1
Outside United States................................... (23) (1) 4
---- ---- ----
(45) 25 (23)
---- ---- ----
TOTAL..................................................... $ 1 $ 84 $ 79
==== ==== ====
</TABLE>
Factors causing the Chemicals' effective tax rate to differ from the U.S.
federal statutory rate were:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
U.S. federal statutory rate................................. 35% 35% 35%
U.S. state income taxes..................................... 1 3 2
Assumed tax benefit of foreign sales corporation............ (23) (4) (2)
Taxes related to foreign income, net of credits............. 3 4 --
Income from equity affiliates recorded net of tax........... (13) (1) (1)
Other....................................................... -- (1) 1
---- ---- ----
EFFECTIVE INCOME TAX RATE................................... 3 % 36% 35%
==== ==== ====
</TABLE>
F-11
<PAGE> 142
Deferred income tax balances were related to:
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Property............................................... $(176) $(181)
Post-retirement benefits............................... 248 260
Restructuring reserves................................. 92 18
Environmental liabilities.............................. 57 64
Inventory.............................................. 4 5
Other.................................................. 77 98
----- -----
NET ASSET.............................................. $ 302 $ 264
===== =====
</TABLE>
8. MONSANTO COMPANY EQUITY
The following is an analysis of the Company's investment in Chemicals:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year.............................. $755 $741 $809
Net income................................................ 32 147 149
Foreign currency translation adjustment................... -- 8 19
Net transactions with the Company......................... (131) (141) (236)
---- ---- ----
Balance at end of year.................................... $656 $755 $741
==== ==== ====
</TABLE>
9. POST-RETIREMENT BENEFITS -- PENSIONS
Chemicals' employees participate in the Company's noncontributory pension plans.
No detailed information regarding the funded status of the plans and components
of net periodic pension cost, as it relates to Chemicals is available. The
information that follows relates to all of the Company's pension plans. The
components of pension cost for these plans were:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Service cost for benefits earned during the year....... $ 83 $ 70 $ 75
Interest cost on benefit obligation.................... 287 291 269
Assumed return on plan assets(1)....................... (322) (326) (317)
Amortization of unrecognized net (gain) loss........... 9 (25) (12)
----- ----- -----
Total.................................................. $ 57 $ 10 $ 15
===== ===== =====
</TABLE>
--------------------------------
(1) Actual returns (losses) on plan assets were $558 million, $671
million and $(142) million in 1996, 1995 and 1994, respectively.
Pension cost allocated to Chemicals in 1996, 1995 and 1994 was $18 million, $1
million, and $4 million, respectively.
Chemicals is expected to retain only costs related to its active employees
following the proposed Spinoff. Consequently, future pension costs for Chemicals
after the Spinoff are likely to be different when compared to historical
amounts. Separate actuarial calculations will be performed as of the date of the
Spinoff.
Pension benefits are based on the employee's years of service and/or
compensation level. Pension plans are funded in accordance with the Company's
long-range projections of the plans' financial conditions. These projections
take into account benefits earned and expected to be earned, anticipated returns
on pension plan assets, and income tax and other regulations.
F-12
<PAGE> 143
Pension costs are determined through the use of the preceding year-end rate
assumptions. Assumptions used as of December 31 for the principal plans were:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Discount rate.......................................... 7.50% 7.25% 8.50%
Assumed long-term rate of return on plan assets........ 9.50% 9.50% 9.50%
Annual rates of salary increase (for plans that base
benefits on final compensation level)................ 4.50% 4.50% 5.00%
</TABLE>
The funded status of the Company's pension plans at year-end was:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
PLAN ASSETS AT FAIR VALUE.................................... $3,817 $3,690
------ ------
Actuarial present value of plan benefits:
Vested..................................................... $3,495 $3,457
Nonvested.................................................. 154 145
------ ------
Accumulated benefit obligation............................... 3,649 3,602
Effect of projected future salary increases.................. 377 385
------ ------
PROJECTED BENEFIT OBLIGATION(1).............................. $4,026 $3,987
------ ------
Deficiency of plan assets over projected benefit
obligation................................................. $ (209) $ (297)
Less:
Unrecognized initial net gain.............................. 94 119
Unrecognized prior service costs........................... (264) (192)
Unrecognized subsequent net gain (loss).................... 241 (5)
------ ------
ACCRUED NET PENSION LIABILITY(2)............................. $ 280 $ 219
====== ======
</TABLE>
--------------------------------
(1) Included $228 million in 1996 and $204 million in 1995 for unfunded
plans.
(2) Included $138 million in 1996 and $152 million in 1995 for unfunded
plans.
Included in the preceding table are plan assets and projected benefit
obligations for the principal U.S. plans of approximately $3.327 billion and
$3.264 billion, respectively, as of December 31, 1996. Plan assets consist
principally of common stocks and U.S. government and corporate obligations.
Contributions to these plans were neither required nor made in 1996, 1995 and
1994 because the Company's principal pension plans are adequately funded, using
assumed returns.
A final determination of the assets to be contributed and the liabilities to be
assumed by Chemicals with respect to the U.S. plans has not been finalized.
Accordingly, the corresponding net pension asset or liability has not been
included in the accompanying Statement of Combined Financial Position.
10. POST-RETIREMENT BENEFITS -- HEALTH CARE AND OTHER
Chemicals' employees participate in the Company benefit programs which provide
certain health care and life insurance benefits for retired employees. No
detailed information regarding the components of the total cost and obligations
of these post-retirement benefits, as it relates to Chemicals is available.
Substantially all regular, full-time U.S. employees and certain employees in
other countries may become eligible for these benefits if they reach retirement
age while employed by the Company or Chemicals. These post-retirement benefits
are unfunded and are generally based on the employee's years of service and/or
compensation level. The costs of post-retirement benefits are accrued by the
date the employees become eligible for the benefits.
F-13
<PAGE> 144
The components of the total cost of the Company's post-retirement benefits,
principally health care and life insurance, were:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost for benefits earned during the year......... $ 25 $ 21 $ 23
Interest cost on benefit obligation...................... 88 94 87
Amortization of unrecognized net (gain) loss............. 2 (2) 7
---- ---- ----
TOTAL.................................................... $115 $113 $117
==== ==== ====
</TABLE>
Post-retirement benefit costs allocated to Chemicals in 1996, 1995 and 1994 were
$50 million, $54 million, and $55 million, respectively.
Post-retirement costs are determined by using the preceding year-end rate
assumptions. Assumptions used as of December 31 for the principal plans were:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Discount rate........................................ 7.50% 7.25% 8.50%
Initial trend rate for health care costs(1).......... 8.00% 9.00% 11.50%
Ultimate trend rate for health care costs............ 5.00% 5.00% 5.50%
</TABLE>
--------------------------------
(1) The initial trend rate for health care costs declines by 1 percent per
year to 5 percent for years after the year 2001.
A 1 percent increase in the assumed trend rate for health care costs would have
increased the cost of 1996 post-retirement health care benefits by $4 million
and the accumulated benefit obligation by $48 million as of December 31, 1996.
As of December 31, the status of the Company's obligations for post-retirement
health care and life insurance benefit plans, and employee disability benefit
plans was:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
ACCUMULATED BENEFIT OBLIGATION:
Retirees................................................... $ 938 $1,006
Eligible active employees.................................. 60 52
Other active employees..................................... 251 213
------ ------
TOTAL........................................................ $1,249 $1,271
Unrecognized benefits from prior service................... 27 34
Unrecognized subsequent net loss........................... (28) (81)
------ ------
ACCRUED LIABILITY............................................ $1,248 $1,224
====== ======
</TABLE>
The assumptions used to compute the accumulated benefit obligation of the
principal plans were changed as of December 31, 1996. That resulted in a
decrease of approximately $28 million in the obligation.
Chemicals' portion of this liability was approximately $671 million and $696
million, as of December 31, 1996 and 1995, respectively.
Following the Spinoff, Chemicals is expected to retain the obligations for
post-retirement benefits for approximately two-thirds of retired U.S. employees
of the Company. Consequently, future post-retirement costs for Chemicals after
the Spinoff are likely to be different and are likely to increase when compared
to historical amounts. Separate actuarial calculations will be performed as of
the date of the Spinoff.
F-14
<PAGE> 145
11. EMPLOYEE SAVINGS PLANS
For some employee savings plans, employee contributions are matched in part by
the Company. Chemicals' employees participate in these plans. The value of these
contributions for Chemicals in each of 1996, 1995 and 1994 was approximately $11
million.
The information that follows relates to the Company's Employee Stock Ownership
Plan (the "ESOP"). The ESOP held 18.6 million shares of the Company's common
stock as of December 31, 1996. The ESOP acquired shares by using proceeds from
the issuance of long-term notes and debentures that are guaranteed by the
Company and from a $50 million loan from the Company. A portion of the ESOP
shares is allocated each year to employee savings accounts as matching
contributions. In 1996, 752,515 shares were allocated to participants under the
plan, leaving 12,623,080 unallocated shares as of December 31, 1996.
Compensation expense is equal to the cost of the shares allocated to
participants, less dividends paid on the shares held by the ESOP. Dividends on
the common stock owned by the ESOP are being used to repay the ESOP borrowings,
which totaled $180 million as of December 31, 1996.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Total ESOP expense.......................................... $17 $26 $29
Interest portion of total ESOP expense...................... 14 16 17
Cash contribution........................................... 16 18 19
Dividends paid on ESOP shares held.......................... 11 10 9
</TABLE>
12. STOCK OPTION PLANS
The Company has two fixed option plans in which Chemicals' employees
participated. Under the Management Incentive Plan of 1996, the Company may grant
options to key officers and management employees for up to 46,250,000 shares of
common stock. Under this plan, the exercise price of each option equals not less
than the fair market value of the Company's stock on the date of grant, and an
option's maximum term is 10 years. Options are granted at the discretion of the
Company's board of directors' Executive Compensation and Development Committee
or its delegate. Options generally vest upon the earlier of the achievement of
business performance targets or upon the ninth anniversary of the option grant
date. Options granted to senior management vest upon the attainment of
pre-established prices within specified time periods. Under the Company's Shared
Success Stock Option Plan, the majority of regular full-time and regular
part-time employees of the Company have been granted options on 200 shares of
common stock. The maximum number of shares for which stock options may be
granted under this plan totals 13,500,000. Approximately 5,246,200 options,
which vest in April 1999, are outstanding under this plan. Under this plan, the
exercise price of each option is determined by the committee administering the
plan and generally equals the market price of the Company's stock on the date of
grant. An option's maximum term is 10 years.
Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standard ("SFAS") No. 123, "Accounting for Stock-Based Compensation." As
permitted by the standard, the Company has elected to continue following the
guidance of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for
Stock Issued to Employees," for measurement and recognition of stock-based
transactions with employees. Accordingly, no compensation cost has been
recognized for the Company's option plans. Had the determination of compensation
cost for these plans been based on the fair value at the grant dates for awards
under these plans, consistent with the method of SFAS No. 123, Chemicals' net
income would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net income:
As reported..................................................... $32 $147
Pro forma....................................................... 18 144
</TABLE>
The resulting compensation expense may not be representative of compensation
expense to be incurred on a pro forma basis in future years.
F-15
<PAGE> 146
The fair value of each option grant is estimated on the date of grant by using
the Black-Scholes option-pricing model. The following weighted-average
assumptions were used for grants in 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Expected dividend yield........................................... 1.5% 3.0%
Expected volatility............................................... 25.0% 20.0%
Risk-free interest rates.......................................... 6.0% 7.1%
Expected option lives (years)..................................... 4.0 4.5
</TABLE>
The weighted-average fair values of options granted during 1996 and 1995 were
$6.43 and $3.99, respectively.
As currently proposed, options to purchase Company common stock granted prior to
1997 under the above plans will be converted into two awards, one based upon the
Company common stock and one based upon Chemicals common stock. The total value
of the options prior to the conversion will be equal to the combined value of
the resulting options at the date of the Spinoff. Conversion of the options
granted prior to 1997 in this manner is subject to a favorable ruling from the
IRS regarding the related compensation deduction. Options to purchase Company
common stock granted during 1997 will be converted into options of the
employee's post-Spinoff employer.
13. COMMITMENTS AND CONTINGENCIES
Commitments, principally in connection with uncompleted additions to property,
were approximately $37 million as of December 31, 1996. The Company was
contingently liable as a guarantor for bank loans and for discounted customers'
receivables relating to Chemicals totaling approximately $16 million and $7
million as of December 31, 1996 and 1995, respectively. Future minimum payments
under noncancelable operating leases and unconditional purchase obligations are
$23 million for 1997, $48 million for 1998, $15 million for 1999, $5 million for
2000, $3 million for 2001, and $3 million thereafter.
Chemicals has entered into agreements with customers to supply a guaranteed
quantity of certain products annually at prices specified in the agreements. In
return, the customers have advanced funds to Chemicals to cover the costs of
expanding capacity to provide the guaranteed supply. Chemicals has recorded the
advances as deferred credits and amortizes the amounts to income as the
customers purchase the products. At December 31, 1996, the unamortized deferred
credits were approximately $68 million.
The more significant concentrations in Chemicals' trade receivables at year-end
were:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
U.S. chemical industry........................................... $129 $182
U.S. carpet industry............................................. 79 74
European chemical industry....................................... 36 55
</TABLE>
Management does not anticipate losses on its trade receivables in excess of
established allowances.
Chemicals' Statement of Combined Financial Position included accrued liabilities
of $150 million and $184 million as of December 31, 1996 and 1995, respectively,
for the remediation of identified waste disposal sites. Expenditures related to
remediation activities were $59 million in 1996, $68 million in 1995, and $58
million in 1994.
Chemicals' future remediation expenses for waste disposal sites are affected by
a number of uncertainties, including, but not limited to, the method and extent
of remediation, the percentage of material attributable to Chemicals at the
sites relative to that attributable to other parties, and the financial
capabilities of the other potentially responsible parties. Because of the
uncertainties associated with remediation activities, Chemicals' potential
future expenses to remediate these sites could approximate an additional $60
million beyond amounts already accrued.
Post-closure and remediation costs for hazardous and other waste facilities are
accrued over the estimated life of the facility as part of its anticipated
closure cost. Chemicals' estimated closure costs for these facilities could
reach approximately $70 million (beyond amounts already accrued) based upon
existing technology and
F-16
<PAGE> 147
currently available information. Uncertainties related to these costs include
evolving government standards, the method and extent of remediation, and future
changes in technology.
Although the ultimate costs and results of remediation of contaminated sites
cannot be predicted with certainty, they are not expected to result in a
material adverse change in Chemicals' liquidity or financial position as
reflected in Chemicals' historical financial statements, but they could have a
material adverse effect on profitability in a given period.
In October 1996, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 96-1, "Environmental Remediation Liabilities,"
which is effective for Chemicals' in 1997. SOP 96-1 establishes authoritative
guidance regarding the recognition, measurement and disclosure of environmental
remediation liabilities. The preliminary estimate of the 1997 charges resulting
from the adoption of this statement is in the range of $15 million to $20
million after tax.
The Company is a party to a number of lawsuits and claims relating to Chemicals,
for which Chemicals will assume responsibility in the Spinoff and which
Chemicals intends to defend vigorously. Such matters arise out of the normal
course of business and relate to product liability, government regulation,
including environmental issues, and other issues. Certain of the lawsuits and
claims seek damages in very large amounts. Although the results of litigation
cannot be predicted with certainty, management's belief, based upon the advice
of Chemicals' counsel, is that the final outcome of such litigation will not
have a material adverse effect on Chemicals' combined financial position,
profitability or liquidity in any one year, as applicable.
14. SUPPLEMENTAL DATA
Supplemental income statement data were:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Raw material and energy costs......................... $1,059 $ 929 $1,196
Employee compensation and benefits.................... 715 794 831
Current income and other taxes........................ 134 152 207
Rent expense.......................................... 29 31 34
Technological expenses:
Research and development............................ 81 77 76
Engineering, commercial development and patent...... 7 18 23
------ ------ ------
Total technological expenses.......................... 88 95 99
Interest expense:
Total interest cost................................. 41 42 35
Less capitalized interest........................... (5) (6) (6)
------ ------ ------
NET INTEREST EXPENSE.................................. 36 36 29
Currency losses including equity in affiliates'
currency gains and losses........................... 2 3 6
</TABLE>
15. SEGMENT AND GEOGRAPHIC DATA
Chemicals is engaged in one industry segment - the production and marketing of a
range of high-performance chemical-based materials. Its products include a range
of performance materials, including nylon and acrylic fibers, Saflex(R) Plastic
Interlayer, phosphorus derivatives, and other specialty chemicals. The markets
served include automotive, housing, electronics and food. Chemicals is a 50-50
partner in two key joint ventures,
F-17
<PAGE> 148
Flexsys, the rubber chemicals joint venture, and the AES joint venture.
Geographic data for Chemicals follows:
<TABLE>
<CAPTION>
EUROPE- ASIA- LATIN ELIMINATIONS- COMBINED
US AFRICA PACIFIC CANADA AMERICA CORPORATE TOTAL
------ ------- ------- ------ ------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES
1996............... $2,355 $ 415 $ 67 $ 74 $ 66 -- $2,977
1995............... 2,238 477 96 88 65 -- 2,964
1994............... 2,288 515 121 96 77 -- 3,097
OPERATING INCOME
1996............... $ 19 $ 28 $ 2 $ (2) (15) $ 1 $ 33
1995............... 237 40 (26) 2 6 (1) 258
1994............... 173 76 (5) 6 7 (1) 256
IDENTIFIABLE ASSETS
1996............... $1,697 $ 303 $ 33 $ 27 $ 65 $ 358 $2,483
1995............... 1,542 383 59 49 93 336 2,462
1994............... 1,389 671 128 52 83 112 2,435
</TABLE>
The data above are prepared on an "entity basis," which means that net sales,
operating income and identifiable assets of each legal entity are assigned to
the geographic area where that legal entity is located. For example, a sale from
the United States to Latin America is reported as a U.S. export sale. Interarea
sales, which are sales between Chemicals locations in different world areas,
were made on a market price basis.
Interarea sales have been excluded from the above table based upon the world
area shipped from and were:
<TABLE>
<CAPTION>
EUROPE- ASIA- LATIN ELIMINATIONS-
US AFRICA PACIFIC CANADA AMERICA CORPORATE TOTAL
------ ------- ------- ------ ------- ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
1996................ $ 204 $ 31 $ 8 $ 20 $ 2 $(265) $ --
1995................ 218 44 21 19 2 (304) --
1994................ 209 86 5 20 1 (321) --
</TABLE>
The operating income reported for the individual geographic areas does not
include the income recognized in other areas, principally the United States, on
the interarea sales. Direct export sales from the United States to third-party
customers outside the United States were $345 million for 1996, $331 million for
1995 and $274 million for 1994.
Sales and operating income for the geographic segments do not include financial
results from joint venture companies in which Chemicals does not have management
control. Chemicals' share of the income or loss of these companies is reflected
in "Other income (expense) -- net" in the Statement of Combined Income.
Chemicals' share of the unconsolidated net sales and income or loss of these
companies for 1996 follows:
<TABLE>
<CAPTION>
CHEMICALS' SHARE
----------------
NET INCOME
SALES (LOSS)
----- ------
<S> <C> <C>
United States................................................. $ 126 $ 14
Europe-Africa................................................. 268 (1)
Asia-Pacific.................................................. 25 --
Latin America................................................. 26 --
</TABLE>
F-18
<PAGE> 149
Geographic area operating income was affected by the 1996, 1995 and 1994
restructuring and other unusual items as follows -- income (expense):
<TABLE>
<CAPTION>
1996 1995 1994
----- ---- ----
<S> <C> <C> <C>
United States............................................ $(187) $(13) $(50)
Europe-Africa............................................ (36) -- 15
Asia-Pacific............................................. (2) (33) (2)
Canada................................................... (4) -- --
Latin America............................................ (19) -- 3
----- ---- ----
Total.................................................. $(248) $(46) $(34)
===== ==== ====
</TABLE>
16. QUARTERLY DATA -- UNAUDITED
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Net Sales....................... 1996 $ 705 $ 749 $ 753 $ 770 $2,977
1995 802 756 705 701 2,964
Gross Profit.................... 1996 160 175 200 117 652
1995 189 183 165 184 721
Operating Income (Loss)......... 1996 56 62 96 (181) 33
1995 85 71 73 29 258
Net Income (Loss)............... 1996 36 47 61 (112) 32
1995 53 41 41 12 147
</TABLE>
Net income for the fourth quarter of 1996 included an aftertax charge of $164
million for restructuring actions.
Net income in the first quarter of 1995 included an aftertax gain of $23 million
for insurance-related settlement payments and an aftertax charge of $25 million
for integration costs related to the formation of the Flexsys joint venture.
In the third quarter of 1995, net income included an aftertax gain of $32
million for the receipt of settlement payments related to environmental
insurance litigation, and an aftertax charge of $25 million for the settlement
of a lawsuit related to a Superfund site in La Marque, Texas.
Net income for the fourth quarter of 1995 included an aftertax charge of $57
million for restructuring actions.
F-19
<PAGE> 150
CHEMICALS SPINCO
STATEMENT OF COMBINED INCOME
(UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------
1997 1996
---- ----
<S> <C> <C>
NET SALES................................................................... $719 $705
Cost of goods sold.......................................................... 543 545
---- ----
GROSS PROFIT................................................................ 176 160
Marketing expenses.......................................................... 36 40
Administrative expenses..................................................... 27 42
Technological expenses...................................................... 18 22
---- ----
OPERATING INCOME............................................................ 95 56
Interest expense............................................................ (9) (8)
Other income (expense) -- net............................................... 13 5
---- ----
INCOME BEFORE INCOME TAXES.................................................. 99 53
Income taxes................................................................ 34 17
---- ----
NET INCOME.................................................................. $ 65 $ 36
==== ====
</TABLE>
See Notes to Interim Combined Financial Statements.
F-20
<PAGE> 151
CHEMICALS SPINCO
STATEMENT OF COMBINED FINANCIAL POSITION
(IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31,
1996
MARCH 31, ------------
1997
-----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Trade receivables, net of allowances of $5 in 1997 and $7 in 1996... $ 430 $ 412
Miscellaneous receivables and prepaid expenses...................... 73 80
Deferred income tax benefit......................................... 106 108
Inventories......................................................... 321 291
------ ------
TOTAL CURRENT ASSETS................................................ 930 891
PROPERTY, PLANT AND EQUIPMENT:
Land................................................................ 18 18
Buildings........................................................... 358 367
Machinery and equipment............................................. 2,609 2,622
Construction in progress............................................ 148 121
------ ------
Total property, plant and equipment................................. 3,133 3,128
Less accumulated depreciation....................................... 2,227 2,217
------ ------
NET PROPERTY, PLANT AND EQUIPMENT................................... 906 911
INVESTMENTS IN AFFILIATES........................................... 378 366
LONG-TERM DEFERRED INCOME TAX BENEFIT............................... 190 194
OTHER ASSETS........................................................ 128 121
------ ------
TOTAL ASSETS........................................................ $ 2,532 $2,483
====== ======
LIABILITIES AND MONSANTO COMPANY EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................... $ 212 $ 223
Wages and benefits.................................................. 72 156
Restructuring reserves.............................................. 82 79
Miscellaneous accruals.............................................. 280 312
------ ------
TOTAL CURRENT LIABILITIES........................................... 646 770
POSTRETIREMENT LIABILITIES.......................................... 628 634
OTHER LIABILITIES................................................... 407 423
MONSANTO COMPANY EQUITY............................................. 851 656
------ ------
TOTAL LIABILITIES AND MONSANTO COMPANY EQUITY....................... $ 2,532 $2,483
====== ======
</TABLE>
See Notes to Interim Combined Financial Statements.
F-21
<PAGE> 152
CHEMICALS SPINCO
STATEMENT OF COMBINED CASH FLOW
(UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
--------------
1997 1996
----- ----
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES:
Net income................................................................... $ 65 36
Adjustments to reconcile to Cash Provided by Operations:
Items that did not use (provide) cash:
Deferred income taxes................................................... 6 33
Depreciation and amortization........................................... 45 44
Other................................................................... (12) (2)
Working capital changes that provided (used) cash:
Accounts receivable..................................................... (18) (61)
Inventories............................................................. (30) (8)
Accounts payable and accrued liabilities................................ (124) (47)
Other................................................................... 7 6
Other items................................................................ (41) (49)
----- ----
TOTAL CASH USED IN OPERATIONS................................................ (102) (48)
INVESTING ACTIVITIES:
Property, plant and equipment purchases...................................... (38) (45)
Acquisition and investment payments.......................................... -- (2)
----- ----
CASH USED IN INVESTING ACTIVITIES............................................ (38) (47)
----- ----
FINANCING ACTIVITIES:
Net transactions with Monsanto Company....................................... 140 95
----- ----
CASH PROVIDED BY FINANCING ACTIVITIES........................................ 140 95
----- ----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................. -- --
CASH AND CASH EQUIVALENTS:
BEGINNING OF YEAR............................................................ -- --
----- ----
END OF YEAR.................................................................. $ -- $ --
===== ====
</TABLE>
See Notes to Interim Combined Financial Statements.
F-22
<PAGE> 153
CHEMICALS SPINCO
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN MILLIONS)
1. BASIS OF PRESENTATION [AND SUBSEQUENT EVENTS]
Basis of Presentation
The accompanying unaudited financial statements have been prepared on a basis
which reflects the historical financial statements of Chemicals SpinCo
("Chemicals") assuming that the operations of Monsanto Company (the "Company")
expected to be contributed to Chemicals prior to the spinoff of Chemicals to the
Company's stockholders (the "Spinoff") were organized as a separate legal
entity, owning certain net assets of the Company.
These financial statements should be read in conjunction with the Basis of
Presentation and Significant Accounting Policies as set forth in Notes 1 and 2,
respectively, to the Combined Financial Statements of Chemicals as of December
31, 1996 and 1995 and for each of the three years in the period ended December
31, 1996.
The accompanying unaudited interim combined financial statements reflect all
adjustments which in the opinion of management are necessary to present fairly
the financial position, results of operations and cash flows for the interim
periods reported. Such adjustments, other than the adjustment described in Note
2 below, are of a normal, recurring nature. The results of operations for the
three-month period ended March 31, 1997 are not necessarily indicative of the
results to be expected for the full year.
2. ACCOUNTING CHANGE
Effective January 1, 1997, Chemicals adopted the American Institute of Certified
Public Accountants' Statement of Position ("SOP") 96-1, "Environmental
Remediation Liabilities." SOP 96-1 establishes authoritative guidance regarding
the recognition, measurement and disclosure of environmental remediation
liabilities. The primary change in Chemicals' accounting principles associated
with the adoption of this SOP was an acceleration of the recognition of certain
environmental remediation liabilities at operating facilities. As a result,
Chemicals recorded an aftertax charge of $6 million in the first quarter of
1997. Additional aftertax charges in the range of $9 million to $14 million are
anticipated in 1997 as the criteria for recording these liabilities are met.
3. INVENTORIES
The components of inventories as of March 31, 1997 and December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
<S> <C> <C>
Finished goods....................................... $ 271 $ 258
Goods in process..................................... 56 47
Raw materials and supplies........................... 139 126
--------- ------------
Inventories, at FIFO cost............................ 466 431
Excess of FIFO over LIFO cost........................ (145) (140)
--------- ------------
TOTAL................................................ $ 321 $ 291
======= ==========
</TABLE>
4. INTERCOMPANY TRANSACTIONS
Included in the Statement of Combined Income are sales to the Company of $20
million and $13 million in both 1997 and 1996, respectively. Such sales are made
at the Company's established transfer prices. In addition, the Company provided
certain general and administrative services to Chemicals. The cost of these
services, also included in such statement are $12 million and $17 million in
1997 and 1996, respectively.
F-23
<PAGE> 154
Interest expense charged to Chemicals represents an allocation from the Company
of its total interest expense. The allocated interest expense to Chemicals was
$9 million and $8 million in 1997 and 1996, respectively.
5. MONSANTO COMPANY EQUITY
The following is an analysis of the Company's investment in Chemicals:
<TABLE>
<CAPTION>
1997
----
<S> <C>
Balance at beginning of period........................................ $656
Net income............................................................ 65
Foreign currency translation adjustment............................... (10)
Net transactions with Monsanto Company................................ 140
----
Balance at end of period.............................................. $851
====
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
Chemicals' Statement of Combined Financial Position included accrued liabilities
of $154 million and $150 million as of March 31, 1997 and December 31, 1996,
respectively, for the remediation of identified waste disposal sites. Although
the ultimate costs and results of remediation of contaminated sites cannot be
predicted with certainty, they are not expected to result in a material adverse
change in Chemicals' liquidity or financial position as reflected in Chemicals'
historical financial statements, but they could have a material adverse effect
on profitability in any given period.
The Company is a party to a number of lawsuits and claims relating to Chemicals,
for which Chemicals will assume responsibility in the Spinoff and, which
Chemicals intends to defend vigorously. Such matters arise out of the normal
course of business and relate to product liability, government regulation,
including environmental issues, and other issues. Certain of the lawsuits and
claims seek damages in very large amounts. Although the results of litigation
cannot be predicted with certainty, management's belief, based upon the advice
of Chemicals' counsel, is that the final outcome of such litigation will not
have a material adverse effect on Chemicals' combined financial position,
profitability or liquidity in any one year, as applicable.
F-24
<PAGE> 155
ANNEX A
FORM OF
CERTIFICATE OF AMENDMENT
OF THE
MONSANTO COMPANY
RESTATED CERTIFICATE OF INCORPORATION
Monsanto Company, a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware (the "Corporation").
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the Corporation,
resolutions were duly adopted setting forth a proposed amendment of the Restated
Certificate of Incorporation of said corporation, declaring said amendment to be
advisable and calling a meeting of the stockholders of said corporation for
consideration thereof. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that the Restated Certificate of Incorporation of this corporation be
amended by changing the first paragraph of Article IV thereof to read as
follows:
ARTICLE IV: CAPITAL STOCK
The total number of shares of all classes of stock which the Corporation shall
have authority to issue is 1,010,000,000 shares, to be divided into two classes
consisting of (a) ten million (10,000,000) shares of preferred stock without par
value (hereinafter designated "Preferred Stock"), and (b) one billion
(1,000,000,000) shares of common stock of a par value of $2 per share
(hereinafter designated "Common Stock").
FURTHER RESOLVED, that the Restated Certificate of Incorporation of this
Corporation be amended by amending and restating Article VIII thereof to read as
follows:
ARTICLE VIII: DIRECTORS
Subject to the rights of the holders of any series of Preferred Stock to elect
additional directors under specified circumstances, the number of directors of
the Corporation which shall constitute the whole Board shall be not less than 5
nor more than 20. The exact number of directors within the minimum and maximum
limitations specified in the preceding sentence shall be fixed from time to time
by resolution of a majority of the whole Board.
The directors, other than those who may be elected by the holders of any series
of Preferred Stock, shall be divided into three classes, as nearly equal in
number as possible. One class of directors shall have a term expiring at the
annual meeting of stockholders to be held in 1998, another class shall have a
term expiring at the annual meeting of stockholders to be held in 1999, and
another class shall have a term expiring at the annual meeting of stockholders
to be held in 2000. Members of each class shall hold office until their
successors are elected and qualified. At each annual meeting of the stockholders
of the Corporation commencing with the 1998 annual meeting, (a) directors
elected to succeed those directors whose terms then expire shall be elected at
such meeting to hold office for a term expiring at the third succeeding annual
meeting of stockholders after their election, with each director to hold office
until his or her successor shall have been duly elected and qualified, and (b)
only if authorized by a resolution of the Board of Directors, directors may be
elected to fill any vacancy on the Board of Directors, regardless of how such
vacancy shall have been created. Directors need not be stockholders.
Subject to the rights of the holders of any series of Preferred Stock to elect
additional directors under specified circumstances, and unless the Board of
Directors otherwise determines, vacancies resulting from death, resignation,
retirement, disqualification, removal from office or other cause, and newly
created directorships resulting from any increase in the authorized number of
directors, may be filled only by the affirmative vote of a majority of the
remaining directors, though less than a quorum of the Board of Directors, or by
a sole remaining director, and directors so chosen shall hold office for a term
expiring at the annual meeting of stockholders at which the term of office of
the class to which they have been elected expires and until such director's
successor shall have been duly elected and qualified. No decrease in the number
of authorized directors constituting the Board of Directors shall shorten the
term of any incumbent director.
A-1
<PAGE> 156
Subject to the rights of the holders of any series of Preferred Stock to elect
additional directors under specified circumstances, any director may be removed
from office at any time, but only for cause and only by the affirmative vote of
the holders of at least 80 percent of the voting power of the then outstanding
Voting Stock, voting together as a single class.
Notwithstanding anything contained in this Certificate of Incorporation to the
contrary, and in addition to approval by the Board of Directors, the affirmative
vote of the holders of at least 80 percent of the voting power of the then
outstanding Voting Stock, voting together as a single class, shall be required
to amend, repeal or adopt any provision inconsistent with this Article VIII. For
purposes of the Certificate of Incorporation, "Voting Stock" shall mean the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors.
FURTHER RESOLVED, that the Restated Certificate of Incorporation of this
Corporation be amended by amending Article X by replacing the second sentence
thereof with the following:
To make, alter or repeal the By-Laws of the Corporation, subject to
the power of the stockholders of the Corporation to adopt, amend or
repeal the By-Laws; provided, however, that with respect to the powers
of the stockholders to adopt, amend and repeal the By-Laws,
notwithstanding any other provision of this Certificate of
Incorporation or any provision of law which might otherwise permit a
lesser vote or no vote, but in addition to any affirmative vote of the
holders of any series of Preferred Stock required by law, this
Certificate of Incorporation or any Preferred Stock designation, the
affirmative vote of the holders of at least 80 percent of the voting
power of all of the then-outstanding Voting Stock, voting together as
a single class, shall be required for stockholders to adopt, amend or
repeal any provision of the By-Laws. Notwithstanding anything
contained in this Certificate of Incorporation to the contrary, and in
addition to approval by the Board of Directors, the affirmative vote
of the holders of at least 80 percent of the voting power of the then
outstanding Voting Stock, voting together as a single class, shall be
required to amend, repeal or adopt any provision inconsistent with the
preceding sentence.
FURTHER RESOLVED, that the Restated Certificate of Incorporation of this
Corporation be amended by further amending Article X by deleting the phrase "or
when authorized by the written consent of the holders of a majority of the
voting stock issued and outstanding" from the third paragraph thereof.
FURTHER RESOLVED, that the Restated Certificate of Incorporation of this
corporation be amended by renumbering Article XI thereof as Article XII and
adopting a new Article XI to read as follows:
ARTICLE XI: ACTION BY STOCKHOLDERS
Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing in lieu of a meeting of such stockholders. Notwithstanding anything
contained in this Certificate of Incorporation to the contrary, and in addition
to approval by the Board of Directors, the affirmative vote of at least 80
percent of the voting power of the then outstanding Voting Stock, voting
together as a single class, shall be required to amend, repeal or adopt any
provision inconsistent with this Article XI.
SECOND: That thereafter, pursuant to resolution of its Board of Directors, a
special meeting of the stockholders of said corporation was duly called and
held, upon notice in accordance with Section 222 of the General Corporation Law
of the State of Delaware at which meeting the necessary number of shares as
required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Monsanto Company has caused this certificate to be
signed by , its authorized officer, this day of ,
1997.
By:
Title:
A-2
<PAGE> 157
<TABLE>
<S> <C> <C>
Common Stock This Proxy is Solicited on Behalf of the Board of Directors
PROXY
Special The undersigned hereby appoints Robert B. Shapiro, Nicholas L.
Meeting Reding and R. William Ide III, and each of them, with full power
10:00 A.M., of substitution, proxies to vote all shares of Common Stock of
MONSANTO August 18, Monsanto Company which the undersigned is entitled to vote at
PLACE: K Building 1997 the Special Meeting of Stockholders, and any adjournments
Monsanto World Headquarters thereof, as specified upon the matters indicated on the reverse
800 N. Lindbergh Boulevard side and in their discretion upon such other matters as may
St. Louis County, Missouri properly come before the meeting.
Please MARK, SIGN, DATE, and RETURN this proxy promptly in the enclosed envelope. No postage required if mailed in U.S.A.
</TABLE>
This proxy, when properly executed, will be voted in the manner
directed by the undersigned stockholder. If no direction is given,
this proxy will be voted "FOR" items 1, 2, 3 and 4.
<TABLE>
<S> <C> <C> <C>
1997
------------------ ---------------------------------------------------------------------------------
Date Please sign your name or names exactly as printed hereon. When shares are held by PLEASE
joint tenants, both should sign. Trustees and other fiduciaries should so indicate SIGN
when signing.
</TABLE>
<PAGE> 158
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1, 2, 3 AND 4.
1. Approval of the Spinoff of Chemicals SpinCo. [ ] FOR [ ] AGAINST
[ ] ABSTAIN
2. Approval of amendments to Monsanto Company's Certificate of
Incorporation. [ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Election of Directors to terms listed below.
[ ] FOR ALL NOMINEES LISTED BELOW [ ] WITHHOLD AUTHORITY
(except as written to the contrary to vote for all nominees
below) listed below)
For term expiring 1999: Robert B. Shapiro, Robert M. Heyssel,
Philip Leder, Jacobus F.M. Peters
For term expiring 2000: Michael Kantor, Gwendolyn S. King,
John S. Reed
(Instruction: To withhold authority to vote for any individual
nominee, write that nominee's name in this space.)
4. Approval of the amendment of the Monsanto Management Incentive
Plan. [ ] FOR [ ] AGAINST [ ] ABSTAIN
(Please sign on reverse side)
<PAGE> 159
TO PARTICIPANTS IN: SAVINGS AND INVESTMENT PLAN (SIP) AND
PAYROLL RELATED EMPLOYEE STOCK OWNERSHIP PLAN
Participants may instruct the Trustee as to the manner in which
Monsanto stock held for their accounts and entitled to vote shall be
voted at Stockholders' meetings. The enclosed Notice of Special
Meeting of Stockholders and Proxy Statement for Monsanto Company's
Special Meeting are being provided to you by the Trustee. If you
desire to instruct the Trustee in the voting of your plan shares, you
should fill in the reverse side of the voting form, date, sign and
return this form in the enclosed envelope. No postage is required if
mailed in the U.S.A. The shares will be voted at the Special Meeting
to be held at K Building, Monsanto World Headquarters, 800 N.
Lindbergh Boulevard, St. Louis County, Missouri, on August 18, 1997 at
10:00 a.m. or at any adjournment thereof.
The Trustee must receive this form on or prior to , 1997.
THE TRUSTEE WILL VOTE YOUR SHARES AS YOU DIRECT ONLY IF THE SIGNED
FORM IS RECEIVED ON OR PRIOR TO , 1997, AND YOU HAVE
SPECIFIED YOUR DIRECTIONS HEREIN. Otherwise, the Trustee will vote
your SIP shares in proportion to the votes of the other SIP
participants.
<TABLE>
<C> <C> <C> <C>
MONSANTO
------, 1997 ---------------------------------------------------
Date Signature
</TABLE>
<PAGE> 160
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1, 2, 3 AND 4,
AND TO "GRANT AUTHORITY" FOR ITEM 5.
1. Approval of the Spinoff of Chemicals SpinCo. [ ] FOR [ ] AGAINST
[ ] ABSTAIN
2. Approval of amendments to Monsanto Company's Certificate of
Incorporation. [ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Election of Directors to terms listed below.
[ ] FOR ALL NOMINEES LISTED BELOW [ ] WITHHOLD AUTHORITY
(except as written to the contrary to vote for all nominees
below) listed below)
For term expiring 1999: Robert S. Shapiro, Robert M. Heyssel,
Philip Leder, Jacobus F.M. Peters
For term expiring 2000: Michael Kantor, Gwendolyn S. King,
John S. Reed
(Instruction: To withhold authority to vote for any individual
nominee, write that nominee's name in this space.)
4. Approval of the amendment of the Monsanto Management Incentive
Plan. [ ] FOR [ ] AGAINST [ ] ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO "GRANT AUTHORITY" FOR ITEM
5.
5. In the Trustee's discretion upon such other matters as may properly
come before the meeting.
[ ] GRANT AUTHORITY [ ] WITHHOLD AUTHORITY
The proxy for which your instructions are requested is solicited on
behalf of the Company's Board of Directors.
(Please sign on reverse side)
<PAGE> 161
THIS PROXY MATERIAL IS SENT TO YOU FOR YOUR INFORMATION AS THE HOLDER OF A
MONSANTO STOCK OPTION OR AS A PARTICIPANT IN
THE MONSANTO EMPLOYEE STOCK PURCHASE PLAN. YOU ARE NOT ENTITLED, HOWEVER,
TO VOTE ANY OPTIONED SHARES OR SHARES UNDER CONTRACT. IF YOU WERE A RECORD
HOLDER ON JUNE 27, 1997, AS THE RESULT OF YOUR HAVING EXERCISED YOUR OPTION
OR COMPLETED YOUR PAYMENT FOR SHARES UNDER CONTRACT, YOU WILL RECEIVE A
PROXY CARD FOR THOSE SHARES.
Monsanto Letterhead Logo
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
APRIL 25, 1997
You are invited, as a stockholder of Monsanto Company, to be present or
represented by proxy at the Annual Meeting of Stockholders to be held in K
Building at the Company's World Headquarters, 800 North Lindbergh Boulevard, St.
Louis County, Missouri, on Friday, April 25, 1997, at 1:30 p.m. for the
following purposes:
1. To elect fourteen directors.
2. To ratify the appointment of Deloitte & Touche LLP as principal
independent auditors for the year 1997.
3. To consider a stockholder proposal relating to a report on certain of
the Company's employment policies and practices.
4. To transact such other business as may properly come before the meeting.
Stockholders of the Company of record at the close of business on February 24,
1997, are entitled to vote at the Annual Meeting of Stockholders and all
adjournments thereof. Since a majority of the outstanding shares of stock of the
Company which are entitled to vote at the meeting must be represented to
constitute a quorum, all stockholders are urged either to attend the meeting or
to be represented by proxy.
If you do not expect to attend the meeting in person, please mark, sign, date,
and return the accompanying proxy in the enclosed business reply envelope. If
you later find that you can be present or for any other reason desire to revoke
your proxy, you may do so at any time before the voting.
Secretary
St. Louis, Missouri
March 13, 1997
<PAGE> 162
INDEX OF EXHIBITS
2 Form of Distribution Agreement
3(a) Form of Amended and Restated Certificate of Incorporation
3(b) Form of By-Laws
4 Rights Agreement
10(a) Form of Employee Benefits Allocation Agreement
10(b) Form of Tax Sharing and Indemnification Agreement
10(c) Form of Employment Agreements with certain executive officers
21 Subsidiaries
27 Financial data schedules
<PAGE> 1
Exhibit 2
DISTRIBUTION AGREEMENT
BY AND BETWEEN
MONSANTO COMPANY,
A DELAWARE CORPORATION,
AND
[NEW CHEMICALS CORPORATION,]
A DELAWARE CORPORATION
As of ____________, 1997
<PAGE> 2
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT, dated as of _________ __, 1997 (this
"Agreement"), by and between Monsanto Company, a Delaware corporation
("Monsanto"), and [New Chemicals Corporation], a newly formed Delaware
corporation ("Chemicals").
W I T N E S S E T H:
WHEREAS, the Board of Directors of Monsanto has determined
that it is appropriate and desirable to separate Monsanto and its subsidiaries
into two publicly traded organizations by: (1) consolidating into Chemicals and
its newly formed subsidiaries certain of the businesses currently conducted by
Monsanto directly and through certain of its other subsidiaries and (2)
distributing to the holders of the issued and outstanding shares of common
stock, par value $2.00 per share, of Monsanto all of the issued and outstanding
shares of common stock, par value $.01 per share, of Chemicals in accordance
with Article III hereof (the "Distribution");
WHEREAS, the Distribution is intended to qualify as a tax-free
spinoff under Section 355 of the Internal Revenue Code of 1986, as amended;
WHEREAS, the parties hereto have determined that it is
necessary and desirable to set forth the principal corporate transactions
required to effect the Distribution and to set forth other agreements that will
govern certain other matters prior to and following such Distribution;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained and intending to be legally bound hereby, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.01 GENERAL. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
1. ACTION: any demand, action, suit, countersuit, arbitration,
inquiry, proceeding or investigation by or before any federal, state,
local, foreign or international Governmental Authority or any
arbitration or mediation tribunal.
2. AFFILIATE: with respect to any specified Person, a Person
that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such
specified Person; provided, however, that for purposes of this
Agreement, no member of either Group shall be deemed to be an Affiliate
of any member of the other Group.
3. AGENT: the distribution agent appointed by Monsanto to
distribute the shares of Chemicals Common Stock pursuant to the
Distribution.
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4. ARBITRATION ACT: the United States Arbitration Act, 9
U.S.C. Sections 1-14, as the same may be amended from time to time.
5. ARBITRATION DEMAND DATE: as defined in Section 7.03(a)
hereof.
6. ARBITRATION DEMAND NOTICE: as defined in Section 7.03(a)
hereof.
7. ASSETS: any and all assets, properties and rights
(including goodwill), wherever located (including in the possession of
vendors or other third parties or elsewhere), whether real, personal or
mixed, tangible, intangible or contingent, in each case whether or not
recorded or reflected or required to be recorded or reflected on the
books and records or financial statements of any Person, including,
without limitation, the following:
(i) all accounting and other books, records and
files whether in paper, microfilm, microfiche, computer tape
or disc, magnetic tape or any other form;
(ii) all apparatus, computers and other electronic
data processing equipment, fixtures, trade fixtures,
machinery, equipment, capital and other spares, furniture,
office equipment, automobiles, trucks, aircraft, rolling
stock, vessels, motor vehicles, trailers and other
transportation equipment, special and general tools, test
devices, prototypes and models and any other tangible personal
property;
(iii) all inventories of materials, raw materials,
catalysts, precious metals, stores inventories, supplies,
work-in-process, consigned goods and finished goods and
products and product samples;
(iv) all interests in real property of whatever
nature, including easements, leases and licenses, whether as
owner, mortgagee or holder of a Security Interest in real
property, lessor, sublessor, lessee, sublessee or otherwise;
(v) all buildings and other improvements to real
property and all leasehold improvements;
(vi) all bonds, notes, debentures or other
securities issued by any Subsidiary or any other Person, all
loans, advances or other extensions of credit or capital
contributions to any Subsidiary or any other Person, all
certificates of deposit, bankers' acceptances, certificates of
interest or participation in profit sharing agreements,
collateral trust certificates, preorganization certificates or
subscriptions, transferable shares, investment contracts,
voting trust certificates, fractional undivided interests in
oil, gas or other mineral rights, puts, calls, straddles,
options and other securities of any kind;
(vii) all license agreements, leases of personal
property and other leases, open purchase orders for raw
materials, supplies, parts or services, unfilled orders for
the manufacture or sale of products, other sales or purchase
agreements, other commitments or arrangements, permits,
distribution arrangements, and other contracts, agreements or
commitments;
(viii) all deposits, letters of credit and
performance and surety bonds;
(ix) all technical information, data,
specifications, research and development information,
engineering drawings, operating and maintenance
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manuals, and materials and analyses prepared by consultants
and other third parties; environmental clean-up technology,
safety and industrial hygiene methods and technology;
(x) all technology, domestic and foreign patents,
statutory, common law and registered copyrights, trade names,
registered and unregistered trademarks, service marks, service
names, trade styles, product bar codes and associated
goodwill, and registrations and applications for any of the
foregoing, mask works, trade secrets, inventions, formulas,
processes, designs, know-how, or other data or information,
confidential information, other proprietary information and
licenses from third Persons granting the right to use any of
the foregoing and other rights in, to and under the foregoing
(it being understood that the transfer of Assets described in
this clause (x) shall be made pursuant to the Intellectual
Property Agreements);
(xi) all computer applications, programs and other
software and databases (including all embodiments or fixations
thereof and related documentation, registrations and
franchises, and all additions, improvements, enhancements,
updates and accessions thereto), all technical manuals and
documentation made in connection with the foregoing, and the
right to sue for past infringement thereof, and all licenses
and rights with respect to the foregoing or of like nature,
including operating software, network software, firmware,
middleware, design software, design tools, systems
documentation and instructions;
(xii) all cost information, sales and pricing data,
customer prospect lists, supplier records, customer and
supplier lists, customer and vendor data, correspondence and
lists, product literature, artwork, design, development and
manufacturing files, vendor and customer drawings,
formulations and specifications, quality records and reports,
lists of advertisers, records pertaining to advertisers and
accounts, and other books, records, studies, surveys, reports,
plans and document forms and any other business information;
(xiii) all prepayments or prepaid expenses, trade
accounts and other accounts and notes receivable and all other
current assets;
(xiv) the right to receive mail, payments on
accounts receivable and other communications;
(xv) all rights under contracts, agreements,
warranties or guaranties, all claims or rights or judgments
against any Person, all rights in connection with any bids or
offers and all claims, choses in action, rights of recovery
and rights of set-off or similar rights, whether accrued or
contingent, refunds and deposits;
(xvi) all rights under insurance policies and all
rights in the nature of insurance, indemnification or
contribution;
(xvii) all licenses, permits, approvals and
authorizations which have been issued by any Governmental
Authority;
(xviii) advertising materials and other printed or
written materials;
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(xix) employee contracts, including any rights
thereunder to restrict an employee or former employee from
competing in certain respects, and personnel and medical files
and records;
(xx) cash, cash equivalents, bank accounts, lock
boxes and other deposit arrangements; and
(xxi) interest rate, currency, commodity or other
swap, collar, cap, floor, or other hedging or similar
agreements or arrangements.
8. BUSINESS TRANSFER AGREEMENTS: the agreements which have
been or will be entered into between certain wholly-owned Chemicals
Subsidiaries incorporated, or having a branch or presence outside the
United States and certain wholly-owned Monsanto Subsidiaries
incorporated, or having a branch or presence outside the United States,
providing for the transfer of Chemicals Assets and assumption of
Chemicals Liabilities outside the United States from such Monsanto
Subsidiaries to such Chemicals Subsidiaries. For purposes hereof, the
term Business Transfer Agreement shall also include: (i) any other
agreements related to the transfer of Chemicals Assets and assumption
of Chemicals Liabilities outside the United States, including without
limitation, those agreements which are required by local law or are
executed in connection with or to implement such transfer of Chemicals
Assets and assumption of Chemicals Liabilities; and (ii) the assignment
from Monsanto to Chemicals transferring the operating assets in the
United States.
9. BUSINESS DAY: any day other than a Saturday, a Sunday or a
day on which banking institutions located in the States of Missouri,
New York or Delaware are authorized or obligated by law or executive
order to close.
10. CHEMICALS: as defined in the preamble to this Agreement.
11. CHEMICALS ASSETS: excluding the Excluded Chemicals Assets,
and any Assets sold or otherwise disposed of on or prior to the
Distribution Date (1) all Assets included on the Chemicals Balance
Sheet or the accounting records supporting the Chemicals Balance Sheet,
as adjusted by the pro forma adjustments thereto as set forth in the
Proxy Statement and all Assets of either Group acquired between March
31, 1997 and the Distribution Date which would have been included on
the Chemicals Balance Sheet had they been owned on March 31, 1997; (2)
all Assets exclusively dedicated to the Chemicals Business and all
Assets formerly used in the Former Chemicals Business which are not
used in the Monsanto Business on the Distribution Date, which in either
case, are owned, leased, licensed or held by any member of either Group
on the Distribution Date; (3) real property (including the buildings,
fixtures and improvements located thereon) listed on Schedule ________
and such other real property interests held by members of either Group
formerly used in any Former Chemicals Business which are not used in
the Monsanto Business on the Distribution Date; (4) all of the
outstanding shares of all classes of capital stock of the Chemicals
Subsidiaries to the extent owned by any member of the Monsanto Group;
(5) the partnership, joint venture and other equity interests listed on
Schedule _________, and Chemicals' rights with respect to and interests
in the P4 Joint Venture as provided in the P4 Joint Venture Agreement;
(6) all contracts, leases and licenses exclusively dedicated to the
Chemicals Business, and such rights under other contracts, leases or
licenses as the parties have otherwise agreed pursuant to this
Agreement, the Other Agreements or in any other enforceable agreement
executed on behalf of a member of the Chemicals Group, on the one hand,
and a member of the Monsanto Group, on the other hand; (7) warranties,
guarantees, claims or any other rights that members of either Group
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<PAGE> 6
may have against any Third Party (including Governmental Authorities)
to the extent relating to the disposition of any Former Chemicals
Business; (8) those books and records to be delivered to the Chemicals
Group and rights of access to other books and records as provided in
Article VI of this Agreement; (9) the rights of Chemicals under the
Insurance Policies as provided in Article IX of this Agreement; (10)
any pension assets, pension funds or other Assets expressly
contemplated to be transferred, licensed or otherwise made available to
any member of the Chemicals Group pursuant to this Agreement or any
Other Agreements; and (11) all of the Assets listed on Schedule
________.
CHEMICALS ASSETS shall also mean any and all other Assets
owned or held on the Distribution Date by members of the Monsanto Group
that are related to the Chemicals Business and which the parties agree
should have been transferred to the Chemicals Group, if, had the
parties given specific consideration to such Asset as of the date
hereof, such Asset would have been classified as a Chemicals Asset;
provided, however, that no Asset shall be deemed to be a Chemicals
Asset solely as a result of this provision unless a claim with respect
thereto is made by a member of the Chemicals Group on or prior to
eighteen months after the Distribution Date.
12. CHEMICALS BALANCE SHEET: the unaudited combined balance
sheet of the Chemicals Business as of March 31, 1997 and the notes
thereto as set forth in the Proxy Statement.
13. CHEMICALS BUSINESS: (i) all businesses and operations
(including related joint ventures and alliances) of the chemicals
businesses of Monsanto as described in the Proxy Statement in the
section "Businesses and Properties of Chemicals After the Spinoff" and
as conducted on the Distribution Date, consisting principally of those
businesses and operations set forth on Schedule 1.01(13) conducted by
the Acrilan(R) Acrylic Fibers Unit, the Carpet Fibers Unit, the Nylon
Plastics and Polymers Unit, the Nylon Industrial Unit, the
Intermediates Unit, the Saflex Unit, the Phosphorus and Derivatives
Unit, the Resins Unit, the Polymer Modifiers Unit and the Industrial
Products Unit and (ii) any other business or operation on the
Distribution Date conducted by or for the Chemicals Group through the
ownership or use of the Chemicals Assets.
14. CHEMICALS CLAIM: any claim with respect to any injury,
Loss, Liability, damage or expense (x) that is or was incurred or
asserted to have been incurred prior to the Distribution Date in, or in
connection with, the Chemicals Business, the Former Chemicals Business,
the Chemicals Assets or the Chemicals Liabilities or the Joint
Ownership Properties or the P4 Business to the extent of Chemicals'
rights or obligations under the P4 Joint Venture Agreement with respect
to such claims; or (y) that is or was incurred prior to the
Distribution Date that is against any member of the Chemicals Group or
any employee of any member of the Chemicals Group; provided, that in
the case of any claim under (x) or (y) or claims identified in (i)
through (vi) below, such injury, Loss, Liability, damage or expense
(including costs of defense and reasonable attorneys' fees) are or may
be insured or insurable under one or more of the Insurance Policies.
Chemicals Claims include, without limitation, (i) claims for property
or casualty damage or any other injury, Loss, Liability, damage or
expense with respect to Chemicals Assets; (ii) claims of injury, Loss,
Liability, damage or expense arising from business interruption of any
type of the Chemicals Business or Former Chemicals Business; (iii)
claims against any member of the Chemicals Group whether or not the
Chemicals Group has or has assumed liability for such claims under this
Agreement or any of the Other Agreements; (iv) claims against any
member of the Monsanto Group to the extent any member of the Chemicals
Group has assumed liability for such claims under this Agreement or any
of the Other Agreements; (v) claims
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<PAGE> 7
involving or against any director, officer, employee, fiduciary or
agent of the Chemicals Group who are entitled or would have been
entitled to indemnification by Monsanto had the Distribution not
occurred; and (vi) claims with respect to the Chemicals Business, the
Former Chemicals Business, the Chemicals Assets, the Chemicals
Liabilities or the Joint Ownership Properties or the P4 Business to the
extent of Chemicals rights or obligations under the P4 Joint Venture
Agreement involving any other Person who is entitled or would have been
entitled to indemnification by any member of the Monsanto Group had the
Distribution not occurred.
15. CHEMICALS COMMON STOCK: the common stock, par value $.01
per share, of Chemicals. References to Chemicals Common Stock shall
also include the associated preferred share purchase rights issued
under the Chemicals Rights Plan.
16. CHEMICALS DIRECTOR: any individual who is a member of the
Board of Directors of Chemicals.
17. CHEMICALS FACILITIES: facilities which are Chemicals
Assets.
18. CHEMICALS GROUP: Chemicals and the Chemicals Subsidiaries
of which Chemicals directly or indirectly owns 100% of the stock or
other equity interest entitled to vote on the election of members to
the board of directors or similar governing body.
19. CHEMICALS LIABILITIES: excluding the Excluded Chemicals
Liabilities and excluding those Liabilities (or portions thereof) which
have been satisfied, paid or discharged prior to the Distribution Date,
(1) all Liabilities included on the Chemicals Balance Sheet or the
accounting records supporting such Chemicals Balance Sheet as adjusted
by the pro forma adjustments thereto as set forth in the Proxy
Statement and all Liabilities of either Group incurred or arising
between March 31, 1997 and the Distribution Date which would have been
included on the Chemicals Balance Sheet had they been incurred or
arisen on or prior to March 31, 1997; (2) all Liabilities relating
exclusively to or arising exclusively from the Chemicals Assets, the
Chemicals Business or the Former Chemicals Business or the disposition
of any Former Chemicals Business, whether incurred or arising prior to
or after the Distribution Date; (3) except as expressly provided in the
Other Agreements, all Liabilities relating to or arising from the
operation of its business or the use of its Assets by any member of the
Chemicals Group at any time from and after the Distribution Date; (4)
those Liabilities for worker's compensation or Third Party claims
incurred prior to the Distribution Date at a site transferred to the
Chemicals Group as part of the Chemicals Assets; (5) all Liabilities
assumed by any member of the Chemicals Group under an express provision
of this Agreement or an Other Agreement; (6) those Liabilities for
environmental remediation or other environmental responsibilities as
described to be assumed by Chemicals in Schedule _____; (7) all
Liabilities for products of the Chemicals Business or Former Chemicals
Business sold to Third Parties by any member of either Group; (8) all
Liabilities arising under the Financing Facility and the Third Party
indebtedness listed on Schedule ______; and (9) all Liabilities listed
on Schedule ___.
CHEMICALS LIABILITIES shall also mean, any and all other
Liabilities owed on the Distribution Date by members of the Monsanto
Group that are related to the Chemicals Business and which the parties
agree should have been transferred to the Chemicals Group, if, had the
parties given specific consideration to such Liability as of the date
hereof, such Liability would have been classified as a Chemicals
Liability; provided, however, that no Liability shall be deemed to be a
Chemicals Liability solely as a result of this provision
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unless a claim with respect thereto is made by a member of the Monsanto
Group on or prior to eighteen months after the Distribution Date.
20. CHEMICALS RIGHTS PLAN: the share purchase rights plan in
the form approved by the Board of Directors of Chemicals prior to the
Distribution Date.
21. CHEMICALS SUBSIDIARIES: all of the corporations listed on
Schedule 1.01(21).
22. CHEMICALS SUPPORT AGREEMENTS: any obligation or agreement
of the Monsanto Group under any guarantee, letter of credit, bond,
letter of comfort or working capital maintenance agreement obtained
prior to the Distribution Date for the benefit of the Chemicals
Business or any member of the Chemicals Group.
23. CLAIMS ADMINISTRATION: the processing of claims made under
the Insurance Policies, including the reporting of claims to the
insurance carrier, management and defense of claims and providing for
appropriate releases upon settlement of claims.
24. CODE: the Internal Revenue Code of 1986, as amended, or
any successor legislation and the regulations promulgated thereunder.
25. CPR: the Center for Public Resources.
26. DGCL : the Delaware General Corporation Law, as amended.
27. DISTRIBUTION: the distribution to holders of shares of
Monsanto Common Stock to be effected pursuant to Article III on the
basis of one share of Chemicals Common Stock for every five (5) shares
of Monsanto Common Stock held of record as of the Record Date.
28. DISTRIBUTION DATE: the date, to be determined by the Board
of Directors of Monsanto, or such committee of the Board as shall be
designated by the Board of Directors, as of which the Distribution
shall be effected.
29. EMPLOYEE BENEFITS ALLOCATION AGREEMENT: an employee
benefits and compensation allocation agreement to be entered into
between Monsanto and Chemicals substantially in the form attached
hereto as Exhibit 1.01(29), with such changes as may be mutually
satisfactory to Monsanto and Chemicals.
30. ESCALATION NOTICE: as defined in Section 7.02(a) hereof.
31. EXCHANGE ACT: the Securities Exchange Act of 1934, as
amended, together with the rules and regulations promulgated
thereunder.
32. EXCLUDED CHEMICALS ASSETS: (i) (a) the Joint Ownership
Properties and (b) that undivided interest in the P4 Joint Venture that
is to continue to be owned by Monsanto under the P4 Joint Venture
Agreement; (ii) the phosphorus trichloride facility and related Assets
at Monsanto's plant in Luling, Louisiana; (iii) cash and cash
equivalents (as such term is used in connection with the preparation of
Monsanto's financial statements) in excess of $75,000,000; (iv)
Monsanto Enviro-Chem Systems, Inc.; (v) Leonard Construction Company;
(vi) any loan to, note of, or investment in Camelot Superabsorbents
Ltd.; (vii) all Assets of Monsanto's diamond coatings and
optical/vision business, including
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without limitation, all Assets which were formerly owned, leased or
controlled by Diamonex, Incorporated, its subsidiaries and any entity
in which it held at any time an equity interest; (viii) agreements with
Third Parties relating to Monsanto Assets, including without
limitation, operating agreements at Monsanto Facilities which relate to
businesses sold prior to the Distribution Date; (ix) all Assets of
Monsanto's industrial alginates business; and (x) those Assets listed
on Schedule _______.
33. EXCLUDED CHEMICALS LIABILITIES: those Liabilities listed
on Schedule ________.
34. FINANCING FACILITY: (i) the commercial paper facility,
including the Issuing and Paying Agency and Assignment and Assumption
Agreement, to be entered into prior to the Distribution Date by
Monsanto, Chemicals, and an agent or co-agents selected by Monsanto,
pursuant to which, prior to the Distribution Date, Monsanto will issue
assumable commercial paper such that the sum of (x) the accreted
principal amount on the Distribution Date of commercial paper that
Chemicals will assume on the Distribution Date and (y) the principal
amount, plus accrued interest, on the Distribution Date of other Third
Party indebtedness listed on Schedule __ that Chemicals will assume on
the Distribution Date (excluding indebtedness relating to the Chemicals
SIP Trust (as defined in the Employee Benefits Allocation Agreement))
equals $1,000,000,000; and (ii) the credit agreement or agreements to
be entered into by Chemicals.
35. FOREIGN EXCHANGE RATE: with respect to any currency other
than United States dollars as of any date, the average of the bid and
asked rates at 9:00 a.m., New York City time, on such date at which
such currency may be exchanged for United States dollars as quoted by
Citibank, N.A., except that, with respect to any Indemnifiable Loss
covered by insurance, the Foreign Exchange Rate for such currency shall
be determined as set forth in Section 4.03(d)(2).
36. FORMER CHEMICALS BUSINESS: those businesses and operations
which were formerly operated by Monsanto as part of its chemicals
subsidiaries, units or divisions and which have been sold, or otherwise
disposed of, or discontinued prior to the Distribution Date including
but not limited to those businesses and operations set forth on
Schedule _______ but excluding, without limitation (except to the
extent set forth on such Schedule), (i) shut down or sold plant sites
and businesses associated with product families that continue in the
Monsanto Group or in the P4 Joint Venture; (ii) shut down or sold plant
sites and businesses previously closely integrated (supply chain) with
upstream or downstream Monsanto subsidiaries, units or divisions other
than a chemicals subsidiary, unit or division; (iii) businesses or
operations relating to any of the following: (a) health care or vision;
(b) pharmaceuticals; (c) environmental products (e.g., Brinks); (d)
food products and additives; (e) feed products and additives; (f)
BST/animal hormones; (g) agricultural chemicals; (h) pesticides (except
for chlorinated cyanuric acids or its salts, 1, 4 dichlorobenzene, 1, 4
nitrophenol); (i) seed and fertilizer; (j) lawn & garden products; (k)
blasting products; (l) animal/plant farms; (m) construction of sulfuric
acid plants/catalysts; (n) Monsanto Enviro-Chem Systems, Inc.; (o)
Leonard Construction Company; (p) controls or control valves (e.g.,
Fisher Controls); (q) electron beam accelerator; (r) radiation
service/products; (s) gas products (e.g., Matheson); (t) hollow fibers
(e.g., Permea); (u) the Dayton, Ohio plant site; (v) Pristine and
Hershberger offsites; (w) Research Triangle Park site; (x) oil and gas
production and exploration; (y) petroleum refining and retailing; (z)
Monsanto Research Corporation (e.g., Mound Labs); (aa) Hub Property -
Nitro; (bb) Delmar Street; (cc) metalized fabrics; (dd) DDT; (ee)
Phosphorus (P4); and (ff) those sites and businesses listed on Schedule
_______.
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37. GOVERNMENTAL AUTHORITY: any federal, state, local, foreign
or international court, government, department, commission, board,
bureau, agency, the NYSE or other regulatory, administrative or
governmental authority.
38. GROUP: the Monsanto Group or the Chemicals Group as the
context requires.
39. INDEMNIFIABLE LOSSES: all Losses which are subject to
being indemnified by Monsanto or Chemicals pursuant to Article IV.
40. INDEMNIFYING PARTY: a Person who or which is obligated
under this Agreement to provide indemnification.
41. INDEMNITEE: a Person who may seek indemnification under
this Agreement.
42. INDEMNITY PAYMENT: an amount that an Indemnifying Party is
required to pay to an Indemnitee pursuant to Article IV.
43. INFORMATION: all records, books, contracts, instruments,
computer data and other data and information.
44. INSURANCE ADMINISTRATION: with respect to each Insurance
Policy, (1) the accounting for retrospectively-rated premiums, defense
costs, indemnity payments, deductibles and retentions as appropriate
under the terms and conditions of each of the Insurance Policies, (2)
the reporting to excess insurance carriers of any losses or claims
which may cause the per-occurrence or aggregate limits of any Insurance
Policy to be exceeded and (3) the distribution of Insurance Proceeds as
contemplated by this Agreement.
45. INSURANCE POLICY: insurance policies and insurance
contracts of any kind that are owned or maintained by, or provide a
benefit in favor of, any member of either Group or any of its
predecessors as the insured interest, including without limitation,
primary and excess policies; comprehensive general liability policies;
automobile insurance policies; aviation and aircraft insurance
policies; worker's compensation insurance policies (including without
limitation, occupational disease); property, casualty and business
interruption insurance policies; directors and officers liability
insurance policies; fiduciary insurance policies; fidelity insurance
policies; self-insurance and captive insurance company arrangements,
together with the rights, benefits and privileges thereunder; and any
insurance policy for directors and officers liability which has been
purchased to provide occurrence coverage for both continuing and former
directors, officers and employees for claims arising from or relating
to events, occurrences or other matters prior to or on the Distribution
Date. The term "Insurance Policy" expressly includes any insurance
policies or insurance contracts issued by Monsure Ltd. or Mongard Ltd.
46. INSURANCE PROCEEDS: those monies received by or on behalf
of an insured from an insurance carrier or paid by an insurance carrier
on behalf of the insured.
47. INSURED CLAIMS: those Liabilities and Losses that,
individually or in the aggregate, are covered within the terms and
conditions of any of the Insurance Policies, whether or not subject to
deductibles, coinsurance, uncollectibility or retrospectively-rated
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premium adjustments, but only to the extent that such rights or
Liabilities are within applicable Insurance Policy limits, including
aggregates.
48. IRB: the arrangements relating to or arising out of any
one or more of the following to the extent that it relates to a
Chemicals Asset: (i) Anniston, Ala. PCRBs, Series 1992; (ii) Anniston
SWDA, SWRRRBs, Series 1992; (iii) Caribou County PCRBs, Series 1990;
(iv) Caribou County PCRBs, Series 1994A; (v) Caribou County PCRBs,
Series 1994B; (vi) Southwest III Devel. Auth. Series 1991 (callable
7/15/2004); (vii) Brazos River PCRBs, Series 1990; (viii) Brazos River
PCRBs, Series 1988; (ix) Brazos River PCRBs, Series 1994; (x) Decatur
IRBs, Series 1996; (xi) Decatur PCRBs, Series 1990; (xii) Decatur
PCRBs, Series 1992 Var.; (xiii) Decatur PCRBs, Series 1994 Var.; (xiv)
Escambia County Var. Rate Bonds 1993; (xv) Escambia County Var. Rate
Bonds 1994; (xvi) Gloucester County PCRBs, Series 1992 Var.; (xvii)
Greenville IDRBs, Series 1990 (callable 10/01/2000); (xviii) Missouri
PCRBs, Series 1988; (xix) Missouri PCRBs, Var. Rate Series 1993; (xx)
Sauget PCRBs, Series 1996; (xxi) Sauget PCRBs, Series 1992; (xxii)
Sauget PCRBs, Series 1993; (xxiii) Springfield Adj. Rate PCRBs, Sers.
1984 (callable 11/01/1999); (xxiv) Southwest III Devel. Auth. Series
1989.
49. INTELLECTUAL PROPERTY AGREEMENTS: the Intellectual
Property Transfer Agreement, substantially in the form attached hereto
as Exhibit _______________, together with various agreements attached
thereto as exhibits, with such changes as may be mutually agreed, which
have been or will be entered into on or prior to the Distribution Date
between Monsanto and Chemicals or members of their respective Groups
with respect to transfer and licensing of intellectual property.
50. IRS: the Internal Revenue Service.
51. JOINT OWNERSHIP PROPERTIES: the properties listed on
Schedule 1.01(51).
52. LEASE AGREEMENTS: the lease agreements which have been or
will be entered into on or prior to the Distribution Date between
Monsanto and Chemicals, or the appropriate members of the Monsanto
Group and the Chemicals Group, substantially in the form attached
hereto as Exhibit 1.01(52) with respect to the facilities listed on
Schedules _______.
53. LIABILITIES: all debts, liabilities and obligations,
whether absolute or contingent, matured or unmatured, liquidated or
unliquidated, accrued or unaccrued, known or unknown, whenever arising,
and whether or not the same would properly be reflected on a balance
sheet, including all costs and expenses relating thereto.
54. LITIGATION MATTERS: as defined in Section 6.06(a) hereof.
55. LOSSES: all losses, liabilities, damages, claims, demands,
judgments or settlements of any nature or kind, known or unknown,
fixed, accrued, absolute or contingent, liquidated or unliquidated,
including all reasonable costs and expenses (legal, accounting or
otherwise as such costs are incurred) relating thereto, suffered by an
Indemnitee.
56. MONSANTO: as defined in the preamble to this Agreement.
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57. MONSANTO ASSETS: all of the Assets other than the
Chemicals Assets held on the Distribution Date by any member of either
Group, including the Excluded Chemicals Assets.
58. MONSANTO BUSINESS: all of the businesses, other than the
Chemicals Business, the Former Chemicals Business or the P4 Business,
conducted on or prior to the Distribution Date by any member of either
Group.
59. MONSANTO CERTIFICATE AMENDMENTS: the amendments to
Monsanto's Certificate of Incorporation proposed by the Board of
Directors of Monsanto for consideration at the Special Meeting.
60. MONSANTO COMMON STOCK: the common stock, par value $2.00
per share, of Monsanto.
61. MONSANTO DIRECTOR: any individual who is a member of the
Board of Directors of Monsanto following the Distribution Date.
62. MONSANTO FACILITIES: facilities which are Monsanto Assets.
63. MONSANTO GROUP: Monsanto and its Subsidiaries of which
Monsanto directly owns 100% of the stock or other equity interest
entitled to vote on the election of members to the board of directors
or similar governing body, other than members of the Chemicals Group.
64. MONSANTO LIABILITIES: except as expressly provided in the
other Agreements, all of the Liabilities, other than the Chemicals
Liabilities, of any member of the Monsanto Group whether incurred or
arising prior to or after the Distribution Date, including the Excluded
Chemicals Liabilities.
65. NOTICES: as defined in Section 10.05 hereof.
66. NYSE: the New York Stock Exchange, Inc.
67. OFFER OF SETTLEMENT: as defined in Section 7.02(c) hereof.
68. OFFEREE: as defined in Section 7.02(c) hereof.
69. OFFEROR: as defined in Section 7.02(c) hereof.
70. OPERATING AGREEMENTS: the operating agreements which have
been or will be entered into on or prior to the Distribution Date
between members of the Monsanto Group and members of the Chemicals
Group, substantially in the form attached hereto as Exhibit 1.01(70),
with such changes as may be mutually satisfactory, whereby one party
will operate a facility listed on Schedule 1.01(70) for the benefit of
the other.
71. OTHER AGREEMENTS: all Transition Services Agreements, the
Employee Benefits Allocation Agreement, all Business Transfer
Agreements, the Tax Sharing Agreement, the Intellectual Property
Agreements, the Lease Agreements, the Raw Material Supply Agreements,
the Plan and Agreement of Reorganization, the Operating Agreements and
the P4 Joint Venture Agreement.
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72. P4 BUSINESS: the mining of phosphorus rock and processing
it into elemental phosphorous together with related activities,
including but not limited to the coking operations at Rock Springs,
Wyoming.
73. P4 JOINT VENTURE: the limited liability company created
pursuant to the P4 Joint Venture Agreement.
74. P4 JOINT VENTURE AGREEMENT: the joint venture agreements
and other related agreements which have been or will be entered into on
or prior to the Distribution Date among any of Monsanto, Chemicals and
the P4 Joint Venture with respect to the Joint Ownership Properties and
the P4 Business, substantially in the forms attached hereto as Exhibits
______ through ______, with such changes as may be satisfactory to
Monsanto and Chemicals.
75. PERSON: an individual, a partnership, a joint venture, a
corporation, a trust, a limited liability company, an unincorporated
organization or a government or any department or agency thereof.
76. PLAN: as defined in the Employee Benefits Allocation
Agreement.
77. PLAN AND AGREEMENT OF REORGANIZATION: the Plan and
Agreement of Reorganization to be adopted by Monsanto.
78. PRIME RATE: the rate which Citibank N.A. (or any successor
thereto or other major money center commercial bank agreed to by the
parties hereto) announces from time to time as its prime lending rate,
as in effect from time to time.
79. PRIVILEGED INFORMATION: as defined in Section 6.06(a)
hereof.
80. PROXY STATEMENT: the Proxy Statement dated July 14, 1997
sent to the holders of shares of Monsanto Common Stock in connection
with the Special Meeting.
81. RAW MATERIAL SUPPLY AGREEMENTS: the agreements which have
been or will be entered into on or prior to the Distribution Date
between Monsanto and Chemicals, substantially in the forms attached
hereto as Exhibit _____ through ________, with such changes as may be
mutually satisfactory, in each case providing for the supply of raw
materials to members of the Monsanto Group by members of the Chemicals
Group, or to members of the Chemicals Group by members of the Monsanto
Group.
82. RECORD DATE: the date to be determined by the Board of
Directors of Monsanto, or such committee of the Board as shall be
designated by the Board of Directors, as the record date for
determining stockholders of Monsanto entitled to receive the
Distribution.
83. REGISTRATION STATEMENT: the registration statement on Form
10 to effect the registration of the Chemicals Common Stock pursuant to
the Exchange Act.
84. REPRESENTATIVE: with respect to any Person, any of such
Person's directors, officers, employees, agents, consultants, advisors,
accountants, attorneys and representatives.
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85. SEC: the Securities and Exchange Commission.
86. SECURITIES ACT: the Securities Act of 1933, as amended,
together with the rules and regulations promulgated thereunder.
87. SECURITY INTEREST: means any mortgage, security interest,
pledge, lien, charge, claim, option, right to acquire, voting or other
restriction, right-of-way, covenant, condition, easement, encroachment,
restriction on transfer, or other encumbrance of any nature whatsoever.
88. SERVICE AGREEMENT: any third party administrator or claims
handling agreement of any kind or nature to which any member of either
Group is directly or indirectly a party, in effect as of the date
hereof, related to the handling of Chemicals Claims.
89. SPECIAL MEETING: the special meeting of stockholders of
Monsanto to consider the Distribution and any other matters set forth
by the Board of Directors of Monsanto in the notice of the Special
Meeting.
90. SPECIAL MEETING DATE: the date determined by the Board of
Directors of Monsanto, or by such committee of the Board as designated
by the Board of Directors, for the Special Meeting.
91. SPECIAL MEETING RECORD DATE: the record date determined by
the Board of Directors of Monsanto, or by such committee of the Board
as designated by the Board of Directors, as the record date for
determining stockholders of Monsanto entitled to vote at the Special
Meeting.
92. SUBSIDIARY: with respect to any specified Person, any
corporation or other legal entity of which such Person or any of its
Subsidiaries controls or owns, directly or indirectly, more than 50% of
the stock or other equity interest entitled to vote on the election of
members to the board of directors or similar governing body; provided,
however, that for purposes of this Agreement, (1) the Chemicals
Subsidiaries shall be deemed to be Subsidiaries of Chemicals and (2)
Chemicals and the Chemicals Subsidiaries shall not be deemed to be
Subsidiaries of Monsanto or any of Monsanto's Subsidiaries.
93. TAX: as defined in the Tax Sharing Agreement.
94. TAX SHARING AGREEMENT: the tax sharing and indemnification
agreement which has been or will be entered into on or prior to the
Distribution Date between Monsanto and Chemicals substantially in the
form attached hereto as Exhibit 1.01(94), with such changes as may be
mutually satisfactory to Monsanto and Chemicals.
95. THIRD PARTY: a Person who is not a party hereto or a
wholly-owned Subsidiary thereof.
96. THIRD PARTY CLAIM: any claim, suit, arbitration, inquiry,
proceeding or investigation by or before any court, any governmental or
other regulatory or administrative agency or commission or any
arbitration tribunal asserted by a Third Party.
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97. TRANSITION SERVICES AGREEMENT: the transition services
agreements which have been or will be entered into on or prior to the
Distribution Date between the Monsanto Group and the Chemicals Group,
substantially in the form attached hereto as Exhibit 1.01(97), with
such changes as may be mutually satisfactory, providing for (1) the
Monsanto Group to make available certain personnel and services to the
Chemicals Group and (2) the Chemicals Group to make available certain
personnel and services to the Monsanto Group, in each case for a period
of up to 18 months following the Distribution Date.
1.02 REFERENCES TO TIME. All references in this Agreement to times of
the day shall be to St. Louis time, except as otherwise specifically provided
herein.
ARTICLE II
CERTAIN TRANSACTIONS PRIOR TO THE DISTRIBUTION DATE
2.01 SHARE PURCHASE RIGHTS PLAN; CERTIFICATE OF INCORPORATION; BYLAWS.
Prior to the Distribution Date, Chemicals shall adopt the Chemicals Rights Plan.
Monsanto and Chemicals shall take all action necessary so that, at the
Distribution Date, the Restated Certificate of Incorporation and Bylaws of
Chemicals shall be in the forms attached hereto as Exhibits 2.01(a) and 2.01(b),
respectively.
2.02 ISSUANCE OF STOCK. Prior to or as of the Distribution Date, the
parties hereto shall take all steps necessary to reclassify the outstanding
shares of Chemicals Common Stock so that, except as otherwise contemplated by
this Agreement, immediately prior to or as of the Distribution Date the number
of shares of Chemicals Common Stock outstanding and held by Monsanto shall equal
the number of shares of Monsanto Common Stock outstanding on the Record Date
divided by five (rounded to the next highest whole share).
2.03 TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES. On or prior to
the Distribution Date, the parties hereto shall and shall cause their respective
wholly-owned Subsidiaries (1) to execute instruments of assignment and transfer
and to take such other corporate action as is necessary to transfer to Chemicals
and its wholly-owned Subsidiaries all of the right, title and interest of the
Monsanto Group in the Chemicals Assets; (2) to execute instruments of assignment
and transfer and to take such other corporate action as is necessary to transfer
to Chemicals a 40% ownership interest in the P4 Joint Venture subject to the
terms and conditions set forth in the P4 Joint Venture Agreement; and (3) to
take all action necessary to cause Chemicals or its wholly-owned Subsidiaries to
assume all of the Chemicals Liabilities. A global assignment and assumption
agreement along with Business Transfer Agreements for transfers of Chemicals
Assets and assumption of Chemicals Liabilities will be executed on or prior to
the Distribution Date; provided, however, that in the event of a conflict
between such agreements and this Agreement, this Agreement will control; and
provided further that the transfer of the operating Assets of the Chemicals
Business shall be substantially completed prior to the Special Meeting.
2.04 FINANCING ARRANGEMENTS. Each of the parties hereto agrees that it
will use reasonable efforts to arrange the Financing Facility and Chemicals
agrees that it will assume the obligations with respect to the commercial paper
issued thereunder on the Distribution Date with Monsanto becoming a guarantor of
the commercial paper obligations thereunder outstanding on the Distribution Date
but otherwise having no further liability. Each of the parties hereto agrees
that it will use reasonable efforts to obtain, prior to the Distribution
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<PAGE> 16
Date, all necessary consents, waivers or amendments to each bank credit
agreement, debt security or other financing facility to which it or any of its
Subsidiaries is a party or by which it or any of its Subsidiaries is bound, or
to refinance such agreement, security or facility, in each case on terms
satisfactory to Monsanto and Chemicals and to the extent necessary to permit the
Distribution to be consummated without any material breach of the terms of such
agreement, security or facility.
2.05 REGISTRATION AND LISTING. Prior to the Distribution Date:
1. Monsanto and Chemicals shall prepare the Proxy Statement
and the Registration Statement. Chemicals shall file the Registration
Statement with the SEC. Monsanto shall file the Proxy Statement with
the SEC and shall mail the Proxy Statement to the holders of Monsanto
Common Stock as of the Special Meeting Record Date. Monsanto and
Chemicals shall use reasonable efforts to cause the Registration
Statement to become effective under the Exchange Act as promptly as
reasonably practicable.
2. The parties hereto shall use their reasonable efforts to
take all such action as may be necessary or appropriate under state
securities and Blue Sky laws in connection with the transactions
contemplated by this Agreement.
3. Monsanto and Chemicals shall prepare, and Chemicals shall
file and seek to make effective, an application for the listing of the
Chemicals Common Stock on the NYSE, subject to official notice of
issuance.
4. The parties hereto shall cooperate in preparing and filing
with the SEC the Proxy Statement and the Registration Statement, and
causing to become effective the Registration Statement and any other
registration statements or any amendments to any thereof which are
necessary or appropriate in order to effect the transactions
contemplated hereby or to reflect the establishment of, or amendments
to, any Plans contemplated in the Employee Benefits Allocation
Agreement.
5. The parties hereto shall prepare and mail to the holders of
Monsanto Common Stock such other information or documentation as the
parties shall reasonably determine and as may be required by law.
Monsanto and Chemicals shall prepare, and Monsanto or Chemicals shall,
as applicable, file such documents, and any forms, schedules, or
registration statements and any no action letter requests which are
required by applicable law or which Monsanto determines are necessary
or desirable to effectuate the Distribution, and Monsanto and Chemicals
shall each use its reasonable efforts to obtain all necessary approvals
from the SEC with respect thereto as soon as practicable.
2.06 SPECIAL MEETING. The Board of Directors of Monsanto, or
such committee of the Board as shall be designated and so authorized by the
Board of Directors of Monsanto, shall establish the Special Meeting Record Date
and the Special Meeting Date, and shall take whatever other action such Board of
Directors or such designated committee of the Board deems necessary or
convenient with respect to the Special Meeting.
2.07 AMENDMENT OF MONSANTO CERTIFICATE OF INCORPORATION. At
the Special Meeting, there will be submitted to the Monsanto stockholders for
their vote the Monsanto Certificate Amendments as well as the Distribution.
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ARTICLE III
THE DISTRIBUTION
3.01 RECORD DATE AND DISTRIBUTION DATE. Subject to the satisfaction or
waiver of the conditions set forth in Section 10.01(a), the Board of Directors
of Monsanto, or such committee of the Board as shall be authorized and
designated by the Board of Directors, shall establish the Record Date and the
Distribution Date and any appropriate procedures in connection with the
Distribution.
3.02 THE AGENT. Prior to the Distribution Date, Monsanto shall enter
into an agreement with the Agent providing for, among other things, the payment
of the Distribution to the holders of Monsanto Common Stock in accordance with
this Article III.
3.03 DELIVERY OF SHARE CERTIFICATES TO THE AGENT. Prior to or as of the
Distribution Date, Monsanto shall deliver to the Agent a share certificate
representing all of the outstanding shares of Chemicals Common Stock to be
distributed in connection with the payment of the Distribution. After the
Distribution Date, upon the request of the Agent, Chemicals shall provide all
certificates for shares of Chemicals Common Stock or other evidence of ownership
that the Agent shall require in order to effect the Distribution.
3.04 DISTRIBUTION. Except as otherwise contemplated by this Agreement,
Monsanto shall instruct the Agent to distribute, as of the Distribution Date,
one share of Chemicals Common Stock in respect of every five (5) shares of
Monsanto Common Stock held by holders of record of Monsanto Common Stock on the
Record Date. All shares of Chemicals Common Stock issued in the Distribution
shall be duly authorized, validly issued, fully paid and nonassessable and the
holders thereof will not be entitled to preemptive rights. As soon as
practicable after the Distribution Date certificates for shares of Chemicals
Common Stock will be mailed by the Agent to such holders of record as of the
Record Date unless Chemicals uses a book entry system of stock record keeping in
which event no certificates for shares of Chemicals Common Stock will be issued
unless the stockholder so requests.
3.05 FRACTIONAL SHARES. No certificates or scrip representing
fractional interests in a share of Chemicals Common Stock will be issued.
Instead, if Chemicals does not adopt a book entry system, or if Chemicals does
adopt a book entry system but a stockholder requests a physical stock
certificate, the Agent, will, as soon as practicable after the Distribution
Date, (a) determine the number of whole shares and fractional shares of
Chemicals Common Stock allocable to each holder of record of Monsanto Common
Stock as of the Record Date, (b) aggregate all such fractional shares, and (c)
sell the whole shares attributable to the aggregate of the fractional shares at
the direction of the Agent, in open market transactions or otherwise, in each
case at then prevailing trading prices, and to cause to be distributed to each
such holder, in lieu of any fractional share, such holder's ratable share of the
proceeds of such sale, after making appropriate deductions of the amount
required, if any, to be withheld for United States federal income tax purposes.
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ARTICLE IV
SURVIVAL, ASSUMPTION AND INDEMNIFICATION
4.01 SURVIVAL OF AGREEMENTS. All covenants and agreements of the
parties hereto contained in this Agreement and all covenants and agreements of
the parties hereto and their respective wholly-owned Subsidiaries contained in
the Other Agreements shall survive the Distribution Date in accordance with
their respective terms and shall not be merged into any deeds or other transfer
or closing instruments or documents.
4.02 TAXES. This Article IV shall not be applicable to any
Indemnifiable Losses or Liabilities related to (1) Taxes which shall be
governed by the Tax Sharing Agreement; or (2) which are otherwise expressly
provided for in those Other Agreements (excluding the Business Transfer
Agreements).
4.03 ASSUMPTION AND INDEMNIFICATION.
(a) Subject to Sections 4.02 and 4.03(c) and except as expressly
provided in the Other Agreements, from and after the Distribution Date, Monsanto
shall retain or assume, as the case may be, and shall indemnify, defend and hold
harmless each member of the Chemicals Group, and each of their Representatives
and Affiliates, from and against, (1) all Monsanto Liabilities and (2) all
Losses of any such member of the Chemicals Group, Representative or Affiliate
relating to, arising out of or due to the failure to pay, perform or discharge
in due course the Monsanto Liabilities by any member of the Monsanto Group who
has an obligation with respect thereto. Chemicals will use reasonable efforts
not to take and to cause its wholly-owned Subsidiaries not to take any action
outside the ordinary course of business after the Distribution Date which may
reasonably be expected to have the effect of increasing Monsanto's or its
wholly-owned Subsidiaries' Losses with respect to Monsanto Liabilities or the
indemnification provided hereunder, and Chemicals will use reasonable efforts to
take and to cause its wholly-owned Subsidiaries to take, at Monsanto's expense,
such reasonable action as Monsanto or its wholly-owned Subsidiaries may request
to mitigate all such Losses as may be incurred with respect to Monsanto
Liabilities for which Monsanto has agreed to indemnify Chemicals and provided
such actions do not unreasonably interfere with the conduct of Chemicals'
business.
(b) Subject to Section 4.02 and 4.03(c) and except as expressly
provided in the Other Agreements, from and after the Distribution Date,
Chemicals shall retain or assume, as the case may be, and shall indemnify,
defend and hold harmless each member of the Monsanto Group, and each of their
Representatives and Affiliates, from and against, (1) all Chemicals Liabilities,
including without limitation, the indebtedness under the Financing Facility, and
(2) any and all Losses of any such member of the Monsanto Group, Representative
or Affiliate relating to, arising out of or due to the failure to pay, perform
or discharge in due course the Chemicals Liabilities by any member of the
Chemicals Group who has an obligation with respect thereto. Monsanto will use
reasonable efforts not to take and to cause its wholly-owned Subsidiaries not to
take any action outside the ordinary course of business after the Distribution
Date which may reasonably be expected to have the effect of increasing
Chemicals' or its wholly-owned Subsidiaries' Losses with respect to Chemicals
Liabilities or the indemnification provided hereunder and Monsanto will use
reasonable efforts to take and will cause its wholly-owned Subsidiaries to take
at Chemicals' expense such reasonable action as Chemicals or its wholly-owned
Subsidiaries may reasonably request to mitigate all such Losses as may be
incurred with respect to Chemicals Liabilities for which Chemicals has
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agreed to indemnify Monsanto and provided such actions do not unreasonably
interfere with the conduct of Monsanto's business.
(c) The amount which an Indemnifying Party is required to pay to any
Indemnitee pursuant to Section 4.03(a) or (b) shall be reduced (including,
without limitation, retroactively) by any Insurance Proceeds and other amounts
(including, without limitation, amounts received from Third Parties in respect
of other indemnification or contribution obligations of Third Parties) actually
recovered by such Indemnitee in reduction of the related Indemnifiable Loss, it
being understood and agreed that each member of the Monsanto Group and the
Chemicals Group shall use its reasonable best efforts, at the expense of the
Indemnifying Party, to collect any such proceeds or other such amounts to which
it or any of its wholly-owned Subsidiaries is entitled, without regard to
whether it is the Indemnified Party hereunder. If an Indemnitee receives an
Indemnity Payment in respect of an Indemnifiable Loss and subsequently receives
Insurance Proceeds or other amounts in respect of such Indemnifiable Loss, then
such Indemnitee shall pay to such Indemnifying Party an amount equal to the
difference between (1) the sum of the amount of such Indemnity Payment and the
amount of such Insurance Proceeds or other amounts actually received and (2) the
amount of such Indemnifiable Loss. An insurer or a Third Party (including,
without limitation, purchasers under any assets purchase agreements, real estate
agreements or any other agreements relating to Chemicals Liabilities or Monsanto
Liabilities, including without limitation, those agreements set forth on
Schedule _______, who would otherwise be obligated to pay any claim shall not be
relieved of the responsibility with respect thereto, or, solely by virtue of the
indemnification provisions hereof, have any subrogation rights with respect
thereto, it being expressly understood and agreed that no insurer or any other
Third Party shall be entitled to a "windfall" (i.e., a benefit they would not be
entitled to receive in the absence of the indemnification provisions set forth
herein) by virtue of the indemnification provisions hereof.
(d) If any Indemnity Payment required to be made hereunder or under any
Other Agreement is denominated in a currency other than United States dollars,
the amount of such payment, at the election of the Indemnifying Party, may be
reimbursed in local currency or shall be translated into United States dollars
using the Foreign Exchange Rate for such currency determined in accordance with
the following rules:
(1) with respect to an Indemnifiable Loss arising from payment
by a financial institution under a guarantee, comfort letter, letter of
credit, foreign exchange contract or similar instrument, the Foreign
Exchange Rate for such currency shall be determined as of the date on
which such financial institution is reimbursed;
(2) with respect to an Indemnifiable Loss covered by
insurance, the Foreign Exchange Rate for such currency shall be the
Foreign Exchange Rate employed by the insurance company providing such
insurance in settling such Indemnifiable Loss with the Indemnifying
Party; and
(3) with respect to an Indemnifiable Loss not described in
clause (1) or (2) of this Section 4.03(d), the Foreign Exchange Rate
for such currency shall be determined as of the date of payment to a
Third Party in the case of such payments or as of the date that notice
of the claim with respect to such other Indemnifiable Loss is given to
the Indemnitee.
(e) On the Distribution Date Chemicals shall assume (or shall cause one
of its wholly-owned Subsidiaries to assume) (i) the prosecution of all claims
which are Chemicals Assets
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and are pending on the Distribution Date; and (ii) the defense against all Third
Party Claims which are Chemicals Liabilities and are pending on the Distribution
Date. Monsanto shall use reasonable efforts to make available and shall cause
its wholly-owned Subsidiaries to use reasonable efforts to make available to
Chemicals and its wholly-owned Subsidiaries, at Chemicals' expense, (i) any
personnel or any books, records or other documents within its control or which
it otherwise has the ability to make available that Chemicals or such Subsidiary
reasonably believes are necessary or appropriate for such prosecution or defense
as provided in Article VI; and (ii) such other assistance in support of the
prosecution or defense of such litigation as Chemicals or its wholly-owned
Subsidiaries may reasonably request, including without limitation, the right to
assert in the name of Monsanto or any of its wholly-owned Subsidiaries such
rights, claims, counterclaims or defenses that Monsanto or Monsanto's Subsidiary
would be or would have been entitled to assert in such litigation or in the
prosecution of or defense against such claim had the Distribution not occurred;
provided, however, that no member of the Monsanto Group shall be required to
take any action, refrain from taking any action or make available any assistance
if doing so would have the effect of increasing Liabilities of the Monsanto
Group. Monsanto will execute and will cause its wholly-owned Subsidiaries to
execute a power of attorney in the form attached hereto as Exhibit 4.03(e).
4.04 PROCEDURE FOR INDEMNIFICATION.
(a) If any Indemnitee receives notice of the assertion of any Third
Party Claim with respect to which an Indemnifying Party is obligated under this
Agreement to provide indemnification, such Indemnitee shall give such
Indemnifying Party notice thereof promptly after becoming aware of such Third
Party Claim; provided, however, that the failure of any Indemnitee to give
notice as provided in this Section 4.04 shall not relieve any Indemnifying Party
of its obligations under this Article IV, except to the extent that such
Indemnifying Party is actually prejudiced by such failure to give notice. Such
notice shall describe such Third Party Claim in reasonable detail and, if
practicable, shall indicate the estimated amount of the Indemnifiable Loss that
has been or may be sustained by such Indemnitee.
(b) An Indemnifying Party, at such Indemnifying Party's own expense and
through counsel chosen by such Indemnifying Party (which counsel shall be
reasonably satisfactory to the Indemnitee), may elect to defend any Third Party
Claim. If an Indemnifying Party elects to defend a Third Party Claim, then,
within fifteen Business Days after receiving notice of such Third Party Claim or
sooner (but in no event less than five Business Days) if the nature of such
Third Party Claim so requires), such Indemnifying Party shall notify the
Indemnitee of its intent to do so. Such Indemnitee shall thereupon use
reasonable efforts to make available to such Indemnifying Party, at such
Indemnifying Party's expense, such assistance in support of the prosecution or
defense of such litigation as the Indemnifying Party may reasonably request,
including without limitation, the right to assert in the name of the Indemnitee
such rights, claims, counterclaims or defenses that such Indemnitee would be or
would have been permitted to assert in such litigation or in the prosecution of
a claim or counterclaim against a Third Party or in defense against such Third
Party Claim had the Distribution not occurred. The Indemnitee will execute a
power of attorney in favor of the Indemnifying Party with respect to such Third
Party Claims in the form attached hereto as Exhibit ______. Such Indemnifying
Party shall pay such Indemnitee's reasonable out-of-pocket expenses incurred in
connection with such cooperation consistent with the provisions of Article VI.
Except as provided herein, after notice from an Indemnifying Party to an
Indemnitee of its election to assume the defense of a Third Party Claim, such
Indemnifying Party shall not be liable to such Indemnitee under this Article IV
for any legal or other expenses subsequently incurred by such Indemnitee in
connection with the defense thereof. If an Indemnifying Party elects not to
defend against a Third Party Claim, or fails to notify an Indemnitee of its
election as provided in this Section 4.04 within the period of fifteen (or five,
if applicable) Business Days described above, such Indemnitee may defend,
compromise and settle such Third Party Claim; provided, however,
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that no such Indemnitee may compromise or settle any such Third Party Claim
without the prior written consent of the Indemnifying Party, which consent shall
not be unreasonably withheld or delayed.
(c) Notwithstanding the foregoing, the Indemnifying Party shall not,
without the prior written consent of the Indemnitee, settle or compromise any
Third Party Claim or consent to the entry of any judgment which does not include
as an unconditional term thereof the delivery by the claimant or plaintiff to
the Indemnitee of a written release from all Liability in respect of such Third
Party Claim.
(d) If an Indemnifying Party chooses to defend or to seek to compromise
any Third Party Claim, the related Indemnitee shall make available to such
Indemnifying Party any personnel or any books, records or other documents within
its control or which it otherwise has the ability to make available that are
necessary or appropriate for such defense.
(e) Any claim on account of an Indemnifiable Loss arising out of or due
to the failure to pay, perform or discharge in due course its respective
Liabilities by any member of the Indemnifying Party's Group who has an
obligation with respect thereto but which does not result from a Third Party
Claim shall be asserted by written notice given by the Indemnitee to the related
Indemnifying Party. Such Indemnifying Party shall have a period of 30 days after
the receipt of such notice within which to respond thereto. If such Indemnifying
Party does not respond within such 30-day period, such Indemnifying Party shall
be deemed to have refused to accept responsibility to make payment. If such
Indemnifying Party does not respond within such 30-day period or rejects such
claim in whole or in part, such Indemnitee shall be free to pursue such remedies
as may be available to such party under Article VII of this Agreement.
(f) If the amount of any Indemnifiable Loss shall, at any time
subsequent to the payment required by this Agreement, be reduced by recovery,
settlement or otherwise, the amount of such reduction, less any expenses
incurred in connection therewith, shall promptly be repaid by the Indemnitee to
the Indemnifying Party.
(g) In the event of payment by an Indemnifying Party to any Indemnitee
in connection with any Third Party Claim, such Indemnifying Party shall be
subrogated to and shall stand in the place of such Indemnitee as to any events
or circumstances in respect of which such Indemnitee may have any right or claim
relating to such Third Party Claim against any claimant or plaintiff asserting
such Third Party Claim. Such Indemnitee shall cooperate with such Indemnifying
Party in a reasonable manner, and at the cost and expense of such Indemnifying
Party, in prosecuting any subrogated right or claim, including without
limitation, permitting the Indemnifying Party to bring suit against such Third
Party in the name of the Indemnitee.
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ARTICLE V
CERTAIN ADDITIONAL COVENANTS
5.01 FURTHER ASSURANCES.
(a) In addition to the actions specifically provided for elsewhere in
this Agreement and unless otherwise expressly provided in this Agreement or an
Other Agreement, each of the parties hereto shall use its reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things reasonably necessary, proper or advisable under applicable laws,
regulations and agreements to consummate and make effective the transactions
contemplated by this Agreement, to confirm Chemicals' title to all Chemicals
Assets and assumption of all Chemical Liabilities, to put Chemicals in actual
possession and operating control of Chemicals Assets and Chemicals Liabilities,
and to permit Chemicals to exercise all rights and to perform its obligations
with respect to Chemicals Assets and Chemicals Liabilities; provided, that
nothing herein shall be deemed to require the transfer of any Assets or the
assumption of any Liabilities which by their terms or operation of law cannot be
transferred or assumed. Without limiting the foregoing, each party hereto shall
cooperate with the other party, and execute and deliver, or use its reasonable
efforts to cause to be executed and delivered, all instruments, including
instruments of conveyance, assignment and transfer, and to make all filings
with, and to obtain all consents, approvals or authorizations of, any
governmental or regulatory authority or any other Person under any permit,
license, agreement, indenture or other instrument, and take all such other
actions as such party may reasonably be requested to take by any other party
hereto from time to time, consistent with the terms of this Agreement, in order
to effectuate the provisions and purposes of this Agreement and the transfers of
Assets and Liabilities and the other transactions contemplated hereby. If any
such transfer of Assets or Liabilities, including but not limited to,
assignments of contracts, is not consummated prior to or at the Distribution
Date for any reason, including but not limited to, the absence of consents to
assignment of contracts or approval by Governmental Authorities for the transfer
of permits, then the party hereto retaining such Asset or Liability shall
thereafter hold such Asset in trust for the use and benefit of the party
entitled thereto (at the expense of the party entitled thereto), or shall retain
such Liability for the account of the party by whom such Liability is to be
assumed pursuant hereto, as the case may be, and shall take such other action as
may be reasonably requested by the party to whom such Asset is to be
transferred, or by whom such Liability is to be assumed, as the case may be, in
order to place such party, insofar as reasonably possible, in the same position
as if such Asset or Liability had been transferred as contemplated hereby. If
and when any such Asset or Liability becomes transferable, such transfer shall
be effected forthwith. The parties hereto agree that, as of the Distribution
Date, as between the parties, Chemicals shall be deemed to have acquired
complete and sole beneficial ownership of all of the Chemicals Assets, together
with all rights, powers and privileges incident thereto, and shall be deemed to
have assumed in accordance with the terms of this Agreement all of the Chemicals
Liabilities, and all duties, obligations and responsibilities incident thereto.
(b) Without limiting the generality of Section 5.01(a), Monsanto, as
the sole stockholder of Chemicals prior to the Distribution, shall ratify any
actions which are reasonably necessary or desirable to be taken by Chemicals to
effectuate the transactions contemplated by this Agreement or the Other
Agreements in a manner consistent with the terms of this Agreement or such Other
Agreements.
(c) In the event any registration, licenses, permits or other rights
granted by Governmental Authorities to the Monsanto Group must be transferred,
amended or issued in order to conduct operations of the Chemicals Business after
the Distribution Date, and such permit transfer, amendment or issuance has not
been accomplished as of such date, Monsanto shall permit
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Chemicals to use the registration, license or permit of the Monsanto Group to
continue to operate the Chemicals Facilities until such transfer, amendment or
issuance is accomplished, at Chemicals' expense, if to so do would be permitted
by and not violate the terms of the registration, license or permit or any law,
regulation, ordinance or rule, until such permit is transferred or issued to
Chemicals. Chemicals shall use its reasonable efforts to obtain such
registrations, licenses, permits or other rights granted by Governmental
Authorities as soon as reasonably practicable. Chemicals shall indemnify and
hold harmless Monsanto from and against any and all Third Party Claims arising
from or related to Chemicals' use of the registration, license or permit or
other rights granted to the Monsanto Group by Governmental Authorities.
(d) Schedule 1.01(11) to this Agreement includes among other
items, certain parcels of real estate which are Chemicals Assets but which, in
some cases, are subject to contracts for sale to Third Parties ("Sale Real
Estate") or which, in other cases, cannot be transferred without one party
incurring a substantial economic detriment which detriment could otherwise be
deferred or avoided ("Non-Sale Real Estate"). Monsanto and Chemicals agree that
Monsanto shall retain title to such Sale Real Estate and Non-Sale Real Estate
following the Distribution Date and shall not transfer to Chemicals the title or
assign to Chemicals the contract(s) for sale or any other permits, licenses or
contracts with respect to such real estate subject to the following terms and
conditions:
(i) Monsanto from and after the Distribution Date will hold the Sale
Real Estate and the Non-Sale Real Estate in trust for the benefit of Chemicals;
(ii) Monsanto hereby irrevocably designates Chemicals as its
attorney-in-fact and agent for all purposes with respect to all such Sale Real
Estate and Non-Sale Real Estate, including without limitation, for all
remediation, monitoring and other activities, with respect to such Sale Real
Estate and Non-Sale Real Estate; for all filings, notices and any other
negotiations, activities or discussions with any Governmental Authority and/or
any branch, commission, board or other subdivision thereof; for all discussions,
negotiations or agreements with Third Parties with respect to, or arising from,
such Sale Real Estate and Non-Sale Real Estate; and for all purposes relating to
the execution, delivery and closing of contracts, agreements, documents or
instruments with respect the ownership, use, occupation, sale or lease of the
Sale Real Estate or Non-Sale Real Estate. In furtherance of such designation,
Monsanto will execute powers of attorney in the form attached hereto as Exhibit
5.01(d)(ii) for each site;
(iii) Monsanto will take no action without the prior written consent of
Chemicals which may have the effect of increasing Chemicals' liability with
respect to any Sale Real Estate or Non-Sale Real Estate; and will take such
action as is permitted by contract, in the absence of consent of the other
party, and by law to place Chemicals, insofar as reasonably possible, in the
same position as if such Sale Real Estate and Non-Sale Real Estate had been
transferred, or conveyed to Chemicals on the Distribution Date;
(iv) In the event any Sale Real Estate is not sold or conveyed to a
Third Party pursuant to a contract in existence on the Distribution Date or, at
any other time, upon the request of Chemicals with respect to any parcel of Sale
Real Estate or Non-Sale Real Estate, Monsanto shall transfer and convey title to
the affected parcel of real estate to Chemicals; and
(v) As between Monsanto and Chemicals, such Sale Real Estate and
Non-Sale Real Estate shall be treated as Chemicals Assets, and Liabilities
related to or arising from Sale Real Estate or Non-Sale Real Estate shall be
Chemicals Liabilities and subject to the indemnification provisions contained in
Section 4.03(b) notwithstanding the fact that such Sale Real Estate or Non-Sale
Real Estate was not transferred to Chemicals.
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(e) If Chemicals elects to pursue any claim or right relating to the
Chemicals Assets, the Chemicals Business or the Former Chemicals Business,
Monsanto, upon request and at Chemicals' expense, shall use reasonable efforts
to make available to Chemicals such assistance in support of the prosecution of
such litigation as Chemicals may reasonably request, including without
limitation, the right to assert, as needed, in the name of Monsanto or any
member of the Monsanto Group such rights and claims that Monsanto or such member
would be or would have been permitted to assert in such litigation had the
Distribution not occurred; provided, however, that no member of the Monsanto
Group shall be required to take any action, refrain from taking any action or
make available any assistance if doing so would have the effect of increasing
Liabilities of the Monsanto Group. Monsanto or such member of the Monsanto Group
will execute a power of attorney in favor of Chemicals or such member of the
Chemicals Group in the form attached hereto as Exhibit ____.
5.02 CHEMICALS BOARD. Prior to, or simultaneously with, the
Distribution Date, Chemicals shall take such actions as are necessary such that
the Board of Directors of Chemicals is comprised of those individuals named as
directors of Chemicals in the Proxy Statement.
5.03 FINANCING. Effective as of the Distribution Date:
(a) The obligations under the assumable commercial paper
portion of the Financing Facility shall be assigned to, and assumed by,
Chemicals, and guaranteed by Monsanto, with the effect that Chemicals
shall have the primary obligation thereunder and Monsanto shall become
the guarantor with respect thereto;
(b) On the Distribution Date, Chemicals shall assume from
Monsanto, and indemnify Monsanto from, all Liabilities under the
assumable commercial paper portion of the Financing Facility and the
Third Party indebtedness specified on Schedule __; and
(c) (i) Except as provided in Schedule ___, (w) all
intercompany accounts receivables and payables between members of the
Monsanto Group in Europe and in South Africa, and all Third Party
receivables and payables owed to or by members of the Monsanto Group in
Europe and in South Africa that arose prior to June 1, 1997, will be
treated in accordance with the related Business Transfer Agreement,
including without limitation, that Agreement on Intercompany
Receivables and Payables and Bad Debts dated as of ________________
between Monsanto Chemicals Europe SA/NV and Monsanto Europe SA/NV and
certain other entities referred to collectively therein as DSO's; (x)
all intercompany accounts receivables and payables between members of
the Monsanto Group in Europe and in South Africa, and all Third Party
receivables and payables related to the Monsanto Business in Europe and
in South Africa that arose on or after June 1, 1997, will remain as
Monsanto Assets and Monsanto Liabilities; (y) all intercompany accounts
receivables and payables between members of the Chemicals Group in
Europe and in South Africa and all Third Party receivables and payables
related to the Chemicals Business in Europe and South Africa that arose
on or after June 1, 1997 shall remain as Chemicals Assets and Chemicals
Liabilities; and (z) any other product related intercompany receivables
and payables between members of the Monsanto Group in Europe and in
South Africa and members of the Chemicals Group in Europe and in South
Africa shall remain with each respective entity on whose books such
receivable and payable exists on the Distribution Date; provided,
however, that any other intercompany receivables and payables between
members of the Groups shall be transferred to the Monsanto Group.
(c) (ii) Except as provided in Schedule ___, all intercompany
balances relating to products of the Chemicals Business or Former
Chemicals Business between the Monsanto
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Group outside of Europe and South Africa and the Chemicals Group
outside of Europe and South Africa and all Third Party payables and
receivables related to the Chemicals Business, Former Chemicals
Business or Chemicals Assets will be transferred to the Chemicals Group
as Chemicals Assets and Chemicals Liabilities on the Distribution Date.
(c) (iii) Except as provided herein with respect to certain
intercompany loans for which both the asset and the liability will be
transferred to the Chemicals Group as set forth in Schedule _______,
all intercompany loans or advances between a member of the Chemicals
Group and a member of the Monsanto Group shall remain with, or be
transferred to, the members of the Monsanto Group, it being the intent
that as of the Distribution Date neither Group shall have a continuing
obligation with respect to such loan or and advance to the other Group.
5.04 OTHER AGREEMENTS. Each of Monsanto and Chemicals shall
use reasonable efforts to enter into, or to cause the appropriate members of its
Group to enter into, the Other Agreements on or prior to the Distribution Date.
If there shall be a conflict or an inconsistency between the provisions of this
Agreement and the provisions of an Other Agreement (i) the provisions of this
Agreement shall control over the inconsistent provisions of a Business Transfer
Agreement as to matters within the scope of the Business Transfer Agreement; and
(ii) the provisions of the Other Agreement (other than any Business Transfer
Agreement) shall control over the inconsistent provisions of this Agreement as
to matters within the scope of such Other Agreement.
5.05 CHEMICALS SUPPORT AGREEMENTS. Effective as of the
Distribution Date, and unless otherwise agreed between Monsanto and Chemicals,
Chemicals shall use its reasonable best efforts to cause one or more members of
the Chemicals Group to be substituted in all respects for the Monsanto Group or
any member thereof in respect of all Chemicals Support Agreements. Subsequent to
the Distribution Date, with respect to any uncancelled Chemicals Support
Agreement for which no substitution has yet been effected, Chemicals shall
indemnify the Monsanto Group against any Liabilities under any such Chemicals
Support Agreement in accordance with the provisions of Article IV.
5.06 OFFICERS AND EMPLOYEES.
(a) Subject to the provisions of Section 5.06(b), officers and
employees of either Group who are employed in the Chemicals Business immediately
prior to the Distribution Date shall be officers and employees of the Chemicals
Group immediately following the Distribution Date; provided, however, that
nothing herein shall give to any individual a right of employment, or continued
employment, by any member of the Chemicals Group.
(b) Except as otherwise agreed by the parties hereto,
effective as of the Distribution Date, (1) all officers or employees of the
Monsanto Group who are acting as directors or officers of the Chemicals Group
and are not employed in the Chemicals Business shall resign from such positions
with the Chemicals Group and (2) all officers or employees of the Chemicals
Group who are acting as directors or officers of the Monsanto Group and are not
employed in the Monsanto Business shall resign from such positions with the
Monsanto Group.
5.07 MONSANTO CITIZENSHIP FUND. Prior to the Distribution
Date, Chemicals will establish a political action committee consistent with the
rules of the Federal Election Commission for a separate segregated fund
("Chemicals PAC") and the Monsanto Citizenship Fund will transfer to such
Chemicals PAC $________ plus any amounts held by the Monsanto Citizenship Fund
for future earmarking by Chemicals Employees which has been or may be agreed to.
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5.08 RECEIVABLES COLLECTION AND OTHER PAYMENTS. If after the
Distribution Date, either party receives payments belonging to the other party,
the recipient shall promptly account for and remit same to the other party.
5.09 LIMITED LEASES, LICENSES AND BENEFITS OF CERTAIN ASSETS.
(a) With respect to sold or discontinued businesses for which
Chemicals has assumed a Chemicals Liability, Monsanto hereby grants a lease or
license, and shall cause its wholly-owned Subsidiaries to grant a lease or
license, to members of the Chemicals Group, without compensation and on a
non-exclusive basis, with respect to such Monsanto Assets (or the benefit of
such Monsanto Assets) relating to sold or discontinued businesses, including
without limitation, those rights under contracts, leases or licenses held on the
Distribution Date, in each case to the extent the use or benefit of such
Monsanto Assets is reasonably necessary to satisfy such Chemicals Liabilities
assumed by any member of the Chemicals Group pursuant to this Agreement or any
Other Agreement.
(b) With respect to a Former Chemicals Business for which
Monsanto has retained a Monsanto Liability, including without limitation,
Monsanto Liabilities under operating agreements with Third Parties, Chemicals
hereby grants a lease or license, and shall cause its wholly-owned Subsidiaries
to grant a lease or license, to members of the Monsanto Group, without
compensation and on a non-exclusive basis with respect to such Chemicals Assets
(or the benefit of such Chemicals Assets) relating to the Former Chemicals
Business, including without limitation, those rights under contracts, leases or
licenses held on the Distribution Date, in each case to the extent the use or
benefit of such Chemicals Assets is reasonably necessary to satisfy such
Monsanto Liabilities.
5.10 CHEMICALS' USE OF CHEMICALS ASSETS SUBJECT TO IRBS.
Monsanto is retaining as Monsanto Liabilities the IRBs and all obligations
related to the payment of principal and interest thereunder and is retaining as
Monsanto Assets all rights with respect to the IRBs except the right to the
ownership or occupancy of the property transferred to Chemicals as Chemicals
Assets. Chemicals, however, agrees that Chemicals shall comply with all of the
covenants and agreements set forth in the IRBs and any related agreements
entered into in connection with the IRBs that are applicable to the owner or
operator of the property or that affect the use of the property and shall not
take any action which, or fail to take any action the failure of which, could
increase or accelerate Monsanto's liabilities under the IRBs or adversely affect
the exclusion from gross income of interest on the IRBs. Chemicals shall not
sell or otherwise transfer any properties or assets relating to the IRBs unless
the transferee agrees to assume Chemicals' obligations under this Section 5.10
pursuant to an agreement reasonably satisfactory to Monsanto. Chemicals shall
indemnify, defend and hold Monsanto harmless from any Liabilities or Losses to
the extent arising from its breach of its covenants in this Section 5.10.
ARTICLE VI
ACCESS TO INFORMATION
6.01 PROVISION OF CORPORATE RECORDS. Prior to or as promptly
as practicable after the Distribution Date or from time to time as requested by
the Chemicals Group, the Monsanto Group shall deliver to the Chemicals Group:
(i) all corporate books and records of the Chemicals Group; (ii) originals or
copies of those corporate books and records of the Monsanto Group primarily
relating to the Chemicals Assets, the Chemicals Liabilities, the
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Chemicals Business or the Former Chemicals Business; (iii) originals or, at
Monsanto's election, copies of all other corporate records and books of the
Monsanto Group relating to the Chemicals Group, Chemicals Assets, the Chemicals
Liabilities, the Chemicals Business, the Former Chemicals Business, the Joint
Ownership Properties, the P4 Business, or the Other Agreements; including
without limitation in each case, all active agreements, active litigation files
and government filings; and (iv) copies of any and all Insurance Policies. From
and after the Distribution Date, all such books, records and copies (where
copies are delivered in lieu of originals) whether or not delivered shall be the
property of the Chemicals Group; provided, however, that all such Information
contained in such books, records or copies relating to the Monsanto Group,
Monsanto Assets, the Monsanto Liabilities, the Monsanto Business, the Joint
Ownership Properties, the P4 Business, or the Other Agreements shall be subject
to the applicable confidentiality provisions and restricted use provisions, if
any, contained in this Agreement or the Other Agreements and any confidentiality
restrictions imposed by law. Monsanto, if it so elects, may retain copies of any
original books and records delivered to Chemicals along with those original
books and records of the Monsanto Group authorized herein to be retained
(excluding books and records to the extent relating to Chemicals Technology as
defined in the Intellectual Property Agreements or relating exclusively to
Chemicals' use of Shared Know How as defined in the Intellectual Property
Agreements in the Chemicals Business or Former Chemicals Business); provided,
however, that all such Information contained in such books, records or copies
(whether or not delivered to the Chemicals Group) relating to the Chemicals
Group, the Chemicals Assets, the Chemicals Liabilities, the Chemicals Business,
the Former Chemicals Business, the Joint Ownership Properties, the P4 Business,
or the Other Agreements shall be subject to the applicable confidentiality
provisions and restricted use provisions, if any, contained in this Agreement or
the Other Agreements and any confidentiality restrictions imposed by law.
6.02 ACCESS TO INFORMATION. In addition to the provisions set
forth in Section 6.01 above, from and after the Distribution Date and upon
reasonable notice, each of the Monsanto Group and the Chemicals Group shall
afford to the other and to the other's Representatives at the expense of the
other party, reasonable access and duplicating rights during normal business
hours to all Information developed or obtained prior to the Distribution Date
within such party's possession relating to the other party or its businesses,
its former businesses, its Assets, its Liabilities, the Joint Ownership
Properties, the P4 Business, or the Other Agreements, insofar as such access is
reasonably requested by such other party, but subject to the applicable
confidentiality provisions and restricted use provisions, if any, contained in
this Agreement or the Other Agreements and any confidentiality restrictions
imposed by law. In addition, without limiting the foregoing, Information may be
requested under this Section 6.02 for audit, accounting, claims, intellectual
property protection, litigation and Tax purposes, as well as for purposes of
fulfilling disclosure and reporting obligations. In each case, the requesting
party agrees to cooperate with the other party to minimize the risk of
unreasonable interference with the other party's business. In the event access
to any Information otherwise required to be granted herein or in the Other
Agreements is restricted by law or otherwise, the parties agree to take such
actions as are reasonably necessary, proper or advisable to have such
restrictions removed or to seek an exemption therefrom or to otherwise provide
the requesting party with the benefit of the Information to the same extent such
actions would have been taken on behalf of the requesting party had such a
restriction existed and the Distribution not occurred.
6.03 LITIGATION SUPPORT AND PRODUCTION OF WITNESSES. After the
Distribution Date, each member of the Monsanto Group and the Chemicals Group
shall use reasonable efforts to provide assistance to the other with respect to
litigation and to make available to the other, upon written request: (i) such
employees who have expertise or knowledge with respect
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to the other party's business or products or matters in litigation, for the
purpose of consultation and/or as a witness; and (ii) its directors, officers,
other employees and agents, as witnesses, in each case to the extent that the
requesting party believes any such Person may reasonably be useful or required
in connection with any legal, administrative or other proceedings in which the
requesting party may from time to time be involved. The employing party agrees
that such consultant or witness shall be made available to the requesting party
upon reasonable notice to the same extent that such employing party would have
made such consultant or witness available if the Distribution had not occurred.
The requesting party agrees to cooperate with the employing party in giving
consideration to business demands of such Persons.
6.04 REIMBURSEMENT. Except to the extent otherwise
contemplated by this Agreement or any Other Agreement, a party providing
Information, consultant, or witness services to the other party under this
Article VI shall be entitled to receive from the recipient, upon the
presentation of invoices therefor, payments for such amounts, relating to
supplies, disbursements, travel expenses, and other out-of-pocket expenses
(including the direct and indirect costs of employees providing consulting and
expert witness services in connection with litigation, but excluding direct and
indirect costs of employees who provide Information or are fact witnesses) as
may be reasonably incurred in providing such Information, consulting or witness
services.
6.05 RETENTION OF RECORDS. Except as otherwise required by law
or agreed in writing, or as otherwise provided in the Tax Sharing Agreement,
each member of the Monsanto Group and the Chemicals Group shall retain, for the
periods set forth in the Monsanto Company Records Retention Manual dated April,
1994 or such longer period as may be required by law, this Agreement or the
Other Agreements, all significant Information in such party's possession or
under its control relating to the business, former business, Assets or
Liabilities of the other party or the Joint Ownership Properties or the P4
Business or this Agreement or the Other Agreements and, after the expiration of
such applicable period, prior to destroying or disposing of any of such
Information, (a) the party proposing to dispose of or destroy any such
Information shall provide no less than 30 days' prior written notice to the
other party, specifying the Information proposed to be destroyed or disposed of,
and (b) if, prior to the scheduled date for such destruction or disposal, the
other party requests in writing that any of the Information proposed to be
destroyed or disposed of be delivered to such other party, the party proposing
to dispose of or destroy such Information promptly shall arrange for the
delivery of the requested Information to a location specified by, and at the
expense of, the requesting party.
6.06 PRIVILEGED INFORMATION. In furtherance of the rights and
obligations of the parties set forth in this Article VI:
(a) Each party hereto acknowledges that (1) each of the
Monsanto Group on the one hand, and the Chemicals Group on the other
hand, has or may obtain Information regarding a member of the other
Group, or any of its operations, employees, Assets or Liabilities
(whether in documents or stored in any other form or known to its
employees or agents), as applicable, that is or may be protected from
disclosure pursuant to the attorney-client privilege, the work product
doctrine or other applicable privileges ("Privileged Information"); (2)
there are a number of actual, threatened or future litigations,
investigations, proceedings (including arbitration proceedings), claims
or other legal matters that have been or may be asserted by or against,
or otherwise affect, each or both of Monsanto and Chemicals (or members
of either Group) ("Litigation Matters"); (3) Monsanto and Chemicals
have a common legal interest in Litigation Matters, in the Privileged
Information, and in the preservation of the
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confidential status of the Privileged Information, in each case
relating to the Monsanto Business or the Chemicals Business or any
former businesses, the Assets or the Liabilities of each party or the
Joint Ownership Properties or the P4 Business as it or they existed
prior to the Distribution Date or relating to or arising in connection
with the relationship between the constituent elements of the Groups on
or prior to the Distribution Date; and (4) Monsanto and Chemicals
intend that the transactions contemplated by this Agreement and the
Other Agreements and any transfer of Privileged Information in
connection herewith or therewith shall not operate as a waiver of any
potentially applicable privilege.
(b) Each of Monsanto and Chemicals agrees, on behalf of itself
and each member of the Group of which it is a member, not to disclose
or otherwise waive any privilege attaching to any Privileged
Information relating to the Monsanto Business or the Chemicals Business
or any former businesses or Assets or Liabilities of either party or
the Joint Ownership Properties or the P4 Business as they or it existed
prior to the Distribution Date, respectively, or relating to or arising
in connection with the relationship between the Groups on or prior to
the Distribution Date, without providing prompt written notice to and
obtaining the prior written consent of the other, which consent shall
not be unreasonably withheld and shall not be withheld if the other
party certifies that such disclosure is to be made in response to a
likely threat of suspension or debarment or similar action; provided,
however, that Monsanto and Chemicals may make such disclosure or waiver
with respect to Privileged Information if such Privileged Information
relates, in the case of Monsanto, solely to the Monsanto Business, its
former businesses (other than the Chemicals Business or Former
Chemicals Business or the P4 Business), the Monsanto Assets or the
Monsanto Liabilities as each existed prior to the Distribution Date or,
in the case of Chemicals, solely to the Chemicals Business, the Former
Chemicals Business, the Chemicals Assets or the Chemicals Liabilities,
as each existed prior to the Distribution Date. In the event of a
disagreement between any member of the Monsanto Group and any member of
the Chemicals Group concerning the reasonableness of withholding such
consent, no disclosure shall be made prior to (i) a final,
nonappealable resolution of such disagreement by a court of competent
jurisdiction if such requirement to disclose is part of a pending
judicial proceeding; or (ii) a final determination by an arbitrator
appointed pursuant to Article VII if such requirement to disclose is
not part of a pending judicial proceeding.
(c) Upon any member of the Monsanto Group or any member of the
Chemicals Group receiving any subpoena or other compulsory disclosure
notice from a court, other governmental agency or otherwise which
requests disclosure of Privileged Information, in each case relating to
the Monsanto Business, its former businesses (other than the Chemicals
Business or Former Chemicals Business or the P4 Business), the Monsanto
Assets or the Monsanto Liabilities (in the case of the Chemical Group)
or the Chemicals Business, Former Chemicals Business, the Chemicals
Assets or the Chemicals Liabilities (in the case of the Monsanto Group)
or the Joint Ownership Properties or the P4 Business (in the case of
either Group), as they or it existed prior to the Distribution Date or
relating to or arising in connection with the relationship between the
constituent elements of the Groups on or prior to the Distribution
Date, the recipient of the notice shall promptly provide to Monsanto,
in the case of receipt by a member of the Chemicals Group, or to
Chemicals, in the case of receipt by a member of the Monsanto Group, a
copy of such notice, the intended response, and all materials or
information relating to the other Group that might be disclosed. In the
event of a disagreement as to the intended response or disclosure,
unless and until the
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disagreement is resolved as provided in paragraph (b) above, Monsanto
and Chemicals shall cooperate to assert all defenses to disclosure
claimed by either Group, at the cost and expense of the Group claiming
such defense to disclosure, and shall not disclose any disputed
documents or information until all legal defenses and claims of
privilege have been finally determined.
6.07 CONFIDENTIALITY. From and after the Distribution Date,
each of Monsanto and Chemicals shall hold, and shall use its reasonable best
efforts to cause its employees, Affiliates and Representatives to hold, in
strict confidence all Information concerning or belonging to the other party
obtained by it prior to the Distribution Date or furnished to it by such other
party pursuant to this Agreement or the Other Agreements and shall not release
or disclose such Information to any other Person, except its Representatives,
who shall be bound by the provisions of this Section 6.07; provided, however,
that Monsanto and Chemicals and their respective employees, Affiliates and
Representatives may disclose such Information to the extent that (a) disclosure
is compelled by judicial or administrative process or, in the opinion of such
party's counsel, by other requirements of law, or (b) such party can show that
such Information was (1) available to such party after the Distribution Date
from Third Party sources other than employees or former employees of either
party, their Affiliates, former Affiliates, Representatives or former
Representatives, on a nonconfidential basis prior to its disclosure to such
party after the Distribution Date by the other party, (2) in the public domain
through no fault of such party, (3) lawfully acquired by such party from Third
Party sources other than employees or former employees of either party, their
Affiliates, former Affiliates, Representatives or former Representatives, after
the time that it was furnished to such party pursuant to this Agreement or the
Other Agreements or (4) is independently discovered or developed after the
Distribution Date by employees of such party. Notwithstanding the foregoing,
each of Monsanto and Chemicals and their respective Representatives and
Affiliates shall be deemed to have satisfied its obligations under this Section
6.07 with respect to any Information if it exercises the same care with regard
to such Information as it takes to preserve confidentiality for its own similar
Information. Each party further covenants that it shall not disclose to any
Third Party (or any successor by merger or otherwise) the fact that the other
party uses Shared Know How (as defined in the Intellectual Property Agreements)
or if known, the particulars of such use.
ARTICLE VII
ARBITRATION; DISPUTE RESOLUTION
7.01 AGREEMENT TO ARBITRATE. Except as otherwise specifically
provided in any Other Agreement, the procedures for discussion, negotiation and
arbitration set forth in this Article VII shall apply to all disputes,
controversies or claims (whether sounding in contract, tort or otherwise) that
may arise out of or relate to, or arise under or in connection with this
Agreement or any Other Agreement, or the transactions contemplated hereby or
thereby (including all actions taken in furtherance of the transactions
contemplated hereby or thereby on or prior to the date hereof), or the
commercial or economic relationship of the parties as it relates to this
Agreement or such Other Agreement between or among any member of the Monsanto
Group and the Chemicals Group. Each party agrees on behalf of itself and each
member of its respective Group that the procedures set forth in this Article VII
shall be the sole and exclusive remedy in connection with any dispute,
controversy or claim relating to any of the foregoing matters and irrevocably
waives any right to commence any Action in or before any Governmental Authority,
except as expressly provided in Sections 7.07(b) and 7.08
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and except to the extent provided under the Arbitration Act in the case of
judicial review of arbitration results or awards.
7.02 ESCALATION.
(a) It is the intent of the parties to use their respective
reasonable best efforts to resolve expeditiously any dispute, controversy or
claim between or among them with respect to the matters covered hereby that may
arise from time to time on a mutually acceptable negotiated basis. In
furtherance of the foregoing, at the request of either party from time to time
in a written notice to the other party, the parties agree to negotiate in good
faith to resolve any controversies, claims or disputes under this Agreement or
an Other Agreement. If the parties cannot otherwise resolve the matter under
consideration, then any party involved in such a dispute, controversy or claim
may deliver a notice (an "Escalation Notice") demanding an in-person meeting of
the Chief Executive Officers (each, a "CEO") of Monsanto and Chemicals who shall
meet with respect to such matters, and who shall thereafter negotiate in good
faith with each other. Each party shall deliver, at the same time the Escalation
Notice is delivered pursuant to the preceding sentence, a copy of any such
Escalation Notice to the General Counsel of each other party involved in the
dispute, controversy or claim (which copy shall state that it is an Escalation
Notice pursuant to this Agreement). Any agenda, location or procedures for such
discussions or negotiations between the parties may be established by the
parties from time to time; provided, however, that the parties shall use their
reasonable efforts to meet within 30 days of the delivery of the Escalation
Notice.
(b) At any time, the parties may, by mutual consent, retain a
mediator to aid the parties in their discussions and negotiations by informally
providing advice to the parties. Any opinion expressed by the mediator shall be
strictly advisory and shall not be binding on the parties, nor shall any opinion
expressed by the mediator be admissible or be made known to the arbitrator in
any arbitration proceedings. The mediator may be chosen from a list of mediators
previously selected by the parties or by other agreement of the parties. Costs
of the mediation shall be borne equally by the parties involved in the matter,
except that each party shall be responsible for its own expenses. Mediation is
not a prerequisite to a demand for arbitration under Section 7.03.
(c) At any time after the delivery of the Escalation Notice, a
party (the "Offeror") may serve upon the other party (the "Offeree") an offer to
settle the dispute upon the payment or receipt of a specified sum (the "Offer of
Settlement"). If the Offer of Settlement is not accepted within thirty days of
receipt of such Offer or within such other longer period of time as may be
specified in the Offer of Settlement, if the Offeror made its CEO available for
a meeting or discussion and if the award or judgment finally obtained is not
more favorable to the Offeree than the Offer of Settlement, the Offeree must pay
the costs, including reasonable attorney's fees, incurred by the Offeror after
the making of the Offer of Settlement. The fact that an Offer of Settlement is
made and not accepted shall not preclude a subsequent offer by either party. The
Offer of Settlement shall be designated as such and copies of the Offer of
Settlement shall be given to the General Counsel and Chief Executive Officer of
each party involved in the dispute. The parties agree to keep confidential and
not to disclose to the arbitrator the fact or the amount of any Offer of
Settlement made.
7.03 DEMAND FOR ARBITRATION.
(a) At any time after the first to occur of (1) forty-five
(45) days after the date of the meeting actually held pursuant to the applicable
Escalation Notice or (2) ninety (90)
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days after the delivery of an Escalation Notice (as applicable, the "Arbitration
Demand Date"), any party involved in the dispute, controversy or claim may make
a written demand (the "Arbitration Demand Notice") that the dispute be resolved
by binding arbitration, which Arbitration Demand Notice shall be given to the
parties to the dispute, controversy or claim in the manner set forth in Section
10.05. In the event that any party shall deliver an Arbitration Demand Notice to
another party, such other party may itself deliver an Arbitration Demand Notice
to such first party with respect to any related dispute, controversy or claim
without the requirement of delivering an Escalation Notice. No party may assert
that the failure to resolve any matter during any discussions or negotiations or
the course of conduct during the discussions or negotiations in each case, as
contemplated by Section 7.02, is a prerequisite to a demand for arbitration
under Section 7.03. In the event that any party delivers an Arbitration Demand
Notice with respect to any dispute, controversy or claim that is the subject of
any then-pending arbitration proceeding or of a previously delivered Arbitration
Demand Notice, all such disputes, controversies and claims shall be resolved in
the arbitration proceeding for which an Arbitration Demand Notice was first
delivered unless the arbitrator in his or her sole discretion determines that it
is impracticable or otherwise inadvisable to do so.
(b) The parties agree that the giving of an Escalation Notice or an
Arbitration Demand Notice followed by good faith discussions, negotiations,
mediations or arbitration between the parties pursuant to this Agreement or the
Other Agreements will toll the applicable statute of limitations during the time
period consumed in compliance with this Article VII with respect to such claims.
Subject to Sections 7.07(d) and 7.08, upon delivery of an Arbitration Demand
Notice pursuant to Section 7.03(a), the dispute, controversy or claim shall be
decided by a sole arbitrator in accordance with the rules set forth in this
Article VII.
7.04 ARBITRATORS.
(a) Within 15 days after a valid Arbitration Demand Notice is given,
the parties involved in the dispute, controversy or claim referenced therein
shall attempt to select a sole arbitrator satisfactory to all such parties.
(b) In the event that such parties are not able jointly to select a
sole arbitrator within such 15-day period, such parties shall each appoint an
arbitrator (who need not be disinterested as to the parties or the matter)
within 30 days after delivery of the Arbitration Demand Notice. If one party
appoints an arbitrator within such time period and the other party or parties
fail to appoint an arbitrator within such time period, the arbitrator appointed
by the one party shall be the sole arbitrator of the matter.
(c) In the event that a sole arbitrator is not selected pursuant to
paragraph (a) or (b) above and, instead, two arbitrators are selected pursuant
to paragraph (b) above, the two arbitrators will, within 30 days after the
appointment of the later of them to be appointed, select an additional
arbitrator who shall act as the sole arbitrator of the dispute. After selection
of such sole arbitrator, the initial arbitrators shall have no further role with
respect to the dispute. In the event that the arbitrators so appointed do not,
within 30 days after the appointment of the later of them to be appointed, agree
on the selection of the sole arbitrator, any party involved in such dispute may
apply to CPR, New York, New York to select the sole arbitrator, which selection
shall be made by such organization within 30 days after such application. Any
arbitrator selected pursuant to this paragraph (c) shall be disinterested with
respect to any of the parties and the matter and shall be reasonably competent
in the applicable subject matter. In disputes involving the Tax Sharing
Agreement the arbitrator appointed shall be either a tax attorney or an
independent certified public accountant.
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(d) The sole arbitrator selected pursuant to paragraph (a), (b) or (c)
above will set a time for the hearing of the matter which will commence no later
than 90 days after the date of appointment of the sole arbitrator pursuant to
paragraph (a), (b) or (c) above and which hearing will be no longer than 30 days
(unless in the judgment of the arbitrator the matter is unusually complex and
sophisticated and thereby requires a longer time, in which event such hearing
shall be no longer than 90 days). The final award of such arbitrator will be
rendered in writing to the parties not later than 60 days after the last hearing
date, unless otherwise agreed by the parties in writing.
(e) The place of any arbitration hereunder will be St. Louis, Missouri,
unless otherwise agreed by the parties.
7.05 HEARINGS. Within the time period specified in Section 7.04(d), the
matter shall be presented to the arbitrator at a hearing by means of written
submissions of memoranda and verified witness statements, filed simultaneously,
and responses, if necessary in the judgment of the arbitrator or both the
parties. The arbitrator shall actively manage the arbitration with a view to
achieving a just, speedy and cost-effective resolution of the dispute, claim or
controversy. The arbitrator may, in his or her discretion, set time and other
limits on the presentation of each party's case, its memoranda or other
submissions, and refuse to receive any proffered evidence which the arbitrator,
in his or her discretion, finds to be cumulative, unnecessary, irrelevant or of
low probative nature. Except as otherwise set forth herein, any arbitration
hereunder will be conducted in accordance with the CPR Rules for
Non-Administered Arbitration of Business Disputes then prevailing (except that
the fee schedule of CPR will not apply unless CPR selects the arbitrator in
which event the relevant CPR Fee Schedule will apply). Except as expressly set
forth in Section 7.08(b), the decision of the arbitrator will be final and
binding on the parties, and judgment thereon may be had and will be enforceable
in any court having jurisdiction over the parties. Arbitration awards will bear
interest from the date of the arbitration award at an annual rate of the Prime
Rate per annum. To the extent that the provisions of this Agreement and the
prevailing rules of the CPR conflict, the provisions of this Agreement shall
govern.
7.06 DISCOVERY AND CERTAIN OTHER MATTERS.
(a) In addition to its rights of access to Information under Article VI
of this Agreement and any other rights to Information provided for in this
Agreement or an Other Agreement, any party involved in the applicable dispute
may request limited document production from the other party or parties at any
time following the original meeting request of relevant documents containing
Information developed after the Distribution Date and which Information would
not otherwise be available under Article VI, with the reasonable expenses of the
producing party incurred in such production paid by the requesting party. Any
such discovery (which rights to documents shall be substantially less than
document discovery rights prevailing under the Federal Rules of Civil Procedure)
shall be conducted expeditiously and shall not cause the hearing provided for in
Section 7.05 to be adjourned except upon consent of all parties involved in the
applicable dispute or upon a showing of cause demonstrating that such
adjournment is necessary to permit discovery essential to a party to the
proceeding. Depositions, interrogatories or other forms of discovery (other than
the document production set forth above) shall not occur except by consent of
the parties involved in the applicable dispute. Disputes concerning the scope of
document production and enforcement of the document production requests will be
determined by written agreement of the parties involved in the applicable
dispute or, failing such agreement, will be referred to the arbitrator for
resolution. All discovery requests for Information developed after the
Distribution Date will be subject to the parties' rights to claim any applicable
privilege. In addition to the parties
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confidentiality and restricted use obligations with respect to Information
contained in this Agreement or the applicable Other Agreement, the arbitrator
will adopt procedures to protect the proprietary rights of the parties and to
maintain the confidential treatment of the arbitration proceedings (except as
may be required by law). Subject to the foregoing, the arbitrator shall have the
power to issue subpoenas to compel the production of documents relevant to the
dispute, controversy or claim.
(b) The arbitrator shall have full power and authority to determine
issues of arbitrability but shall otherwise be limited to interpreting or
construing the applicable provisions of this Agreement or any Other Agreement,
and will have no authority or power to limit, expand, alter, amend, modify,
revoke or suspend any condition or provision of this Agreement or any Other
Agreement; it being understood, however, that the arbitrator will have full
authority to implement the provisions of this Agreement or any Other Agreement,
and to fashion appropriate remedies for breaches of this Agreement (including
interim or permanent injunctive relief); provided that the arbitrator shall not
have (1) any authority in excess of the authority a court having jurisdiction
over the parties and the controversy or dispute would have absent these
arbitration provisions or (2) any right or power to award punitive or treble
damages. It is the intention of the parties that in rendering a decision the
arbitrator give effect to the applicable provisions of this Agreement and the
Other Agreements and follow applicable law (it being understood and agreed that
this sentence shall not give rise to a right of judicial review of the
arbitrator's award).
(c) If a party fails or refuses to appear at and participate in an
arbitration hearing after due notice, the arbitrator may hear and determine the
controversy upon evidence produced by the appearing party.
(d) Arbitration costs will be borne equally by each party involved in
the matter, except that each party will be responsible for its own attorney's
fees and other costs and expenses, including the costs of witnesses selected by
such party. Provided, however, that if an arbitration or court action is
commenced without a meeting of or discussion between the CEO's, the party who
did not make its CEO available for such meeting or discussion will pay all costs
of the arbitration or litigation. In addition, the arbitrator (or the Court in
any action under Article 7.08 or any action to enforce the award) shall be
entitled in his or her discretion to award reasonable attorney's fees to the
prevailing party if the arbitrator (or the Court) finds that the other party did
not make its CEO available for a meeting and that party (a) has asserted claims
or defenses that are frivolous or (b) has unnecessarily and unreasonably
expanded the scope of the proceedings.
7.07 CERTAIN ADDITIONAL MATTERS.
(a) Any arbitration award shall be a bare award limited to a holding
for or against a party and shall be without findings as to facts, issues or
conclusions of law (including with respect to any matters relating to the
validity or infringement of patents or patent applications) and shall be without
a statement of the reasoning on which the award rests, but must be in adequate
form so that a judgment of a court may be entered thereupon. Judgment upon any
arbitration award hereunder may be entered in any court having jurisdiction
thereof.
(b) Prior to the time at which an arbitrator is appointed pursuant to
Section 7.04, any party may seek one or more temporary restraining orders in a
court of competent jurisdiction if necessary in order to preserve and protect
the status quo. Neither the request for, or grant or denial of, any such
temporary restraining order shall be deemed a waiver of the obligation to
arbitrate as set forth herein.
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(c) Except as required by law, the parties shall hold, and shall cause
their respective officers, directors, employees, agents and other
representatives to hold, the existence, content and result of mediation or
arbitration in confidence in accordance with the provisions of Article VI and
except as may be required in order to enforce any award. Each of the parties
shall request that any mediator or arbitrator comply with such confidentiality
requirement.
(d) In the event that at any time the sole arbitrator shall fail to
serve as an arbitrator for any reason, the parties shall select a new arbitrator
who shall be disinterested as to the parties and the matter in accordance with
the procedures set forth herein for the selection of the initial arbitrator. The
extent, if any, to which testimony previously given shall be repeated or as to
which the replacement arbitrator elects to rely on the stenographic record (if
there is one) of such testimony shall be determined by the replacement
arbitrator.
7.08 LIMITED COURT ACTIONS.
(a) Notwithstanding anything herein to the contrary, in the event that
any party reasonably determines the amount in controversy in any dispute,
controversy or claim (or any series of related disputes, controversies or
claims) under this Agreement or any Other Agreement is, or is reasonably likely
to be, in excess of $10 million and if such party desires to commence an Action
in lieu of complying with the arbitration provisions of this Article, such party
shall so state in its Arbitration Demand Notice or by notice given to the other
parties within 20 days after receipt of an Arbitration Demand Notice with
respect thereto. If the other parties to the arbitration do not agree that the
amount in controversy in such dispute, controversy or claim (or such series of
related disputes, controversies or claims) is, or is reasonably likely to be, in
excess of $10 million, the arbitrator selected pursuant to Section 7.04 hereof
shall decide whether the amount in controversy in such dispute, controversy or
claim (or such series of related disputes, controversies or claims) is, or is
reasonably likely to be, in excess of $10 million. The arbitrator shall set a
date that is no later than ten days after the date of his or her appointment for
submissions by the parties with respect to such issue. Except for a party's
rights of access to Information as provided in this Agreement and the Other
Agreements, there shall not be any discovery in connection with such issue. The
arbitrator shall render his or her decision on such issue within five days of
such date so set by the arbitrator. In the event that the arbitrator determines
that the amount in controversy in such dispute, controversy or claim (or such
series of related disputes, controversies or claims) is or is reasonably likely
to be in excess of $10 million, the provisions of Sections 7.04(d) and (e),
7.05, 7.06, 7.07 and 7.10 hereof shall not apply and on or before (but, except
as expressly set forth in Section 7.08(b), not after) the tenth business day
after the date of such decision, any party to the arbitration may elect, in lieu
of arbitration, to commence an Action with respect to such dispute, controversy
or claim (or such series of related disputes, controversies or claims) in any
court of competent jurisdiction. If the arbitrator does not so determine, the
provisions of this Article VII (including with respect to time periods) shall
apply as if no determinations were sought or made pursuant to this Section
7.08(a).
(b) In the event that an arbitration award in excess of $10 million is
issued in any arbitration proceeding commenced hereunder, any party may, within
60 days after the date of such award, commence an Action in a court of competent
jurisdiction relating to the dispute, controversy or claim (or series of related
disputes, controversies or claims) giving rise thereto to a court of competent
jurisdiction, regardless of whether such party or any other party sought to
commence an Action in lieu of proceeding with arbitration in accordance with
Section 7.08(a). In such event, each party may present arguments to the court
with respect to whether
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and to what extent the record developed in arbitration shall be admissible into
evidence and whether any such additional discovery or evidence shall be
permitted.
(c) No party shall raise as a defense the statute of limitations or
repose or a claim of laches if the applicable Notice of Escalation was delivered
on or prior to the applicable statute of limitations or repose or the time
period required to assert a claim of laches and, if applicable, if the matter is
submitted to a court of competent jurisdiction within the 60-day period
specified in Section 7.08(b).
7.09 CONTINUITY OF SERVICE AND PERFORMANCE. Unless otherwise agreed in
writing, the parties will continue to provide service and honor all other
commitments under this Agreement and each Other Agreement during the course of
dispute resolution pursuant to the provisions of this Article VII with respect
to all matters not subject to such dispute, controversy or claim.
7.10 LAW GOVERNING ARBITRATION PROCEDURES. The interpretation of the
provisions of this Article VII, only insofar as they relate to the agreement to
arbitrate and any procedures pursuant thereto, shall be governed by the
Arbitration Act and other applicable federal law. In all other respects, the
interpretation of this Agreement shall be governed as set forth in Section
10.04.
ARTICLE VIII
NO REPRESENTATIONS OR WARRANTIES; EXCEPTIONS
8.01 NO REPRESENTATIONS OR WARRANTIES; EXCEPTIONS. Chemicals
understands and agrees that no member of the Monsanto Group is, in this
Agreement or in any Other Agreement, representing or warranting to the Chemicals
Group in any way as to the Chemicals Assets, the Chemicals Liabilities, the
Chemicals Business, the Former Chemicals Business or the Chemicals Balance
Sheet, or as to any consents or approvals required in connection with the
consummation of the transactions contemplated by this Agreement, it being agreed
and understood as between the Groups, the members of the Chemicals Group shall
take all of the Chemicals Assets "as is, where is" and that, except as provided
in this Section 8.01 or in Section 5.01, the members of Chemicals Group shall
bear the economic and legal risk that conveyances of the Chemicals Assets shall
prove to be insufficient or that the title of any member of the Chemicals Group
to any Chemicals Assets shall be other than good and marketable and free from
encumbrances. Real property in the United States being transferred to Chemicals
will be conveyed by Special Warranty Deed, in recordable form and warranting
title to be free and clear from all lawful claims of those claiming by, through
or under Monsanto, but not otherwise; provided, however, such Special Warranty
Deed shall be subject to deed restrictions, easements, rights-of-way, and all
other matters of record.
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ARTICLE IX
INSURANCE
9.01 INSURANCE POLICIES AND RIGHTS.
(a) Without limiting the generality of the definition of Chemicals
Assets set forth in Section 1.01 or the effect of Section 2.03, the Chemicals
Assets shall include any and all rights of an insured party, including rights of
indemnity and the right to be defended by or at the expense of the insurer with
respect to all Chemicals Claims, under any Insurance Policies; provided,
however, that nothing in this clause shall be deemed to constitute (or to
reflect) the assignment to Chemicals of any of the Insurance Policies. Except
for Insurance Proceeds paid to or on behalf of any member of the Monsanto Group
at the direction of Chemicals in satisfaction of a claim that would otherwise be
subject to indemnification by Chemicals under Article IV but subject to the
provisions of Section 4.03(c), and except for reimbursement received by Monsanto
for Chemicals Claims which are Monsanto Liabilities and were paid by the
Monsanto Group after the Distribution Date, Chemicals shall be entitled to
receive from the insurer or Monsanto any Insurance Proceeds with respect to any
Chemicals Claim under the Insurance Policies including without limitation,
reimbursement or payment for Chemicals Liabilities, for casualty or business
interruption with respect to the Chemicals Business or the Chemicals Assets, or
for costs or expenses related thereto.
(b) Without limiting the generality of the definition of Monsanto
Assets set forth in Section 1.01, the Monsanto Assets shall include any and all
rights of an insured party including rights of indemnity and the right to be
defended by or at the expense of the insurer, under any Insurance Policies other
than the rights under the Insurance Policies which are included in Chemicals
Assets pursuant to Section 9.01(a). Such rights include claims with respect to
the Joint Ownership Properties or the P4 Business to the extent of Monsanto's
rights or obligations under the P4 Joint Venture Agreement with respect to such
claims.
(c) Solely for purposes of this Article IX, "Monsanto Group" and
"Chemicals Group" shall include their consolidated entities to the extent such
entities were in existence as of the Distribution Date.
9.02 CLAIMS.
(a) The parties agree that on or prior to the Distribution Date,
Monsanto shall be deemed: (i) to have assigned to the Chemicals Group, without
need of further documentation, all of the Monsanto Group's rights, if any, as an
insured party, including rights of indemnity and the right to be defended by or
at the expense of the insurer, under all of the Insurance Policies with respect
to such Chemicals Claims as are pending on the Distribution Date, and (ii) to
the extent necessary to provide the Chemicals Group with the benefit of such
insurance with respect to Chemicals Claims, to designate Chemicals, without need
of further documentation, as the agent and attorney-in-fact to assert and to
collect any Insurance Proceeds under such Insurance Policies; provided, however,
that nothing in this Section 9.02 shall be deemed to constitute (or reflect) the
assignment of any of the Insurance Policies to the Chemicals Group. If,
subsequent to the Distribution Date, the Chemicals Group shall be entitled to
payment or reimbursement with respect to a Chemicals Claim or any Person shall
assert a Chemicals Claim, then Monsanto shall at the time such Chemicals Claim
arises or is asserted be deemed: (i) to assign, without need of further
documentation, to the Chemicals Group all of the Monsanto Group's rights, if
any, as an insured party, including rights of indemnity and the right to be
defended by or at the expense of the insurer, under the applicable
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Insurance Policy with respect to such Chemicals Claim; and (ii) to the extent
necessary to provide the Chemicals Group with the benefit of such insurance with
respect to Chemicals Claims, to designate Chemicals, without need of further
documentation, as the agent and attorney-in-fact to assert and to collect any
Insurance Proceeds under such Insurance Policies, provided, however, that
nothing in this Section 9.02 shall be deemed to constitute (or to reflect) the
assignment of any of the Insurance Policies to the Chemicals Group. In the event
an insurer refuses to honor such agency or to pay such Insurance Proceeds to the
Chemicals Group, Monsanto shall collect such Insurance Proceeds and forward it
to Chemicals.
(b) In the event of payment of a Chemicals Claim by the
Chemicals Group after the Distribution Date or any payment of a Chemicals Claim
prior to the Distribution Agreement which is subject to reimbursement or payment
by an insurer or a Third Party, Chemicals, or the applicable member of the
Chemicals Group shall be subrogated to and stand in the place of Monsanto or the
Monsanto Group as to any rights, events or circumstances in respect of which
Chemicals or the applicable member of the Chemicals Group may have any right or
claim under this Agreement, any Other Agreement or otherwise against any such
insurer or Third Party relating to such Chemicals Claim. Monsanto shall
cooperate with the Chemicals Group in a reasonable manner in prosecuting any
subrogated right or claim, including granting Chemicals permission to sue in the
name of Monsanto.
9.03 ADMINISTRATION AND RESERVES. Consistent with the
provisions of Article IV, from and after the Distribution Date:
(a) Monsanto shall be responsible for (1) Insurance
Administration of the Insurance Policies with respect to any Monsanto
Liabilities, any Monsanto Assets or any claims as to which the Monsanto
Group has retained rights of reimbursement or subrogation pursuant to
this Agreement or any Other Agreement; and (2) Claims Administration
with respect to any Monsanto Liabilities, any Monsanto Assets or any
claims as to which the Monsanto Group has retained rights of
reimbursement or subrogation pursuant to this Agreement or any Other
Agreement. It is understood that the retention of the Insurance
Policies by Monsanto is in no way intended to limit, inhibit or
preclude any right to insurance coverage for any Insured Claim or any
other rights under the Insurance Policies, including without
limitation, claims of Chemicals and any of its operations, Subsidiaries
and Affiliates for insurance coverage, reimbursement, subrogation or
otherwise; and
(b) Chemicals shall be responsible for (1) Insurance
Administration of the Insurance Policies with respect to any Chemicals
Liabilities, any Chemicals Assets, or any claims as to which the
Chemicals Group has rights of reimbursement or subrogation pursuant to
this Agreement or any Other Agreement, and (2) Claims Administration
with respect to any Chemicals Liabilities, any Chemicals Assets, or any
claims as to which the Chemicals Group has rights of reimbursement or
subrogation pursuant to this Agreement or an Other Agreement. Subject
to the terms of the Transition Services Agreement, Monsanto shall
perform the Insurance Administration and provide assistance to the
Chemicals Group with respect to Claims Administration for claims as to
which Chemicals or the Chemicals Group has rights or obligations
hereunder as part of the insurance and risk management services it will
perform for the Chemicals Group after the Distribution Date.
9.04 RETROSPECTIVELY RATED INSURANCE PREMIUMS. Each party
shall pay its share of retrospectively rated premiums incurred after the
Distribution Date for coverage under the Insurance Policies with respect to
their respective Liabilities which are Insured Claims under the
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Insurance Policies. Such shares will be determined consistent with the
accounting principle in effect on the Distribution Date which was used to
determine shares of such retrospectively rated premiums prior thereto. Either
party shall have the right but not the obligation to pay such premiums under the
Insurance Policies with respect to the other party's Liabilities which are
Insured Claims under the Insurance Policies to the extent that such other party
does not pay such premiums, whereupon the non-paying party shall forthwith
reimburse the payor for any premiums paid by the payor with respect to such
non-paying party's Liabilities.
9.05 ALLOCATION OF INSURANCE PROCEEDS; COOPERATION. (a) Except as
otherwise provided in Section 4.03(c), Insurance Proceeds received with respect
to claims, costs and expenses under the Insurance Policies shall be paid to
Monsanto with respect to Monsanto Liabilities and to Chemicals with respect to
the Chemicals Liabilities. Payment of the allocable portions of indemnity costs
of Insurance Proceeds resulting from the Insurance Policies will be made to the
appropriate party upon receipt from the insurance carrier.
(b) Each of the parties hereto agree to use commercially
reasonable efforts to maximize available coverage under the Insurance Policies
for all Insured Claims whether or not such party is the expected beneficiary of
Insurance Proceeds under such Insurance Policies in respect of such Insured
Claim. As part of such efforts to maximize insurance coverage, each party agrees
to take all commercially reasonable steps to recover such amounts as are or
might be due from all other responsible parties in respect of an Insured Claim,
including but not limited to Insured Claims as to which coverage limits under
the Insurance Policies would be or would have been exceeded as a result of such
Insured Claim and whether or not such party is expected to benefit directly from
such efforts.
(c) Where Monsanto Liabilities and Chemicals Liabilities, as
applicable, are covered under the same Insurance Policies for periods prior to
the Distribution Date, or covering claims made after the Distribution Date with
respect to an event or an occurrence prior to the Distribution Date, then the
Monsanto Group and the Chemicals Group may claim coverage for Insured Claims
under such Insurance Policies as and to the extent that such insurance is
available up to the full extent of the applicable limits of liability or other
coverage of such Insurance Policies. Each party may receive Insurance Proceeds
in respect of its Insured Claims as and when payable under the terms of the
applicable Insurance Policies without regard to whether the Insured Claim covers
a Monsanto Liability or claim or a Chemicals Liability or claim, the relative
amount of deductible paid by either party after the Distribution Date with
respect to an Insured Claim for a Liability for which such party was responsible
or the amount of such Insurance Proceeds paid to either Group after the
Distribution Date with respect to its respective Liabilities. In the event that
the aggregate limits on any Insurance Policy is exceeded by the aggregate of
paid Insured Claims, there shall be no further allocation of previously paid
deductibles, premiums or Insurance Proceeds between the Groups and except as
expressly provided in this Agreement, neither Group shall be entitled to
reimbursement from the other Group for deductibles, premiums or Insurance
Proceeds paid by an insurer to or on behalf of such Group; provided, however,
that in the event additional insurance coverage for remaining unpaid Insured
Claims may be purchased or reinstated, the parties agree to share such costs of
reinstatement (including premium penalty adjustments) in the same proportion
which the Insurance Proceeds under such Insurance Policy (both received and
expected to be received by such party after the Distribution Date less
deductible paid by such party after the Distribution Date) bears to the total
Insurance Proceeds paid (and payable to the party with the pending claims under
the new coverage limits).
9.06 REIMBURSEMENT OF EXPENSES. Chemicals shall reimburse the relevant
insurer or the relevant third-party administrator, to the extent required under
any Insurance Policy or Service Agreement for any services performed after the
Distribution Date with respect to any and
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all Chemicals Claims which are not Monsanto Liabilities which are paid, settled,
adjusted, defended and/or otherwise handled by such insurer or third-party
administrator pursuant to the terms and conditions of such Insurance Policy or
Service Agreement.
9.07 INSURER INSOLVENCY. Except for Chemicals Claims which are Monsanto
Liabilities or as otherwise provided in this Agreement, the Monsanto Group shall
not be obligated to reimburse the Chemicals Group for any Chemicals Claim
covered under any Insurance Policies which is not paid because of the insolvency
of such insurer or the refusal by any insurer to pay such Chemicals Claim;
provided, however, that Monsanto shall assign to Chemicals or any member of the
Chemicals Group all of its rights under such Insurance Policies with respect to
such Chemicals Claim and shall cooperate with Chemicals, at Chemicals' option
and expense, in pursuing collection of all or part of such Chemicals Claim from
such insurer or such other Third Parties who may have liability for such
Chemicals Claim (including without limitation, Governmental Authorities, or
others holding insurance reserves available for payment, trustees in bankruptcy
or liquidators of such insurers, etc.).
9.08 DIRECT RESPONSIBILITY FOR CLAIMS. Monsanto agrees to notify
insurers under the Insurance Policies of the Distribution and to seek an
endorsement by such insurers that the coverage provided by such Insurance
Policies will apply to the Monsanto Group and the Chemicals Group with the same
force and effect and subject to the same terms, conditions, and exclusions as if
the separation of Monsanto and the Distribution had not occurred. In the event
such endorsement is refused, Monsanto agrees to take such action as is necessary
to place the Chemicals Group in the same position as it would have been had such
endorsement been agreed upon by such insurers. Chemicals shall have the right to
make reasonable efforts to negotiate agreements with any and all insurers or
third-party administrators whereby Chemicals shall assume direct responsibility
for any and all Liabilities related to it under any Insurance Policies and/or
Service Agreements, and Monsanto shall provide reasonable assistance in this
effort.
9.09 NO REDUCTION OF COVERAGE. Except for such reduction in coverage
resulting from payment of claims paid in accordance with this Agreement or any
Other Agreement, neither party shall take any action to eliminate or reduce
coverage under any Insurance Policy or Service Agreement for any claims without
the prior written consent of the other party (which shall not be unreasonably
withheld or delayed).
9.10 ASSISTANCE, WAIVER OF CONFLICT AND SHARED DEFENSE. Each of the
parties hereto agrees to provide reasonable assistance to the other parties
hereto as regards any dispute with any third party (including insurers,
third-party administrators and state guaranty funds) as to any matter related to
the Insurance Policies or Service Agreements. In the event that Insured Claims
of more than one Group exist relating to the same occurrence, the parties hereto
agree to defend such Insured Claims jointly and to waive any conflict of
interest necessary to the conduct of such joint defense. Nothing in this Section
9.10 shall be construed to limit or otherwise alter in any way the indemnity
obligations of the parties hereto, including those created by this Agreement or
by operation of law.
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ARTICLE X
MISCELLANEOUS
10.01 CONDITIONS TO OBLIGATIONS.
(a) The obligations of the parties hereto to consummate the
Distribution are subject to the satisfaction, as determined by Monsanto in its
sole discretion, of each of the following conditions:
(1) The Distribution shall have been approved by the holders
of a majority of the shares of Monsanto Common Stock present in person
or by proxy at the Special Meeting;
(2) The Monsanto Certificate Amendment shall have been
approved by the holders of a majority of the outstanding shares of
Monsanto Common Stock;
(3) The transactions contemplated by Sections 2.01, 2.02, 2.05
and 2.06 shall have been consummated and the transactions contemplated
by Section 2.03 shall have been consummated in all material respects;
(4) The Chemicals Common Stock shall have been approved for
listing on the NYSE, subject to official notice of issuance;
(5) The Registration Statement shall have been filed with the
SEC and shall have become effective, and no stop order with respect
thereto shall be in effect;
(6) All material authorizations, consents, approvals and
clearances of federal, state, local and foreign governmental agencies
required to permit the valid consummation by the parties hereto of the
transactions contemplated by this Agreement shall have been obtained;
and no such authorization, consent, approval or clearance shall contain
any conditions which would have a material adverse effect on (A) the
Monsanto Business or the Chemicals Business, (B) the Assets, results of
operations or financial condition of the Monsanto Group or the
Chemicals Group, in each case taken as a whole, or (C) the ability of
Monsanto or Chemicals to perform its obligations under this Agreement;
and all statutory requirements for such valid consummation shall have
been fulfilled.
(7) No preliminary or permanent injunction or other order,
decree or ruling issued by a court of competent jurisdiction or by a
government, regulatory or administrative agency or commission, and no
statute, rule, regulation or executive order promulgated or enacted by
any governmental authority, shall be in effect preventing the
consummation of the Distribution;
(8) The Financing Facility shall be in place and all
conditions to borrowing thereunder (other than any conditions
concerning consummation of the Distribution and the transfers of assets
and liabilities described hereunder) shall have been satisfied, and all
necessary consents, waivers or amendments to each bank credit
agreement, debt security or other financing facility to which any
member of the Monsanto Group or the Chemicals Group is a party or by
which any such member is bound shall have been obtained, or each such
agreement, security or facility shall have been refinanced, in each
case on terms satisfactory to Monsanto and to the extent necessary to
permit the Distribution to be consummated without any material breach
of the terms of such agreement, security or facility; and
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<PAGE> 42
(9) Monsanto shall have received a ruling from the Internal
Revenue Service that the Distribution is tax-free for federal income
tax purposes, and such ruling shall be in form and substance
satisfactory to Monsanto in its sole discretion.
(b) The foregoing conditions are for the sole benefit of Monsanto and
shall not give rise to any duty on the part of Monsanto or its Board of
Directors to waive or not waive any such condition. Any determination made by
the Board of Directors of Monsanto in good faith on or prior to the Distribution
Date concerning the satisfaction or waiver of any or all of the conditions set
forth in Section 10.01(a) shall be conclusive.
10.02 COMPLETE AGREEMENT. This Agreement, the Exhibits and
Schedules hereto, the Other Agreements and the agreements and other documents
referred to herein shall constitute the entire agreement between the parties
hereto with respect to the subject matter hereof and shall supersede all
previous negotiations, commitments and writings with respect to such subject
matter, including without limitation, the "Spin Principles".
10.03 EXPENSES. All costs and expenses of any party hereto
whether incurred prior to or after the Distribution Date in connection with the
preparation, execution, delivery and implementation of this Agreement and with
the consummation of the transactions contemplated by this Agreement and the
Other Agreements, including but not limited to legal fees, accounting fees,
investment banking fees, and all such other costs and expenses shall be charged
to and paid by Monsanto. Monsanto will contribute to Chemicals all intangible
assets relating to Chemicals' investigatory, pre-opening, start-up and
organizational expenditures which are required to be capitalized for federal
income tax purposes.
10.04 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware (other than the
laws regarding choice of laws and conflicts of laws) as to all matters,
including matters of validity, construction, effect, performance and remedies.
10.05 NOTICES. All notices, requests, claims, demands and
other communications hereunder (collectively, "Notices") shall be in writing and
shall be given (and shall be deemed to have been duly given upon receipt) by
delivery in person, by cable, telegram, facsimile, electronic mail or other
standard form of telecommunications (provided confirmation is delivered to the
recipient the next Business Day in the case of facsimile, electronic mail or
other standard form of telecommunications) or by registered or certified mail,
postage prepaid, return receipt requested, addressed as follows:
If to Monsanto:
with a copy to: General Counsel
D Building
Monsanto Company
800 North Lindbergh Boulevard
St. Louis, MO 63167
Telephone:
Facsimile:
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<PAGE> 43
If to Chemicals: President
G Building
[New Chemicals Corporation]
10300 Olive Boulevard
P.O. Box 66760
St. Louis, MO 63166-6760
Telephone: 314-674-2210
Facsimile: 314-674-
with a copy to: General Counsel
G Building
[New Chemicals Corporation]
10300 Olive Boulevard
St. Louis, MO 63166-6760
Telephone: 314-674-3586
Facsimile: 314-674-2721
or to such other address as any party hereto may have furnished to the other
parties by a notice in writing in accordance with this Section 10.05.
10.06 AMENDMENT AND MODIFICATION. This Agreement may be
amended, modified or supplemented only by a written agreement signed by both of
the parties hereto.
10.07 SUCCESSORS AND ASSIGNS; NO THIRD PARTY BENEFICIARIES.
This Agreement and all of the provisions hereof shall be binding upon and inure
to the benefit of the parties hereto and their successors and permitted assigns,
but neither this Agreement nor any of the rights, interests and obligations
hereunder shall be assigned by any party hereto without the prior written
consent of the other party (which consent shall not be unreasonably withheld or
delayed). Except for the provisions of Sections 4.03 and 4.04 relating to
Indemnities, which are also for the benefit of the Indemnitees, this Agreement
is solely for the benefit of the parties hereto and their Subsidiaries and
Affiliates and is not intended to confer upon any other Persons any rights or
remedies hereunder.
10.08 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.09 INTERPRETATION. The Article and Section headings
contained in this Agreement are solely for the purpose of reference, are not
part of the agreement of the parties hereto and shall not in any way affect the
meaning or interpretation of this Agreement.
10.10 LEGAL ENFORCEABILITY. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Each party
acknowledges that money damages would be an inadequate remedy for any breach of
the provisions of this Agreement and agrees that the obligations of the parties
hereunder shall be specifically enforceable.
10.11 REFERENCES; CONSTRUCTION. References to any "Article",
"Exhibit", "Schedule" or "Section", without more, are to Appendices, Articles,
Exhibits, Schedules and Sections to or of this Agreement. Unless otherwise
expressly stated, clauses beginning with the
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<PAGE> 44
term "including" set forth examples only and in no way limit the generality of
the matters thus exemplified.
10.12 TERMINATION. Notwithstanding any provision hereof this
Agreement may be terminated and the Distribution abandoned at any time prior to
the Distribution Date by and in the sole discretion of the Board of Directors of
Monsanto without the approval of any other party hereto or of Monsanto's
stockholders. In the event of such termination, no party hereto shall have any
Liability to any Person by reason of this Agreement.
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<PAGE> 45
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
MONSANTO COMPANY,
a Delaware corporation
By: _____________________________
[CHEMICALS],
a Delaware corporation
By: _____________________________
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<PAGE> 1
EXHIBIT 3(a)
FORM OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
QUEENY CHEMICAL COMPANY
ARTICLE I
The name of the corporation (which is hereinafter referred to
as the "Corporation") is:
Queeny Chemical Company
ARTICLE II
The address of the Corporation's registered office in the
State of Delaware is The Corporation Trust Center, 1209 Orange Street in the
City of Wilmington, County of New Castle. The name of the Corporation's
registered agent at such address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation shall be to engage in any
lawful act or activity for which corporations may be organized and
incorporated under the General Corporation Law of the State of Delaware.
ARTICLE IV
The total number of shares of stock which the Corporation
shall have authority to issue is Six Hundred Ten Million (610,000,000),
consisting of Ten Million (10,000,000) shares of preferred stock, par value $.01
per share (hereinafter referred to as "Preferred Stock"), and Six Hundred
Million (600,000,000) shares of common stock, par value $.01 per share
(hereinafter referred to as "Common Stock").
The Preferred Stock may be issued from time to time in one or
more series. The Board of Directors is hereby authorized to provide for the
issuance of shares of Preferred Stock in series and, by filing a certificate
pursuant to the applicable law of the State of Delaware (hereinafter referred to
as a "Preferred Stock Designation"), to establish from time to
<PAGE> 2
time the number of shares to be included in each such series, and to fix the
designation, powers, preferences and special rights of the shares of each such
series and the qualifications, limitations and restrictions thereof. The
authority of the Board of Directors with respect to each series shall include,
but not be limited to, determination of the following:
(1) The designation of the series, which may be by
distinguishing number, letter or title.
(2) The number of shares of the series, which number the Board
of Directors may thereafter (except where otherwise provided in the Preferred
Stock Designation) increase or decrease (but not below the number of shares
thereof then outstanding).
(3) The amounts payable on, and the preferences, if any, of
shares of the series in respect of dividends, and whether such dividends, if
any, shall be cumulative or noncumulative.
(4) Dates at which dividends, if any, shall be payable.
(5) The redemption rights and price or prices, if any, for
shares of the series.
(6) The terms and amount of any sinking fund providing for the
purchase or redemption of shares of the series.
(7) The amounts payable on, and the preferences, if any, of
shares of the series in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation.
(8) Whether the shares of the series shall be convertible into
or exchangeable for shares of any other class or series, or any other security,
of the Corporation or any other corporation or entity, and, if so, the
specification of such other class or series or such other security, the
conversion or exchange price or prices or rate or rates, any adjustments
thereof, the date or dates at which such shares shall be convertible or
exchangeable and all other terms and conditions upon which such conversion or
exchange may be made.
(9) Restrictions on the issuance of shares of the same series
or of any other class or series.
(10) The voting rights and powers, if any, of the holders of
shares of the series.
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<PAGE> 3
The Common Stock shall be subject to the express terms of the
Preferred Stock and any series thereof. Except as may be provided in this
Certificate of Incorporation or in a Preferred Stock Designation, the holders of
shares of Common Stock shall be entitled to one vote for each such share upon
all questions presented to the stockholders, the Common Stock shall have the
exclusive right to vote for the election of directors and for all other
purposes, and holders of Preferred Stock shall not be entitled to receive notice
of any meeting of stockholders at which they are not entitled to vote.
The Corporation shall be entitled to treat the person in whose
name any share of its stock is registered as the owner thereof for all purposes
and shall not be bound to recognize any equitable or other claim to, or interest
in, such share on the part of any other person, whether or not the Corporation
shall have notice thereof, except as expressly provided by applicable law.
ARTICLE V
In furtherance of, and not in limitation of, the powers
conferred by law, the Board of Directors is expressly authorized and empowered:
(1) to adopt, amend or repeal the By-Laws of the Corporation;
provided, however, that the By-Laws adopted by the Board of Directors under the
powers hereby conferred may be amended or repealed by the Board of Directors or
by the stockholders having voting power with respect thereto, provided further
that, notwithstanding any other provision of this Certificate of Incorporation
or any provision of law which might otherwise permit a lesser vote or no vote,
but in addition to any affirmative vote of the holders of any series of
Preferred Stock required by law, this Certificate of Incorporation or any
Preferred Stock designation, the affirmative vote of the holders of at least 80
percent of the voting power of the then outstanding Voting Stock (as defined
herein), voting together as a single class, shall be required in order for the
stockholders to adopt, amend or repeal any provision of the By-Laws; and
(2) from time to time to determine whether and to what extent,
and at what times and places, and under what conditions and regulations, the
accounts and books of the Corporation, or any of them, shall be open to
inspection of stockholders; and, except as so determined or as expressly
provided in this Certificate of Incorporation or in any Preferred Stock
Designation, no stockholder shall have any right
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<PAGE> 4
to inspect any account, book or document of the Corporation other than such
rights as may be conferred by applicable law.
The Corporation may in its By-Laws confer powers upon the
Board of Directors in addition to the foregoing and in addition to the powers
and authorities expressly conferred upon the Board of Directors by applicable
law. Notwithstanding anything contained in this Certificate of Incorporation to
the contrary, the affirmative vote of the holders of at least 80 percent of the
voting power of the then outstanding Voting Stock, voting together as a single
class, shall be required to amend, repeal or adopt any provision inconsistent
with paragraph (1) of this Article V. For the purposes of this Certificate of
Incorporation, "Voting Stock" shall mean the outstanding shares of capital stock
of the Corporation entitled to vote generally in the election of directors.
ARTICLE VI
Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation and may not be effected by
any consent in writing in lieu of a meeting of such stockholders.
Notwithstanding anything contained in this Certificate of Incorporation to the
contrary, the affirmative vote of at least 80 percent of the voting power of the
then outstanding Voting Stock, voting together as a single class, shall be
required to amend, repeal or adopt any provision inconsistent with this Article
VI.
ARTICLE VII
Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances, the
number of directors of the Corporation shall be fixed, and may be increased or
decreased from time to time in such a manner as may be prescribed by the
By-Laws.
Unless and except to the extent that the By-Laws of the
Corporation shall so require, the election of directors of the Corporation need
not be by written ballot.
The directors, other than those who may be elected by the
holders of any series of Preferred Stock, shall be divided into three classes,
as nearly equal in number as possible. One class of directors shall be initially
elected for
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<PAGE> 5
a term expiring at the annual meeting of stockholders to be held in 1998,
another class shall be initially elected for a term expiring at the annual
meeting of stockholders to be held in 1999, and another class shall be initially
elected for a term expiring at the annual meeting of stockholders to be held in
2000. Members of each class shall hold office until their successors are elected
and qualified. At each annual meeting of the stockholders of the Corporation
commencing with the 1998 annual meeting, (1) directors elected to succeed those
directors whose terms then expire shall be elected by a plurality vote of all
votes cast at such meeting to hold office for a term expiring at the third
succeeding annual meeting of stockholders after their election, with each
director to hold office until his or her successor shall have been duly elected
and qualified, and (2) only if authorized by a resolution of the Board of
Directors, directors may be elected to fill any vacancy on the Board of
Directors, regardless of how such vacancy shall have been created.
Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances, and
unless the Board of Directors otherwise determines, vacancies resulting from
death, resignation, retirement, disqualification, removal from office or other
cause, and newly created directorships resulting from any increase in the
authorized number of directors, may be filled only by the affirmative vote of a
majority of the remaining directors, though less than a quorum of the Board of
Directors, and directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
they have been elected expires and until such director's successor shall have
been duly elected and qualified. No decrease in the number of authorized
directors constituting the total number of directors which the Corporation would
have if there were no vacancies shall shorten the term of any incumbent
director.
Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
By-Laws.
Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances, any
director may be removed from office at any time, but only for cause and only by
the affirmative vote of the holders of at least 80 percent of the voting power
of the then outstanding Voting Stock, voting together as a single class.
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<PAGE> 6
Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
80 percent of the voting power of the then outstanding Voting Stock, voting
together as a single class, shall be required to amend, repeal or adopt any
provision inconsistent with this Article VII.
ARTICLE VIII
Each person who is or was a director or officer of the
Corporation, or each such person who is or was serving or who has agreed to
serve at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise (including the heirs, executor, administrators or estate of such
person), shall be indemnified by the Corporation to the fullest extent permitted
from time to time by the General Corporation Law of the State of Delaware as the
same exists or may hereafter be amended (but, if permitted by applicable law, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment) or any other
applicable laws as presently or hereafter in effect. The Corporation may, by
action of the Board of Directors, provide indemnification to employees and
agents of the Corporation, and to any such persons serving as directors,
officers, employees or agents of another corporation, partnership, joint
venture, trust or other enterprise, at the request of the Corporation, with the
same scope and effect as the foregoing indemnification of directors and
officers. The Corporation shall be required to indemnify any person seeking
indemnification in connection with any action, suit, or proceeding, whether
civil, criminal, administrative or investigative (a "proceeding")(or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors or is a proceeding to enforce such person's
claim to indemnification pursuant to the rights granted by this Certificate of
Incorporation or otherwise by the Corporation. Without limiting the generality
or the effect of the foregoing, the Corporation may enter into one or more
agreements with any person which provide for indemnification greater than or
different from that provided in this Article VIII. Any amendment or repeal of
this Article VIII shall not adversely affect any right or protection existing
hereunder in respect of any act or omission occurring prior to such amendment or
repeal.
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<PAGE> 7
ARTICLE IX
A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (1) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (2) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) under Section 174 of the General Corporation Law
of the State of Delaware, or (4) for any transaction from which the director
derived an improper personal benefit. Any amendment or repeal of this Article X
shall not adversely affect any right or protection of a director of the
Corporation existing hereunder in respect of any act or omission occurring prior
to such amendment or repeal.
ARTICLE X
Except as may be expressly provided in this Certificate of
Incorporation, the Corporation reserves the right at any time and from time to
time to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation or a Preferred Stock Designation, and any other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted, in the manner now or hereafter prescribed herein or by
applicable law, and all rights, preferences and privileges of whatsoever nature
conferred upon stockholders, directors or any other persons whomsoever by and
pursuant to this Certificate of Incorporation in its present form or as
hereafter amended are granted subject to the right reserved in this Article X;
provided, however, that any amendment or repeal of Article VIII or Article IX of
this Certificate of Incorporation shall not adversely affect any right or
protection existing hereunder in respect of any act or omission occurring prior
to such amendment or repeal; and provided further that no Preferred Stock
Designation shall be amended after the issuance of any shares of the series of
Preferred Stock created thereby, except in accordance with the terms of such
Preferred Stock Designation and the requirements of applicable law.
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<PAGE> 1
EXHIBIT 3(b)
FORM OF
BY-LAWS
OF
QUEENY CHEMICAL COMPANY
(THE "COMPANY")
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
ARTICLE I
OFFICES AND RECORDS
SECTION 1.1. Delaware Office. The name of the registered agent
of the Company is The Corporation Trust Company and the registered office of the
Company shall be located in the City of Wilmington, County of New Castle, State
of Delaware.
SECTION 1.2. Other Offices. The Company may have such other
offices, either within or without the State of Delaware, as the Board of
Directors may designate or as the business of the Company may from time to time
require.
SECTION 1.3. Books and Records. The books and records of the
Company may be kept outside the State of Delaware at such place or places as may
from time to time be designated by the Board of Directors.
ARTICLE II
STOCKHOLDERS
SECTION 2.1. Annual Meeting. The annual meeting of the
stockholders of the Company shall be held on such date and at such place and
time as may be fixed by resolution of the Board of Directors.
SECTION 2.2. Special Meeting. Subject to the rights of the
holders of any series of stock having a preference over the Common Stock of the
Company as to dividends or upon liquidation ("Preferred Stock") with respect to
such series of Preferred Stock, special meetings of the stockholders may be
called only by the Chairman of the Board or the President or by the Board of
Directors pursuant to a resolution adopted by a majority of the total number of
directors which the Company would have if there were no vacancies (the "Whole
Board").
<PAGE> 2
SECTION 2.3. Place of Meeting. The Board of Directors or the
Chairman of the Board, as the case may be, may designate the place of meeting
for any annual meeting or for any special meeting of the stockholders called by
the Board of Directors or the Chairman of the Board. If no designation is so
made, the place of meeting shall be the principal office of the Company.
SECTION 2.4. Notice of Meeting. Written or printed notice,
stating the place, day and hour of the meeting and the purpose or purposes for
which the meeting is called, shall be delivered by the Company not less than ten
(10) days nor more than sixty (60) days before the date of the meeting, either
personally or by mail, to each stockholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail with postage thereon prepaid, addressed to the
stockholder at his address as it appears on the stock transfer books of the
Company. Such further notice shall be given as may be required by law. Only such
business shall be conducted at a special meeting of stockholders as shall have
been brought before the meeting pursuant to the Company's notice of meeting.
Meetings may be held without notice if all stockholders entitled to vote are
present, or if notice is waived by those not present in accordance with Section
6.4 of these By-Laws. Any previously scheduled meeting of the stockholders may
be postponed, and (unless the Amended and Restated Certificate of Incorporation,
as it may be amended (the "Certificate of Incorporation") otherwise provides)
any special meeting of the stockholders may be cancelled, by resolution of the
Board of Directors upon public notice given on or prior to the date previously
scheduled for such meeting of stockholders.
SECTION 2.5. Quorum and Adjournment. Except as otherwise
provided by law or by the Certificate of Incorporation, the holders of a
majority of the outstanding shares of the Company entitled to vote generally in
the election of directors (the "Voting Stock"), represented in person or by
proxy, shall constitute a quorum at a meeting of stockholders, except that when
specified business is to be voted on by a class or series of stock voting as a
class, the holders of a majority of the outstanding shares of such class or
series shall constitute a quorum of such class or series for the transaction of
such business. The Chairman of the meeting or a majority of the shares so
represented may adjourn the meeting from time to time, whether or not there is
such a quorum. No notice of the time and place of adjourned meetings need be
given except as required by law. The stockholders present at a duly called
meeting at which a quorum is present may continue to transact
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<PAGE> 3
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
SECTION 2.6. Proxies. At all meetings of stockholders, a
stockholder may vote by proxy executed in writing (or in such manner prescribed
by the General Corporation Law of the State of Delaware) by the stockholder, or
by his duly authorized attorney in fact.
SECTION 2.7. Notice of Stockholder Business and Nominations.
(A) Annual Meetings of Stockholders. (1) Nominations of
persons for election to the Board of Directors of the Company and the proposal
of business to be considered by the stockholders may be made at an annual
meeting of stockholders (a) pursuant to the Company's notice of meeting, (b) by
or at the direction of the Board of Directors or (c) by any stockholder of the
Company who was a stockholder of record at the time of giving of notice provided
for in this By-Law, who is entitled to vote at the meeting and who complies with
the notice procedures set forth in this By-Law.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of paragraph
(A)(1) of this By-Law, the stockholder must have given timely notice thereof in
writing to the Secretary of the Company and such other business must otherwise
be a proper matter for stockholder action. To be timely, a stockholder's notice
shall be delivered to the Secretary at the principal executive offices of the
Company not later than the close of business on the 60th day nor earlier than
the close of business on the 90th day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that with respect to the
annual meeting to be held in 1998, the first anniversary date shall be deemed
for all purposes under this Section 2.7 to be April 22, 1998, and provided,
further, that in the event that the date of the annual meeting is more than 30
days before or more than 60 days after such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the close of
business on the 90th day prior to such annual meeting and not later than the
close of business on the later of the 60th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of such
meeting is first made by the Company. In no event shall the public announcement
of an adjournment of an annual meeting commence a new time period for the giving
of a stockholder's notice as described above. Such stockholder's notice shall
set forth (a) as to each person whom
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the stockholder proposes to nominate for election or re-election as a director
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest, or is
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); (b) as to any other
business that the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such stockholder, as they appear on the Company's
books, and of such beneficial owner and (ii) the class and number of shares of
the Company which are owned beneficially and of record by such stockholder and
such beneficial owner.
(3) Notwithstanding anything in the second sentence of
paragraph (A)(2) of this By-Law to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Company is increased
and there is no public announcement by the Company naming all of the nominees
for director or specifying the size of the increased Board of Directors at least
70 days prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice required by this By-Law shall also be considered timely,
but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary at the principal executive
offices of the Company not later than the close of business on the 10th day
following the day on which such public announcement is first made by the
Company.
(B) Special Meetings of Stockholders. Only such business shall
be conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the Company's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected pursuant to the Company's
notice of meeting (a) by or at the direction of the Board of Directors or (b)
provided that the Board of Directors has determined that directors shall be
elected at such meeting, by any stockholder of the Company who is a stockholder
of record at the time of giving of notice provided for in this By-Law, who shall
be entitled to vote at the
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meeting and who complies with the notice procedures set forth in this By-Law. In
the event the Company calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Company's notice of meeting, if the
stockholder's notice required by paragraph (A)(2) of this By-Law shall be
delivered to the Secretary at the principal executive offices of the Company not
earlier than the close of business on the 90th day prior to such special meeting
and not later than the close of business on the later of the 60th day prior to
such special meeting or the 10th day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting. In no
event shall the public announcement of an adjournment of a special meeting
commence a new time period for the giving of a stockholder's notice as described
above.
(C) General. (1) Only such persons who are nominated in
accordance with the procedures set forth in this By-Law shall be eligible to
serve as directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this By-Law. Except as otherwise provided by law,
the Certificate of Incorporation or these By-Laws, the Chairman of the meeting
shall have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made or proposed, as the case may
be, in accordance with the procedures set forth in this By-Law and, if any
proposed nomination or business is not in compliance with this By-Law, to
declare that such defective proposal or nomination shall be disregarded.
(2) For purposes of this By-Law, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Company with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-Law, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this ByLaw. Nothing in this By-Law shall be deemed to affect any rights
(i) of stockholders to request inclusion of proposals in the Company's proxy
statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders
of any series of Preferred Stock to elect directors under specified
circumstances.
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SECTION 2.8. Procedure for Election of Directors; Required
Vote. Election of directors at all meetings of the stockholders at which
directors are to be elected shall be by ballot, and, subject to the rights of
the holders of any series of Preferred Stock to elect directors under specified
circumstances, a plurality of the votes cast thereat shall elect directors.
Except as otherwise provided by law, the Certificate of Incorporation, or these
By-Laws, in all matters other than the election of directors, the affirmative
vote of a majority of the shares present in person or represented by proxy at
the meeting shall be the act of the stockholders.
SECTION 2.9. Inspectors of Elections; Opening and Closing the
Polls. The Board of Directors by resolution shall appoint one or more
inspectors, which inspector or inspectors may include individuals who serve the
Company in other capacities, including, without limitation, as officers,
employees, agents or representatives, to act at the meetings of stockholders and
make a written report thereof. One or more persons may be designated as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate has been appointed to act or is able to act at a meeting of
stockholders, the Chairman of the meeting shall appoint one or more inspectors
to act at the meeting. Each inspector, before discharging his or her duties,
shall take and sign an oath faithfully to execute the duties of inspector with
strict impartiality and according to the best of his or her ability. The
inspectors shall have the duties prescribed by law.
The Chairman of the meeting shall fix and announce at the
meeting the date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at the meeting.
SECTION 2.10. No Stockholder Action by Written Consent.
Subject to the rights of the holders of any series of Preferred Stock with
respect to such series of Preferred Stock, any action required or permitted to
be taken by the stockholders of the Company must be effected at an annual or
special meeting of stockholders of the Company and may not be effected by any
consent in writing by such stockholders.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1. General Powers. The business and affairs of the
Company shall be managed under the direction of
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its Board of Directors. In addition to the powers and authorities by these
By-Laws expressly conferred upon it, the Board of Directors may exercise all
powers of the Company and do all such lawful acts and things as are not by law
or by the Certificate of Incorporation or by these By-Laws required to be
exercised or done by the stockholders.
SECTION 3.2. Number and Tenure. Subject to the rights of the
holders of any series of Preferred Stock to elect directors under specified
circumstances, the number of directors shall be fixed from time to time
exclusively pursuant to a resolution adopted by a majority of the Whole Board.
The directors, other than those who may be elected by the holders of any series
of Preferred Stock under specified circumstances, shall be divided, with respect
to the time for which they severally hold office, into three classes, as nearly
equal in number as is reasonably possible, with the term of office of the first
class to expire at the 1998 annual meeting of stockholders, the term of office
of the second class to expire at the 1999 annual meeting of stockholders and the
term of office of the third class to expire at the 2000 annual meeting of
stockholders, with each director to hold office until his or her successor shall
have been duly elected and qualified. At each annual meeting of stockholders,
commencing with the 1998 annual meeting, (i) directors elected to succeed those
directors whose terms then expire shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders after their
election, with each director to hold office until his or her successor shall
have been duly elected and qualified, and (ii) if authorized by a resolution of
the Board of Directors, directors may be elected to fill any vacancy on the
Board of Directors, regardless of how such vacancy shall have been created.
SECTION 3.3. Regular Meetings. A regular meeting of the Board
of Directors shall be held without other notice than this By-Law on the same
date, and at the same place as, the Annual Meeting of Stockholders. The Board of
Directors may, by resolution, provide the time and place for the holding of
additional regular meetings without other notice than such resolution.
SECTION 3.4. Special Meetings. Special meetings of the Board
of Directors shall be called at the request of the Chairman of the Board, the
President or a majority of the Board of Directors then in office. The person or
persons authorized to call special meetings of the Board of Directors may fix
the place and time of the meetings.
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SECTION 3.5. Notice. Notice of any special meeting of
directors shall be given to each director at his business or residence in
writing by hand delivery, first class or overnight mail or other overnight or
express delivery service, telegram or facsimile transmission, by electronic mail
or orally by telephone. If mailed by firstclass mail, such notice shall be
deemed adequately delivered when deposited in the United States mails so
addressed, with postage thereon prepaid, at least five (5) days before such
meeting. If by telegram, overnight mail or courier service, such notice shall be
deemed adequately delivered when the telegram is delivered to the telegraph
company or the notice is delivered to the overnight mail or other overnight or
express delivery service company at least twenty-four (24) hours before such
meeting. If by facsimile transmission or electronic mail, such notice shall be
deemed adequately delivered when the notice is transmitted at least twelve (12)
hours before such meeting. If by telephone or by hand delivery, the notice shall
be given at least twelve (12) hours prior to the time set for the meeting.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the Board of Directors need be specified in the notice of
such meeting, except for amendments to these By-Laws, as provided under Section
9.1. A meeting may be held at any time without notice if all the directors are
present or if those not present waive notice of the meeting in accordance with
Section 6.4 of these By-Laws.
SECTION 3.6. Action by Consent of Board of Directors. Any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board or committee.
SECTION 3.7. Conference Telephone Meetings. Members of the
Board of Directors, or any committee thereof, may participate in a meeting of
the Board of Directors or such committee by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
SECTION 3.8. Quorum. Subject to Section 3.9, one third of the
whole number of directors, but not less than two, shall constitute a quorum for
the transaction of business, but if at any meeting of the Board of Directors
there shall be less than a quorum present, a majority of the directors present
may adjourn the meeting from time to time without further notice. The act of the
majority of the directors present at a meeting
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at which a quorum is present shall be the act of the Board of Directors.
SECTION 3.9. Vacancies. Subject to applicable law and the
rights of the holders of any series of Preferred Stock with respect to such
series of Preferred Stock, and unless the Board of Directors otherwise
determines, vacancies resulting from death, resignation, retirement,
disqualification, removal from office or other cause, and newly created
directorships resulting from any increase in the authorized number of directors,
may be filled only by the affirmative vote of a majority of the remaining
directors, though less than a quorum of the Board of Directors, and not by
stockholders. Directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
they have been elected expires and until such director's successor shall have
been duly elected and qualified. No decrease in the number of authorized
directors constituting the Whole Board shall shorten the term of any incumbent
director.
SECTION 3.10. Executive and Other Committees. The Board of
Directors may, by resolution adopted by a majority of the Whole Board, designate
an Executive Committee to exercise, subject to any limitations provided by law,
all the powers of the Board in the management of the business and affairs of the
Company when the Board is not in session, including without limitation the power
to declare dividends, to authorize the issuance of the Company's capital stock
and to adopt a certificate of ownership and merger pursuant to Section 253 of
the General Corporation Law of the State of Delaware, and may, by resolution
similarly adopted, designate one or more other committees. The Executive
Committee and each such other committee shall consist of two or more directors
of the Company. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. Any such committee, other than the Executive
Committee (the powers of which are expressly provided for herein), may to the
extent permitted by law exercise such powers and shall have such
responsibilities as shall be specified in the designating resolution. In the
absence or disqualification of any member of such committee or committees, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not constituting a quorum, may unanimously appoint another
member of the Board to act at the meeting in the place of any such absent or
disqualified member. Each committee shall keep written minutes of its
proceedings and shall report such proceedings to the Board when required; but
failure to keep such minutes shall not affect the validity of any acts of the
committee or committees.
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At any meeting of a committee, the presence of one third of
its members, but not less than two, shall constitute a quorum for the
transaction of business and the act of a majority of any committee may determine
its action. Each committee may provide for the holding of regular meetings, make
provision for the calling of special meetings and, except as otherwise provided
in these By-Laws or by resolution of the Board of Directors, make rules for the
conduct of its business. Notice of such meetings shall be given to each member
of the committee in the manner provided for in Section 3.5 of these By-Laws. The
Board shall have power at any time to fill vacancies in, to change the
membership of, or to dissolve any such committee. Nothing herein shall be deemed
to prevent the Board from appointing one or more committees consisting in whole
or in part of persons who are not directors of the Company; provided, however,
that no such committee shall have or may exercise any authority of the Board.
SECTION 3.11. Removal. Subject to the rights of the holders of
any series of Preferred Stock with respect to such series of Preferred Stock,
any director, or the entire Board of Directors, may be removed from office at
any time, but only for cause and only by the affirmative vote of the holders of
at least 80 percent of the voting power of all of the then-outstanding shares of
Voting Stock, voting together as a single class.
SECTION 3.12. Records. The Board of Directors shall cause to
be kept a record containing the minutes of the proceedings of the meetings of
the Board and of the stockholders, appropriate stock books and registers and
such books of records and accounts as may be necessary for the proper conduct of
the business of the Company.
ARTICLE IV
OFFICERS
SECTION 4.1. Elected Officers. The elected officers of the
Company shall be a Chairman of the Board of Directors, a President, a Secretary,
a Treasurer, a Controller, a number of Vice Presidents, and such other officers
(including, without limitation, a Chief Financial Officer) as the Board of
Directors from time to time may deem proper. The Chairman of the Board shall be
chosen from among the directors. All officers elected by the Board of Directors
shall each have such powers and duties as generally pertain to their respective
offices, subject to the specific provisions of this Article IV. Such officers
shall also have such powers and duties as from time to
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time may be conferred by the Board of Directors or by any committee thereof. The
Board may from time to time elect, or the Chairman of the Board or President may
appoint, such other officers (including one or more Assistant Vice Presidents,
Assistant Secretaries, Assistant Treasurers, and Assistant Controllers) and such
agents, as may be necessary or desirable for the conduct of the business of the
Company. Such other officers and agents shall have such duties and shall hold
their offices for such terms as shall be provided in these By-Laws or as may be
prescribed by the Board or such committee or by the Chairman of the Board or
President, as the case may be.
SECTION 4.2. Election and Term of Office. The elected officers
of the Company shall be elected annually by the Board of Directors at the
regular meeting of the Board of Directors held on the date of the annual meeting
of the stockholders. If the election of officers shall not be held at such
meeting, such election shall be held as soon thereafter as convenient.
Alternatively, at the last regular meeting of the Board of Directors prior to an
annual meeting of stockholders, the Board of Directors may elect the officers of
the Company, contingent upon the election of the persons nominated to be
directors by the Board of Directors; and each such officer so elected shall hold
office until his successor is elected and qualified or until his earlier death,
resignation or removal. Each officer shall hold office until his successor shall
have been duly elected and shall have qualified or until his earlier death,
resignation or removal.
SECTION 4.3. Chairman of the Board. The Chairman of the Board
shall preside at all meetings of the stockholders and of the Board of Directors
and shall be the Chief Executive Officer of the Company. The Chairman of the
Board shall be responsible for the general management of the affairs of the
Company and shall perform all duties incidental to his office which may be
required by law and all such other duties as are properly required of him by the
Board of Directors. He shall make reports to the Board of Directors and the
stockholders, and shall see that all orders and resolutions of the Board of
Directors and of any committee thereof are carried into effect. The Chairman of
the Board may also serve as President, if so elected by the Board.
SECTION 4.4. President. The President shall act in a general
executive capacity and shall assist the Chairman of the Board in the
administration and operation of the Company's business and general supervision
of its policies and affairs. The President shall, in the absence of or because
of the inability to act of the Chairman of the Board, perform all duties
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of the Chairman of the Board and preside at all meetings of stockholders and of
the Board of Directors.
SECTION 4.5. Vice-Presidents. Each Vice President shall have
such powers and shall perform such duties as shall be assigned to him by the
Board of Directors, the Chairman of the Board or the President.
SECTION 4.6. Chief Financial Officer. The Chief Financial
Officer (if any) shall be a Vice President and act in an executive financial
capacity. He shall assist the Chairman of the Board and the President in the
general supervision of the Company's financial policies and affairs.
SECTION 4.7. Treasurer. The Treasurer shall exercise general
supervision over the receipt, custody and disbursement of corporate funds. The
Treasurer shall cause the funds of the Company to be deposited in such banks as
may be authorized by the Board of Directors, or in such banks as may be
designated as depositaries in the manner provided by resolution of the Board of
Directors. He shall have such further powers and duties and shall be subject to
such directions as may be granted or imposed upon him from time to time by these
By-Laws, the Board of Directors, the Chairman of the Board, the President or the
Chief Financial Officer.
SECTION 4.8. Secretary. The Secretary shall attend all
meetings of the Board of Directors and of the stockholders and record all votes
and the minutes of all proceedings in a book to be kept for that purpose. He
shall give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors and, when appropriate, shall cause
the corporate seal to be affixed to any instruments executed on behalf of the
Company. The Secretary shall also perform all duties incident to the office of
Secretary and such other duties as may be assigned to him by these By-Laws, the
Board of Directors, the Chairman of the Board or the President.
SECTION 4.9. Controller. The Controller shall serve as the
principal accounting officer of the Company and shall keep full and accurate
account of receipts and disbursements in books of the Company and render to the
Board of Directors, the Chairman of the Board, the President or the Chief
Financial Officer, whenever requested, an account of all his transactions as
Controller and of the financial condition of the Company. The Controller shall
also perform all duties incident to the office of Controller and such other
duties as may be assigned to him by these By-Laws, the Board of Directors, the
Chairman of the Board, the President or the Chief Financial Officer.
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SECTION 4.10. Removal. Any officer or agent may be removed
from office at any time by the affirmative vote of a majority of the Whole Board
or, except in the case of an officer or agent elected by the Board, by the
Chairman of the Board or the President. Such removal shall be without prejudice
to the contractual rights, if any, of the person removed, provided that no
elected officer shall have any contractual rights against the Company for
compensation by virtue of his election as an officer beyond the date of the
election of his successor, his death, his resignation or his removal, whichever
event shall first occur, except as otherwise expressly provided in an employment
contract or under an employee deferred compensation plan.
SECTION 4.11. Vacancies. A newly created elected office and a
vacancy in any elected office because of death, resignation, or removal may be
filled by the Board of Directors for the unexpired portion of the term at any
meeting of the Board of Directors. Any vacancy in an office appointed by the
Chairman of the Board or the President because of death, resignation, or removal
may be filled by the Chairman of the Board or the President.
ARTICLE V
STOCK CERTIFICATES, BOOK-ENTRY ACCOUNTS AND TRANSFERS
SECTION 5.1. Stock Certificates and Transfers. The interest of
each stockholder of the Company shall be evidenced by certificates or by
registration in book-entry accounts without certificates for shares of stock in
such form as the appropriate officers of the Company may from time to time
prescribe. The shares of the stock of the Company shall be transferred on the
books of the Company by the holder thereof in person or by his attorney, upon
surrender for cancellation of certificates for the same number of shares, with
an assignment and power of transfer endorsed thereon or attached thereto, duly
executed, with such proof of the authenticity of the transfer and payment of any
applicable transfer taxes as the Company or its agents may reasonably require or
by appropriate book-entry procedures.
Certificates of stock shall be signed, countersigned and
registered in such manner as the Board of Directors may by resolution prescribe,
which resolution may permit all or any of the signatures on such certificates to
be in facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate
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has ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Company with the same effect as
if he were such officer, transfer agent or registrar at the date of issue.
SECTION 5.2. Lost, Stolen or Destroyed Certificates. No
certificate for shares of stock in the Company shall be issued in place of any
certificate alleged to have been lost, destroyed or stolen, except on production
of such evidence of such loss, destruction or theft and on delivery to the
Company of a bond of indemnity in such amount, upon such terms and secured by
such surety, as the Board of Directors or any officer may in its or his
discretion require.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1. Fiscal Year. The fiscal year of the Company shall
begin on the first day of January and end on the thirty-first day of December of
each year.
SECTION 6.2. Dividends. The Board of Directors may from time
to time declare, and the Company may pay, dividends on its outstanding shares in
the manner and upon the terms and conditions provided by law and the Certificate
of Incorporation.
SECTION 6.3. Seal. The corporate seal shall have enscribed
thereon the words "Corporate Seal," the year of incorporation and "Delaware" and
around the margin thereof the name of the Company.
SECTION 6.4. Waiver of Notice. Whenever any notice is required
to be given to any stockholder or director of the Company under the provisions
of the General Corporation Law of the State of Delaware or these By-Laws, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Neither the business to be transacted
at, nor the purpose of, any annual or special meeting of the stockholders or the
Board of Directors or committee thereof need be specified in any waiver of
notice of such meeting.
SECTION 6.5. Audits. The accounts, books and records of the
Company shall be audited upon the conclusion of each fiscal year by an
independent certified public accountant
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selected by the Board of Directors, and it shall be the duty of the Board of
Directors to cause such audit to be done annually.
SECTION 6.6. Resignations. Any director or any officer,
whether elected or appointed, may resign at any time by giving written notice of
such resignation to the Chairman of the Board, the President, or the Secretary,
and such resignation shall be deemed to be effective as of the close of business
on the date said notice is received by the Chairman of the Board, the President,
or the Secretary, or at such later time as is specified therein. No formal
action shall be required of the Board of Directors or the stockholders to make
any such resignation effective.
ARTICLE VII
INDEMNIFICATION; ADVANCE OF EXPENSES
SECTION 7.1. Right of Indemnification Generally.
(A) Directors and Officers. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit,
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she or a person
of whom he or she is the legal representative is or was a director, officer or
employee of the Company or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans shall be indemnified and held harmless by the Company to
the fullest extent authorized by the General Corporation Law of the State of
Delaware as the same exists or may hereafter be amended against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith; provided, however,
that except as provided in Section 7.3 of this Article VII, the Company shall
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors.
(B) Advance of Expenses; Undertaking. Each person referred to
in Section 7.1(A) of this Article VII shall be paid by the Company the expenses
incurred in connection with any proceeding described in Section 7.1(a) in
advance of its final disposition, such advances to be paid by the Company within
30
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days after the receipt by the Company of a statement or statements from the
claimant requesting such advance or advances from time to time; provided,
however, that, if the General Corporation Law of the State of Delaware requires,
the advancement of such expenses incurred by a director or officer in his or her
capacity as a director or officer (and not, unless otherwise required by law, in
any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) prior to the final disposition of a proceeding, shall be made only
upon delivery to the Company of an undertaking by or on behalf of such director
or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Article VII or otherwise.
(C) Contract Right. The right to indemnification conferred in
this Article VII and the right to be paid by the Company the expenses incurred
in connection with any such proceeding in advance of its final disposition
conferred in this Article VII each shall be a contract right.
SECTION 7.2. Written Request; Determination of Entitlement. To
obtain indemnification under this Article VII, a claimant shall submit to the
Company a written request, including therein or therewith such documentation and
information as is reasonably available to the claimant and is reasonably
necessary to determine whether and to what extent the claimant is entitled to
indemnification. Any determination regarding whether indemnification of any
person is proper in the circumstances because such person has met the applicable
standard of conduct set forth in the General Corporation Law of the State of
Delaware shall be made at the option of the person seeking indemnification, by
the directors as set forth in the General Corporation Law of the State of
Delaware or by independent legal counsel selected by such person with the
consent of the Company (which consent shall not unreasonably be withheld).
SECTION 7.3. Recovery of Unpaid Claim. If a claim under
Section 7.1 of this Article VII is not paid in full by the Company within 30
days after a written claim pursuant to Section 7.2 of this Article VII has been
received by the Company, the claimant may at any time thereafter bring suit
against the Company to recover the unpaid amount of the claim and, if successful
in whole or in part, the claimant shall be entitled to be paid also the expense
of prosecuting such claim. It shall be a defense to any such action (other than
actions brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to
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<PAGE> 17
the Company) that the claimant has not met the standard of conduct which makes
it permissible under the General Corporation Law of the State of Delaware for
the Corporation to indemnify the claimant for the amount claimed, but the burden
of proving such defense shall be on the Company. Neither the failure of the
Company (including its directors, independent legal counsel or stockholders) to
have made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or she
has met the applicable standard of conduct set forth in the General Corporation
Law of the State of Delaware, nor an actual determination by the Company
(including its directors, independent legal counsel or stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
SECTION 7.4. Exclusivity; Subsequent Modification. The right
to indemnification and the payment of expenses incurred in connection with a
proceeding in advance of its final disposition conferred in this Article VII
shall not be exclusive of any other right which any person may have or hereafter
acquire under any statute, provision of the Certificate of Incorporation,
By-Laws, agreement, vote of stockholders or Directors or otherwise. No repeal or
modification of this Article VII shall in any way diminish or adversely affect
the rights hereunder of any director, officer or employee or of any agent who
has been expressly granted indemnification by the Company pursuant to Section
7.6 hereof in respect of any occurrence or matter arising prior to any such
repeal or modification.
SECTION 7.5. Insurance. The Company may maintain insurance, at
its expense, to protect itself and any director, officer, employee or agent of
the Company or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the Company
would have the power to indemnify such person against such expense, liability or
loss under the General Corporation Law of the State of Delaware. To the extent
that the Company maintains any policy or policies providing such insurance, each
such director, officer or employee, and each such agent to which rights to
indemnification have been granted as provided in Section 7.6 of this Article VII
shall be covered by such policy or policies in accordance with its or their
terms to the maximum extent of the coverage thereunder for any such director,
officer, employee or agent.
SECTION 7.6. Other Persons Granted Right of Indemnification.
The Company may, to the extent authorized from time
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<PAGE> 18
to time by the Board of Directors, grant rights to indemnification, and rights
to be paid by the Company the expenses incurred in defending any proceeding in
advance of its final disposition, to any agent of the Company to the fullest
extent of the provisions of this Article VII with respect to the indemnification
and advancement of expenses of directors, officers and employees of the Company.
SECTION 7.7. Illegality; Unenforceability. If any provision or
provisions of this Article VII shall be held to be invalid, illegal or
unenforceable for any reason whatsoever: (1) the validity, legality and
enforceability of the remaining provisions of this Article VII (including,
without limitation, each portion of any Section of this Article VII containing
any such provision held to be invalid, illegal or unenforceable, that is not
itself held to be invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby; and (2) to the fullest extent possible, the
provisions of this Article VII (including, without limitation, each such portion
of any Section of this Article VII containing any such provision held to be
invalid, illegal or unenforceable) shall be construed so as give effect to the
intent manifested by the provision held invalid, illegal or unenforceable.
SECTION 7.8. Form and Delivery of Communications. Any notice,
request or other communication required or permitted to be given to the Company
under this Article VII shall be in writing and either delivered in person or
sent by telecopy, telex, telegram, overnight mail or courier service, or
certified or registered mail, postage prepaid, return receipt requested, to the
Secretary of the Company.
ARTICLE VIII
CONTRACTS, PROXIES, ETC.
SECTION 8.1. Contracts. Except as otherwise required by law,
the Certificate of Incorporation or these By-Laws, any contracts or other
instruments may be executed and delivered in the name and on the behalf of the
Company by such officer or officers of the Company as the Board of Directors may
from time to time direct. Such authority may be general or confined to specific
instances as the Board may determine. The Chairman of the Board, the President
or any Vice President may execute bonds, contracts, deeds, leases and other
instruments to be made or executed for or on behalf of the Company. Subject to
any restrictions imposed by the Board of Directors or the Chairman of the Board,
the President or any Vice President of the Company may delegate contractual
powers to others
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<PAGE> 19
under his jurisdiction, it being understood, however, that any such delegation
of power shall not relieve such officer of responsibility with respect to the
exercise of such delegated power.
SECTION 8.2. Proxies. Unless otherwise provided by resolution
adopted by the Board of Directors, the Chairman of the Board, the President or
any Vice President, the Secretary or any Assistant Secretary, may from time to
time appoint an attorney or attorneys or agent or agents of the Company, in the
name and on behalf of the Company, to cast the votes which the Company may be
entitled to cast as the holder of stock or other securities in any other
corporation, any of whose stock or other securities may be held by the Company,
at meetings of the holders of the stock or other securities of such other
corporation, or to consent in writing, in the name of the Company as such
holder, to any action by such other corporation, and may instruct the person or
persons so appointed as to the manner of casting such votes or giving such
consent, and may execute or cause to be executed in the name and on behalf of
the Company and under its corporate seal or otherwise, all such written proxies
or other instruments as he may deem necessary or proper in the premises.
ARTICLE IX
AMENDMENTS
SECTION 9.1. Amendments. These By-Laws may be amended or
repealed, or new By-Laws may be adopted, at any meeting of the Board of
Directors or of the stockholders, provided notice of the proposed change was
given in the notice of the meeting and, in the case of a meeting of the Board of
Directors, in a notice given not less than twelve hours prior to the meeting;
provided, however, that, in the case of amendment, repeal or adoption by
stockholders, notwithstanding any other provisions of these By-Laws or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of any series of Preferred Stock
required by law, the Certificate of Incorporation, any Preferred Stock
designation, or these By-Laws, the affirmative vote of the holders of at least
80 percent of the voting power of all the then outstanding shares of the Voting
Stock, voting together as a single class, shall be required for the stockholders
to adopt, amend or repeal any provision of these By-Laws.
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<PAGE> 1
EXHIBIT 4
- --------------------------------------------------------------------------------
QUEENY CHEMICAL COMPANY
AND
FIRST CHICAGO TRUST COMPANY OF NEW YORK
AS
RIGHTS AGENT
RIGHTS AGREEMENT
DATED AS OF AUGUST 6, 1997
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
Page
----
Section 1. Certain Definitions.......................... 1
Section 2. Appointment of Rights Agent.................. 5
Section 3. Issue of Right Certificates.................. 5
Section 4. Form of Right Certificates................... 7
Section 5. Countersignature and Registration............ 8
Section 6. Transfer, Split-Up, Combination and
Exchange of Right Certificates;
Mutilated, Destroyed, Lost or
Stolen Right Certificates.................. 9
Section 7. Exercise of Rights; Purchase Price;
Expiration Date of Rights.................. 10
Section 8. Cancellation and Destruction of
Right Certificates......................... 12
Section 9. Availability of Preferred Shares............. 12
Section 10. Preferred Shares Record Date................. 13
Section 11. Adjustment of Purchase Price, Number of
Shares or Number of Rights................. 13
Section 12. Certificate of Adjusted Purchase Price
or Number of Shares........................ 24
Section 13. Consolidation, Merger or Sale or Transfer
of Assets or Earning Power................. 24
Section 14. Fractional Rights and Fractional Shares...... 26
Section 15. Rights of Action............................. 27
Section 16. Agreement of Right Holders................... 28
Section 17. Right Certificate Holder Not Deemed a
Stockholder................................ 29
Section 18. Concerning the Rights Agent.................. 29
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<PAGE> 3
Page
----
Section 19. Merger or Consolidation or Change of
Name of Rights Agent....................... 30
Section 20. Duties of Rights Agent....................... 31
Section 21. Change of Rights Agent....................... 34
Section 22. Issuance of New Right Certificates........... 35
Section 23. Redemption................................... 35
Section 24. Exchange..................................... 36
Section 25. Notice of Certain Events..................... 38
Section 26. Notices...................................... 40
Section 27. Supplements and Amendments................... 41
Section 28. Successors................................... 41
Section 29. Benefits of this Agreement................... 41
Section 30. Severability................................. 42
Section 31. Governing Law................................ 42
Section 32. Counterparts................................. 42
Section 33. Descriptive Headings......................... 42
Signatures
Exhibit A - Form of Right Certificate
Exhibit B - Form of Certificate of Designations
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<PAGE> 4
Agreement, dated as of August 6, 1997, between Queeny Chemical
Company, a Delaware corporation (the "Company"), and First Chicago Trust Company
of New York (the "Rights Agent").
The Board of Directors of the Company has authorized and
declared a dividend of one preferred share purchase right (a "Right") for each
Common Share (as hereinafter defined) of the Company to be issued in the
distribution of Common Shares of the Company (the "Spin-Off") by Monsanto
Company, a Delaware corporation ("Monsanto") to its stockholders, each Right
representing the right to purchase one one-hundredth of a Preferred Share (as
hereinafter defined), upon the terms and subject to the conditions herein set
forth, and has further authorized and directed the issuance of one Right with
respect to each Common Share that shall become outstanding between the effective
date of the Spin-Off (the "Record Date") and the earliest of the Distribution
Date, the Redemption Date and the Final Expiration Date (as such terms are
hereinafter defined).
Accordingly, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this
Agreement, the following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates and Associates
(as such terms are hereinafter defined) of such Person, shall be the Beneficial
Owner (as such term is hereinafter defined) of 20% or more of the Common Shares
of the Company then outstanding, but shall not include the Company, any
Subsidiary (as such term is hereinafter defined) of the Company, any employee
benefit plan of the Company or any Subsidiary
<PAGE> 5
of the Company any entity holding Common Shares for or pursuant to the terms of
any such plan or, prior to the Spin-Off, Monsanto. Notwithstanding the
foregoing, no Person shall become an "Acquiring Person" as the result of an
acquisition of Common Shares by the Company which, by reducing the number of
shares outstanding, increases the proportionate number of shares beneficially
owned by such Person to 20% or more of the Common Shares of the Company then
outstanding; provided, however, that if a Person shall become the Beneficial
Owner of 20% or more of the Common Shares of the Company then outstanding by
reason of share purchases by the Company and shall, after such share purchases
by the Company, become the Beneficial Owner of any additional Common Shares of
the Company, then such Person shall be deemed to be an "Acquiring Person".
Notwithstanding the foregoing, if the Board of Directors of the Company
determines in good faith that a Person who would otherwise be an "Acquiring
Person", as defined pursuant to the foregoing provisions of this paragraph (a),
has become such inadvertently, and such Person divests as promptly as
practicable a sufficient number of Common Shares so that such Person would no
longer be an "Acquiring Person," as defined pursuant to the foregoing provisions
of this paragraph (a), then such Person shall not be deemed to be an "Acquiring
Person" for any purposes of this Agreement.
(b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as in effect on the date of this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of and
shall be deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
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<PAGE> 6
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members with
respect to a bona fide public offering of securities), or upon the
exercise of conversion rights, exchange rights, rights (other than
these Rights), warrants or options, or otherwise; provided, however,
that a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, securities tendered pursuant to a tender or
exchange offer made by or on behalf of such Person or any of such
Person's Affiliates or Associates until such tendered securities are
accepted for purchase or exchange; or (B) the right to vote pursuant to
any agreement, arrangement or understanding; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to beneficially
own, any security if the agreement, arrangement or understanding to
vote such security (1) arises solely from a revocable proxy or consent
given to such Person in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
rules and regulations promulgated under the Exchange Act and (2) is not
also then reportable on Schedule 13D under the Exchange Act (or any
comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by
any other Person with which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or
understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide
public offering of securities) for the purpose of acquiring, holding,
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<PAGE> 7
voting (except to the extent contemplated by the proviso to Section 1(c)(ii)(B))
or disposing of any securities of the Company.
Notwithstanding anything in this definition of Beneficial
Ownership to the contrary, the phrase "then outstanding," when used with
reference to a Person's Beneficial Ownership of securities of the Company,
shall mean the number of such securities then issued and outstanding together
with the number of such securities not then actually issued and outstanding
which such Person would be deemed to own beneficially hereunder.
(d) "Business Day" shall mean any day other than a Saturday, a
Sunday, or a day on which banking institutions in New York are authorized or
obligated by law or executive order to close.
(e) "Close of business" on any given date shall mean 5:00
P.M., New York City time, on such date; provided, however, that if such date is
not a Business Day it shall mean 5:00 P.M., New York City time, on the next
succeeding Business Day.
(f) "Common Shares" when used with reference to the Company
shall mean the shares of common stock, par value $0.01 per share, of the
Company. "Common Shares" when used with reference to any Person other than the
Company shall mean the capital stock (or equity interest) with the greatest
voting power of such other Person or, if such other Person is a Subsidiary of
another Person, the Person or Persons which ultimately control such
first-mentioned Person.
(g) "Distribution Date" shall have the meaning set forth in
Section 3 hereof.
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<PAGE> 8
(h) "Final Expiration Date" shall have the meaning set forth
in Section 7 hereof.
(i) "Person" shall mean any individual, firm, corporation or
other entity, and shall include any successor (by merger or otherwise) of such
entity.
(j) "Preferred Shares" shall mean shares of Series A Junior
Participating Preferred Stock, par value $0.01 per share, of the Company having
the rights and preferences set forth in the Certificate of Designations
attached to this Agreement as Exhibit B.
(k) "Redemption Date" shall have the meaning set forth in
Section 7 hereof.
(l) "Shares Acquisition Date" shall mean the first date of
public announcement by the Company or an Acquiring Person that an Acquiring
Person has become such.
(m) "Subsidiary" of any Person shall mean any corporation or
other entity of which a majority of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by such Person.
Section 2. Appointment of Rights Agent. The Company hereby
appoints the Rights Agent to act as agent for the Company and the holders of the
Rights (who, in accordance with Section 3 hereof, shall prior to the
Distribution Date also be the holders of the Common Shares) in accordance with
the terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Company may from time to time appoint such co-Rights Agents as
it may deem necessary or desirable.
Section 3. Issue of Right Certificates. (a) Until the earlier
of (i) the tenth day after the Shares Acquisition Date or (ii) the tenth
Business Day (or such later
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<PAGE> 9
date as may be determined by action of the Board of Directors of the Company
prior to such time as any Person becomes an Acquiring Person) after the date of
the commencement by any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of the
Company or any entity holding Common Shares for or pursuant to the terms of any
such plan) of, or of the first public announcement of the intention of any
Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company or any entity
holding Common Shares for or pursuant to the terms of any such plan) to
commence, a tender or exchange offer the consummation of which would result in
any Person becoming the Beneficial Owner of Common Shares aggregating 20% or
more of the then outstanding Common Shares (including any such date which is
after the date of this Agreement and prior to the issuance of the Rights; the
earlier of such dates being herein referred to as the "Distribution Date"), (x)
the Rights will be evidenced (subject to the provisions of Section 3(b) hereof)
by the certificates for Common Shares registered in the names of the holders
thereof (which certificates shall also be deemed to be Right Certificates) and
not by separate Right Certificates, and (y) the right to receive Right
Certificates will be transferable only in connection with the transfer of Common
Shares. As soon as practicable after the Distribution Date, the Company will
prepare and execute, the Rights Agent will countersign, and the Company will
send or cause to be sent (and the Rights Agent will, if requested, send) by
first-class, insured, postage-prepaid mail, to each record holder of Common
Shares as of the close of business on the Distribution Date, at the address of
such holder shown on the records of the Company, a Right Certificate, in
substantially the form of Exhibit A hereto (a "Right Certificate"), evidencing
one Right for each Common Share so held. As of the Distribution Date, the Rights
will be evidenced solely by such Right Certificates.
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<PAGE> 10
(b) Until the earliest of the Distribution Date, the
Redemption Date or the Final Expiration Date, Certificates for Common Shares
shall have impressed on, printed on, written on or otherwise affixed to them a
legend in substantially the following form:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between Queeny
Chemical Company and First Chicago Trust Company of New York, dated as
of August 6, 1997 (the "Rights Agreement"), the terms of which are
hereby incorporated herein by reference and a copy of which is on file
at the principal executive offices of Queeny Chemical Company. Under
certain circumstances, as set forth in the Rights Agreement, such
Rights will be evidenced by separate certificates and will no longer be
evidenced by this certificate. Queeny Chemical Company will mail to the
holder of this certificate a copy of the Rights Agreement without
charge after receipt of a written request therefor. Under certain
circumstances, as set forth in the Rights Agreement, Rights issued to
any Person who becomes an Acquiring Person (as defined in the Rights
Agreement) may become null and void.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby. In
the event that the Company purchases or acquires any Common Shares after the
Record Date but prior to the Distribution Date, any Rights associated with such
Common Shares shall be deemed cancelled and retired so that the Company shall
not be entitled to exercise any Rights associated with the Common Shares which
are no longer outstanding.
Section 4. Form of Right Certificates. The Right Certificates
(and the forms of election to purchase Preferred Shares and of assignment to be
printed on the reverse thereof) shall be substantially the same as Exhibit A
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable
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<PAGE> 11
law or with any rule or regulation made pursuant thereto or with any rule or
regulation of any stock exchange on which the Rights may from time to time be
listed, or to conform to usage. Subject to the provisions of Section 22
hereof, the Right Certificates shall entitle the holders thereof to purchase
such number of one one-hundredths of a Preferred Share as shall be set forth
therein at the price per one one-hundredth of a Preferred Share set forth
therein (the "Purchase Price"), but the number of such one one-hundredths of a
Preferred Share and the Purchase Price shall be subject to adjustment as
provided herein.
Section 5. Countersignature and Registration. The Right
Certificates shall be executed on behalf of the Company by its Chairman of the
Board, its Chief Executive Officer, its President, any of its Vice Presidents,
or its Treasurer, either manually or by facsimile signature, shall have
affixed thereto the Company's seal or a facsimile thereof, and shall be
attested by the Secretary or an Assistant Secretary of the Company, either
manually or by facsimile signature. The Right Certificates shall be
countersigned by the Rights Agent, either manually or by facsimile signature,
and shall not be valid for any purpose unless countersigned. In case any officer
of the Company who shall have signed any of the Right Certificates shall cease
to be such officer of the Company before countersignature by the Rights Agent
and issuance and delivery by the Company, such Right Certificates, nevertheless,
may be countersigned by the Rights Agent and issued and delivered by the Company
with the same force and effect as though the person who signed such Right
Certificates had not ceased to be such officer of the Company; and any Right
Certificate may be signed on behalf of the Company by any person who, at the
actual date of the execution of such Right Certificate, shall be a proper
officer of the Company to sign such Right Certificate, although at the date of
the execution of this Rights Agreement any such person was not such an officer.
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<PAGE> 12
Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal office, books for registration and transfer
of the Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each of the Right Certificates and the date of
each of the Right Certificates.
Section 6. Transfer, Split-Up, Combination and Exchange of
Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.
Subject to the provisions of Section 14 hereof, at any time after the close of
business on the Distribution Date, and at or prior to the close of business on
the earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Section 11(a)(ii) hereof or that have
been exchanged pursuant to Section 24 hereof) may be transferred, split up,
combined or exchanged for another Right Certificate or Right Certificates,
entitling the registered holder to purchase a like number of one one-hundredths
of a Preferred Share as the Right Certificate or Right Certificates surrendered
then entitled such holder to purchase. Any registered holder desiring to
transfer, split up, combine or exchange any Right Certificate or Right
Certificates shall make such request in writing delivered to the Rights Agent,
and shall surrender the Right Certificate or Right Certificates to be
transferred, split up, combined or exchanged at the principal office of the
Rights Agent. Thereupon the Rights Agent shall countersign and deliver to the
person entitled thereto a Right Certificate or Right Certificates, as the case
may be, as so requested. The Company may require payment of a sum sufficient
to cover any tax or governmental charge that may be imposed in connection with
any transfer, split up, combination or exchange of Right Certificates.
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<PAGE> 13
Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation
of a Right Certificate, and, in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to them, and, at the Company's
request, reimbursement to the Company and the Rights Agent of all reasonable
expenses incidental thereto, and upon surrender to the Rights Agent and
cancellation of the Right Certificate if mutilated, the Company will make and
deliver a new Right Certificate of like tenor to the Rights Agent for delivery
to the registered holder in lieu of the Right Certificate so lost, stolen,
destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date
of Rights. (a) The registered holder of any Right Certificate may exercise the
Rights evidenced thereby (except as otherwise provided herein) in whole or in
part at any time after the Distribution Date upon surrender of the Right
Certificate, with the form of election to purchase on the reverse side thereof
duly executed, to the Rights Agent at the principal office of the Rights Agent,
together with payment of the Purchase Price for each one one-hundredth of a
Preferred Share as to which the Rights are exercised, at or prior to the
earliest of (i) the close of business on the tenth anniversary of the Record
Date (the "Final Expiration Date"), (ii) the time at which the Rights are
redeemed as provided in Section 23 hereof (the "Redemption Date"), or (iii) the
time at which such Rights are exchanged as provided in Section 24 hereof.
(b) The Purchase Price for each one one-hundredth of a
Preferred Share purchasable pursuant to the exercise of a Right shall initially
be $125, and shall be subject to adjustment from time to time as provided in
Section 11 or 13 hereof and shall be payable in lawful money of the United
States of America in accordance with paragraph (c) below.
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<PAGE> 14
(c) Upon receipt of a Right Certificate representing
exercisable Rights, with the form of election to purchase duly executed,
accompanied by payment of the Purchase Price for the shares to be purchased and
an amount equal to any applicable transfer tax required to be paid by the holder
of such Right Certificate in accordance with Section 9 hereof by certified
check, cashier's check or money order payable to the order of the Company, the
Rights Agent shall thereupon promptly (i) (A) requisition from any transfer
agent of the Preferred Shares certificates for the number of Preferred Shares to
be purchased and the Company hereby irrevocably authorizes its transfer agent to
comply with all such requests, or (B) requisition from the depositary agent
depositary receipts representing such number of one one-hundredths of a
Preferred Share as are to be purchased (in which case certificates for the
Preferred Shares represented by such receipts shall be deposited by the transfer
agent with the depositary agent) and the Company hereby directs the depositary
agent to comply with such request, (ii) when appropriate, requisition from the
Company the amount of cash to be paid in lieu of issuance of fractional shares
in accordance with Section 14 hereof, (iii) after receipt of such certificates
or depositary receipts, cause the same to be delivered to or upon the order of
the registered holder of such Right Certificate, registered in such name or
names as may be designated by such holder and (iv) when appropriate, after
receipt, deliver such cash to or upon the order of the registered holder of such
Right Certificate.
(d) In case the registered holder of any Right Certificate
shall exercise less than all the Rights evidenced thereby, a new Right
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent to the registered holder of such Right
Certificate or to his duly authorized assigns, subject to the provisions of
Section 14 hereof.
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<PAGE> 15
Section 8. Cancellation and Destruction of Right Certificates.
All Right Certificates surrendered for the purpose of exercise, transfer, split
up, combination or exchange shall, if surrendered to the Company or to any of
its agents, be delivered to the Rights Agent for cancellation or in cancelled
form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no
Right Certificates shall be issued in lieu thereof except as expressly permitted
by any of the provisions of this Rights Agreement. The Company shall deliver to
the Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all cancelled Right Certificates to the Company, or shall, at the written
request of the Company, destroy such cancelled Right Certificates, and in such
case shall deliver a certificate of destruction thereof to the Company.
Section 9. Availability of Preferred Shares. The Company
covenants and agrees that it will cause to be reserved and kept available out of
its authorized and unissued Preferred Shares or any Preferred Shares held in
its treasury, the number of Preferred Shares that will be sufficient to permit
the exercise in full of all outstanding Rights in accordance with Section 7. The
Company covenants and agrees that it will take all such action as may be
necessary to ensure that all Preferred Shares delivered upon exercise of
Rights shall, at the time of delivery of the certificates for such Preferred
Shares (subject to payment of the Purchase Price), be duly and validly
authorized and issued and fully paid and nonassessable shares.
The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of the Right Certificates
or of any Preferred Shares upon the exercise of Rights. The Company shall not,
however, be required to pay any
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<PAGE> 16
transfer tax which may be payable in respect of any transfer or delivery of
Right Certificates to a person other than, or the issuance or delivery of
certificates or depositary receipts for the Preferred Shares in a name other
than that of, the registered holder of the Right Certificate evidencing Rights
surrendered for exercise or to issue or to deliver any certificates or
depositary receipts for Preferred Shares upon the exercise of any Rights until
any such tax shall have been paid (any such tax being payable by the holder of
such Right Certificate at the time of surrender) or until it has been
established to the Company's reasonable satisfaction that no such tax is due.
Section 10. Preferred Shares Record Date. Each person in whose
name any certificate for Preferred Shares is issued upon the exercise of Rights
shall for all purposes be deemed to have become the holder of record of the
Preferred Shares represented thereby on, and such certificate shall be dated,
the date upon which the Right Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable transfer
taxes) was made; provided, however, that if the date of such surrender and
payment is a date upon which the Preferred Shares transfer books of the Company
are closed, such person shall be deemed to have become the record holder of such
shares on, and such certificate shall be dated, the next succeeding Business
Day on which the Preferred Shares transfer books of the Company are open. Prior
to the exercise of the Rights evidenced thereby, the holder of a Right
Certificate shall not be entitled to any rights of a holder of Preferred Shares
for which the Rights shall be exercisable, including, without limitation, the
right to vote, to receive dividends or other distributions or to exercise any
preemptive rights, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or
Number of Rights. The Purchase Price, the number of Preferred Shares covered by
each Right
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<PAGE> 17
and the number of Rights outstanding are subject to adjustment from time to time
as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares into a smaller number of Preferred Shares or
(D) issue any shares of its capital stock in a reclassification of the Preferred
Shares (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a), the Purchase Price in effect
at the time of the record date for such dividend or of the effective date of
such subdivision, combination or reclassification, and the number and kind of
shares of capital stock issuable on such date, shall be proportionately adjusted
so that the holder of any Right exercised after such time shall be entitled to
receive the aggregate number and kind of shares of capital stock which, if
such Right had been exercised immediately prior to such date and at a time when
the Preferred Shares transfer books of the Company were open, he would have
owned upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification; provided, however,
that in no event shall the consideration to be paid upon the exercise of one
Right be less than the aggregate par value of the shares of capital stock of the
Company issuable upon exercise of one Right.
(ii) Subject to Section 24 of this Agreement, in the event any
Person becomes an Acquiring Person, each holder of a Right shall thereafter have
a right to receive, upon exercise thereof at a price equal to the then current
Purchase Price multiplied by the number of one one-hundredths of a Preferred
Share for which a Right is then exercisable, in accordance with the terms of
this Agreement and in lieu of Preferred
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<PAGE> 18
Shares, such number of Common Shares of the Company as shall equal the result
obtained by (x) multiplying the then current Purchase Price by the number of one
one-hundredths of a Preferred Share for which a Right is then exercisable and
dividing that product by (y) 50% of the then current per share market price of
the Company's Common Shares (determined pursuant to Section 11(d) hereof) on
the date of the occurrence of such event. In the event that any Person shall
become an Acquiring Person and the Rights shall then be outstanding, the Company
shall not take any action which would eliminate or diminish the benefits
intended to be afforded by the Rights.
From and after the occurrence of such event, any Rights that
are or were acquired or beneficially owned by any Acquiring Person (or any
Associate or Affiliate of such Acquiring Person) shall be void and any holder of
such Rights shall thereafter have no right to exercise such Rights under any
provision of this Agreement. No Right Certificate shall be issued pursuant to
Section 3 that represents Rights beneficially owned by an Acquiring Person whose
Rights would be void pursuant to the preceding sentence or any Associate or
Affiliate thereof; no Right Certificate shall be issued at any time upon the
transfer of any Rights to an Acquiring Person whose Rights would be void
pursuant to the preceding sentence or any Associate or Affiliate thereof or to
any nominee of such Acquiring Person, Associate or Affiliate; and any Right
Certificate delivered to the Rights Agent for transfer to an Acquiring Person
whose Rights would be void pursuant to the preceding sentence shall be
cancelled.
(iii) In the event that there shall not be sufficient Common
Shares issued but not outstanding or authorized but unissued to permit the
exercise in full of the Rights in accordance with the foregoing subparagraph
(ii), the Company shall take all such action as may be necessary to authorize
additional Common Shares for issuance upon exercise of the Rights. In the event
the Company shall, after good faith effort, be
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<PAGE> 19
unable to take all such action as may be necessary to authorize such additional
Common Shares, the Company shall substitute, for each Common Share that would
otherwise be issuable upon exercise of a Right, a number of Preferred Shares or
fraction thereof such that the current per share market price of one Preferred
Share multiplied by such number or fraction is equal to the current per share
market price of one Common Share as of the date of issuance of such Preferred
Shares or fraction thereof.
(b) In case the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Preferred Shares
entitling them (for a period expiring within 45 calendar days after such
record date) to subscribe for or purchase Preferred Shares (or shares having the
same rights, privileges and preferences as the Preferred Shares ("equivalent
preferred shares")) or securities convertible into Preferred Shares or
equivalent preferred shares at a price per Preferred Share or equivalent
preferred share (or having a conversion price per share, if a security
convertible into Preferred Shares or equivalent preferred shares) less than the
then current per share market price of the Preferred Shares (as defined in
Section 11(d)) on such record date, the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the number of Preferred Shares outstanding on such record date plus the
number of Preferred Shares which the aggregate offering price of the total
number of Preferred Shares and/or equivalent preferred shares so to be offered
(and/or the aggregate initial conversion price of the convertible securities so
to be offered) would purchase at such current market price and the denominator
of which shall be the number of Preferred Shares outstanding on such record date
plus the number of additional Preferred Shares and/or equivalent preferred
shares to be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible); provided, however, that
in no event shall the consideration to be paid upon the exercise of one
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<PAGE> 20
Right be less than the aggregate par value of the shares of capital stock of the
Company issuable upon exercise of one Right. In case such subscription price may
be paid in a consideration part or all of which shall be in a form other than
cash, the value of such consideration shall be as determined in good faith by
the Board of Directors of the Company, whose determination shall be described
in a statement filed with the Rights Agent. Preferred Shares owned by or held
for the account of the Company shall not be deemed outstanding for the purpose
of any such computation. Such adjustment shall be made successively whenever
such a record date is fixed; and in the event that such rights, options or
warrants are not so issued, the Purchase Price shall be adjusted to be the
Purchase Price which would then be in effect if such record date had not been
fixed.
(c) In case the Company shall fix a record date for the making
of a distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable
in Preferred Shares) or subscription rights or warrants (excluding those
referred to in Section 11(b) hereof), the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the then current per share market price of the Preferred Shares on such
record date, less the fair market value (as determined in good faith by the
Board of Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent) of the portion of the assets or evidences
of indebtedness so to be distributed or of such subscription rights or warrants
applicable to one Preferred Share and the denominator of which shall be such
current per share market price of the Preferred Shares; provided, however,
that in no event shall the consideration to be paid upon the exercise of
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<PAGE> 21
one Right be less than the aggregate par value of the shares of capital stock of
the Company to be issued upon exercise of one Right. Such adjustments shall be
made successively whenever such a record date is fixed; and in the event that
such distribution is not so made, the Purchase Price shall again be adjusted to
be the Purchase Price which would then be in effect if such record date had not
been fixed.
(d) (i) For the purpose of any computation hereunder, the
"current per share market price" of any security (a "Security" for the purpose
of this Section 11(d)(i)) on any date shall be deemed to be the average of the
daily closing prices per share of such Security for the 30 consecutive Trading
Days (as such term is hereinafter defined) immediately prior to such date;
provided, however, that in the event that the current per share market price of
the Security is determined during a period following the announcement by the
issuer of such Security of (A) a dividend or distribution on such Security
payable in shares of such Security or securities convertible into such shares,
or (B) any subdivision, combination or reclassification of such Security and
prior to the expiration of 30 Trading Days after the ex-dividend date for such
dividend or distribution, or the record date for such subdivision, combination
or reclassification, then, and in each such case, the current per share market
price shall be appropriately adjusted to reflect the current market price per
share equivalent of such Security. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange or, if the Security is not listed or admitted to trading on the New
York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the
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<PAGE> 22
principal national securities exchange on which the Security is listed or
admitted to trading or, if the Security is not listed or admitted to trading
on any national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the over-the-counter
market, as reported by the National Association of Securities Dealers, Inc.
Automated Quotations System ("NASDAQ") or such other system then in use, or, if
on any such date the Security is not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Security selected by the Board of Directors
of the Company. The term "Trading Day" shall mean a day on which the principal
national securities exchange on which the Security is listed or admitted to
trading is open for the transaction of business or, if the Security is not
listed or admitted to trading on any national securities exchange, a Business
Day.
(ii) For the purpose of any computation hereunder, the
"current per share market price" of the Preferred Shares shall be determined in
accordance with the method set forth in Section 11(d)(i). If the Preferred
Shares are not publicly traded, the "current per share market price" of the
Preferred Shares shall be conclusively deemed to be the current per share market
price of the Common Shares as determined pursuant to Section 11(d)(i)
(appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof), multiplied by one hundred. If
neither the Common Shares nor the Preferred Shares are publicly held or so
listed or traded, "current per share market price" shall mean the fair value per
share as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent.
(e) No adjustment in the Purchase Price shall be required
unless such adjustment would require an increase or decrease of at least 1% in
the Purchase Price;
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<PAGE> 23
provided, however, that any adjustments which by reason of this Section 11(e)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 11 shall be made
to the nearest cent or to the nearest one one-millionth of a Preferred Share or
one ten-thousandth of any other share or security as the case may be.
Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
years from the date of the transaction which requires such adjustment or (ii)
the date of the expiration of the right to exercise any Rights.
(f) If as a result of an adjustment made pursuant to Section
11(a) hereof, the holder of any Right thereafter exercised shall become entitled
to receive any shares of capital stock of the Company other than Preferred
Shares, thereafter the number of such other shares so receivable upon exercise
of any Right shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to
the Preferred Shares contained in Section 11(a) through (c), inclusive, and
the provisions of Sections 7, 9, 10 and 13 with respect to the Preferred Shares
shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to
any adjustment made to the Purchase Price hereunder shall evidence the right
to purchase, at the adjusted Purchase Price, the number of one one-hundredths of
a Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making
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<PAGE> 24
of such adjustment shall thereafter evidence the right to purchase, at the
adjusted Purchase Price, that number of one one-hundredths of a Preferred
Share (calculated to the nearest one one-millionth of a Preferred Share)
obtained by (i) multiplying (x) the number of one one-hundredths of a share
covered by a Right immediately prior to this adjustment by (y) the Purchase
Price in effect immediately prior to such adjustment of the Purchase Price and
(ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in substitution
for any adjustment in the number of one one-hundredths of a Preferred Share
purchasable upon the exercise of a Right. Each of the Rights outstanding after
such adjustment of the number of Rights shall be exercisable for the number of
one one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price. The
Company shall make a public announcement of its election to adjust the number of
Rights, indicating the record date for the adjustment, and, if known at the
time, the amount of the adjustment to be made. This record date may be the date
on which the Purchase Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued, shall be at least 10 days later than the date of
the public announcement. If Right Certificates have been issued, upon each
adjustment of the number of Rights pursuant to this Section 11(i), the Company
shall, as promptly as practicable, cause to be distributed to holders of record
of Right Certificates on such record date Right Certificates evidencing, subject
to Section 14 hereof, the additional Rights to which such holders shall be
entitled as a result of such
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<PAGE> 25
adjustment, or, at the option of the Company, shall cause to be distributed to
such holders of record in substitution and replacement for the Right
Certificates held by such holders prior to the date of adjustment, and upon
surrender thereof, if required by the Company, new Right Certificates evidencing
all the Rights to which such holders shall be entitled after such adjustment.
Right Certificates so to be distributed shall be issued, executed and
countersigned in the manner provided for herein and shall be registered in the
names of the holders of record of Right Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase
Price or the number of one one-hundredths of a Preferred Share issuable upon the
exercise of the Rights, the Right Certificates theretofore and thereafter issued
may continue to express the Purchase Price and the number of one one-hundredths
of a Preferred Share which were expressed in the initial Right Certificates
issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below one one-hundredth of the then par value, if
any, of the Preferred Shares issuable upon exercise of the Rights, the Company
shall take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Company may validly and legally issue fully paid and
nonassessable Preferred Shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date of
the Preferred Shares and other capital stock or securities of the Company, if
any, issuable upon such exercise over and above the Preferred Shares and other
capital stock or securities of the Company, if any, issuable
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<PAGE> 26
upon such exercise on the basis of the Purchase Price in effect prior to such
adjustment; provided, however, that the Company shall deliver to such holder a
due bill or other appropriate instrument evidencing such holder's right to
receive such additional shares upon the occurrence of the event requiring such
adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that it in its sole discretion shall determine
to be advisable in order that any consolidation or subdivision of the
Preferred Shares, issuance wholly for cash of any Preferred Shares at less than
the current market price, issuance wholly for cash of Preferred Shares or
securities which by their terms are convertible into or exchangeable for
Preferred Shares, dividends on Preferred Shares payable in Preferred Shares or
issuance of rights, options or warrants referred to hereinabove in Section
11(b), hereafter made by the Company to holders of its Preferred Shares shall
not be taxable to such stockholders.
(n) In the event that at any time after the Record Date of
this Agreement and prior to the Distribution Date, the Company shall (i) declare
or pay any dividend on the Common Shares payable in Common Shares or (ii) effect
a subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares)
into a greater or lesser number of Common Shares, then in any such case (A) the
number of one one-hundredths of a Preferred Share purchasable after such event
upon proper exercise of each Right shall be determined by multiplying the number
of one one-hundredths of a Preferred Share so purchasable immediately prior to
such event by a fraction, the numerator of which is the number of Common Shares
outstanding immediately before such event and the denominator of which is the
number of Common Shares outstanding immediately after such event, and
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(B) each Common Share outstanding immediately after such event shall have issued
with respect to it that number of Rights which each Common Share outstanding
immediately prior to such event had issued with respect to it. The adjustments
provided for in this Section 11(n) shall be made successively whenever such a
dividend is declared or paid or such a subdivision, combination or consolidation
is effected.
Section 12. Certificate of Adjusted Purchase Price or Number
of Shares. Whenever an adjustment is made as provided in Section 11 or 13
hereof, the Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Common
Shares or the Preferred Shares a copy of such certificate and (c) mail a brief
summary thereof to each holder of a Right Certificate in accordance with Section
25 hereof.
Section 13. Consolidation, Merger or Sale or Transfer of
Assets or Earning Power. In the event, directly or indirectly, at any time after
a Person has become an Acquiring Person, (a) the Company shall consolidate with,
or merge with and into, any other Person, (b) any Person shall consolidate with
the Company, or merge with and into the Company and the Company shall be the
continuing or surviving corporation of such merger and, in connection with such
merger, all or part of the Common Shares shall be changed into or exchanged for
stock or other securities of any other Person (or the Company) or cash or any
other property, or (c) the Company shall sell or otherwise transfer (or one or
more of its Subsidiaries shall sell or otherwise transfer), in one or more
transactions, assets or earning power aggregating 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person other than the Company or one or more of its wholly-owned
Subsidiaries, then, and in each such
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case, proper provision shall be made so that (i) each holder of a Right (except
as otherwise provided herein) shall thereafter have the right to receive, upon
the exercise thereof at a price equal to the then current Purchase Price
multiplied by the number of one one-hundredths of a Preferred Share for which a
Right is then exercisable, in accordance with the terms of this Agreement and in
lieu of Preferred Shares, such number of Common Shares of such other Person
(including the Company as successor thereto or as the surviving corporation) as
shall equal the result obtained by (A) multiplying the then current Purchase
Price by the number of one one-hundredths of a Preferred Share for which a Right
is then exercisable and dividing that product by (B) 50% of the then current
per share market price of the Common Shares of such other Person (determined
pursuant to Section 11(d) hereof) on the date of consummation of such
consolidation, merger, sale or transfer; (ii) the issuer of such Common Shares
shall thereafter be liable for, and shall assume, by virtue of such
consolidation, merger, sale or transfer, all the obligations and duties of the
Company pursuant to this Agreement; (iii) the term "Company" shall thereafter be
deemed to refer to such issuer; and (iv) such issuer shall take such steps
(including, but not limited to, the reservation of a sufficient number of its
Common Shares in accordance with Section 9 hereof) in connection with such
consummation as may be necessary to assure that the provisions hereof shall
thereafter be applicable, as nearly as reasonably may be, in relation to the
Common Shares thereafter deliverable upon the exercise of the Rights. The
Company shall not consummate any such consolidation, merger, sale or transfer
unless prior thereto the Company and such issuer shall have executed and
delivered to the Rights Agent a supplemental agreement so providing. The Company
shall not enter into any transaction of the kind referred to in this Section 13
if at the time of such transaction there are any rights, warrants, instruments
or securities outstanding or any agreements or arrangements which, as a result
of the consummation of such transaction, would eliminate or substantially
diminish the
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<PAGE> 29
benefits intended to be afforded by the Rights. The provisions of this Section
13 shall similarly apply to successive mergers or consolidations or sales or
other transfers.
Section 14. Fractional Rights and Fractional Shares. (a) The
Company shall not be required to issue fractions of Rights or to distribute
Right Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
Right. For the purposes of this Section 14(a), the current market value of a
whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable. The closing price for any day shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Rights
are not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the
Rights are listed or admitted to trading or, if the Rights are not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by NASDAQ or such other system then in use
or, if on any such date the Rights are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Rights selected by the Board of Directors of
the Company. If on any such date no such market maker is making a market in
the Rights, the fair value of the Rights on such date as determined in good
faith by the Board of Directors of the Company shall be used.
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<PAGE> 30
(b) The Company shall not be required to issue fractions of
Preferred Shares (other than fractions which are integral multiples of one
one-hundredth of a Preferred Share) upon exercise of the Rights or to
distribute certificates which evidence fractional Preferred Shares (other than
fractions which are integral multiples of one one-hundredth of a Preferred
Share). Fractions of Preferred Shares in integral multiples of one one-hundredth
of a Preferred Share may, at the election of the Company, be evidenced by
depositary receipts, pursuant to an appropriate agreement between the Company
and a depositary selected by it; provided, that such agreement shall provide
that the holders of such depositary receipts shall have all the rights,
privileges and preferences to which they are entitled as beneficial owners of
the Preferred Shares represented by such depositary receipts. In lieu of
fractional Preferred Shares that are not integral multiples of one one-hundredth
of a Preferred Share, the Company shall pay to the registered holders of Right
Certificates at the time such Rights are exercised as herein provided an amount
in cash equal to the same fraction of the current market value of one Preferred
Share. For the purposes of this Section 14(b), the current market value of a
Preferred Share shall be the closing price of a Preferred Share (as determined
pursuant to the second sentence of Section 11(d)(i) hereof) for the Trading Day
immediately prior to the date of such exercise.
(c) The holder of a Right by the acceptance of the Right
expressly waives his right to receive any fractional Rights or any fractional
shares upon exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect
of this Agreement, excepting the rights of action given to the Rights Agent
under Section 18 hereof, are vested in the respective registered holders of the
Right Certificates (and, prior to the Distribution Date, the registered holders
of the Common Shares); and any
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<PAGE> 31
registered holder of any Right Certificate (or, prior to the Distribution Date,
of the Common Shares), without the consent of the Rights Agent or of the holder
of any other Right Certificate (or, prior to the Distribution Date, of the
Common Shares), may, in his own behalf and for his own benefit, enforce, and may
institute and maintain any suit, action or proceeding against the Company to
enforce, or otherwise act in respect of, his right to exercise the Rights
evidenced by such Right Certificate in the manner provided in such Right
Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened violations
of the obligations of any Person subject to, this Agreement.
Section 16. Agreement of Right Holders. Every holder of a
Right, by accepting the same, consents and agrees with the Company and the
Rights Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office of the Rights Agent, duly endorsed or accompanied by a
proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the
person in whose name the Right Certificate (or, prior to the Distribution Date,
the associated Common Shares certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right
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<PAGE> 32
Certificates or the associated Common Shares certificate made by anyone other
than the Company or the Rights Agent) for all purposes whatsoever, and neither
the Company nor the Rights Agent shall be affected by any notice to the
contrary.
Section 17. Right Certificate Holder Not Deemed a Stockholder.
No holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Shares or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive
dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by such Right Certificate shall have been exercised in accordance with
the provisions hereof.
Section 18. Concerning the Rights Agent. The Company agrees to
pay to the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability in the premises.
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The Rights Agent shall be protected and shall incur no liability for,
or in respect of any action taken, suffered or omitted by it in connection with,
its administration of this Agreement in reliance upon any Right Certificate or
certificate for the Preferred Shares or Common Shares or for other securities
of the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
person or persons, or otherwise upon the advice of counsel as set forth in
Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
Any corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the stock transfer or
corporate trust powers of the Rights Agent or any successor Rights Agent, shall
be the successor to the Rights Agent under this Agreement without the execution
or filing of any paper or any further act on the part of any of the parties
hereto; provided, that such corporation would be eligible for appointment as a
successor Rights Agent under the provisions of Section 21 hereof. In case at the
time such successor Rights Agent shall succeed to the agency created by this
Agreement, any of the Right Certificates shall have been countersigned but not
delivered, any such successor Rights Agent may adopt the countersignature of the
predecessor Rights Agent and deliver such Right Certificates so countersigned;
and in case at that time any of the Right Certificates shall not have been
countersigned, any successor Rights Agent may countersign such Right
Certificates either in the name of the predecessor Rights Agent or in the name
of the successor Rights Agent; and in all such
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<PAGE> 34
cases such Right Certificates shall have the full force provided in the Right
Certificates and in this Agreement.
In case at any time the name of the Rights Agent shall be changed and
at such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed
name; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board, the
Chief Executive Officer, the President, any Vice President, the Treasurer or the
Secretary of the Company and delivered to the Rights
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<PAGE> 35
Agent; and such certificate shall be full authorization to the Rights Agent for
any action taken or suffered in good faith by it under the provisions of this
Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and any
other Person only for its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have
been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof (except
the due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Right Certificate; nor shall it
be responsible for any change in the exercisability of the Rights (including the
Rights becoming void pursuant to Section 11(a)(ii) hereof) or any adjustment in
the terms of the Rights (including the manner, method or amount thereof)
provided for in Section 3, 11, 13, 23 or 24, or the ascertaining of the
existence of facts that would require any such change or adjustment (except with
respect to the exercise of Rights evidenced by Right Certificates after actual
notice that such change or adjustment is required); nor shall it by any act
hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Preferred Shares to be issued pursuant to
this Agreement or any Right Certificate or as to whether any Preferred Shares
will, when issued, be validly authorized and issued, fully paid and
nonassessable.
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<PAGE> 36
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President,
any Vice President, the Secretary or the Treasurer of the Company, and to apply
to such officers for advice or instructions in connection with its duties, and
it shall not be liable for any action taken or suffered by it in good faith in
accordance with instructions of any such officer or for any delay in acting
while waiting for those instructions.
(h) The Rights Agent and any stockholder, director, officer or employee
of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
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Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Common Shares or Preferred Shares by registered or certified mail, and
to the holders of the Right Certificates by first-class mail. The Company may
remove the Rights Agent or any successor Rights Agent upon 30 days' notice in
writing, mailed to the Rights Agent or successor Rights Agent, as the case may
be, and to each transfer agent of the Common Shares or Preferred Shares by
registered or certified mail, and to the holders of the Right Certificates by
first-class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Rights Agent. If the Company shall fail to make such appointment within a
period of 30 days after giving notice of such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Right Certificate (who shall,
with such notice, submit his Right Certificate for inspection by the Company),
then the registered holder of any Right Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any successor
Rights Agent, whether appointed by the Company or by such a court, shall be a
corporation organized and doing business under the laws of the United States or
of the State of New York (or of any other state of the United States so long as
such corporation is authorized to do business as a banking institution in the
State of New York, in good standing, having an office in the State of New York,
which is authorized under such laws to exercise corporate trust or stock
transfer powers and is subject to supervision or examination by federal or state
authority and which has at the time of its appointment as Rights Agent a
combined capital and surplus of at least $50 million. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or
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<PAGE> 38
deed; but the predecessor Rights Agent shall deliver and transfer to the
successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Shares or Preferred Shares, and mail a
notice thereof in writing to the registered holders of the Right Certificates.
Failure to give any notice provided for in this Section 21, however, or any
defect therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent, as
the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Right Certificates evidencing Rights in such form
as may be approved by its Board of Directors to reflect any adjustment or
change in the Purchase Price and the number or kind or class of shares or other
securities or property purchasable under the Right Certificates made in
accordance with the provisions of this Agreement.
Section 23. Redemption. (a) The Board of Directors of the Company may,
at its option, at any time prior to such time as any Person becomes an Acquiring
Person, redeem all but not less than all the then outstanding Rights at a
redemption price of $.01 per Right, appropriately adjusted to reflect any stock
split, stock dividend or similar transaction occurring after the Record Date
(such redemption price being hereinafter referred to as the "Redemption
Price"). The redemption of the Rights by the Board of Directors of the Company
may be made effective at such time, on such basis and with such conditions as
the Board of Directors of the Company in its sole discretion may establish.
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<PAGE> 39
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights pursuant to paragraph (a) of this
Section 23, and without any further action and without any notice, the right to
exercise the Rights will terminate and the only right thereafter of the holders
of Rights shall be to receive the Redemption Price. The Company shall promptly
give public notice of any such redemption; provided, however, that the failure
to give, or any defect in, any such notice shall not affect the validity of such
redemption. Within 10 days after such action of the Board of Directors ordering
the redemption of the Rights, the Company shall mail a notice of redemption to
all the holders of the then outstanding Rights at their last addresses as they
appear upon the registry books of the Rights Agent or, prior to the Distribution
Date, on the registry books of the transfer agent for the Common Shares. Any
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of redemption
will state the method by which the payment of the Redemption Price will be made.
Neither the Company nor any of its Affiliates or Associates may redeem, acquire
or purchase for value any Rights at any time in any manner other than that
specifically set forth in this Section 23 or in Section 24 hereof, and other
than in connection with the purchase of Common Shares prior to the Distribution
Date.
Section 24. Exchange. (a) The Board of Directors of the Company may, at
its option, at any time after any Person becomes an Acquiring Person, exchange
all or part of the then outstanding and exercisable Rights (which shall not
include Rights that have become void pursuant to the provisions of Section
11(a)(ii) hereof) for Common Shares at an exchange ratio of one Common Share per
Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the Record
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<PAGE> 40
Date (such exchange ratio being hereinafter referred to as the "Exchange
Ratio"). Notwithstanding the foregoing, the Board of Directors of the Company
shall not be empowered to effect such exchange at any time after any Person
(other than the Company, any Subsidiary of the Company, any employee benefit
plan of the Company or any such Subsidiary, or any entity holding Common Shares
for or pursuant to the terms of any such plan), together with all Affiliates and
Associates of such Person, after the Record Date, becomes the Beneficial Owner
of 50% or more of the Common Shares then outstanding.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to paragraph (a) of this
Section 24 and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right thereafter of a holder
of such Rights shall be to receive that number of Common Shares equal to the
number of such Rights held by such holder multiplied by the Exchange Ratio. The
Company shall promptly give public notice of any such exchange; provided,
however, that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Company promptly shall mail a notice
of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any notice
which is mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice. Each such notice of exchange will state the
method by which the exchange of the Common Shares for Rights will be effected
and, in the event of any partial exchange, the number of Rights which will be
exchanged. Any partial exchange shall be effected pro rata based on the number
of Rights (other than Rights which have become void pursuant to the provisions
of Section 11(a)(ii) hereof) held by each holder of Rights.
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(c) In the event that there shall not be sufficient Common Shares
issued but not outstanding or authorized but unissued to permit any exchange of
Rights as contemplated in accordance with this Section 24, the Company shall
take all such action as may be necessary to authorize additional Common Shares
for issuance upon exchange of the Rights. In the event the Company shall, after
good faith effort, be unable to take all such action as may be necessary to
authorize such additional Common Shares, the Company shall substitute, for
each Common Share that would otherwise be issuable upon exchange of a Right, a
number of Preferred Shares or fraction thereof such that the current per share
market price of one Preferred Share multiplied by such number or fraction is
equal to the current per share market price of one Common Share as of the date
of issuance of such Preferred Shares or fraction thereof.
(d) The Company shall not be required to issue fractions of Common
Shares or to distribute certificates which evidence fractional Common Shares. In
lieu of such fractional Common Shares, the Company shall pay to the registered
holders of the Right Certificates with regard to which such fractional Common
Shares would otherwise be issuable an amount in cash equal to the same fraction
of the current market value of a whole Common Share. For the purposes of this
paragraph (d), the current market value of a whole Common Share shall be the
closing price of a Common Share (as determined pursuant to the second sentence
of Section 11(d)(i) hereof) for the Trading Day immediately prior to the date
of exchange pursuant to this Section 24.
Section 25. Notice of Certain Events. (a) In case at any time after the
Record Date the Company shall propose (i) to pay any dividend payable in stock
of any class to the holders of its Preferred Shares or to make any other
distribution to the holders of its Preferred Shares (other than a regular
quarterly cash dividend), (ii) to offer to the holders of its Preferred Shares
rights or warrants to subscribe for or to purchase any
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<PAGE> 42
additional Preferred Shares or shares of stock of any class or any other
securities, rights or options, (iii) to effect any reclassification of its
Preferred Shares (other than a reclassification involving only the subdivision
of outstanding Preferred Shares), (iv) to effect any consolidation or merger
into or with, or to effect any sale or other transfer (or to permit one or more
of its Subsidiaries to effect any sale or other transfer), in one or more
transactions, of 50% or more of the assets or earning power of the Company and
its Subsidiaries (taken as a whole) to, any other Person, (v) to effect the
liquidation, dissolution or winding up of the Company, or (vi) to declare or pay
any dividend on the Common Shares payable in Common Shares or to effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares),
then, in each such case, the Company shall give to each holder of a Right
Certificate, in accordance with Section 26 hereof, a notice of such proposed
action, which shall specify the record date for the purposes of such stock
dividend, or distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the Common Shares and/or Preferred Shares, if any such
date is to be fixed, and such notice shall be so given in the case of any action
covered by clause (i) or (ii) above at least 10 days prior to the record date
for determining holders of the Preferred Shares for purposes of such action, and
in the case of any such other action, at least 10 days prior to the date of the
taking of such proposed action or the date of participation therein by the
holders of the Common Shares and/or Preferred Shares, whichever shall be the
earlier.
(b) In case the event set forth in Section 11(a)(ii) hereof shall
occur, then the Company shall as soon as practicable thereafter give to each
holder of a Right Certificate, in accordance with Section 26 hereof, a notice
of the occurrence of such event,
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which notice shall describe such event and the consequences of such event to
holders of Rights under Section 11(a)(ii) hereof.
Section 26. Notices. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Right Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
Queeny Chemical Company
10300 Olive Boulevard
St. Louis, Missouri 63166-6760
Attention: Corporate Secretary
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or
made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Company) as follows:
First Chicago Trust Company of New York
525 Washington Boulevard
Suite 4660
Jersey City, New Jersey 07310
Attention: Tenders & Exchange Administration
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
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Section 27. Supplements and Amendments. The Company may from time to
time supplement or amend this Agreement without the approval of any holders of
Right Certificates in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provisions herein, or to make any other provisions with respect to the Rights
which the Company may deem necessary or desirable, any such supplement or
amendment to be evidenced by a writing signed by the Company and the Rights
Agent; provided, however, that from and after such time as any Person becomes an
Acquiring Person, this Agreement shall not be amended in any manner which would
adversely affect the interests of the holders of Rights. Without limiting the
foregoing, the Company may at any time prior to such time as any Person becomes
an Acquiring Person amend this Agreement to lower the thresholds set forth in
Sections 1(a) and 3(a) to not less than the greater of (i) the sum of .001% and
the largest percentage of the outstanding Common Shares then known by the
Company to be beneficially owned by any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or any
Subsidiary of the Company, or any entity holding Common Shares for or pursuant
to the terms of any such plan) and (ii) 10%.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any Person other than the Company, the Rights Agent and
the registered holders of the Right Certificates (and, prior to the Distribution
Date, the Common Shares) any legal or equitable right, remedy or claim under
this Agreement; but this Agreement shall be for the sole and exclusive benefit
of the Company, the
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<PAGE> 45
Rights Agent and the registered holders of the Right Certificates (and, prior to
the Distribution Date, the Common Shares).
Section 30. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Section 31. Governing Law. This Agreement and each Right Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of Delaware and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State.
Section 32. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
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<PAGE> 46
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested, all as of the day and year first above written.
QUEENY CHEMICAL COMPANY
Attest:
By: /s/ Karl R. Barnickel By: /s/ Rodney L. Bishop
---------------------------- ------------------------------
Title: Secretary Title: Vice President and
Treasurer
Attest: FIRST CHICAGO TRUST COMPANY
OF NEW YORK
By: /s/ Achille Retolatto By: /s/ Jerry O'Leary
---------------------------- ------------------------------
Title: Vice President Title: Vice President
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<PAGE> 47
Form of Right Certificate
Certificate No. R- ____Rights
NOT EXERCISABLE AFTER _________ __, 2007 OR EARLIER IF
REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO
REDEMPTION AT $.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET
FORTH IN THE RIGHTS AGREEMENT.
Right Certificate
QUEENY CHEMICAL COMPANY
This certifies that , or registered assigns,
is the registered owner of the number of Rights set forth above, each
of which entitles the owner thereof, subject to the terms, provisions
and conditions of the Rights Agreement, dated as of August 6, 1997
(the "Rights Agreement"), between Queeny Chemical Company, a Delaware
corporation (the "Company"), and First Chicago Trust Company of New
York, a New York corporation (the "Rights Agent"), to purchase from
the Company at any time after the Distribution Date (as such term is
defined in the Rights Agreement) and prior to 5:00 P.M., New York City
time, on __________ __, 2007 at the principal office of the Rights
Agent, or at the office of its successor as Rights Agent, one
one-hundredth of a fully paid non-assessable share of Series A Junior
Participating Preferred Stock, par value $0.01 per share (the
"Preferred Shares"), of the Company, at a purchase price of $125 per
one one-hundredth of a Preferred Share (the "Purchase Price"), upon
presentation and surrender of this Right Certificate with the Form of
Election to Purchase duly executed. The number of Rights evidenced by
this Right Certificate (and the number of one one-hundredths of a
Preferred Share which may be purchased upon exercise hereof) set forth
above, and the Purchase Price set forth above, are the number and
Purchase Price as of __________ __, 1997, based on the Preferred
Shares as constituted at such date. As provided in the Rights
Agreement, the Purchase Price and the number of one one-hundredths of
a Preferred Share which may be purchased upon the exercise of the
Rights evidenced by this Right Certificate are subject to modification
and adjustment upon the happening of certain events.
This Right Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms,
provisions and conditions are hereby incorporated herein by reference
and made a part hereof and to which Rights Agreement reference is
hereby made for a full description of the rights, limitations of
rights, obligations, duties and immunities hereunder of the Rights
Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of
the Company and the above-mentioned offices of the Rights Agent.
This Right Certificate, with or without other Right
Certificates, upon surrender at the principal office of the Rights
Agent, may be exchanged for another Right
A-1
<PAGE> 48
Certificate or Right Certificates of like tenor and date evidencing
Rights entitling the holder to purchase a like aggregate number of
Preferred Shares as the Rights evidenced by the Right Certificate or
Right Certificates surrendered shall have entitled such holder to
purchase. If this Right Certificate shall be exercised in part, the
holder shall be entitled to receive upon surrender hereof another Right
Certificate or Right Certificates for the number of whole Rights not
exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate (i) may be redeemed by the Company at a
redemption price of $.01 per Right or (ii) may be exchanged in whole or
in part for Preferred Shares or shares of the Company's Common Stock,
par value $0.01 per share.
No fractional Preferred Shares will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions
which are integral multiples of one one-hundredth of a Preferred Share,
which may, at the election of the Company, be evidenced by depositary
receipts), but in lieu thereof a cash payment will be made, as provided
in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote
or receive dividends or be deemed for any purpose the holder of the
Preferred Shares or of any other securities of the Company which may at
any time be issuable on the exercise hereof, nor shall anything
contained in the Rights Agreement or herein be construed to confer upon
the holder hereof, as such, any of the rights of a stockholder of the
Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of
meetings or other actions affecting stockholders (except as provided in
the Rights Agreement), or to receive dividends or subscription rights,
or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights
Agreement.
This Right Certificate shall not be valid or obligatory for
any purpose until it shall have been countersigned by the Rights Agent.
A-2
<PAGE> 49
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal. Dated as of _______, ___.
ATTEST: QUEENY CHEMICAL COMPANY
_____________________________ By______________________________
Countersigned:
First Chicago Trust Company
of New York
By___________________________
Authorized Signature
A-3
<PAGE> 50
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED _____________________ hereby sells, assigns
and transfers unto ____________________________________________________
(Please print name and address of transferee)
_______________________________________________________________________
this Right Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint
_____________________________________________________________ Attorney,
to transfer the within Right Certificate on the books of the
within-named Company, with full power of substitution.
Dated:________________,_____
_______________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a
registered national securities exchange, a member of the National
Association of Securities Dealers, Inc., or a commercial bank or trust
company having an office or correspondent in the United States.
-----------------------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by
this Right Certificate are not beneficially owned by an Acquiring
Person or an Affiliate or Associate thereof (as defined in the Rights
Agreement).
_______________________________
Signature
-----------------------------------------------------------------------
A-4
<PAGE> 51
Form of Reverse Side of Right Certificate -- continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Right Certificate.)
To: Queeny Chemical Company
The undersigned hereby irrevocably elects to exercise
Rights represented by this Right Certificate to purchase the Preferred
Shares issuable upon the exercise of such Rights and requests that
certificates for such Preferred Shares be issued in the name of:
Please insert social security
or other identifying number
_______________________________________________________________________
(Please print name and address)
_______________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this
Right Certificate, a new Right Certificate for the balance remaining of
such Rights shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
_______________________________________________________________________
(Please print name and address)
_______________________________________________________________________
Dated:_______________,___
________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of
Securities Dealers, Inc., or a commercial bank or trust company having
an office or correspondent in the United States.
A-5
<PAGE> 52
Form of Reverse Side of Right Certificate -- continued
-----------------------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by
this Right Certificate are not beneficially owned by an Acquiring
Person or an Affiliate or Associate thereof (as defined in the Rights
Agreement).
___________________________________
Signature
-----------------------------------------------------------------------
NOTICE
The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon
the face of this Right Certificate in every particular, without
alteration or enlargement or any change whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is
not completed, the Company and the Rights Agent will deem the
beneficial owner of the Rights evidenced by this Right Certificate to
be an Acquiring Person or an Affiliate or Associate thereof (as defined
in the Rights Agreement) and such Assignment or Election to Purchase
will not be honored.
A-6
<PAGE> 53
Exhibit B
FORM
of
CERTIFICATE OF DESIGNATIONS
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
QUEENY CHEMICAL COMPANY
(Pursuant to Section 151 of the
Delaware General Corporation Law)
______________________
Queeny Chemical Company, a corporation organized and existing
under the General Corporation Law of the State of Delaware (hereinafter
called the "Corporation"), hereby certifies that the following
resolution was adopted by the Board of Directors of the Corporation as
required by Section 151 of the General Corporation Law at a meeting
duly called and held on _______, 1997:
RESOLVED, that pursuant to the authority granted to and
vested in the Board of Directors of this Corporation (hereinafter
called the "Board of Directors" or the "Board") in accordance with the
provisions of the Certificate of Incorporation, the Board of Directors
hereby creates a series of Preferred Stock, par value $0.01 per share
(the "Preferred Stock"), of the Corporation and hereby states the
designation and number of shares, and fixes the relative rights,
preferences, and limitations thereof as follows:
Series A Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such series
shall be designated as "Series A Junior Participating Preferred Stock"
(the "Series A Preferred Stock") and the number of shares constituting
the Series A Preferred Stock shall be 1,600,000. Such number of shares
may be increased or decreased by resolution of the Board of Directors;
provided, that no decrease shall reduce the number of shares of Series
A Preferred Stock to a number less than the number of shares then
outstanding plus the number of shares reserved for issuance upon the
exercise of outstanding options, rights or warrants or upon the
conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and
superior to the Series A
B-1
<PAGE> 54
Preferred Stock with respect to dividends, the holders of shares
of Series A Preferred Stock, in preference to the holders of
Common Stock, par value $0.01 per share (the "Common Stock"), of
the Corporation, and of any other junior stock, shall be entitled
to receive, when, as and if declared by the Board of Directors out
of funds legally available for the purpose, quarterly dividends
payable in cash on the tenth day of March, June, September and
December in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a
share or fraction of a share of Series A Preferred Stock, in an
amount per share (rounded to the nearest cent) equal to the
greater of (a) $1 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of
all cash dividends, and 100 times the aggregate per share amount
(payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common
Stock or a subdivision of the outstanding shares of Common Stock
(by reclassification or otherwise), declared on the Common Stock
since the immediately preceding Quarterly Dividend Payment Date
or, with respect to the first Quarterly Dividend Payment Date,
since the first issuance of any share or fraction of a share of
Series A Preferred Stock. In the event the Corporation shall at
any time declare or pay any dividend on the Common Stock payable
in shares of Common Stock, or effect a subdivision or combination
or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in
shares of Common Stock) into a greater or lesser number of shares
of Common Stock, then in each such case the amount to which
holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution
on the Series A Preferred Stock as provided in paragraph (A) of
this Section immediately after it declares a dividend or
distribution on the Common Stock (other than a dividend payable in
shares of Common Stock); provided that, in the event no dividend
or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and
the next subsequent Quarterly Dividend Payment Date, a dividend of
$1 per share on the Series A Preferred Stock shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such
shares, unless the date of issue of such shares is prior to the
record date for the first Quarterly Dividend Payment Date, in
which case dividends on such shares shall begin to accrue from the
date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series A Preferred
Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment
B-2
<PAGE> 55
Date. Accrued but unpaid dividends shall not bear interest.
Dividends paid on the shares of Series A Preferred Stock in an
amount less than the total amount of such dividends at the time
accrued and payable on such shares shall be allocated pro rata on
a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the
determination of holders of shares of Series A Preferred Stock
entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to
the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the
holder thereof to 100 votes on all matters submitted to a vote of
the stockholders of the Corporation. In the event the Corporation
shall at any time declare or pay any dividend on the Common Stock
payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the
number of votes per share to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event
shall be adjusted by multiplying such number by a fraction, the
numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any other
Certificate of Designations creating a series of Preferred Stock
or any similar stock, or by law, the holders of shares of Series A
Preferred Stock and the holders of shares of Common Stock and any
other capital stock of the Corporation having general voting
rights shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by
law, holders of Series A Preferred Stock shall have no special
voting rights and their consent shall not be required (except to
the extent they are entitled to vote with holders of Common Stock
as set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided
in Section 2 are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on
shares of Series A Preferred Stock outstanding shall have been
paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Series A Preferred Stock;
B-3
<PAGE> 56
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except
dividends paid ratably on the Series A Preferred Stock and all
such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Series A Preferred Stock, provided that the Corporation
may at any time redeem, purchase or otherwise acquire shares
of any such junior stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or
upon dissolution, liquidation or winding up) to the Series A
Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any
shares of stock ranking on a parity with the Series A
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board
of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and
preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock subject to the conditions and restrictions on issuance set
forth herein, in the Certificate of Incorporation, or in any other Certificate
of Designations creating a series of Preferred Stock or any similar stock or as
otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series A
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution
B-4
<PAGE> 57
or winding up) with the Series A Preferred Stock, except distributions made
ratably on the Series A Preferred Stock and all such parity stock in proportion
to the total amounts to which the holders of all such shares are entitled upon
such liquidation, dissolution or winding up. In the event the Corporation shall
at any time declare or pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case each share
of Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred
Stock shall not be redeemable.
Section 9. Rank. The Series A Preferred Stock shall rank, with
respect to the payment of dividends and the distribution of assets, junior to
all series of any other class of the Corporation's Preferred Stock.
Section 10. Amendment. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
B-5
<PAGE> 58
IN WITNESS WHEREOF, this Certificate of Designations is
executed on behalf of the Corporation by its Chairman of the Board and
attested by its Secretary this _____ day of ____________, 1997.
___________________________________
Chairman of the Board
Attest:
________________
Secretary
B-6
<PAGE> 1
Exhibit 10(a)
FORM OF
EMPLOYEE BENEFITS AND
COMPENSATION ALLOCATION AGREEMENT
Between
MONSANTO COMPANY
and
[NEW CHEMICALS CORPORATION]
Dated as of ____________, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
I. Definitions...................................... 2
1.01 General.................................... 2
II. U.S. Plans and Stock Plans....................... 9
2.01 Retirement Plans........................... 9
2.02 The SIP.................................... 11
2.03 Welfare Plans.............................. 14
2.04 Stock Plans................................ 15
2.05 Stock Purchase Plans....................... 19
2.06 Nonqualified Plans and Programs............ 20
III. Foreign Plans and TCN Policy..................... 21
3.01 General Principles......................... 21
3.02 Exceptions to General Principles........... 22
3.03 TCN Policy................................. 22
IV. General Provisions............................... 22
4.01 Employment Transfers; Severance Pay........ 22
4.02 Other Liabilities ......................... 23
4.03 Recognition of Monsanto Employment
Service, etc............................. 24
4.04 Indemnification............................ 24
4.05 Transition Services........................ 24
4.06 Workers Compensation Excluded.............. 25
4.07 P4 Joint Venture........................... 25
V. Miscellaneous.................................... 25
5.01 Guarantee of Subsidiaries' Obligations..... 25
5.02 Audits and Disputes........................ 25
5.03 Sharing of Information..................... 26
5.04 Termination................................ 27
5.05 Rights to Amend or Terminate Plans;
No Third Party Beneficiaries............. 27
5.06 Complete Agreement......................... 27
5.07 Governing Law.............................. 27
5.08 Notices.................................... 28
5.09 Amendment and Modification................. 28
5.10 Successors and Assigns..................... 28
5.11 Counterparts............................... 28
5.12 Interpretation............................. 28
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
5.13 Legal Enforceability....................... 28
5.14 References; Construction................... 28
Schedule I
Schedule II
Exhibit A
</TABLE>
-ii-
<PAGE> 4
EMPLOYEE BENEFITS AND COMPENSATION
ALLOCATION AGREEMENT
EMPLOYEE BENEFITS AND COMPENSATION ALLOCATION AGREEMENT,
dated as of _________ __, 1997, by and between Monsanto Company, a
Delaware corporation ("Monsanto"), and [NEW CHEMICALS CORPORATION], a
newly formed Delaware corporation ("Chemicals").
W I T N E S S E T H:
WHEREAS, the Board of Directors of Monsanto has determined
that it is appropriate and desirable to separate Monsanto and its
subsidiaries into two publicly traded organizations by: (1)
consolidating into Chemicals and its newly formed subsidiaries certain
of the businesses currently conducted by Monsanto directly and through
certain of its other subsidiaries and (2) distributing to the holders
of the issued and outstanding shares of common stock, par value $2.00
per share, of Monsanto all of the issued and outstanding shares of
common stock, par value $.01 per share, of Chemicals (the
"Distribution");
WHEREAS, the Distribution is intended to qualify as a
tax-free spin-off under Section 355 of the Internal Revenue Code of
1986, as amended;
WHEREAS, Monsanto and Chemicals are entering into a
Distribution Agreement of even date herewith (the "Distribution
Agreement"), which, among other things, sets forth the principal
corporate transactions required to effect the Distribution and sets
forth other agreements that will govern certain other matters prior to
and following the Distribution; and
WHEREAS, in connection with the Distribution and pursuant to
the Distribution Agreement, Monsanto and Chemicals desire to provide
for the allocation of assets and liabilities and other matters
relating to employee benefit plans and compensation arrangements;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained and intending to be legally bound
hereby, the parties hereto agree as follows:
<PAGE> 5
ARTICLE I
DEFINITIONS
1.01 GENERAL. Any capitalized terms that are used in this
Agreement but not defined herein (other than the names of Monsanto
employee benefit plans) shall have the meanings set forth in the
Distribution Agreement, and as used herein, the following terms shall
have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
Agreement: this Employee Benefits and Compensation Allocation
Agreement, including the schedules and exhibits hereto.
Alternate Payee: an alternate payee under a domestic
relations order which has been determined by the appropriate Plan
administrator to be qualified under Section 414(p) of the Code and
Section 206(d) of ERISA and which creates or recognizes an
alternate payee's right to, or assigns to an alternate payee, all
or a portion of the benefits payable to a participant under any
Plan, or an alternate recipient under a medical child support order
which has been determined by the appropriate Plan administrator to
be qualified under Section 609(a) of ERISA and which creates or
recognizes the existence of an alternate recipient's right to, or
assigns to an alternate recipient the right to, receive benefits
for which a participant or beneficiary is eligible under any Plan.
Assigned Split Dollar Policies: defined in Section 2.03(c).
Audit Liability: defined in Section 5.02(a)(i).
Beneficiary: a beneficiary, dependent or Alternate Payee of a
participant in a Plan or the estate of a deceased participant in a
Plan, in each case in his, her or its capacity as such a
beneficiary, dependent, Alternate Payee or estate.
Cash Incentive Plan: a Plan providing annual and/or long-term
cash incentive compensation.
Chemicals: defined in the preamble.
Chemicals Benefits Group: the Chemicals Group, Advanced
Elastomers Systems, L.P. (U.S. operations) and Flexsys America L.P.
(U.S. operations).
-2-
<PAGE> 6
Chemicals Employee: any individual who is, as of the
Distribution Date, identified on the records of Chemicals as being
an Employee of any member of the Chemicals Benefits Group.
Chemicals ESOP Loan: defined in Section 2.02(c).
Chemicals ESOP Security: defined in Section 2.02(c).
Chemicals Foreign Plan: a Foreign Plan provided by,
contributed to or sponsored by one or more members of the Chemicals
Benefits Group.
Chemicals Former Employee: any individual who is, as of the
Distribution Date, identified on the records of Monsanto as being a
Chemicals Former Employee, which identification shall have been
made based upon a good faith determination by Monsanto and
Chemicals that (i) such individual was, at any time before the
Distribution Date, an employee of any member of the
Pre-Distribution Group, (ii) such individual is not a Monsanto
Employee or a Chemicals Employee, and (iii) such individual's most
recent active employment with any such member was with a Chemicals
Business or a Former Chemicals Business; provided that, if at any
time on or before December 31, 1997, Chemicals and Monsanto
determine that any one or more individuals were identified as
Chemicals Former Employees in error and should have been identified
as Monsanto Former Employees and agree to correct such error, such
individuals shall be considered Monsanto Former Employees and
Chemicals and Monsanto shall use their reasonable best efforts to
implement the terms of this Agreement as they apply to such
individuals as if such individuals had been correctly identified
as of the Distribution Date.
Chemicals Option: an option to purchase from Chemicals shares
of Chemicals Common Stock provided to a Chemicals Participant or
Monsanto Participant pursuant to Section 2.04.
Chemicals Participant: any individual who is a Chemicals
Employee, a Chemicals Former Employee, or a Beneficiary of such an
individual.
Chemicals Ratio: the amount obtained by dividing (i) the
average of the daily high and low trading prices on the NYSE
Composite Tape, as reported in the Wall Street Journal, for the
Monsanto Common Stock with due bills on each of the five trading
days prior to the Distribution Date by (ii) the average of the
daily high and low trading
-3-
<PAGE> 7
prices on the NYSE Composite Tape, as reported in the Wall
Street Journal, for the Chemicals Common Stock on a when-
issued basis on each of such five trading days.
Chemicals Restricted Stock: defined in Section 2.04(f).
Chemicals SAR: a stock appreciation right with respect to
shares of Chemicals Common Stock provided to a Chemicals
Participant or Monsanto Participant pursuant to Section 2.04.
Chemicals SIP: a Qualified Plan established by Chemicals
pursuant to Section 2.02(a).
Chemicals SIP Trust: defined in Section 2.02(a).
Chemicals U.S. Welfare Plan: a Chemicals Welfare Plan that is
a U.S. Plan.
Chemicals Welfare Plan: a Welfare Plan sponsored by one or
more members of the Chemicals Benefits Group.
Distribution: defined in the recitals.
Distribution Agreement: defined in the recitals.
Employee: with respect to any entity, an individual who is
considered, according to the payroll and other records of such
entity, to be employed by such entity, regardless of whether such
individual is, at the relevant time, actively at work or on leave
of absence (including vacation, holiday, sick leave, family and
medical leave, disability leave, military leave, jury duty, layoff
with rights of recall, and any other leave of absence or similar
interruption of active employment that is not considered,
according to the policies or practices of such entity, to have
resulted in a permanent termination of such individual's
employment).
Employer Securities: shares of Monsanto Common Stock
that are held in the Monsanto SIP immediately before the
Distribution Date and the shares of Chemicals Common Stock
distributed with respect thereto in the Distribution.
Enrolled Actuary: with respect to all U.S. Plans,
Towers Perrin, and, with respect to all Foreign Plans, an
enrolled actuary or other party making actuarial or similar
determinations pursuant to this Agreement with respect to assets
or Liabilities relating to a particular employee
-4-
<PAGE> 8
benefit plan selected by Monsanto with the approval of
Chemicals, which approval shall not be unreasonably withheld.
ERISA: the Employee Retirement Income Security Act of 1974,
as amended, or any successor legislation, and the regulations
promulgated thereunder.
ESOP Shares: shares of Employer Securities that were acquired
with the proceeds of any loans or are otherwise governed by the
terms of Section 19 of the Monsanto SIP or the corresponding
provisions of the Chemicals SIP.
Existing Monsanto ESOP Security: each of the Monsanto ESOP
Notes, the Monsanto ESOP Debentures and the Monsanto ESOP Loans.
Foreign Plan: any Plan maintained outside of the United
States primarily for the benefit of individuals substantially all
of whom are nonresident aliens with respect to the United States,
other than the TCN Policy.
Fraction: the ratio of the aggregate unpaid principal amount
of the Chemicals ESOP Securities, determined immediately after the
restructuring provided for in Section 2.02(c), to the aggregate
unpaid principal amount of the Existing Monsanto ESOP Securities,
determined immediately before such restructuring.
Hourly Pension Plan: the Monsanto Company Hourly-Paid
Employees' Pension Plan.
Monsanto: defined in the preamble.
Monsanto Common Stock: defined in the recitals.
Monsanto Employee: any individual who is, as of the
Distribution Date, identified on the records of Monsanto as being
an Employee of any member of the Monsanto Group, other than those
individuals working through the Retiree Resources Corps.
Monsanto ESOP: the Monsanto Employee Stock Ownership Plan
component of the Monsanto SIP.
Monsanto ESOP Debentures: the 8.13% Guaranteed Amortizing
ESOP Debentures issued by the Monsanto SIP Trust.
Monsanto ESOP Loans: the $50,000,000 promissory note entered
into on December 16, 1991 between Monsanto and the
-5-
<PAGE> 9
Monsanto SIP Trust and the $3,675,800 promissory note entered
into on December 27, 1996 between Monsanto and the Monsanto SIP
Trust.
Monsanto ESOP Notes: the 7.09% Guaranteed Amortizing ESOP
Notes due December 15, 2000 issued by the Monsanto SIP Trust.
Monsanto ESOP Suspense Account: the ESOP Suspense Account
established pursuant to Section 19 of the Monsanto SIP.
Monsanto Foreign Plan: a Foreign Plan provided by,
contributed to or sponsored by one or more members of the Monsanto
Group.
Monsanto Former Employee: any individual who was, at any time
before the Distribution Date, an Employee of any member of the
Pre-Distribution Group, and who is not a Monsanto Employee, a
Chemicals Employee or a Chemicals Former Employee; provided that,
if at any time on or before December 31, 1997, Chemicals and
Monsanto determine that any one or more individuals were identified
as Monsanto Former Employees in error and should have been
identified as Chemicals Former Employees, and agree to correct
such error, such individuals shall be considered Chemicals Former
Employees, and Chemicals and Monsanto shall use their reasonable
best efforts to implement the terms of this Agreement as they apply
to such individuals as if such individuals had been correctly
identified as of the Distribution Date.
Monsanto Incentive Plans: the Monsanto Company Management
Incentive Plan of 1984, the Searle Monsanto Stock Option Plan of
1986, the Monsanto Company Management Incentive Plan of 1988/I, the
Monsanto Company Management Incentive Plan of 1988/II, the
NutraSweet/Monsanto Stock Plan of 1991, the Monsanto Company
Management Incentive Plan of 1994, the Searle/Monsanto Stock Plan
of 1994, the NutraSweet/Monsanto Stock Plan of 1994, the Monsanto
Management Incentive Plan of 1996 and the Monsanto Shared Success
Stock Option Plan.
Monsanto Option: an option to purchase shares of Monsanto
Common Stock granted pursuant to any of the Monsanto Incentive
Plans.
Monsanto Participant: any individual who is a Monsanto
Employee, a Monsanto Former Employee, or a Beneficiary of such an
individual.
-6-
<PAGE> 10
Monsanto Pension Plan: the Monsanto Company Employees'
Pension Plan.
Monsanto Ratio: the amount obtained by dividing (i) the
average of the daily high and low trading prices on the NYSE
Composite Tape, as reported in the Wall Street Journal, for the
Monsanto Common Stock with due bills on each of the five trading
days prior to the Distribution Date, by (ii) the excess of (A) the
amount described in clause (i) over (B) one-fifth of the average
of the daily high and low trading prices on the NYSE Composite
Tape, as reported in the Wall Street Journal, for the Chemicals
Common Stock on a when-issued basis on each of such five trading
days.
Monsanto Restricted Stock: restricted shares of Monsanto
Common Stock granted pursuant to, and subject to forfeiture under,
any of the Monsanto Incentive Plans.
Monsanto SAR: a stock appreciation right with respect to
Monsanto Common Stock granted pursuant to any of the Monsanto
Incentive Plans.
Monsanto SIP: the Monsanto Savings and Investment Plan.
Monsanto SIP Trust: the Monsanto Defined Contribution and
Employee Stock Ownership Trust.
Monsanto U.S. Welfare Plan: any Monsanto Welfare Plan that is
a U.S. Plan.
Monsanto Welfare Plan: any Welfare Plan of one or more
members of the Monsanto Group.
Multiple Employer Plan: defined in Section 2.01(b)(i).
New Monsanto ESOP Security: defined in Section 2.02(c).
New Monsanto Option: defined in Section 2.04(b).
New Monsanto SAR: defined in Section 2.04(b).
Pension Plan Agreement: defined in Section 2.01(b)(i).
Plan: any written or unwritten plan, policy, program, payroll
practice, ongoing arrangement, trust, fund,
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contract, insurance policy or other agreement or funding vehicle
provided by, contributed to or sponsored by one or more members of
the Monsanto Group or the Chemicals Benefits Group, providing
benefits to Monsanto Participants or Chemicals Participants,
regardless of whether it is mandated under local law or negotiated
or agreed to as a term or condition of employment or otherwise,
and regardless of whether it is governmental, private, funded,
unfunded, financed by the purchase of insurance, contributory or
noncontributory.
Pre-Adjustment Option: defined in Sections 2.04(c) and (d).
Pre-Adjustment SAR: defined in Sections 2.04(c) and (d).
Pre-Distribution Group: the Monsanto Group and the Chemicals
Benefits Group.
Qualified Plan: a Plan that is an "employee pension benefit
plan" as defined in Section 3(2) of ERISA that constitutes, or is
intended in good faith to constitute, a qualified plan under
Section 401(a) of the Code.
Retained Chemicals Inactive Participant: any Chemicals Former
Employee who is (i) a retired or terminated vested salaried
participant in the Monsanto Pension Plan whose termination under
the Monsanto Pension Plan occurred after December 31, 1985 or (ii)
a retired or terminated vested hourly participant in the Monsanto
Pension Plan whose termination under the Monsanto Pension Plan
occurred after December 31, 1996, or a Beneficiary of any such
Chemicals Former Employee.
Special Effective Date: defined in Section 2.01(c).
Split Dollar Life Insurance Program: the Monsanto Executive
Life Insurance Program, including all individual life insurance
contracts, split dollar agreements and collateral assignments
thereunder.
Successor Plan: defined in Section 2.01(b)(i).
Supplemental Retirement Agreement: any agreement between any
member of the Pre-Distribution Group and any single Monsanto
Employee, Monsanto Former Employee, Chemicals Employee or
Chemicals Former Employee providing for post-retirement income,
pension or welfare benefits (other
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than pursuant to a Welfare Plan, a Qualified Plan, a Supplemental
Retirement Plan or the TCN Policy).
Supplemental Retirement Plan: a U.S. Plan that is (i) an
"employee pension benefit plan" within the meaning of Section 3(2)
of ERISA but is not a Qualified Plan, or (ii) an excess benefit
plan under ERISA, including the Monsanto Company ERISA Parity
Pension Plan, the Monsanto Company ERISA Parity Savings and
Investment Plan and the Monsanto Company Supplemental Retirement
Plan.
TCN Policy: The Monsanto Company Third Country National
Policy.
Transition Services Employee: defined in Section 4.05.
U.S. Deferred Compensation Plan: a U.S. Plan, other than a
Qualified Plan or a Supplemental Retirement Plan, providing
deferred compensation.
U.S. Plan: any Plan that is not a Foreign Plan, other than
the TCN Policy.
Welfare Plan: any Foreign Plan or U.S. Plan that is an
"employee welfare benefit plan" as defined in Section 3(1) of
ERISA (whether or not such plan is subject to ERISA).
ARTICLE II
U.S. PLANS AND STOCK PLANS
2.01 RETIREMENT PLANS. Monsanto and Chemicals shall take all
steps necessary or appropriate so that the provisions of this Section
2.01 are implemented in a timely fashion, as more fully set forth
below.
(a) ASSUMPTION OF HOURLY PENSION PLAN BY CHEMICALS. Effective
no later than as of the Distribution Date, and subject to Section
5.02(a): (i) all Liabilities to or with respect to Monsanto
Participants under the Hourly Pension Plan shall be transferred from
the Hourly Pension Plan to the Monsanto Pension Plan, and the Monsanto
Pension Plan shall assume and be solely responsible for such
Liabilities; (ii) there shall be transferred from the master trust
account for the Hourly Pension Plan to the master trust account for the
Monsanto Pension Plan a pro rata portion thereof, representing the
amount of assets required to be transferred as a result of such
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transfer and assumption of Liabilities, as reasonably and equitably
determined by the Enrolled Actuary in accordance with Section 414(l) of
the Code; and (iii) Chemicals shall assume sponsorship of the Hourly
Pension Plan. The steps taken pursuant to the foregoing shall include
the appointment or reappointment by Chemicals (by action of its Board
of Directors or its delegee after the Distribution Date to approve or
ratify such appointment or reappointment) of all trustees, custodians,
recordkeepers and other fiduciaries and service providers to the Hourly
Pension Plan, and the replacement of the existing named fiduciary of
the Hourly Pension Plan.
(b) SUCCESSOR PLAN.
(i) Monsanto and Chemicals shall enter into, on or
before the Distribution Date, one or more written agreements (the
"Pension Plan Agreement") providing for the transfer to and assumption
by a defined benefit pension plan that is a Qualified Plan (the
"Successor Plan") of certain assets and liabilities of the Monsanto
Pension Plan, as set forth in Section 2.01(b)(ii) below. The Successor
Plan may be a Plan of which both Monsanto and Chemicals are sponsors (a
"Multiple Employer Plan"), in which event the Pension Plan Agreement
shall also provide for its continued operation after the Distribution
Date. Alternatively, the Successor Plan may consist of one or more
Plans sponsored exclusively by Chemicals and/or any other member of the
Chemicals Benefits Group. All matters relating to the funding and
operation of the Multiple Employer Plan (if any) and to Liabilities and
obligations with respect to the Successor Plan shall be governed by the
Pension Plan Agreement, except as otherwise specified below.
(ii) Except as specifically set forth in Section 5.02(a),
subject to the completion of the asset transfer described in the next
sentence, and effective as of the Distribution Date: (A) the Monsanto
Pension Plan shall transfer to the Successor Pension Plan, and the
Successor Pension Plan and the members of the Chemicals Benefits Group
shall assume and be responsible for, (I) all Liabilities of the
Monsanto Pension Plan with respect to benefits accrued by Chemicals
Employees through the Distribution Date, and (II) all Liabilities of
the Monsanto Pension Plan with respect to Chemicals Former Employees,
other than Retained Chemicals Inactive Participants; and (B) if the
Successor Plan is not a Multiple Employer Plan, then the members of the
Monsanto Group shall have no responsibility for such Liabilities. As
soon as practicable after the Distribution Date, there shall be
transferred from the trust funding the Monsanto Pension Plan to the
trust designated to fund the Successor Pension Plan a pro rata portion
of each of the assets
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thereof, representing the amount of assets required to be transferred
as a result of such transfer and assumption of Liabilities, as
reasonably and equitably determined by the Enrolled Actuary in
accordance with Section 414(l) of the Code.
(c) TRANSITION FROM MULTIPLE EMPLOYER PLAN TO HOURLY PLAN. If
the Successor Pension Plan is a Multiple Employer Plan, then (i) from
and after the Distribution Date until the end of the calendar year in
which the Distribution Date occurs, the Chemicals Employees whose
accrued benefits are transferred to the Successor Pension Plan pursuant
to Section 2.01(b)(ii) shall be entitled to the accrual of benefits
under the Successor Pension Plan on the same terms and conditions as
were in effect for them under the Monsanto Pension Plan immediately
before the Distribution Date (including the accrual of a benefit equal
to four percent of their prior plan account balance under the Monsanto
Pension Plan as transferred to the Multiple Employer Plan), and (ii)
from and after the first day of the first calendar year beginning after
the Distribution Date (the "Special Effective Date"), the Chemicals
Employees whose accrued benefits are transferred to the Multiple
Employer Plan pursuant to Section 2.01(b)(ii) shall be entitled to the
accrual of benefits under the Hourly Pension Plan on the same terms and
conditions as were in effect for them under the Multiple Employer Plan
immediately before the Special Effective Date (including the continued
accrual of a benefit equal to four percent of their prior plan account
balance under the Multiple Employer Plan, although such balance will
not have been transferred to the Hourly Pension Plan).
(d) IMPLEMENTATION. Chemicals and Monsanto shall, in
connection with the actions taken pursuant to this Section 2.01,
cooperate in making any and all appropriate filings required under the
Code or ERISA, and the regulations thereunder and any applicable
securities laws, implementing all appropriate communications with
participants, transferring appropriate records, and taking all such
other actions as may be necessary and appropriate to implement the
provisions of this Section 2.01 in a timely manner.
2.02 THE SIP.
(a) Effective as of the Distribution Date, Chemicals shall
establish the Chemicals SIP and a related, separate trust (the
"Chemicals SIP Trust"), qualified in accordance with Section 401(a) of
the Code and exempt from taxation under Section 501(a) of the Code,
which Plan shall include an employee stock ownership plan, to assume
Liabilities of and receive the transfer of assets from the Monsanto SIP
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and the Monsanto SIP Trust as provided for in this Section 2.02.
(b) Monsanto and Chemicals shall take all actions as may be
necessary or appropriate in order to effect the transfer to the
Chemicals SIP and the Chemicals SIP Trust, on or as soon as practicable
after the Distribution Date, of the balances of all accounts
established pursuant to and/or governed by the Monsanto SIP of the
participants in the Monsanto SIP who are, as of the date of transfer,
Chemicals Participants other than Retained Chemicals Inactive
Participants. The transfer of such accounts shall be made (i) in kind,
to the extent the assets thereof consist of Employer Securities, and
(ii) otherwise in cash, securities, other property or a combination
thereof, as agreed by Monsanto and Chemicals, but shall be effected,
where practicable, in kind, so as to preserve each such participant's
investment elections as in effect on the date of such transfer. To the
extent the assets transferred to the Chemicals SIP in accordance with
the foregoing consist of Employer Securities, the portion of such
Employer Securities that shall be ESOP Shares shall equal the number of
such Employer Securities multiplied by a fraction, the numerator of
which is the number of ESOP Shares held in the Monsanto SIP immediately
before the Distribution Date and the denominator of which is the number
of Shares of Employer Securities held in the Monsanto SIP immediately
before the Distribution Date.
(c) Effective as of or as soon as practicable after the
Distribution Date, one or more of the Existing Monsanto ESOP Securities
shall be restructured into two separate obligations, with one of such
obligations (each, a "Chemicals ESOP Security") being assumable or
issued by the Chemicals SIP and the remainder thereof (each, a "New
Monsanto ESOP Security") being issued by the Monsanto SIP. The
aggregate principal amount of the Chemicals ESOP Securities shall be as
nearly as possible equal to 20 percent of the aggregate principal
amount of the Existing Monsanto ESOP Securities immediately before such
restructuring, and the aggregate principal amount of the New Monsanto
ESOP Securities and any Existing Monsanto ESOP Securities that are not
so restructured shall equal the excess of (i) the aggregate principal
amount of the Existing Monsanto ESOP Securities immediately before such
restructuring over (ii) the aggregate principal amount of the Chemicals
ESOP Securities. The Chemicals ESOP Securities may include one or more
loans from Chemicals and/or one or more loans from Monsanto that are
assignable to Chemicals (collectively, the "Chemicals ESOP Loan").
Monsanto and Chemicals shall use their reasonable best efforts to cause
the terms of the Chemicals ESOP Securities and New Monsanto ESOP
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Securities to be as favorable to Chemicals and the Chemicals SIP Trust
and to Monsanto and the Monsanto SIP Trust, respectively, as the terms
of the Existing Monsanto ESOP Securities, to the extent possible. As
soon as practicable after the Distribution Date: (i) the Chemicals SIP
Trust shall assume all obligations of the Monsanto SIP Trust (if any)
under the Chemicals ESOP Securities; (ii) Monsanto shall be released
from any guarantees it has given with respect to the Chemicals ESOP
Securities, and Chemicals shall provide such guarantees; and (iii)
Monsanto shall assign all of its rights (if any) under the Chemicals
ESOP Loan to Chemicals. Subject to and upon the completion of the
restructuring, assumption, release and assignment described in the
preceding sentences of this Section 2.02(c), the trustee of the
Monsanto SIP Trust shall transfer to the Chemicals SIP Trust a pro rata
portion of each of the assets held in each of the ESOP Interim Account,
the ESOP Payment Account and the Monsanto ESOP Suspense Account,
representing a percentage of such assets equal to the Fraction, and
such accounts shall be accepted by such plan and trust.
(d) Chemicals and Monsanto shall cooperate in making all
appropriate filings required under the Code or ERISA, and the
regulations thereunder and any applicable securities laws, implementing
all appropriate communications with participants, maintaining and
transferring appropriate records, and taking all such other actions as
may be necessary and appropriate to implement the provisions of this
Section 2.02 and to cause the transfers of assets pursuant to Sections
2.02(b) and 2.02(c) to take place as soon as practicable after the
Distribution Date; provided, however, that such transfers shall not
take place until as soon as practicable after the receipt of an opinion
of counsel satisfactory to Monsanto to the effect that the Chemicals
SIP is in form qualified under Section 401(a) of the Code and in
compliance with Section 4975 of the Code and the related trust is in
form exempt under Section 501(a) of the Code.
(e) Except as specifically set forth in this Section 2.02 or
in Section 5.02(a), subject to the completion of the transfer provided
for in Section 2.02(a), and effective as of the Distribution Date, the
members of the Chemicals Benefits Group and the Chemicals SIP shall
assume or retain, as the case may be, and shall be solely responsible
for, all Liabilities of the Pre-Distribution Group to or with respect
to Chemicals Participants other than Retained Chemicals Inactive
Participants under the Monsanto SIP. The members of the Chemicals
Benefits Group and the Chemicals SIP shall be solely responsible for
all Liabilities arising out of or relating to the Chemicals SIP.
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2.03 WELFARE PLANS.
(a) Except as specifically set forth in this Section 2.03,
Chemicals shall take, and shall cause the other members of the
Chemicals Benefits Group to take, all actions necessary or appropriate
to establish, on or before the Distribution Date, Chemicals U.S.
Welfare Plans to provide each Chemicals Participant in the United
States with benefits substantially similar to the benefits provided to
him or her under the Monsanto U.S. Welfare Plans. From and after the
Distribution Date, except as specifically set forth in Section 5.02(a),
the members of the Chemicals Benefits Group shall assume or retain, as
the case may be, and shall be solely responsible for, all Liabilities
of the Pre-Distribution Group in connection with claims by or in
respect of Chemicals Participants in the United States for benefits
under the Monsanto U.S. Welfare Plans and the Chemicals U.S. Welfare
Plans, whether incurred before, on or after the Distribution Date.
Monsanto agrees to provide Chemicals or its designated representative
with such information (in the possession of a member of the Monsanto
Group and not already in the possession of a member of the Chemicals
Benefits Group) as may be reasonably requested by Chemicals in order to
carry out the requirements of this Section 2.03.
(b) Prior to the Distribution Date, Chemicals shall establish
a flexible spending account Plan to assume Liabilities of and receive
the transfer of assets from the Monsanto Flexible Spending Account
Plan, and Monsanto and Chemicals shall take all other action necessary
or appropriate so that, effective as of the Distribution Date,
Chemicals shall assume and be solely responsible for all Liabilities to
Chemicals Employees under the Monsanto Flexible Spending Account Plan.
(c) Monsanto and Chemicals shall take all actions necessary
or appropriate to assign to Chemicals, effective as of the Distribution
Date, all of the rights and interests of the Pre-Distribution Group in
the split dollar life insurance policies insuring the lives of
Chemicals Participants pursuant to the Split Dollar Life Insurance
Program (such policies, the "Assigned Split Dollar Policies"). Such
actions shall include Chemicals' acceptance of any collateral
assignments, policy endorsements or such other documentation executed
by or on behalf of such Chemicals Participants or any trustee of any
trust to which any Chemicals Participant's policy rights or incidents
of ownership under the Assigned Split Dollar Policies have been
assigned, and Chemicals' entering into such agreements as may be
necessary to fulfill
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<PAGE> 18
any obligations of Monsanto to any insurance company or insurance agent
or broker under the Assigned Split Dollar Policies. From and after the
date of the assignment of any Assigned Split Dollar Policy to
Chemicals, Chemicals shall assume and be solely responsible for all
Liabilities, and shall be entitled to all benefits, of the
Pre-Distribution Group to the applicable Chemicals Participant under
the Split Dollar Life Insurance Program, including under such policy
and any related agreements entered into by such Chemicals Participant
or any such trustee.
(d) Monsanto and Chemicals shall take all action necessary or
appropriate to cause Metropolitan Life Insurance Company to partition
between Monsanto and Chemicals, effective as of the Distribution Date,
the rate stabilization reserves maintained in connection with the
Monsanto Company Salaried and Non-Union Hourly Employees' Term Life
Insurance Plan, the Monsanto Company Salaried and Non-Union Employees'
Dependent Term Life Insurance Plan, the Monsanto Company Hourly-Paid
Employees' Group Life Insurance and Sickness Plan -- Union, and the
Monsanto Company Optional Life Insurance Plan -- Union, based upon the
relative dollar amount of premiums to be paid by each of them with
respect to the coverage to which such reserves relate, determined
immediately after the Distribution Date.
2.04 STOCK PLANS. Monsanto and Chemicals shall take all
action necessary or appropriate so that each Monsanto Option or
Monsanto SAR is adjusted and/or replaced as set forth below.
(a) This Section 2.04(a) sets forth the treatment in the
Distribution of each Monsanto Option and Monsanto SAR granted during
calendar year 1997 that is, as of the Distribution Date, outstanding
and held by a Chemicals Employee. Each such Monsanto Option and
Monsanto SAR shall be replaced with a Chemicals Option or Chemicals
SAR, as applicable, (i) with respect to a number of shares of Chemicals
Common Stock equal to the number of shares subject to such Monsanto
Option or Monsanto SAR, as applicable, immediately before such
replacement, times the Chemicals Ratio (and then, if any resultant
fractional share of Chemicals Common Stock exists, rounded up to the
nearest whole share), and (ii) with a per-share exercise price equal to
the per-share exercise price of such Monsanto Option or Monsanto SAR,
as applicable, immediately before such replacement, divided by the
Chemicals Ratio (and then, if necessary, rounded down to the nearest
whole cent).
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(b) This Section 2.04(b) sets forth the treatment in the
Distribution of each of the following Monsanto Options and Monsanto
SARs: (i) each Monsanto Option and Monsanto SAR granted during calendar
year 1997 that is, as of the Distribution Date, outstanding and held by
a Monsanto Participant; (ii) each other Monsanto Option and Monsanto
SAR held by a Monsanto Participant who is an Employee of a member of
the Monsanto Group other than Monsanto; and (iii) each Monsanto Option
that is held by a Monsanto Former Employee, a Chemicals Former Employee
or a Beneficiary of a Monsanto Former Employee or a Chemicals Former
Employee. Each such Monsanto Option and Monsanto SAR shall be adjusted
to constitute an option (a "New Monsanto Option") or stock appreciation
right (a "New Monsanto SAR"), as applicable, (i) with respect to a
number of shares of Monsanto Common Stock equal to the number of shares
subject to such Monsanto Option or Monsanto SAR, as applicable,
immediately before such adjustment, times the Monsanto Ratio (and then,
if any resultant fractional share of Monsanto Common Stock exists,
rounded up to the nearest whole share), and (ii) with a per-share
exercise price equal to the per-share exercise price of such Monsanto
Option or Monsanto SAR, as applicable, immediately before such
adjustment, divided by the Monsanto Ratio (and then, if necessary,
rounded down to the nearest whole cent).
(c) This Section 2.04(c) sets forth the treatment in the
Distribution of each Monsanto Option and Monsanto SAR granted before
calendar year 1997 that is, as of the Distribution Date, outstanding
and held by either (i) a Monsanto Participant who is an Employee of
Monsanto, or (ii) a Chemicals Employee who is not listed on Schedule I
hereto. Each such Monsanto Option or Monsanto SAR (each a
"Pre-Adjustment Option" or "Pre-Adjustment SAR," as applicable) shall
be replaced with two options or stock appreciation rights, as
applicable (one a New Monsanto Option or New Monsanto SAR, as
applicable, and the other a Chemicals Option or Chemicals SAR, as
applicable), as follows. With respect to each such New Monsanto Option
or New Monsanto SAR, as applicable, (i) the number of shares of
Monsanto Common Stock subject to such New Monsanto Option or New
Monsanto SAR, as applicable, shall equal the number of shares of
Monsanto Common Stock subject to the Pre-Adjustment Option or
Pre-Adjustment SAR, as applicable, and (ii) the per-share exercise
price of such New Monsanto Option or New Monsanto SAR, as applicable,
shall equal the per-share exercise price of such Pre-Adjustment Option
or Pre-Adjustment SAR, as applicable, divided by the Monsanto Ratio (if
necessary, rounded down to the nearest whole cent). With respect to
each such Chemicals Option or Chemicals SAR, as applicable, (i) the
number of shares of Chemicals Common Stock subject to such Chemicals
Option or
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Chemicals SAR, as applicable, shall equal one-fifth of the number of
shares of Monsanto Common Stock subject to the Pre-Adjustment Option or
Pre-Adjustment SAR, as applicable (if necessary, rounded up to the
nearest whole share), and (ii) the per-share exercise price of such New
Chemicals Option or New Chemicals SAR, as applicable, shall equal the
per-share exercise price of such Pre-Adjustment Option or
Pre-Adjustment SAR, as applicable, divided by the Chemicals Ratio (and
then, if necessary, rounded down to the nearest whole cent).
(d) This Section 2.04(d) sets forth the treatment in the
Distribution of each Monsanto Option and Monsanto SAR granted before
calendar year 1997 that is, as of the Distribution Date, outstanding
and held by a Chemicals Employee listed on Schedule I hereto. Each such
Monsanto Option or Monsanto SAR (each a "Pre-Adjustment Option" or
"Pre-Adjustment SAR," as applicable) shall be replaced with two options
or stock appreciation rights, as applicable (one a New Monsanto Option
or New Monsanto SAR, as applicable, and the other a Chemicals Option or
Chemicals SAR, as applicable), as follows. With respect to each such
New Monsanto Option or New Monsanto SAR, as applicable, (i) the number
of shares of Monsanto Common Stock subject to such New Monsanto Option
or New Monsanto SAR, as applicable, shall equal the number of shares of
Monsanto Common Stock subject to such Pre-Adjustment Option or
Pre-Adjustment SAR, as applicable, times the Monsanto Ratio times 0.76
(and then, if any resultant fractional share of Monsanto Common Stock
exists, rounded up to the nearest whole share) and (ii) the per-share
exercise price of such New Monsanto Option or New Monsanto SAR, as
applicable, shall equal the per-share exercise price of such
Pre-Adjustment Option or Pre-Adjustment SAR, as applicable, divided by
the Monsanto Ratio (and then, if necessary, rounded down to the nearest
whole cent). With respect to each such Chemicals Option or Chemicals
SAR, as applicable, (i) the number of shares of Chemicals Common Stock
subject to such Chemicals Option or Chemicals SAR, as applicable, shall
equal the number of shares of Monsanto Common Stock subject to such
Pre-Adjustment Option or Pre-Adjustment SAR, as applicable, times the
Chemicals Ratio times 0.24 (and then, if any resultant fractional share
of Chemicals Common Stock exists, rounded up to the nearest whole
share), and (ii) the per-share exercise price of such New Chemicals
Option or New Chemicals SAR, as applicable, shall equal the per-share
exercise price of such Pre-Adjustment Option or Pre-Adjustment SAR, as
applicable, divided by the Chemicals Ratio (and then, if necessary,
rounded down to the nearest whole cent).
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(e) The terms and conditions of each New Monsanto Option, New
Monsanto SAR, Chemicals Option and Chemicals SAR issued pursuant to
this Section 2.04 shall be the same as those of the Monsanto Option or
Monsanto SAR it replaces, except as otherwise specifically provided in
this Section 2.04 and except that in the case of such options and SARs
issued to Chemicals Employees, references to employment with or
termination of employment with Monsanto and its affiliates shall be
changed to references to employment with or termination of employment
with Chemicals and its affiliates. Chemicals may, in its discretion,
adjust any associated performance goals as may be appropriate to
reflect the effects of the Distribution.
(f) Effective as of the Distribution Date, (i) Chemicals
shall assume and be solely responsible for all Liabilities (whether
accrued, contingent or otherwise) of the Pre-Distribution Group with
respect to dividend equivalent units on New Monsanto Options, New
Monsanto SARs and awards of Monsanto Restricted Stock held by Chemicals
Participants (although such dividend equivalent units shall continue to
accrue based upon the payment of dividends by Monsanto), and (ii)
Monsanto shall assume or retain, as applicable, and be solely
responsible for all Liabilities (whether accrued, contingent or
otherwise) of the Pre-Distribution Group with respect to dividend
equivalent units on Chemicals Options and Chemicals SARs issued to
Monsanto Participants pursuant to this Section 2.04 and shares of
Chemicals Stock distributed with respect to awards of Monsanto
Restricted Stock ("Chemicals Restricted Stock") held by Monsanto
Participants (although such dividend equivalent units shall accrue
based upon the payment of dividends by Chemicals). Except as provided
in the preceding sentence, effective as of the Distribution Date,
Chemicals shall assume and be solely responsible for all Liabilities of
the Pre-Distribution Group with respect to Chemicals Options, Chemicals
SARs and Chemicals Restricted Stock, and Monsanto shall retain and be
solely responsible for all Liabilities of the Pre-Distribution Group to
or with respect to Monsanto Options, Monsanto SARs and Monsanto
Restricted Stock and New Monsanto Options and New Monsanto SARs.
(g) Notwithstanding the foregoing provisions of this Section
2.04, the number of shares subject to a Chemicals Option, Chemicals
SAR, New Monsanto Option or New Monsanto SAR issued to an individual
listed on Schedule II hereto shall be rounded to the nearest whole
share (whether up or down) rather than up to the nearest whole share.
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(h) Notwithstanding the foregoing provisions of this Section
2.04, if either Monsanto or Chemicals determines that because of legal,
accounting, tax, and/or regulatory rules or requirements applicable to
options or restricted stock in any jurisdiction outside the United
States, compliance with any of its obligations under this Section 2.04
with respect to options, stock appreciation rights or restricted stock
held by or to be issued to any individual employed outside the United
States would be impossible, illegal, impracticable or unreasonably
expensive, it shall so notify the other party, and Chemicals and
Monsanto shall use their best efforts to agree to appropriate
alternative arrangements.
2.05 STOCK PURCHASE PLANS.
(a) Monsanto has taken, or shall take as soon as practicable
after the date hereof, such actions as may necessary or appropriate to
accomplish the following with respect to the Monsanto Employee Stock
Purchase Plan.
(i) Monsanto has suspended the acceptance of
applications by Monsanto Employees and Chemicals Employees to
participate in the Monsanto Employee Stock Purchase Plan as of July 18,
1997, pending completion of the Distribution.
(ii) Each Monsanto Employee and each Chemicals Employee
who has any outstanding application under the Monsanto Employee Stock
Purchase Plan immediately before the record date for the Distribution
shall be given the opportunity to choose among the following
alternatives with respect to such application: (A) such application may
be settled in full before the record date for the Distribution if such
Employee pays the purchase price for the remaining unpurchased shares
of Monsanto Common Stock thereunder in full before the record date, in
which event such Employee shall become the owner of such Monsanto
Common Stock before the record date and will, accordingly, be entitled
to receive the Distribution with respect thereto (assuming such
Employee remains the owner of such Monsanto Common Stock as of the
record date for the Distribution); (B) such application may be
cancelled without penalty before the Distribution Date; or (C) such
application may continue in effect following the Distribution Date,
subject to adjustment as provided in the next sentence. Each
application under the Monsanto Employee Stock Purchase Plan that is
outstanding as of the Distribution Date shall be adjusted, immediately
after the Distribution Date, so that it (I) covers a number of shares
of Monsanto Common Stock equal to the number of shares covered by such
application immediately before such adjustment, times the Monsanto
Ratio (and then, if any resultant fractional share of Monsanto Common
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Stock exists, rounded up to the nearest whole share), and (II) has a
per-share purchase price equal to the per-share purchase price of such
application, immediately before such adjustment, divided by the
Monsanto Ratio (and then, if necessary, rounded down to the nearest
whole cent).
(iii) From and after the Distribution Date, Chemicals
Employees shall be permitted to complete the purchase of Monsanto
Common Stock pursuant to applications under the Monsanto Stock Purchase
Plan that continue in effect pursuant to clause (C) of Section
2.05(a)(ii), in accordance with the terms and conditions of such
applications and the Monsanto Employee Stock Purchase Plan, except that
(A) such terms and conditions shall be adjusted pursuant to the last
sentence of said Section 2.05(a)(ii) and (B) employment with any member
of the Chemicals Benefits Group shall be treated as if it were
employment with Monsanto. From and after the Distribution Date,
Chemicals shall make all payroll deductions required with respect to
such applications of Chemicals Employees and shall remit such
deductions to Monsanto on their behalf in satisfaction of the purchase
price of shares of Monsanto Common Stock after the Distribution Date.
(b) Notwithstanding any other provision of this Agreement,
for purposes of the Monsanto Executive Stock Purchase Incentive Plan,
the Distribution shall be considered to result in a termination of the
employment of Chemicals Employees effective as of the Distribution
Date, and Monsanto shall retain and be solely responsible for all
Liabilities under such plan.
2.06 NONQUALIFIED PLANS AND PROGRAMS.
(a) Except as specifically set forth in Section 5.02(a) and
effective as of the Distribution Date, the members of the Chemicals
Benefits Group shall assume and be solely responsible for all
Liabilities of the Pre-Distribution Group to or relating to Chemicals
Participants under all Cash Incentive Plans. Chemicals and Monsanto
shall cooperate in taking all actions necessary or appropriate to
adjust the performance goals and other terms and conditions of awards
under the Cash Incentive Plans for performance periods that begin
before and end after the Distribution Date as appropriate to reflect
the Distribution, including amending any Cash Incentive Plan or grant
thereunder, and obtaining any necessary consents of affected
participants.
(b) Except as specifically set forth in Section 5.02(a) and
effective as of the Distribution Date, Chemicals shall assume and be
solely responsible for all Liabilities of
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the Pre-Distribution Group to or relating to (i) Chemicals Participants
under the Supplemental Retirement Plans, except for Liabilities with
respect to benefits under the Monsanto Company ERISA Pension Parity
Plan and the Monsanto Company ERISA Parity Savings and Investment Plan
of Retained Chemicals Inactive Participants, and (ii) Supplemental
Retirement Agreements with Chemicals Employees. Chemicals and Monsanto
shall cooperate in taking all actions necessary or appropriate to
implement the foregoing, including amending any Supplemental Retirement
Plan or Supplemental Retirement Agreement and obtaining any necessary
consents of affected individuals.
(c) Except as specifically set forth in Section 5.02(a) and
effective as of the Distribution Date, Chemicals shall assume and be
solely responsible for all Liabilities of the Pre-Distribution Group to
or relating to Chemicals Participants under all U.S. Deferred
Compensation Plans.
ARTICLE III
FOREIGN PLANS AND TCN POLICY
3.01 GENERAL PRINCIPLES. This Section 3.01 sets forth certain
general principles relating to Foreign Plans; however, exceptions may
be made to those general principles as set forth in Section 3.12.
Monsanto and Chemicals shall take all actions necessary or appropriate
so that, effective no later than the Distribution Date, all Foreign
Plans have been divided and/or new Foreign Plans established (to the
extent necessary) so that all benefits of Monsanto Participants under
Foreign Plans (whether accrued or payable before, on or after the
Distribution Date) are provided by Monsanto Foreign Plans, and all
benefits of Chemicals Participants under Foreign Plans (whether accrued
or payable before, on or after the Distribution Date) are provided by
Chemicals Foreign Plans. If any Foreign Plan that is separated into a
Monsanto Foreign Plan and a Chemicals Foreign Plan in connection with
or in anticipation of the Distribution is funded through a trust,
insurance contract or other funding vehicle, then such funding vehicle
shall be divided between such Monsanto Foreign Plan and Chemicals
Foreign Plan in proportion to the relative projected benefit
obligations of such two Plans, determined immediately after such
separation takes place. Except as specifically provided in Section
5.02(a), from and after the Distribution Date: (i) the members of the
Monsanto Group and the Monsanto Foreign Plans shall assume or retain,
as applicable, and shall be solely responsible for, all Liabilities of
the Pre-Distribution Group arising out of or relating to the Monsanto
Foreign Plans; and (ii) the members of the Chemicals Benefits Group and
the Chemicals Foreign Plans shall assume or retain, as applicable,
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<PAGE> 25
and shall be solely responsible for, all Liabilities arising out of or
relating to the Chemicals Foreign Plans.
3.02 EXCEPTIONS TO GENERAL PRINCIPLES. Monsanto and Chemicals
recognize that it is possible that, in certain cases, applicable law
may prohibit the implementation of the general principles set forth in
Section 3.01, or that there may be special circumstances making such
implementation inadvisable or impractical. In all such cases, such
general principles shall not be implemented and Monsanto and Chemicals
shall use best efforts to develop and implement an alternative
approach, and shall enter into such additional agreements as may be
necessary or appropriate in connection therewith. Exhibit A hereto also
sets forth certain exceptions to the general principles set forth in
Section 3.01.
3.03 TCN POLICY. From and after the Distribution Date, the
members of the Chemicals Benefits Group shall assume and be solely
responsible for all Liabilities of the Pre-Distribution Group to or
relating to benefits accrued through the Distribution Date by or with
respect to Chemicals Employees under the TCN Policy, and the members of
the Monsanto Group shall retain and be solely responsible for all other
Liabilities under the TCN Policy.
ARTICLE IV
GENERAL PROVISIONS
4.01 EMPLOYMENT TRANSFERS; SEVERANCE PAY.
(a) Chemicals and Monsanto shall take all steps necessary and
appropriate so that, on or immediately after the Distribution Date, all
individuals who have been selected to be Chemicals Employees are
employed, or (where employment does not continue by operation of law)
are offered employment, by a member of the Chemicals Benefits Group,
and all individuals who have been selected to be Monsanto Employees are
employed, or (where employment does not continue by operation of law)
are offered employment, by a member of the Monsanto Group. Such steps
shall include, where necessary or appropriate under local law, making
employment offers and/or transferring contracts of employment.
(b) Chemicals and Monsanto agree that, except as specifically
provided by law or otherwise in this Agreement, individuals who, in
connection with the Distribution, cease to be Monsanto Employees and
become Chemicals Employees shall not be deemed to have experienced a
termination or severance of employment from Monsanto and its
subsidiaries for purposes of any
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Monsanto Plan that provides for the payment of severance, redundancy,
salary continuation or similar benefits.
(c) Chemicals and the other members of the Chemicals Benefits
Group shall assume and be solely responsible for all Liabilities of the
Pre-Distribution Group in connection with claims made by or on behalf
of the following individuals in respect of severance, redundancy and
similar pay, salary continuation and similar obligations relating to
the termination or alleged termination of any such individual's
employment before, on or after the Distribution Date: (i) Chemicals
Employees and Chemicals Former Employees; and (ii) Employees who have
been designated as employed in the Chemicals Business who do not become
Chemicals Employees because they exercise their rights, under local
law, to refuse to transfer to the employment of a member of the
Chemicals Benefits Group. Notwithstanding any other provision of this
Agreement, individuals described in clause (ii) of the preceding
sentence shall be considered to be Chemicals Former Employees from and
after the date they cease to be Employees of Monsanto and/or the other
members of the Monsanto Group.
4.02 OTHER LIABILITIES. If at any time after the Distribution
Date, as a result of any increase or improvement by the Monsanto Group
or the Chemicals Group (the "Improving Party") after the Distribution
Date to the benefits that it provides to any Monsanto Former Employees
or Chemicals Former Employees or any Beneficiaries thereof pursuant to
any Plan (other than such an increase or improvement required by any
agreement in effect on the Distribution Date or by applicable law or
regulation) (a "Benefit Uplift"), any Chemicals Participant or Monsanto
Participant asserts a claim that he or she is entitled to a
corresponding Benefit Uplift for which the Chemicals Group or the
Monsanto Group (the "Other Party") would, absent this Section 4.02, be
responsible pursuant to this Agreement, then notwithstanding any other
provision of this Agreement, the Improving Party shall indemnify the
Other Party and hold it harmless from and against any Liabilities
resulting from such claim, which Liabilities shall be an Indemnifiable
Loss governed by Article IV of the Distribution Agreement; provided,
that the Improving Party and the Other Party shall cooperate in
satisfying any such Liabilities and accomplishing such indemnification
in a reasonable, tax-efficient manner wile at the same time keeping the
Other Party whole on a net after-tax basis, taking into account the
effect of any tax benefits and tax detriments to the Improving Party
and the Other Party as a result of the manner in which such Liabilities
are satisfied and such indemnification is accomplished.
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<PAGE> 27
4.03 RECOGNITION OF MONSANTO EMPLOYMENT SERVICE, ETC. The
Chemicals Plans shall, to the extent permitted by applicable law,
recognize service before the Distribution with the Pre-Distribution
Group as service with the Chemicals Benefits Group. Each Chemicals
Welfare Plan shall, to the extent permitted by applicable law, provide
benefits to Chemicals Participants without interruption or change
solely as a result of the transition from the corresponding Monsanto
Welfare Plans, and, without limiting the generality of the foregoing:
(i) shall, to the extent applicable, recognize all amounts applied to
deductibles, out-of-pocket maximums and lifetime maximum benefits with
respect to Chemicals Participants under the corresponding Monsanto
Welfare Plan for the plan year that includes the Distribution Date and
for prior periods (if applicable); (ii) shall, to the extent
applicable, not impose any limitations on coverage of preexisting
conditions of Chemicals Participants except to the extent such
limitations applied to such Chemicals Participants under the
corresponding Monsanto Welfare Plan immediately before such Chemicals
Welfare Plan became effective; and (iii) shall not impose any other
conditions (such as proof of good health, evidence of insurability or a
requirement of a physical examination) upon the participation by
Chemicals Participants who were participating in the corresponding
Monsanto Welfare Plan immediately before such Chemicals Welfare Plan
became effective.
4.04 INDEMNIFICATION. All Liabilities retained or assumed by
or allocated to Chemicals or any other members of the Chemicals
Benefits Group pursuant to this Agreement shall be deemed to be
Chemicals Liabilities pursuant to the Distribution Agreement, and all
Liabilities retained or assumed by or allocated to Monsanto or any
other members of the Monsanto Group pursuant to this Agreement shall be
deemed to be Monsanto Liabilities pursuant to the Distribution
Agreement, and, in each case, shall be subject to the indemnification
provisions set forth in Article IV of the Distribution Agreement.
4.05 TRANSITION SERVICES. Certain Monsanto Employees and
certain Chemicals Employees ("Transition Services Employees") will be
employed, after the Distribution, in providing transition services to
the Chemicals Benefits Group and the Monsanto Group, respectively,
pursuant to certain transition services agreements between Monsanto and
Chemicals. If any Transition Services Employee terminates employment
with Monsanto or Chemicals, as applicable, during or at the expiration
of the term of the applicable transition services agreement as a result
of the elimination of his or her position, and becomes an employee of
any member of the Chemicals Benefits Group or any member of the
Monsanto Group, as applicable, within 90 days
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after such termination of employment, then Monsanto and Chemicals shall
use reasonable best efforts to provide such Transition Services
Employee with a smooth transition with respect to such Transition
Services Employee's employee benefits. Without limiting the generality
of the foregoing, Section 4.03 shall apply to each Transition Services
Employee described in the preceding sentence as if he or she had been a
Chemicals Employee or a Monsanto Employee, as applicable.
4.06 WORKERS COMPENSATION EXCLUDED. Notwithstanding any other
provision of this Agreement, this Agreement shall have no application
to, and shall not govern the allocation of, any Liabilities for or
relating to workers' compensation, which are governed by the
Distribution Agreement.
4.07 P4 JOINT VENTURE. To the extent that any provision of
this Agreement is inconsistent with the provisions of the P4 Joint
Venture Agreement as it relates to Employees or former Employees of the
P4 Joint Venture and their compensation and benefits under Plans, the
P4 Joint Venture Agreement shall prevail.
ARTICLE V
MISCELLANEOUS
5.01 GUARANTEE OF SUBSIDIARIES' OBLIGATIONS. Each of the
parties hereto shall cause to be performed, and hereby guarantees the
performance and payment of, all actions, agreements, obligations and
liabilities set forth herein to be performed or paid by any subsidiary
of such party which is contemplated by the Distribution Agreement to be
a subsidiary of such party on or after the Distribution Date.
5.02 AUDITS AND DISPUTES.
(a) (i) If any audit, examination or similar proceeding with
respect to any Monsanto Plan by the U.S. Internal Revenue Service, the
U.S. Department of Labor or any other governmental authority, or any
litigation arising out of such an audit, examination or similar
proceeding, that pertains (in whole or in part) to a period before the
Distribution Date results in the imposition of any Liability, then the
portion of such Liability that pertains to a period before the
Distribution Date (an "Audit Liability") shall be allocated between
Chemicals and Monsanto as set forth in this Section 5.02, provided that
the term "Audit Liability" shall not include any portion of such a
Liability that results from the loss of any
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<PAGE> 29
compensation deduction or any related interest or penalties (which
shall be governed by the Tax Sharing Agreement).
(ii) To the extent that an Audit Liability takes the form
of a payment to any Chemicals Participant or of a benefit under a Plan
or a contribution to a trust or other funding vehicle relating to a
Plan, or interest on such a payment or contribution, there shall be
allocated to Chemicals the portion of such Audit Liability that is
attributable to Chemicals Participants.
(iii) Any Audit Liability that takes the form of a
penalty, fine or other liability imposed as a result of the manner in
which a Plan was administered (including as a result of the failure to
make a required filing or participant communication) and that is not
described in Section 5.02(a)(ii) shall be allocated between Chemicals
and Monsanto in accordance with their past practice before the
Distribution.
(iv) If an Audit Liability arises, the allocation of
which is not addressed in Section 5.02(a)(ii) or (iii), or if there
arises any other dispute concerning the allocation of Audit
Liabilities, such allocation or dispute shall be subject to Article VII
of the Distribution Agreement.
(b) In any case in which Chemicals or Monsanto shall disagree
with the determination of an amount which this Agreement requires to be
made by the Enrolled Actuary, each such disagreeing party shall have
the right, within 30 days after receipt of notice of such
determination, to engage, at its own expense, an independent expert to
make the determination of such amount. If the amount determined by such
independent experts should differ, such amount shall be reasonably and
equitably determined by another independent expert selected by
agreement between or among the Enrolled Actuary and such independent
experts.
(c) Any other dispute, controversy or claim arising out of or
relating to this Agreement shall be governed by Article VII of the
Distribution Agreement.
5.03 SHARING OF INFORMATION. Each of Monsanto and Chemicals
shall, and shall cause each of the other members of their respective
Groups to, provide to the other all such information in its possession
as the other may reasonably request to enable it to administer its
employee benefit plans and programs, and to determine the scope of, and
fulfill, its obligations under this Agreement. Such information shall,
to the extent reasonably practicable, be provided in the format and at
the times and places requested, but in no event shall
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<PAGE> 30
the party providing such information be obligated to incur any direct
expense not reimbursed by the party making such request, nor to make
such information available outside its normal business hours and
premises. The right of the parties to receive information hereunder
shall, without limiting the generality of the foregoing, extend to any
and all reports, and the data underlying such reports, prepared by the
Enrolled Actuary in making any determination under this Agreement or by
any third party engaged pursuant to Section 5.02, and to information
necessary to determine whether performance goals and other terms and
conditions relating to awards adjusted pursuant to Section 2.04 have
been satisfied after the Distribution.
5.04 TERMINATION. This Agreement shall be terminated in the
event that the Distribution Agreement is terminated and the
Distribution abandoned prior to the Distribution Date. In the event of
such termination, neither party shall have any liability of any kind to
the other party.
5.05 RIGHTS TO AMEND OR TERMINATE PLANS; NO THIRD PARTY
BENEFICIARIES. No provision of this Agreement shall be construed (i) to
limit the right of Monsanto, any other member of the Monsanto Group,
Chemicals or any other member of the Chemicals Benefits Group to amend
any Plan or terminate any Plan, or (ii) to create any right or
entitlement whatsoever in any Employee, former Employer or Beneficiary,
including a right to continued employment or to any benefit under a
Plan or any other compensation. This Agreement is solely for the
benefit of the parties hereto and their respective subsidiaries and
should not be deemed to confer upon third parties any remedy, claim,
liability, reimbursement, claim of action or other right in excess of
those existing without reference to this Agreement.
5.06 COMPLETE AGREEMENT. This Agreement, the Schedules hereto
and the agreements and other documents referred to herein shall
constitute the entire agreement between the parties hereto with respect
to the subject matter hereof and shall supersede all previous
negotiations, commitments and writings with respect to such subject
matter.
5.07 GOVERNING LAW. Subject to applicable U.S. federal law,
this Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware (other than the laws regarding choice
of laws and conflicts of laws) as to all matters, including matters of
validity, construction, effect, performance and remedies.
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<PAGE> 31
5.08 NOTICES. All notices, requests, claims, demands and
other communications hereunder shall be given in accordance with the
provisions of Section 10.05 of the Distribution Agreement.
5.09 AMENDMENT AND MODIFICATION. This Agreement may be
amended, modified or supplemented only by a written agreement signed by
both of the parties hereto.
5.10 SUCCESSORS AND ASSIGNS. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their successors and permitted assigns, but neither
this Agreement nor any of the rights, interests and obligations
hereunder shall be assigned by any party hereto without the prior
written consent of the other party (which consent shall not be
unreasonably withheld or delayed).
5.11 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
5.12 INTERPRETATION. The Article and Section headings
contained in this Agreement are solely for the purpose of reference,
are not part of the agreement of the parties hereto and shall not in
any way affect the meaning or interpretation of this Agreement.
5.13 LEGAL ENFORCEABILITY. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof.
Any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction. Each party acknowledges that money damages would be an
inadequate remedy for any breach of the provisions of this Agreement
and agrees that the obligations of the parties hereunder shall be
specifically enforceable.
5.14 REFERENCES; CONSTRUCTION. References to any "Article,"
"Schedule" or "Section," without more, are to Articles, Schedules and
Sections to or of this Agreement. Unless otherwise expressly stated,
clauses beginning with the term "including" set forth examples only and
in no way limit the generality of the matters thus exemplified.
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<PAGE> 32
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed as of the day and year first above written.
MONSANTO COMPANY
By:
-------------------------
Name:
Title:
NEW CHEMICALS CORPORATION
By:
-------------------------
Name:
Title:
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<PAGE> 1
Exhibit 10(b)
TAX SHARING AND INDEMNIFICATION AGREEMENT
Tax Sharing and Indemnification Agreement (the "Agreement"),
dated as of [September 1, 1997], by and between Monsanto Company, a Delaware
corporation ("LS") and [Queeny Chemical Company], a Delaware corporation
("Chem").
WHEREAS, LS has been engaged through various divisions in,
among other things, the manufacture and sale of chemical products which comprise
the Transferred Businesses (as hereinafter defined);
WHEREAS, the Board of Directors of LS has determined that the
interests of its businesses would be best served by separating its businesses
into two separate companies, one consisting of the life sciences businesses and
the other consisting of the chemical business;
WHEREAS, as set forth in the Distribution Agreement, dated as
of [September 1, 1997] ("Distribution Agreement"), and subject to the terms and
conditions thereof, LS wishes to transfer and assign to Chem substantially all
the assets of the chemical businesses, in exchange for (i) the assumption by
Chem of substantially all the liabilities and obligations relating to the
chemical businesses, and (ii) the issuance to LS by Chem of shares of Chem
common stock, (the "Chem Common Stock"), all as more fully set forth in the
Distribution Agreement;
WHEREAS, LS intends to distribute substantially all of the
outstanding shares of Chem Common Stock, on a pro rata basis, to the holders of
the common stock of LS, subject to the terms and conditions of the Distribution
Agreement;
WHEREAS, in contemplation of the Distribution (as hereinafter
defined) pursuant to which Chem and its subsidiaries will cease to be members of
the LS Group (as hereinafter defined), the parties hereto have determined to
enter into this Agreement, setting forth their agreement with respect to certain
tax matters;
WHEREAS, this Agreement also creates certain indemnification
obligations between the parties hereto if the actions of either a member of the
Chem Group or the LS Group have an adverse effect on the tax-free nature of the
Distribution or of any of the transactions related to the Distribution that were
otherwise intended to be tax free.
<PAGE> 2
NOW THEREFORE, in consideration of the premises set forth
above and the terms and conditions set forth below, the parties hereto agree as
follows:
Section 1. Definitions. For purposes of this Agreement, the
following definitions shall apply:
a. "Adjustment" shall mean any proposed or final change in the
tax liability of any member of the Chem Group or the LS Group.
b. "Affiliated Group" shall mean an affiliated group of
corporations within the meaning of Code Section 1504(a).
c. "Agreement" shall have the meaning ascribed to such term in
the introductory paragraph hereof.
d. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
e. "Chem" shall have the meaning ascribed to such term in the
introductory paragraph hereof.
f. "Chem Affiliated Group" shall mean, for each taxable
period, the Affiliated Group of which Chem or its successor is the common parent
corporation.
g. "Chem Carryback" shall have the meaning ascribed to such
term in Section 2(b)(i) hereof.
h. "Chem Common Stock" shall have the meaning ascribed to such
term in the third WHEREAS clause hereof.
i. "Chem Group" shall mean, for each taxable period, (i) the
corporations that are members of the Chem Affiliated Group, and (ii) the
corporations that would be members of the Chem Affiliated Group, but for the
fact that they are not includable corporations under Code Section 1504(b).
j. "Current Straddle Income Tax Liabilities" shall mean Income
Tax Liabilities relating to Straddle Period Income Tax returns required to be
filed by Chem pursuant to Section 3 hereof to the extent that such Income Tax
Liabilities are attributable to earnings accrued during such Straddle Periods on
or before the Distribution Date.
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<PAGE> 3
k. "Dispute" shall have the meaning ascribed to such term in
Section 14(a) hereof.
l. "Distribution" shall mean the pro rata distribution of all
of the Chem Common Stock to the holders of the common stock of LS, pursuant to
the terms and conditions of the Distribution Agreement.
m. "Distribution Date" shall mean the date of the
Distribution.
n. "Final Determination" shall mean the final resolution of
any tax matter occurring after the Distribution Date. A Final Determination
shall result from the first to occur of:
(i) the expiration of 30 days after the IRS' acceptance
of a waiver of restrictions on assessment and collection of deficiency in tax
and acceptance of overassessment on federal revenue (Form 870 or 870-AD (the
"Waiver")) or any successor comparable form, except as to reserved matters
specified therein, or the expiration of 30 days after acceptance by any other
taxing authority of a comparable agreement or form under the laws of any other
jurisdiction, including State, local, and foreign; unless, within such period,
the taxpayer gives notice to the other party to this Agreement of the taxpayer's
intention to attempt to recover all or part of any amount paid pursuant to the
Waiver by the filing of a timely claim for refund;
(ii) a decision, judgment, decree, or other order by a
court of competent jurisdiction that is not subject to further judicial review
(by appeal or otherwise) and has become final;
(iii) the execution of a closing agreement under Code
Section 7121, or the acceptance by the IRS of an offer in compromise under Code
Section 7122, or comparable agreements under the laws of any other jurisdiction,
including State, local, and foreign, except as to reserved matters specified
therein;
(iv) the expiration of the time for filing a claim for
refund or for instituting suit in respect of a claim for refund that was
disallowed in whole or part by the IRS or any other taxing authority;
(v) the expiration of the applicable statute of
limitations; or
(vi) an agreement by the parties hereto that a Final
Determination has been made.
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<PAGE> 4
o. "First Party" shall have the meaning ascribed to such term
in Section 6(g) hereof.
p. "Income Taxes" shall mean all Federal, State, local and
foreign taxes imposed upon, or measured, in whole or in part, by net income or a
taxable base in the nature of net income, including without limitations,
environmental and alternative or add-on minimum taxes (including the alternative
minimum tax imposed under Code Section 55), and such related franchise, excise,
and similar taxes as have been customarily included in the provision for income
taxes or charged to the income tax liability account on LS's financial
statements, together with all related interest, penalties, and additions to tax.
q. "Income Tax Liability" shall mean the net amount of Income
Taxes due and paid or payable for any taxable period, determined after applying
all tax credits and all applicable carrybacks or carryovers for net operating
losses, net capital losses, unused general business tax credits, or any other
relevant adjustments.
r. "Indemnifying Party" shall mean any party that is required
to pay any other party pursuant to the terms and conditions of this Agreement.
s. "Indemnified Party" shall mean any party who is entitled to
receive payments from an Indemnifying Party pursuant to the terms and conditions
of this agreement.
t. "IRS" shall mean the United States Internal Revenue Service
or any successor thereto, including but not limited to its agents,
representatives, and attorneys.
u. "LS" shall have the meaning ascribed to such term in the
introductory paragraph hereof.
v. "LS Affiliated Group" shall mean, for each taxable period,
the Affiliated Group of which LS or its successor is the common parent
corporation.
w. "LS Carryback" shall have the meaning ascribed to such term
in Section 2(b)(i) hereof.
x. "LS Group" shall mean, for each taxable period, (i) the
corporations that comprise the LS Affiliated Group, and (ii) the corporations
that would be members of the LS Affiliated Group, but for the fact that they are
not includable corporations under Code Section 1504(b).
y. "LS Tax Reduction" shall have the meaning ascribed to such
term in Section 2(b)(i).
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<PAGE> 5
z. "Material Disposition" shall mean the sale or other
transfer by Chem of assets of the Saflex or Fibers Divisions which alone or in
the aggregate exceed $200 million.
z-1 "Other Tax Liabilities" shall mean the net amount of Other
Taxes due and paid or payable for any taxable period or transaction, after
applying all tax offsets and credits.
z-2 "Other Taxes" shall mean any and all taxes other than
Income Taxes, including, without limitation, gross income, gross receipts,
sales, use, transfer, franchise, license, withholding, payroll, value added,
employment, excise, severance, stamp, occupations, premium, windfall profits,
custom, duty, or other charge of any kind whatsoever, together with all related
interest, penalties, and additions to tax, or additional amount imposed by any
taxing authority. Expressly excluded from "Other Taxes" are all property and ad
valorem taxes.
z-3 "Straddle Period" shall have the meaning ascribed to such
term in Section 3(a)(ii) hereof.
z-4 "Tax Benefit" shall mean a reduction in the Income Tax
Liability of a party to this Agreement (or of the Affiliated Group of which it
is a member) if any portion of such reduction is actually realized or projected
to be realized in any taxable period ending on or before December 31, 2007.
Except as otherwise provided in this Agreement, a Tax Benefit shall be deemed to
have been realized or received from a Tax Item in a taxable period only if and
to the extent that the Income Tax Liability of the party (or of the Affiliated
Group of which it is a member) for such period, after taking into account the
effect of the Tax Item on the Income Tax Liability of such party in all prior
periods, is less than it would have been if such Income Tax Liability were
determined without regard to such Tax Item. In determining the amount of the Tax
Benefit, the marginal tax rate, without regard to alternative minimum tax, shall
be utilized, net operating loss carryforwards shall be ignored, and net present
value calculations shall not be made. A Tax Item that results in additional tax
basis to a non-depreciable, non-amortizable asset shall not be treated as
resulting in a Tax Benefit until a reduction in Income Tax Liability is actually
realized on a Tax Return.
z-5 "Tax Detriment" shall mean an increase in the Income Tax
Liability of a party to this Agreement (or of the Affiliated Group of which it
is a member) for any taxable period. Except as otherwise provided in this
Agreement, a Tax Detriment shall be deemed to have been realized or suffered
from a Tax Item in a taxable period, only if and to the extent that the Income
Tax Liability of the party (or the Affiliated Group of which it is a member) for
such period, after taking into account the effect of the Tax Item on the Income
Tax Liability of such party in all prior periods, is greater than it would have
been if
5
<PAGE> 6
such Income Tax Liability were determined without regard to such Tax Item.
z-6 "Tax Item" shall mean any item of income, gain, loss,
deduction, credit, recapture of credit, or any other item which may have the
effect of increasing or decreasing Income Tax Liability.
z-7 "Tax Period" shall mean, with respect to any tax, the
period for which the tax is reported as provided under the Code or other
applicable laws.
z-8 "Tax Returns" shall mean all reports, estimates,
declarations of estimated tax, information statements and returns relating to,
or required to be filed in connection with any Income Taxes or Other Taxes,
including information returns or reports with respect to backup withholding and
other payments to third parties.
z-9 "Transaction Taxes" shall have the meaning ascribed to
that term in Section 4(c) hereof.
z-10 "Distribution Agreement" shall have the meaning ascribed
to that term in the third WHEREAS clause hereof.
[z-11 "Transferred Businesses" shall have the same meaning
ascribed to the term "Chemicals Assets" in the Distribution Agreement.]
z-12 "Treasury Regulations" shall mean the Treasury
Regulations promulgated under the Code.
z-13 "Waiver" shall have the meaning ascribed to such term in
Section 1(n)(i) hereof.
Section 2. Preparation of Tax Returns.
a. Manner of Preparation. All Tax Returns filed after the
Distribution Date shall be prepared on a basis that is consistent with the
rulings obtained from the IRS or any other governmental authority in connection
with the Distribution (in the absence of a controlling change in law or
circumstances) and shall be filed on a timely basis (including pursuant to
extensions) by the party responsible for such filing under this Agreement. In
the absence of a controlling change in law or circumstances, or except as
otherwise provided in this Agreement or agreed in writing by LS and Chem, all
Tax Returns filed after the date of this Agreement shall be prepared on a basis
consistent with the elections, accounting methods, conventions, and principles
of taxation used for the most recent taxable periods for which Tax Returns
involving similar Tax Items have
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been filed, except that, with respect to Tax Items not relating to the
Distribution, one party may take an inconsistent position to the extent such
position does not create a Tax Detriment to the other party. Subject to the
provisions of this Agreement, all decisions relating to the preparation of Tax
Returns shall be made in the sole discretion of the party responsible under this
Agreement for such preparation. Unless the parties hereto otherwise mutually
agree in writing no election shall be made by either LS or Chem under Treasury
Regulation Section 1.1502-76(b)(2)(ii) or (iii).
b. Carryback Reporting.
(i) If the Income Taxes of the LS Group are reduced for a
taxable period beginning before the Distribution Date (and, in the case of
separate state and local Income Tax Returns and foreign Income Tax Returns,
ending on or before the Distribution Date), (the "LS Tax Reduction"), by reason
of a Chem loss or other Income Tax attribute arising on or after the
Distribution Date (a "Chem Carryback"), LS shall pay to Chem an amount equal to
the portion of the LS Tax Reduction that is attributable to the Chem Carryback.
If both a Chem Carryback and a LS loss or other Income Tax attribute arising on
or after the Distribution Date (a "LS Carryback") exist, the absorption rules of
Treasury Regulation Section 1.1502-21A(b)(3) or 1.1502-21T(b)(1), as applicable,
shall be applied to determine the portion of the LS Tax Reduction attributable
to the Chem Carryback and the LS Carryback, respectively. Nothing herein shall
require either Chem or LS to carry back a loss or other Income Tax attribute
that it generates. Any payment required to be made pursuant to this Section
2(b)(i) shall be made no later than ten days after the LS Tax Reduction is
actually received, credited, or otherwise utilized by LS.
(ii) Neither the LS Group nor the Chem Group shall be
obligated to make a payment to any member of the other group as a result of
utilizing a net operating loss or other Income Tax attribute relating to a
period beginning prior to the Distribution Date.
c. Allocation of Earnings and Profits. Except as otherwise
specifically provided herein, pre-Distribution earnings and profits shall be
allocated in accordance with Treasury Regulation Section 1.312-10(a).
d. Reporting of Foreign Restructuring. The pre-Distribution
restructuring transactions involving Monsanto do Brasil, Ltd, Mopar, Ltd,
Monsanto Deutschland, GmbH, Monsanto Europe, S.A. and Monsanto, PLC, shall be
reported for United States Federal income tax purposes as transactions
qualifying under Code Section 355 and the parties hereto will apply the
principles of Temporary Treasury Regulation Section 7.367(b)-10 in respect of
those restructuring transactions.
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Section 3. Filing of Income and Other Tax Returns.
a. LS Responsibilities for Income and Other Tax Returns. LS
shall prepare and file, or cause to be prepared and filed:
(i) all Income and Other Tax Returns of or with respect
to all members of the LS Group for all periods ending on or prior to the
Distribution Date; and
(ii) all Income and Other Tax Returns of or with respect
to all members of the LS Group for all periods beginning on or prior to the
Distribution Date and ending after the Distribution Date ("Straddle Periods")
other than Straddle Period Income and Other Tax Returns of those corporations
that will be members of the Chem Group following the Distribution.
b. Chem Responsibilities for Income and Other Tax Returns.
Chem shall prepare and file, or cause to be prepared and filed:
(i) all Income and Other Tax Returns of or with respect
to members of the Chem Group for all periods beginning on or after the
Distribution Date; and
(ii) all Income and Other Tax Returns of or with respect
to all corporations that will be members of the Chem Group following the
Distribution for all Straddle Periods.
Section 4. Payment of Income and Other Taxes.
a. LS Obligations. LS shall (except as provided in Sections
2(b), 4(c), 8(d) and 9(b) of this Agreement):
(i) pay, or cause to be paid, and shall indemnify and
hold harmless Chem against all Income and Other Tax Liabilities that relate to
all Tax Returns that LS is required to prepare and file, or cause to be prepared
and filed, pursuant to Section 3 of this Agreement; and
(ii) be entitled to all refunds of Income and Other Taxes
related thereto.
b. Chem Obligations. Chem shall (except as provided in
Sections 4(c), 8(d) and 9(b) of this Agreement):
(i) pay, or cause to be paid, and shall indemnify and
hold harmless LS against all Income and Other Tax Liabilities that relate to all
Tax
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Returns that Chem is required to prepare and file, or cause to be prepared and
filed, pursuant to Section 3 of this Agreement; and
(ii) be entitled to all refunds of Income and Other Taxes
related thereto.
c. Transaction Taxes. Any sales, use, value added, gross
receipts, retailer's occupation, real estate transfer tax arising out of the
transfer of assets or liabilities to any member of the LS or Chem Group in
contemplation of the Distribution, and any stock transfer tax and other similar
taxes and fees arising out of the Distribution (collectively, "Transaction
Taxes") shall be borne 100% by the LS Group and the LS Group shall indemnify the
Chem Group against any such Transaction Taxes.
d. Special Indemnity Payment. Within 60 days after the
Distribution Date, LS shall pay to Chem an amount equal to the Current Straddle
Period Income Tax Liabilities.
Section 5. Property Taxes.
a. Pre-Distribution Property Taxes. If the failure to make any
ad valorem or property tax payment on or before the Distribution Date on
property owned by any member of the LS Group, including assets to be transferred
to the Chem Group, would cause (i) the tax to be delinquent, or (ii) the
forfeiture of a cash discount, the tax shall be paid by the member of the LS
Group which owns such property. The LS Group shall indemnify and hold harmless
Chem and members of the Chem Group from and against all property and ad valorem
taxes allocated to the LS Group hereunder.
b. Post-Distribution Property Taxes. Any property or ad
valorem tax payments on Transferred Assets that would become delinquent after
the Distribution Date shall be paid by the Chem Group. The Chem Group shall
indemnify and hold harmless LS and members of the LS Group from and against all
property and ad valorem taxes allocated to the Chem Group hereunder.
c. Return Preparation. Preparation and timely filing of all
tax returns in respect of Pre and Post Distribution property or ad valorem
taxes, on property owned by any member of the LS or Chem Group, shall be the
responsibility of the LS or Chem Group member owning such property at the time
the property or ad valorem tax returns are due.
Section 6. Audits and Tax Controversies and Adjustments.
a. Audit Responsibility and Control. Except as otherwise
provided
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in this Agreement, LS shall have sole responsibility for and control over all
audits with respect to any Tax Return that it is required to file under Sections
3 and 5 hereof. Chem shall have sole responsibility and control over all audits
with respect to any Tax Return that it is required to file under Sections 3 and
5 hereof.
b. Notice; Contest. Whenever LS or Chem receives in writing
from the IRS or any other taxing authority notice of an Adjustment which may
give rise to a payment from the other party under this Agreement, LS or Chem (as
the case may be) shall give notice of the Adjustment to the other party within
30 days of becoming aware of such receipt, but in no case less than 30 days
before LS or Chem, as the case may be, is required to respond to the IRS or any
other taxing authority. The Indemnifying Party shall, at its cost and expense,
have control over all matters with respect to which such party has an
indemnification or payment obligation pursuant to this Agreement (other than
Section 6(g) hereof). The foregoing notwithstanding, the Indemnified Party and
its representatives, at the Indemnified Party's expense, shall be entitled to
participate in all conferences, meetings, and proceedings with respect thereto
and shall be entitled to consult with the Indemnifying Party with respect to all
such matters. Notwithstanding the foregoing, if the IRS or any other taxing
authority proposes to disallow any of the deductions required to be taken by a
member of the LS or Chem Group pursuant to Section 7 of this Agreement, LS or
Chem, as the case may be, shall contest such proposed disallowance, or shall
cause such disallowance to be contested to a Final Determination unless
otherwise agreed by the parties in writing.
c. Consultation with Chem. LS may consult with Chem, and Chem
agrees to fully cooperate with LS, in the negotiation, settlement, or litigation
of any liability for taxes of any member of the LS Group regardless of the
effect of any such negotiation, settlement, or litigation on the liability for
taxes of any member of the Chem Group.
d. Consultation with LS. Chem may consult with LS, and LS
agrees to fully cooperate with Chem, in the negotiation, settlement, or
litigation of any liability for taxes of any member of the Chem Group regardless
of the effect of any such negotiation, settlement, or litigation on the
liability for taxes of any member of the LS Group.
e. Tax Basis Adjustments. LS will notify Chem in writing of
any adjustments to the tax basis of the assets of the Transferred Businesses,
specifying the nature of the adjustments, such that the Chem Group will be able
to reflect the revised basis in its tax books and records for periods beginning
on or after the Distribution Date or in any Straddle Period Tax Returns.
f. Earnings and Profits Adjustments. LS will notify Chem of
any redetermination of the earnings and profits and related amounts of
creditable
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foreign taxes of any of the foreign corporations that are transferred by LS to
Chem following their acquisition by the LS Group in a transaction intended to
qualify under Code Section 355(a).
g. Certain Adjustments. Except as otherwise provided in this
Agreement, if a Final Determination with respect to any Tax Item (including,
without limitation, any Tax Item relating to depreciation or amortization) of
one party (the "First Party") results in a Tax Detriment to the First Party and,
if as a result of such Final Determination, (i) the other party becomes entitled
to take a reporting position with respect to the same Tax Item that may result
in a Tax Benefit to such other party, on an appropriate Tax Return, including an
amended Tax Return, or (ii) the other party has already taken a reporting
position consistent with such Final Determination on an appropriate tax return,
and, in the case of both (i) and (ii), such reporting position will result in
the realization of a Tax Benefit for the other party, then such other party
shall, within 30 days after notification and documentation of such Final
Determination, pay to the First Party the aggregate amount of such Tax Detriment
(not including interest or penalties) suffered by the First Party but limited to
an amount not greater than the Tax Benefit to be realized by the other party.
For purposes of this Section, the term party shall refer to
any member of the LS Group and any member of the Chem Group, as the case may be.
h. Transaction Taxes Refunded. If one party or a member of
such party's Group (the "First Party") pays Transaction Taxes and the other
party or a member of such other party's Group (the "Other Party") has a right to
receive a refund of such Transaction Taxes ("Refund Amount") and receives such
Refund Amount after the Distribution Date, such Other Party shall reimburse the
Refund Amount to the First Party.
Section 7. Taxability and Reporting of Nonqualified Stock
Options.
Each of LS and Chem shall be responsible for making all
reports required to be made to any relevant tax authority with respect to any
grants or exercises of nonqualified stock options with respect to their
respective stocks. LS (or the appropriate member of the LS Group) shall take all
tax deductions arising by reason of exercises of such nonqualified stock options
to purchase shares of LS stock. Chem (or the appropriate member of the Chem
Group) shall take all tax deductions arising by reason of exercises of
nonqualified stock options to purchase shares of Chem stock. If, pursuant to a
Final Determination, all or any part of a tax deduction taken pursuant to this
Section 7 is disallowed to LS, then, to the extent permitted by law, the
appropriate member of the Chem Group shall take such deduction. If a member of
the Chem Group receives a Tax Benefit in
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any period as a result of any deduction taken by a member of the Chem Group in
respect of options exercised against LS stock, Chem shall pay the amount of such
Tax Benefit to LS. If, pursuant to a Final Determination, all or any part of a
tax deduction taken pursuant to this Section 7 is disallowed to Chem, then, to
the extent permitted by law, the appropriate member of the LS Group shall take
such deduction. If a member of the LS Group receives a Tax Benefit in any period
as a result of any deduction taken by a member of the LS Group in respect of
options exercised against Chem stock, LS shall pay the amount of such Tax
Benefit to Chem.
Section 8. Liability of Chem Group for Undertaking Certain
Transactions.
a. General. (i) Chem shall, and shall cause each member of the
Chem Group to, comply with each representation and statement made, or to be
made, to any taxing authority in connection with any ruling obtained, or to be
obtained, by LS in respect of the Distribution, from any such taxing authority
with respect to any transaction contemplated by the Distribution Agreement and
(ii) neither Chem nor any member of the Chem Group shall for a period of two
years following the Distribution Date (A) make a Material Disposition (including
transfers from one member of the Chem Group to another member of the Chem
Group), or cessation of operations by means of a sale or exchange of assets or
capital stock, a distribution to stockholders, or otherwise, of assets; (B)
repurchase or issue any Chem capital stock that in the aggregate exceeds twenty
percent (20%) of the issued and outstanding stock of Chem immediately following
the Distribution; (C) liquidate or merge with any other corporation (including a
member of the Chem Group); or (D) cease to engage in the active conduct of a
trade or business within the meaning of Code Section 355(b)(2), unless, in each
of cases (A), (B), (C), and (D), pursuant to a favorable supplemental ruling
letter from the appropriate taxing authority, reasonably satisfactory to LS,
such act or omission would not adversely affect the tax consequences of the
Distribution to LS, Chem, or the stockholders of LS or unless LS consents in
writing to any such transactions. Chem has no present intention to take any such
actions.
b. IntraGroup Transfers. Notwithstanding Section 8(a), the
Chem Group (other than Chem), shall be allowed to make intragroup transfers of
assets, provided, however, such transfers may be made within two years after the
Distribution Date to or from the Chem Group successors to assets of Monsanto do
Brasil, Ltd., Monsanto Deutschland, GmbH, Monsanto Europe, S.A. and Monsanto,
PLC, only if LS consents to such transfers in writing or if, in the opinion of
tax counsel to Chem, or pursuant to a favorable supplemental ruling letter from
the appropriate taxing authority, such transfer would not adversely affect the
tax consequences of the Distribution to LS, Chem, or the stockholders of LS. Any
opinion required to be obtained under this subsection 8(b) shall be
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from a nationally recognized law firm and shall be in a form reasonably
acceptable to LS.
c. Other Transactions.
(i) Chem represents that as of the Distribution Date, it
does not have any plan, agreement, arrangement, or any other intention to enter
into a transaction (or a series of related transactions) whereby a Person would
acquire greater than 50 percent of the vote or value of any class of stock of
Chem;
(ii) Neither Chem nor any member of the Chem Group shall
for a period of two years following the Distribution Date enter into a
transaction (or series of related transactions) whereby a Person would acquire
greater than 50 percent of the vote or value of any class of stock of Chem (or
any successor of Chem), unless Chem receives a favorable supplementary ruling
letter from the appropriate taxing authority, reasonably satisfactory to LS that
such transaction (or series of related transactions) would not adversely affect
the tax-free status of the Distribution and related transactions to LS, Chem, or
the stockholders of LS or unless LS consents in writing to any such transaction
(or series of related transactions);
(iii) For purposes of this Section 8(c): (A) a Person
shall have the meaning ascribed to such term in Code Section 7701(a)(1); (B) all
Persons related to such Person within the meaning of Code Sections 267(b) or
707(b)(1) shall be treated as one Person; (C) two or more Persons acting
pursuant to a plan or arrangement with respect to the acquisition of any class
of Chem stock shall be treated as one Person; and (D) Code Section 318(a)(2)
shall apply in determining whether a Person holds stock in Chem, except that
Code Section 318(a)(2)(C) shall be applied without regard to the phrase "50
percent or more in value" for such purposes; and
(iv) The provisions of this Section 8(c) are intended to
prevent the Chem Group from entering into post-Distribution transactions which
under proposed legislation (H.R. 1365 (1997); S. 612 (1997)) would adversely
affect the tax-free status of the Distribution and transactions related to the
Distribution. If, prior to enactment, such proposed legislation is modified,
neither Chem nor any member of the Chem Group shall undertake any transaction or
series of transactions that could be construed as falling within the scope of
such revised legislation unless Chem receives a favorable supplementary ruling
letter from the appropriate taxing authority, reasonably satisfactory to LS that
such transaction (or series of transactions) would not adversely affect the
tax-free status of the Distribution and related transactions to LS, Chem, or the
stockholders of LS or unless LS consents in writing to any such transaction (or
series of related transactions).
d. Special Chem Indemnity Obligations. Notwithstanding any
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other provision of this Agreement to the contrary, if, as a result of any event,
action, or failure to act wholly or partially within the control of any member
of the Chem Group, any Income Taxes are imposed on, or other losses (including,
without limitation, attorneys' fees and expenses and losses suffered by the LS
Group as a result of actions instituted by shareholders of LS or Chem ("LS
Losses")) are suffered by, any member of the LS Group with respect to the
Distribution or any such event, action or failure to act on the transactions
related to the Distribution, including, without limitation, the transactions in
various foreign jurisdictions that were intended to be tax free under Code
Sections 355 and 368 for United States Income Tax purposes, then Chem shall
indemnify and hold harmless each member of the LS Group with respect to any such
Income Taxes or LS Losses (including any Income Taxes payable by LS on amounts
received by LS from Chem pursuant to this Section 8(d)). Chem shall make such
indemnification payment no later than 7 days after receiving written notice from
any member of the LS Group of a Final Determination with respect to such Income
Taxes, which notice shall be accompanied by a computation of the amount due.
e. Other Remedies. Chem recognizes that failure to comply with
its obligations under this Section 8 may result in irreparable harm to LS and
its shareholders and that LS and its shareholders may be inadequately
compensated by monetary damages for such failure. If Chem shall fail to comply
with its obligations under this Section 8, LS shall be entitled to injunctive
relief and specific performance in addition to all other remedies.
Section 9. Liability of LS Group for Undertaking Certain
Transactions.
a. General.
(i) LS represents that as of the Distribution Date, it
does not have any plan, agreement, arrangement, or any other intention to enter
into a transaction (or a series of related transactions) whereby a Person would
acquire greater than 50 percent of the vote or value of any class of stock of
LS;
(ii) Neither LS nor any member of the LS Group shall for a
period of two years following the Distribution Date enter into a transaction (or
series of related transactions) whereby a Person would acquire greater than 50
percent of the vote or value of any class of stock of LS (or any successor of
LS), unless LS receives a favorable supplementary ruling letter from the
appropriate taxing authority, reasonably satisfactory to Chem that such
transaction (or series of related transactions) would not adversely affect the
tax-free status of the Distribution and related transactions to LS, Chem, or the
stockholders of LS or unless Chem consents in writing to any such transaction
(or series of related
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transactions);
(iii) For purposes of this Section 9(a): (A) a Person shall
have the meaning ascribed to such term in Code Section 7701(a)(1); (B) all
Persons related to such Person within the meaning of Code Sections 267(b) or
707(b)(1) shall be treated as one Person; (C) two or more Persons acting
pursuant to a plan or arrangement with respect to the acquisition of any class
of LS stock shall be treated as one Person; and (D) Code Section 318(a)(2) shall
apply in determining whether a Person holds stock in LS, except that Code
Section 318(a)(2)(C) shall be applied without regard to the phrase "50 percent
or more in value" for such purposes; and
(iv) The provisions of this Section 9(a) are intended to
prevent the LS Group from entering into post-Distribution transactions which
under proposed legislation (H.R. 1365 (1997); S. 612 (1997)) would adversely
affect the tax-free status of the Distribution and transactions related to the
Distribution. If, prior to enactment, such proposed legislation is modified,
neither LS nor any member of the LS Group shall undertake any transaction or
series of transactions that could be construed as falling within the scope of
such revised legislation unless LS receives a favorable supplementary ruling
letter from the appropriate taxing authority, reasonably satisfactory to Chem
that such transaction (or series of transactions) would not adversely affect the
tax-free status of the Distribution and related transactions to LS, Chem, or the
stockholders of LS or unless Chem consents in writing to any such transaction
(or series of related transactions).
b. Special LS Indemnity Obligation. If, as a result of LS's
failure to comply with its obligations under this Section 9, any Income Taxes
are imposed on, or other losses (including, without limitation, attorneys' fees
and expenses and losses suffered by the Chem Group as a result of actions
instituted by shareholders of LS or Chem ("Chem Losses")) are suffered by, any
member of the Chem Group with respect to such failure to comply, then LS shall
indemnify and hold harmless each member of the Chem Group with respect to any
such Income Tax or Chem Losses (including any Income Taxes payable by Chem on
amounts received by Chem from LS pursuant to this Section 9(b)). LS shall make
such indemnification payment no later than seven (7) days after receiving
written notice from any member of the Chem Group of a Final Determination with
respect to such Income Taxes, which notice shall be accompanied by a computation
of the amount due.
Section 10. Partnership Items.
On or before September 30, 1998, the Chem Group shall pay to the
LS Group an amount equal to the excess of (i) the federal and state income tax
liability (utilizing a tax rate of 36%) imposed on the LS Group as a result of
including the various items of income, deductions and credits passed through
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from AES, L.P. and Flexsys, L.P. for taxable periods beginning on January 1,
1997 and ending on the Distribution Date, over (ii) the sum of the aggregate of
the cash distributions made by AES, L.P. and Flexsys, L.P. to a member of the LS
Group in respect of the period January 1, 1997 through the Distribution Date
plus the Tax Benefit realized by the LS Group from utilization of MISCO by each
of the partnerships. To the extent such amount in (ii) as relates to
distributions against 1997 taxes exceeds the amount in (i) above, the LS Group
shall pay to the Chem Group such excess by such date.
Section 11. Indemnification.
a. Timing in General Unless otherwise specified in this
Agreement, all indemnification and other payments to be made pursuant to this
Agreement shall be made within 30 days of written notice of a request for
indemnification or payment by the Indemnified Party, which notice shall be
accompanied by a computation of the amount due.
b. Special Timing Rules. If any indemnification or other
payment is required to be made under Section 7 of this Agreement upon the
realization by the Indemnifying Party of a Tax Benefit, such payment shall be
made no later than 30 days after the earlier of (a) the filing or (b) the due
date (including extensions) of the Tax Return with respect to which such Tax
Benefit is realized. The parties shall cooperate in good faith in enforcing the
provisions of this Section 11(b), which cooperation shall include the provision
of reasonable access to the Tax Returns of the Indemnifying party by the
Indemnified Party in order to determine the amount of any indemnification or
other payment to be made pursuant to this Section 11(b).
c. Interest. If any indemnification payment required to be
made pursuant to this agreement is not made when due, such payment shall bear
interest at the prevailing federal short-term interest rate as determined under
Section 6621 of the Code.
Section 12. Cooperation and Exchange of Information.
a. Tax Return Information.
(i) Chem shall, and shall cause each appropriate member
of the Chem Group to, provide at Chem's cost and expense LS with all information
and other assistance reasonably requested by LS to enable the members of the LS
Group to prepare and file the Tax Returns required to be filed by them pursuant
to this Agreement.
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(ii) LS shall, and shall cause each appropriate
member of the LS Group to, provide at LS's cost and expense Chem with all
information and other assistance reasonably requested by Chem to enable the
members of the Chem Group to file the Tax Returns required to be filed by them
pursuant to this Agreement.
(iii) Within 5 days of filing a Tax Return that
affects the liability or the determination of the liability for taxes of any
member of the Chem Group by a member of the LS Group, such member of the LS
Group shall provide Chem with a copy of only that portion of such Tax Return
which is relevant to a member of the Chem Group.
(iv) In addition to the foregoing, LS and Chem agree
to fully cooperate with each other in connection with the preparation of all Tax
Returns required to be filed by them. Such cooperation shall include making
personnel and records available promptly and within 20 days (or such other
period as may be reasonable under the circumstances) after a request for such
personnel or records is made by the taxing authority or the other party. If any
member of LS Group or the Chem Group, as the case may be, unreasonably fails to
provide any information required pursuant to this Section, then the requesting
party shall have the right to engage an independent certified public accountant
of its choice to gather such information. LS or Chem, as the case may be, agrees
to permit any such independent certified public accountant full access to the
Tax Return information in the possession of any member of the LS Group or Chem
Group, as the case may be, during reasonable business hours, and to reimburse or
pay directly all costs and expenses in connection with the engagement of such
independent certified public accountant.
(v) LS shall indemnify and hold harmless each member
of the Chem Group and its officers and employees, and Chem shall indemnify and
hold harmless each member of the LS Group and its officers and employees,
against any cost, fine, penalty, or other expenses of any kind attributable to
the negligence of a member of the LS Group or the Chem Group, as the case may
be, in supplying a member of the other group with inaccurate or incomplete
information, in connection with the preparation of any Tax Return.
(b) Chem Payroll and Unemployment Compensation Taxes For
Periods Ending On or After the Distribution Date. LS shall make available to
Chem sufficient data to facilitate a determination of the desirability of the
transfer to the Chem Group of any payroll tax experience and/or any favorable
unemployment compensation tax experience rating of LS; and at Chem's election,
LS shall cooperate to effect a transfer of such payroll tax experience and/or
such favorable unemployment compensation experience rating (including state
unemployment reserves) to the Chem Group within one hundred and twenty (120)
days after Chem's written request therefor.
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(c) Research Tax Credit Information. LS will timely furnish
the Chem Group the base period information the Chem Group will need, pursuant to
Code Section 41, to properly compute its research tax credits for years
beginning after the Distribution Date.
Section 13. Retention of Records.
a. General. LS and Chem agree to retain the appropriate
records which may affect the determination of the liability for taxes of any
member of the LS Group or the Chem Group, respectively, until such time as there
has been a Final Determination with respect to such liability for taxes.
b. Notice of Waivers. LS and Chem will notify each other in
writing of any waivers or extensions of the applicable statute of limitations
that may affect the period for which any materials, records, or documents must
be retained.
Section 14. Resolution of Disputes.
a. General. Any claim, dispute, difference or controversy
between the parties which may arise out of, in relation to, or in connection
with this Agreement (a "Dispute") which cannot be settled by mutual
understanding of the parties shall be submitted initially for resolution to the
respective chief executive officers of each of Chem and LS. Such officers shall
meet and use reasonable efforts to resolve said Dispute.
b. Arbitration. If the parties are, after negotiation in good
faith as described in paragraph (a) of this Section 14, unable to agree upon the
appropriate application of this Agreement, the controversy shall be settled by
arbitration in accordance with the rules of the American Arbitration
Association.
c. Procedures. Upon written notice by any party to the other
party that the controversy is to be submitted to arbitration, each party shall
appoint an independent arbitrator (who shall be a tax attorney or independent
certified public accountant) within 30 days, and two arbitrators so appointed
shall appoint a third arbitrator within 30 days after the appointment of the
last arbitrator appointed within the initial 30 day period. If any party fails
to appoint an arbitrator or the parties agree on a single arbitrator, the
controversy shall be determined by a single arbitrator. If the two arbitrators
are unable to agree on a third arbitrator within 30 days, any party may apply to
the American Arbitration Association to make such appointment, and all parties
shall be bound by any appointment so made.
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d. Situs. The locale of the arbitration shall be St. Louis,
Missouri, or any other location mutually agreed on by all parties.
e. Finality. The award of the arbitrators (or arbitrator)
shall be final, and judgment upon the award rendered may be entered in any court
having jurisdiction.
f. Expenses. The expenses of the arbitration procedure shall
be borne in equal parts by the parties, unless the arbitration award specifies
otherwise.
Section 15. Miscellaneous.
a. Term of the Agreement. This Agreement shall become
effective as of the date of its execution and, except as otherwise expressly
provided herein, shall continue in full force and effect until the expiration of
the latest applicable statute of limitations period.
b. Elections Under Code Section 1552. Nothing in this
Agreement is intended to change or otherwise affect any election made by or on
behalf of the LS Affiliated Group with respect to the calculation of earnings
and profits under Code Section 1552. LS is authorized to seek any change in the
method of calculating earnings and profits as it deems desirable.
c. Code Section 367 Notices. Each member of the LS and Chem
Group required under Temporary Treasury Regulation Section 7.367(b)-1(c) to file
a notice or notices in respect of any pre-Distribution restructuring transaction
referred to in Section 2(d) hereof, shall timely file such notice in proper
form.
d. Severability. If any term, provision, covenant, or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void, or unenforceable, the remainder of the terms, provisions,
covenants, and restrictions set forth herein shall remain in full force and
effect, and shall in no way be affected, impaired, or invalidated. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants, and restrictions without
including any of such which may be hereafter declared invalid, void, or
unenforceable. In the event that any such term, provision, covenant, or
restriction is held to be invalid, void, or unenforceable, the parties hereto
shall use their best efforts to find and employ an alternate means to achieve
the same or substantially the same result as that contemplated by such term,
provision, covenant, or restriction.
e. Assignment. Except by operation of law or in connection
with the sale of all or substantially all the assets of a party hereto, this
Agreement
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shall not be assignable, in whole or in part, directly or indirectly, by any
party hereto without the advance written consent of the other party; and any
attempt to assign any rights or obligations arising under this Agreement without
such consent shall be void; provided, however, that the provisions of this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by,
the parties hereto and their respective successors and permitted assigns.
f. Further Assurances. Subject to the provisions hereof, the
parties hereto shall make, execute, acknowledge, and deliver such other
instruments and documents, and take all such other actions, as may be reasonably
required in order to effectuate the purposes of this Agreement and to consummate
the transactions contemplated hereby. Subject to the provisions hereof, each of
the parties shall, in connection with entering into this Agreement, performing
its obligations hereunder and taking any and all actions relating hereto, comply
with all applicable laws, regulations, orders, and decrees, obtain all required
consents and approvals and make all required filings with any governmental
agency, other regulatory or administrative agency, commission or similar
authority, and promptly provide the other parties with all such information as
they may reasonably request in order to be able to comply with the provisions of
this sentence.
g. Parties in Interest. Except as herein otherwise
specifically provided, nothing in this Agreement expressed or implied is
intended to confer any right or benefit upon any person, firm, or corporation
other than the parties and their respective successors and permitted assigns.
h. Waivers, Etc. No failure or delay on the part of the
parties in exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise or any such right or power, or
any abandonment or discontinuance of steps to enforce such right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No modification or waiver of any provision of this Agreement nor
consent to any departure by the parties therefrom shall in any event be
effective unless the same shall be in writing, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given.
i. Setoff. All payments to be made by any party under this
Agreement shall be made without setoff, counterclaim, or withholding, all of
which are expressly waived.
j. Change of Law. If, due to any change in applicable law or
regulations or their interpretation by any court of law or other governing body
having jurisdiction subsequent to the date of this Agreement, performance of any
provision of this Agreement or any transaction contemplated thereby shall become
impracticable or impossible, the parties hereto shall use their best efforts to
find
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<PAGE> 21
and employ an alternative means to achieve the same or substantially the same
result as that contemplated by such provision.
k. Confidentiality. Subject to any contrary requirement
of law and the right of each party to enforce its rights hereunder in any legal
action, each party agrees that it shall keep strictly confidential, any
information which it or any of its employees or agents may require pursuant to,
or in the course of performing its obligations under, any provision of this
Agreement.
l. Headings. Descriptive headings are for convenience
only and shall not control or affect the meaning or construction of any
provision of this Agreement.
m. Counterparts. For the convenience of the parties, any
number of counterparts of this Agreement may be executed by the parties hereto,
and each such executed counterpart shall be, and shall be deemed to be, an
original instrument.
n. Notices. All notices, consents, requests,
instructions, approvals, and other communications provided for herein shall be
validly given, made, or served, if in writing and delivered personally, by
telegram or sent by registered mail, postage prepaid, or by facsimile
transmission to:
If to LS, to it at:
Monsanto Company
800 North Lindbergh Boulevard
St. Louis, Missouri 63167
Attention: General Counsel
with a copy to:
Monsanto Company
800 North Lindbergh Boulevard
St. Louis, Missouri 63167
Attention: Vice President - Tax
If to Chem, to it at:
[Queeny] Chemical Company
800 North Lindbergh Boulevard
St. Louis, Missouri 63167
Attention: General Counsel
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<PAGE> 22
with a copy to:
[Queeny] Chemical Company
800 North Lindbergh Boulevard
St. Louis, Missouri 63167
Attention: Vice President - Tax
or to such other address as any party may, from time to time, designate in a
written notice given in a like manner. Notice given by telegram shall be deemed
delivered when received by the recipient. Notice given by mail as set out above
shall be deemed delivered five calendar days after the date the same is mailed.
Notice given by facsimile transmission shall be deemed delivered on the day of
transmission provided telephone confirmation or receipt is obtained promptly
after completion of transmission.
o. Costs and Expenses. Unless otherwise specifically provided
herein, each party agrees to pay its own costs and expenses resulting from the
fulfillment of its respective obligations hereunder.
p. Cancellation of Tax Allocation or Tax-Sharing Agreements.
On or prior to the Distribution Date, LS shall cancel or cause to be canceled
all agreements (other than this Agreement and the Distribution Agreement)
providing for the allocation or sharing of Income or Other Taxes to which any
member of the LS Group would otherwise be bound following the Distribution.
q. Treatment of Payments. The parties agree that, in the
absence of any change in law or fact, any indemnification payments made under
this agreement shall be reported for tax purposes by the payor and the recipient
as capital contributions or dividends, as appropriate, relating back to the Tax
Period beginning before the Distribution Date.
Section 16. Applicable Law. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE DOMESTIC SUBSTANTIVE LAWS
OF THE STATE OF DELAWARE WITHOUT REGARD TO ANY CHOICE OR CONFLICT OF LAWS,
RULES, OR PROVISIONS THAT WOULD CAUSE THE APPLICATION OF THE DOMESTIC
SUBSTANTIVE LAWS OF ANY OTHER JURISDICTION.
IN WITNESS WHEREOF, the undersigned have caused this Agreement
to be duly executed by their respective officers, each of whom is duly
authorized, all as of the day and year first above written.
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Monsanto Company
By:__________________________
Title:_______________________
[Queeny Chemical Company]
By:__________________________
Title:_______________________
23
<PAGE> 1
FORM OF
EMPLOYMENT AGREEMENT
AGREEMENT by and between Monsanto Company, a Delaware
corporation (the "Company"), and _________________________ (the "Executive"),
dated as of the ___ day of _______, 1997.
The Board of Directors of the Company (the "Board"), has
determined that it is in the best interests of the Company and its shareholders
to assure that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean
the first date during the Change of Control Period (as defined in Section 1(b))
on which a Change of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and if
the Executive's employment with the Company is terminated by the Company prior
to the date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment (i) was at the
request of a third party who has taken steps reasonably calculated to effect a
Change of Control or (ii) otherwise arose in connection with or anticipation of
a Change of Control, then for all purposes of this Agreement the "Effective
Date" shall mean the date immediately prior to the date of such termination of
employment.
<PAGE> 2
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the third anniversary of the date
hereof; provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change of Control Period shall not be so extended.
(c) An "Alternative Change of Control" shall mean a Change of
Control as defined in Section 2, except that the references in such definition
to "20%" shall be deemed to be references to "50%."
2. Change of Control. For the purpose of this Agreement, a
"Change of Control" shall mean:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person")
of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either (i) the
then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting
power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that,
for purposes of this subsection (a), the following acquisitions
shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation
controlled by the Company or (iv) any acquisition by any corporation
pursuant to a transaction which com-plies with clauses (i), (ii) and
(iii) of subsection (c) of this Section 2; or
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<PAGE> 3
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's shareholders,
was approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(c) Consummation by the Company of a reorganization, merger or
consolidation or sale or other disposition of all or substantially
all of the assets of the Company or the acquisition of assets or
stock of another corporation (a "Business Combination"), in each
case, unless, following such Business Combination, (i) all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or indirectly,
more than 60% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from
such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company
or all or substantially all of the Company's assets either directly
or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (ii) no Person
(excluding any corporation resulting from such Business Combination
or any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior
to the Business Combination and (iii) at least a majority of the
members of the board of directors
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<PAGE> 4
of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the
initial agreement, or of the action of the Board, providing for such
Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue
the Executive in its employ, and the Executive hereby agrees to remain in the
employ of the Company subject to the terms and conditions of this Agreement, for
the period (the "Employment Period") commencing on the Effective Date and ending
on the earlier of the third anniversary of such date and the first day of the
month following the month in which the executive attains age 65 (the Executive's
"Normal Retirement Date").
4. Terms of Employment. (a) Position and Duties. (i) During
the Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned to the Executive at any time during the
120-day period immediately preceding the Effective Date and (B) the Executive's
services shall be performed at the location where the Executive was employed
immediately preceding the Effective Date or any office or location less than 35
miles from such location, unless the Executive is on international assignment on
the Effective Date and is relocated as a result of the Executive's being
repatriated pursuant to the terms of his international assignment agreement as
in effect before the Effective Date.
(ii) During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours to
the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed
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<PAGE> 5
that to the extent that any such activities have been conducted by the Executive
prior to the Effective Date, the continued conduct of such activities (or the
conduct of activities similar in nature and scope thereto) subsequent to the
Effective Date shall not thereafter be deemed to interfere with the performance
of the Executive's responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment
Period, the Executive shall receive an annual base salary ("Annual Base
Salary"), which shall be paid at a monthly rate, at least equal to twelve times
the highest monthly base salary paid or payable, including any base salary which
has been earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately preceding the month
in which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term Annual Base
Salary as utilized in this Agreement shall refer to Annual Base Salary as so
increased. As used in this Agreement, the term "affiliated companies" shall
include any company controlled by, controlling or under common control with the
Company.
(ii) Bonuses. In addition to Annual Base Salary, the Executive
shall be awarded the following bonuses. For each fiscal year ending during the
Employment Period, the Executive shall be awarded an annual bonus (the "Annual
Bonus") in cash at least equal to the average of the Executive's bonuses under
the Company's Annual Incentive Program, or any comparable bonus under any
predecessor or successor plan(s), for the last three full fiscal years prior to
the Effective Date (annualized in the event that the Executive was not employed
by the Company for the whole of such fiscal year) (the "Recent Annual Bonus").
Each such Annual Bonus shall be paid no later than the end of the third month of
the fiscal year next following the fiscal year for which the Annual Bonus is
awarded, unless the Executive shall elect to defer the receipt of such Annual
Bonus. In addition, during the Employment Period, the Executive shall be
entitled to participate in all long-term and other incentive plans, practices,
policies and programs applicable generally to other peer executives of the
Company and its affiliated companies, but in no event shall such plans,
practices, policies and programs provide the Executive with incentive
opportunities (measured with respect to
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<PAGE> 6
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable) less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in effect at any
time during the 120-day period immediately preceding the Effective Date or if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(iii) Savings and Retirement Plans. During the Employment
Period, the Executive shall be entitled to participate in all savings and
retirement plans, practices, policies and programs applicable generally to other
peer executives of the Company and its affiliated companies, but in no event
shall such plans, practices, policies and programs provide the Executive with
savings opportunities and retirement benefit opportunities, in each case, less
favorable, in the aggregate, than the most favorable of those provided by the
Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 120-day
period immediately preceding the Effective Date or if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies. Without
limiting the generality of the foregoing, the Company and its affiliated
companies shall continue to honor any individual agreements between any of them
and the Executive regarding the provision of supplemental retirement benefits
such as (but not limited to) post-retirement income and/or welfare benefits
(each of which is hereafter referred to as an "Individual SERP").
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death and
travel accident insurance plans and programs) to the extent applicable generally
to other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with benefits which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the
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<PAGE> 7
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its affiliated companies in effect
for the Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives of the
Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to fringe benefits, including, without limitation,
tax and financial planning services, payment of club dues, and, if applicable,
use of an automobile and payment of related expenses, in accordance with the
most favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Period,
the Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies as
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
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<PAGE> 8
5. Termination of Employment. (a) Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the Executive
written notice in accordance with Section 12(b) of this Agreement of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" shall mean the Executive's long-term
disability for purposes of any reasonable occupation as determined under the
Company's disability plan that is applicable to the Executive.
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company or one
of its affiliates (other than any such failure resulting from
incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to the Executive by
the Board or the Chief Executive Officer of the Company which
specifically identifies the manner in which the Board or Chief
Executive Officer believes that the Executive has not substantially
performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct
or gross misconduct which is materially and demonstrably injurious
to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall
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<PAGE> 9
not be deemed to be for Cause unless and until there shall have been delivered
to the Executive a copy of a resolution duly adopted by the affirmative vote of
not less than three-quarters of the entire membership of the Board at a meeting
of the Board called and held for such purpose (after reasonable notice is
provided to the Executive and the Executive is given an opportunity, together
with counsel, to be heard before the Board), finding that, in the good faith
opinion of the Board, the Executive is guilty of the conduct described in
subparagraph (i) or (ii) above, and specifying the particulars thereof in
detail.
(c) Good Reason. The Executive's employment may be terminated
by the Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) the assignment to the Executive of any duties inconsistent
in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of this Agreement,
or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for
this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly
after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in bad
faith and which is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than as provided in Section 4(a)(i)(B)
hereof or the Company's requiring the Executive to travel on Company
business to a substantially greater extent than required immediately
prior to the Effective Date, unless the Executive is on
international assignment on the Effective Date and the relocation is
as a result of the Executive's being repatriated pursuant to the
terms of his international assignment agreement as in effect before
the Effective Date;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by
this Agreement; or
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<PAGE> 10
(v) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Executive for any reason during
the 30-day period immediately following the first anniversary of an Alternative
Change of Control shall be deemed to be a termination for Good Reason for all
purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
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6. Obligations of the Company upon Termination. (a) Good
Reason; Other Than for Cause, Death or Disability. If, during the Employment
Period, the Company shall terminate the Executive's employment other than for
Cause or Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of
the following amounts:
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore
paid, (2) the product of (x) the higher of (I) the Recent
Annual Bonus and (II) the Annual Bonus paid or payable,
including any bonus or portion thereof which has been earned
but deferred (and annualized for any fiscal year consisting of
less than twelve full months or during which the Executive was
employed for less than twelve full months), for the most
recently completed fiscal year during the Employment Period,
if any (such higher amount being referred to as the "Highest
Annual Bonus") and (y) a fraction, the numerator of which is
the number of days in the current fiscal year through the Date
of Termination, and the denominator of which is 365, and (3)
any accrued vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described in clauses
(1), (2) and (3) shall be hereinafter referred to as the
"Accrued Obligations"); and
B. the amount equal to the product of (1) the lesser of
three and the number of years and fractions thereof remaining
between the Date of Termination and the Executive's Normal
Retirement Date (such lesser number, the "Multiplier") and (2)
the sum of (x) the Executive's Annual Base Salary and (y) the
Highest Annual Bonus; and
C. an amount equal to the difference between (a) the
aggregate benefit under the Monsanto Pension Plan and any
successor thereto, and any other qualified defined benefit
retirement plans of the Company
11
<PAGE> 12
and its affiliated companies in which the Executive
participates (collectively, the "Retirement Plan") and the
Monsanto Company ERISA Parity Pension Plan, the Monsanto
Company Supplemental Retirement Plan, and any successors
thereto, any other "top hat," excess or supplemental defined
benefit retirement plans of the Company and its affiliated
companies in which the Executive participates, and any
Individual SERP (collectively, the "SERP") which the Executive
would have accrued (whether or not vested) if the Executive's
employment had continued for a number of years after the Date
of Termination equal to the Multiplier, and (b) the actual
vested benefit, if any, of the Executive under the Retirement
Plan and the SERP, determined as of the Date of Termination
(with the foregoing amounts to be computed on an actuarial
present value basis, based on the assumption that the
Executive's compensation during such period of deemed
continued employment after the Date of Termination was that
required by Section 4(b)(i) and Section 4(b)(ii), and using
actuarial assumptions no less favorable to the Executive than
the most favorable of those in effect for purposes of
computing benefit entitlements under the Retirement Plan and
the SERP at any time from the day before the Effective Date)
through the Date of Termination;
(ii) for a number of years after the Executive's Date of
Termination equal to the Multiplier, or such longer period as may be
provided by the terms of the appropriate plan, program, practice or
policy, the Company shall continue benefits to the Executive and/or
the Executive's family at least equal to those which would have been
provided to them in accordance with the plans, programs, practices
and policies described in Section 4(b)(iv) of this Agreement if the
Executive's employment had not been terminated or, if more favorable
to the Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its affiliated
companies and their families, provided, however, that if the
Executive becomes reemployed with another employer and is eligible
to receive medical or other welfare benefits under another employer
provided plan, the medical and other welfare benefits described
herein shall be secondary to those provided under such other plan
during such applicable period of eligibility; and for purposes of
determining eligibility of the Executive for retiree benefits
pursuant to such plans, practices, programs and policies, the
Executive shall be considered to have remained employed
12
<PAGE> 13
until the end of a number of years after the Date of Termination
equal to the Multiplier and to have retired on the last day of such
period;
(iii) the Company shall, at its sole expense as incurred,
provide the Executive with outplacement services the scope and
provider of which shall be selected by the Executive in the
Executive's sole discretion; and
(iv) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other
amounts or benefits required to be paid or provided or which the
Executive is eligible to receive under any plan, program, policy or
practice or contract or agreement of the Company and its affiliated
companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 6(b) shall include, without limitation, and the
Executive's estate and/or beneficiaries shall be entitled to receive, benefits
at least equal to the most favorable benefits provided by the Company and
affiliated companies to the estates and beneficiaries of peer executives of the
Company and such affiliated companies under such plans, programs, practices and
policies relating to death benefits, if any, as in effect with respect to other
peer executives and their beneficiaries at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive's estate and/or the Executive's beneficiaries, as in effect on the
date of the Executive's death with respect to other peer executives of the
Company and its affiliated companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of
13
<PAGE> 14
Termination. With respect to the provision of Other Benefits, the term Other
Benefits as utilized in this Section 6(c) shall include, and the Executive shall
be entitled after the Disability Effective Date to receive, disability and other
benefits at least equal to the most favorable of those generally provided by the
Company and its affiliated companies to disabled executives and/or their
families in accordance with such plans, programs, practices and policies
relating to disability, if any, as in effect generally with respect to other
peer executives and their families at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the Executive
and/or the Executive's family, as in effect at any time thereafter generally
with respect to other peer executives of the Company and its affiliated
companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive (x) the Annual Base Salary through
the Date of Termination, (y) the amount of any compensation previously deferred
by the Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies for which the Executive may qualify, nor, subject to Section 12(f),
shall anything herein limit or otherwise affect such rights as the Executive may
have under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement. Notwithstanding the foregoing, from and after the
Effective Time, the compensation and benefits provided for pursuant to Sections
5, 8 and 9 hereof shall be in lieu of any severance or separation pay or
benefits to which the Executive
14
<PAGE> 15
might otherwise be entitled under any plan, program, policy or arrangement of
the Company and its affiliates.
8. Full Settlement; Legal Fees. The Company's obligation to
make the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company may have
against the Executive or others. In no event shall the Executive be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and except as specifically provided in Section 6(a)(ii), such amounts shall not
be reduced whether or not the Executive obtains other employment. The Company
agrees to pay as incurred, to the full extent permitted by law, all legal fees
and expenses which the Executive may reasonably incur as a result of any contest
(regardless of the outcome thereof) by the Company, the Executive or others of
the validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof (whether such contest is
between the Company and the Executive or between either of them and any third
party, and including as a result of any contest by the Executive about the
amount of any payment pursuant to this Agreement), plus in each case interest on
any delayed payment at the applicable Federal rate provided for in Section
7872(f) (2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding
and except as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 9) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up
15
<PAGE> 16
Payment, the Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions
of this Section 9(a), if it shall be determined that the Executive is entitled
to a Gross-Up Payment, but that the Payments do not exceed 110% of the greatest
amount (the "Reduced Amount") that could be paid to the Executive such that the
receipt of Payments would not give rise to any Excise Tax, then no Gross-Up
Payment shall be made to the Executive and the Payments, in the aggregate, shall
be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by __________ or such other certified public accounting firm as may be
designated by the Executive (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days of the receipt of notice from the Executive that there has been a Payment,
or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 9, shall be paid by the Company to the Executive within five days of the
receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
16
<PAGE> 17
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which the Executive gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing prior to
the expiration of such period that it desires to contest such claim, the
Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such
17
<PAGE> 18
claim and sue for a refund, the Company shall advance the amount of such payment
to the Executive, on an interest-free basis and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 9(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
10. Confidential Information. As used herein, "Confidential
Information" means all technical and business information of the Company and its
Subsidiaries, whether patentable or not, which is of a confidential, trade
secret and/or proprietary character and which is either developed by the
Executive (alone or with others) or to which the Executive has had access during
the Executive's employment. "Confidential Information" shall also include
confidential evaluations of, and the confidential use or non-use by the Company
or any Subsidiary of, technical or business information in the public domain.
The Executive shall use the Executive's best efforts and
diligence both during and after employment by the Company to protect the
confidential, trade secret and/or proprietary character of all Confidential
Information. The Executive shall
18
<PAGE> 19
not, directly or indirectly, use (for the Executive or another) or disclose any
Confidential Information, for so long as it shall remain proprietary or
protectible as confidential or trade secret information, except as may be
necessary for the performance of the Executive's duties with the Company.
The Executive shall deliver promptly to the Company, at the
termination of the Executive's employment, or at any other time at the Company's
request, without retaining any copies, all documents and other material in the
Executive's possession relating, directly or indirectly, to any Confidential
Information.
Each of the Executive's obligations in this Section shall also
apply to the confidential, trade secret and proprietary information learned or
acquired by the Executive during the Executive's employment from others with
whom the Company or any Subsidiary has a business relationship.
The Executive understands that the Executive is not to
disclose to the Company or any Subsidiary, or use for its benefit, any of the
confidential, trade secret or proprietary information of others, including any
of the Executive's former employers. In no event shall an asserted violation of
the provisions of this Section 10 constitute a basis for deferring or
withholding any amounts otherwise payable to the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the
Executive and without the prior written consent of the Company shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
19
<PAGE> 20
(d) The parties acknowledge that at the time this Agreement is
entered into, the Company is in the process, subject to certain contingencies,
of separating itself and its subsidiaries into two companies by (1)
consolidating into a separate wholly owned subsidiary of the Company
("Chemicals") and the wholly owned subsidiaries of Chemicals certain of the
businesses currently conducted by the Company directly and through certain of
its subsidiaries and (2) distributing to the holders of the issued and
outstanding shares of common stock, par value $2.00 per share, of the Company
all of the issued and outstanding shares of common stock of Chemicals (the
"Distribution"). The parties further acknowledge that the Executive will become
an Employee of Chemicals in connection with the Distribution. From and after the
date of the Distribution, Chemicals shall be the successor to the Company for
purposes of this Agreement, and the Company will require Chemicals to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place, and from and after such assumption, references in this
Agreement, other than in this Section 11(d), to the "Company" shall mean
Chemicals, and the Company shall be released from and have no further
obligations hereunder. Notwithstanding any other provision of this Agreement,
this Agreement shall terminate and be of no further force and effect on the
sixth-month anniversary of the Distribution, unless at any time before that date
and after the date of the Distribution, either (i) there shall have occurred a
Change of Control of Chemicals or (ii) the Board of Directors of Chemicals shall
have determined that this Agreement shall not terminate.
12. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
20
<PAGE> 21
If to the Executive:
If to the Company:
800 North Lindbergh Boulevard
St. Louis, Missouri 63167
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith, and in the case of Chemicals, to its general
counsel at the address of its current headquarters, if different from the above
address. Notice and communications shall be effective when actually received by
the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that, except as
may otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the Company is "at
will" and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement. Upon its
execution by both parties hereto, this Agreement shall supersede the Key
Executive Employment Agreement between the Executive and the Company dated as of
__________, ____. From and after the Effective
21
<PAGE> 22
Date this Agreement shall supersede any prior employment agreement between the
parties, but shall have no effect on any Individual SERP or on the Executive's
rights under any plan, program, policy or practice provided by the Company or
any of its affiliated companies except as specifically provided in Section 7
above.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its Board of Directors,
the Company has caused these presents to be executed in its name on its behalf,
all as of the day and year first above written.
_______________________________________
[Executive]
MONSANTO COMPANY
By_____________________________________
22
<PAGE> 1
Exhibit 21
Subsidiaries
Monchem International, Inc. (Delaware)
Monsanto Chemicals Argentina S.R.L. (Argentina)
Monsanto Chemicals Australia Pty Ltd (Australia)
Monsanto Chemicals Europe N.V./S.A. (Belgium)
Monsanto Chemicals Services International N.V./S.A.
(Belgium)
Monsanto Chemicals Brasil Limitada (Brazil)
Monsanto Quimica Limitada (Brazil)
3363724 Canada Inc. (Canada)
Monsanto Chemicals Shanghai Co., Ltd. (China)
Monsanto Chemicals Colombia Ltda. (Colombia)
Monsanto Chemicals France SARL (France)
Monsanto Chemicals GmbH (Germany)
Monsanto Chemicals China Limited (Hong Kong)
Monsanto Chemicals Hong Kong Limited (Hong Kong)
Monsanto Chemicals Malaysia Limited (Hong Kong)
Monsanto Chemica S.r.L. (Italy)
Monsanto Chemicals Japan Ltd. (Japan)
Monochem Korea Ltd. (Korea)
Monsanto Chemicals Mexico, S. de R.L. de C. V.
(Mexico)
Monsanto Chemicals Singapore Pte. Ltd. (Singapore)
Monsanto Chemicals South Africa (Pty) Ltd. (South
Africa)
Monchemicals Espana, S.L. (Spain)
Monchemicals (Thailand) Ltd. (Thailand)
Monsanto Chemicals UK Limited (United Kingdom)
Monsanto Chemicals Venezuela S.R.L. (Venezuela)
Monchem Inter-America, Inc. (Delaware)
Monsanto Chemicals Taiwan, Inc. (Delaware)
Monsanto Greater China, Inc. (Delaware)
Monsanto Chemical Company, Ltd. (60%) (China)
Advanced Elastomer Systems, L.P. (50%) (Delaware)
Flexsys, L.P. (50%) (Delaware)
Kumho Monsanto, Inc. (50%) (Korea)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF COMBINED INCOME OF CHEMICALS SPINCO FOR THE THREE MONTHS ENDED
MARCH 31, 1997, AND THE STATEMENT OF COMBINED FINANCIAL POSITION AS OF MARCH
31, 1997. SUCH INFORMATION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
COMBINED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 435
<ALLOWANCES> 5
<INVENTORY> 321
<CURRENT-ASSETS> 930
<PP&E> 3,133
<DEPRECIATION> 2,227
<TOTAL-ASSETS> 2,532
<CURRENT-LIABILITIES> 646
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 851
<TOTAL-LIABILITY-AND-EQUITY> 2,532
<SALES> 719
<TOTAL-REVENUES> 719
<CGS> 543
<TOTAL-COSTS> 543
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9
<INCOME-PRETAX> 99
<INCOME-TAX> 34
<INCOME-CONTINUING> 65
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>HISTORICAL EARNINGS PER SHARE HAVE BEEN PRESENTED AS CHEMICALS SPINCO WAS
WHOLLY OWNED BY MONSANTO COMPANY.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF COMBINED INCOME OF CHEMICALS SPINCO FOR THE YEAR ENDED DECEMBER
31, 1996, AND THE STATEMENT OF COMBINED FINANCIAL POSITION AS OF DECEMBER
31, 1996. SUCH INFORMATION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CoMBINED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 419
<ALLOWANCES> 7
<INVENTORY> 291
<CURRENT-ASSETS> 891
<PP&E> 3,128
<DEPRECIATION> 2,217
<TOTAL-ASSETS> 2,483
<CURRENT-LIABILITIES> 770
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 656
<TOTAL-LIABILITY-AND-EQUITY> 2,483
<SALES> 2,977
<TOTAL-REVENUES> 2,977
<CGS> 2,325
<TOTAL-COSTS> 2,325
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1
<INTEREST-EXPENSE> 36
<INCOME-PRETAX> 33
<INCOME-TAX> 1
<INCOME-CONTINUING> 32
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>HISTORICAL EARNINGS PER SHARE HAVE NOT BEEN PRESENTED AS CHEMICALS SPINCO WAS
WHOLLY OWNED BY MONSANTO COMPANY.
</FN>
</TABLE>
