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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-2516
MONSANTO COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 43-0420020
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 NORTH LINDBERGH BLVD., ST. LOUIS, MO 63167
(Address of principal executive offices)
(Zip Code)
(314) 694-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class September 30, 1999
-------- ------------------
Common Stock, $2 par value 634,608,378 shares
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
The Statement of Consolidated Income of Monsanto Company and subsidiaries for
the three months and nine months ended September 30, 1999 and the three months
and nine months ended September 30, 1998, the Statement of Consolidated
Financial Position as of September 30, 1999 and December 31, 1998, the Statement
of Consolidated Cash Flow for the nine months ended September 30, 1999 and nine
months ended September 30, 1998, and related Notes to Financial Statements
follow. In the opinion of management, these unaudited consolidated financial
statements contain all adjustments necessary to present fairly the financial
position, results of operations and cash flows for the interim periods reported.
This Quarterly Report on Form 10-Q should be read in conjunction with Monsanto's
1998 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q for the
periods ended March 31, 1999 and June 30, 1999.
Unless otherwise indicated, "Monsanto" and "the company" are used
interchangeably to refer to Monsanto Company or to Monsanto Company and
consolidated subsidiaries, as appropriate to the context. Unless otherwise
indicated, "earnings per share" and "per share" mean diluted earnings per share.
In tables, all dollars are in millions, except per share data.
Throughout this quarterly filing, "EBITDA (excluding unusual items)" is net
earnings (loss) before income taxes, interest expense, depreciation expense,
amortization expense, and excludes the effects of unusual items. Net income and
income from continuing operations for both the third quarter and first nine
months of 1999 included unusual items after-tax of $9 million, or $0.01 per
share, and $25 million or $0.04 per share, respectively. These unusual items
included an after-tax charge of $49 million principally associated with the
accelerated integration of the agricultural chemical and seed operations offset
by a net after-tax gain of $40 million from the reversal of restructuring
reserves established in 1998, partially offset by the cost to exit the alginates
business. Net income and income from continuing operations for the third quarter
of 1998 included an after-tax charge of $187 million, or $0.30 per share, for
the write-off of in-process research and development ("R&D") principally related
to the acquisition of Plant Breeding International Cambridge Limited ("PBIC").
This charge in third quarter of 1998 was subsequently revised in fourth quarter
of 1998, as a result of clarified guidance on in-process R&D from the United
States Securities and Exchange Commission. Net income and income from continuing
operations for the first nine months of 1998 included an after-tax charge of $13
million, or $0.02 per share, for the net cost of exiting the Company's optical
products business and an after-tax charge of $187 million, or $0.30 per share,
for the write-off of in-process R&D, partially offset by a restructuring reserve
reversal.
EBITDA (excluding unusual items) may not be directly comparable to EBITDA
performance measures reported by other companies because it excludes unusual
items. Although EBITDA (excluding unusual items) is a financial performance
measure commonly used in the financial community, it is not a measure of
financial performance under accounting principles generally accepted in the
United States. The presentation of EBITDA (excluding unusual items) in this
quarterly report is intended to supplement investors' understanding of
Monsanto's operating performance and not to replace net income, cash flows,
financial position nor comprehensive income as determined in accordance with
accounting principles generally accepted in the United States. EBITDA (excluding
unusual items) excludes the effects of intangible amortization and interest
expense. For this reason, the increases in these two elements of the financial
statements resulting from the 1998 acquisitions will not be reflected in EBITDA
(excluding unusual items), but will impact net income in future periods.
Investors and other users of the financial statements should refer to
management's discussion and analysis for a description of events that have
impacted EBITDA (excluding unusual items) and net income during the three months
and nine months ended September 30, 1999 and the three months and nine months
ended September 30, 1998.
1
<PAGE>
<TABLE>
MONSANTO COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME
(Dollars in millions, except per share)
Unaudited
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
------- ------ ------ ------
Net Sales $1,945 $1,712 $6,841 $5,529
Costs and Expenses:
Cost of Goods Sold 729 623 2,450 2,115
Selling, General and Administrative Expenses 714 517 2,107 1,528
Technological Expenses 339 346 1,008 931
Acquired In-Process Research and Development 189 189
Amortization of Intangible Assets 92 51 259 167
Restructuring Expense (Income) 10 10 (35)
Interest Expense 83 49 287 144
Interest Income (16) (15) (30) (35)
Other Income - Net 37 30 51 31
-------- --------- -------- ---------
Income (Loss) from Continuing Operations Before
Income Taxes (43) (78) 699 494
Income Tax Expense (Benefit) (53) 33 243 215
-------- -------- ------- -------
Net Income (Loss) from Continuing Operations 10 (111) 456 279
Income from Discontinued Operations, Net of taxes of $15,
$3, $30, and $35 million, respectively 27 11 57 74
Gain on Sale of Discontinued Operations, Net of taxes of
$4 million 12 12
-------- ---------- -------- ------
Net Income (Loss) $ 49 $ (100) $ 525 $ 353
======= ======== ====== ======
Basic Earnings (Loss) per Share:
Continuing Operations $ 0.02 $ (0.18) $ 0.72 $ 0.47
Discontinued Operations 0.04 0.01 0.09 0.12
Gain on Sale of Discontinued Operations 0.02 0.02
------- -------- ------- ------
Net Income (Loss) $ 0.08 $ (0.17) $ 0.83 $ 0.59
====== ======== ======= ======
Diluted Earnings (Loss) per Share:
Continuing Operations $ 0.02 $ (0.18) $ 0.70 $ 0.45
Discontinued Operations 0.04 0.01 0.09 0.11
Gain on Sale of Discontinued Operations 0.02 0.02
------- -------- ------- -------
Net Income (Loss) $ 0.08 $ (0.17) $ 0.81 $ 0.56
====== ======== ====== =======
Dividends per Share $ 0.03 $ 0.03 $ 0.09 $ 0.09
====== ======== ====== ======
The accompanying notes are an integral part of the financial statements.
</TABLE>
2
<PAGE>
<TABLE>
MONSANTO COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
(Dollars in millions, except per share)
Unaudited
<S> <C> <C>
September 30, December 31,
1999 1998
ASSETS ------------ -----------
Current Assets:
Cash and cash equivalents $ 84 $ 89
Receivables, net of allowances of $150 in 1999 and $87 in 1998 2,791 2,119
Miscellaneous receivables and prepaid expenses 659 777
Deferred income tax benefit 503 475
Inventories 1,598 1,702
--------- ---------
Total Current Assets 5,635 5,162
--------- ---------
Property, Plant and Equipment 5,438 5,185
Less Accumulated Depreciation 2,388 2,320
--------- ---------
Net Property, Plant and Equipment 3,050 2,865
--------- ---------
Intangible Assets, net of accumulated amortization 4,645 5,281
Other Assets 1,059 1,120
Net Assets of Discontinued Operations 1,582 1,847
--------- ---------
Total Assets $ 15,971 $ 16,275
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Accounts payable $ 472 $ 821
Accrued liabilities 2,168 1,845
Short-term debt 915 1,069
----------- ---------
Total Current Liabilities 3,555 3,735
---------- ---------
Long-Term Debt 5,961 6,259
Postretirement Liabilities 858 784
Other Liabilities 335 511
Shareowners' Equity:
Common stock (authorized: 1,000,000,000 shares, par value $2)
Issued: 846,927,220 shares in 1999 and 1998 1,694 1,694
Additional contributed capital 1,467 1,389
Treasury stock, at cost (212,318,842 shares in 1999
and 217,632,240 shares in 1998) (2,449) (2,508)
Reinvested earnings 5,120 4,652
Reserve for ESOP debt retirement (91) (106)
Accumulated other comprehensive loss (479) (135)
----------- -----------
Total Shareowners' Equity 5,262 4,986
----------- -----------
Total Liabilities and Shareowners' Equity $ 15,971 $ 16,275
=========== ===========
The accompanying notes are an integral part of the financial statements.
</TABLE>
3
<PAGE>
<TABLE>
MONSANTO COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOW
(Dollars in millions)
Unaudited
<S> <C> <C>
Nine Months Ended
September 30,
1999 1998
Increase (Decrease) in Cash and Cash Equivalents ------ -------
Operating Activities:
Income from continuing operations $ 456 $ 279
Add income taxes - continuing operations 243 215
----- -------
Income from continuing operations before income taxes 699 494
Adjustments to reconcile to Cash Provided (Used) in Continuing Operations:
Income tax refunds (payments) (57) 135
Items that did not use (provide) cash:
Depreciation and amortization 521 365
Restructuring expense (income) 10 (35)
Acquired in-process research and development expense 189
Bad debt expense and other 53 67
Working capital changes that provided (used) cash:
Accounts receivable (670) (975)
Inventories 39 (78)
Accounts payable and accrued liabilities (146) (41)
Other 37 (312)
Pharmaceutical licensing and product rights sales 225
Other items 23 27
------ -------
Cash Provided from Continuing Operations 509 61
Cash Provided (Used) from Discontinued Operations (144) 155
------- -------
Total Cash Provided by Operations 365 216
------- -------
Investing Activities:
Property, plant and equipment purchases (626) (538)
Acquisition and investment payments (78) (768)
Investment disposal and other proceeds 452 130
Discontinued operations proceeds (payments) 301 (28)
-------- ---------
Cash Provided (Used) from Investing Activities 49 (1,204)
--------- ----------
Financing Activities:
Net change in short-term financing (154) 818
Long-term debt proceeds 25 224
Long-term debt reductions (323) (68)
Dividend payments (57) (54)
Common stock issued under employee stock plans 90 149
-------- ---------
Cash Provided (Used) by Financing Activities (419) 1,069
--------- --------
Increase in Cash and Cash Equivalents (5) 81
Cash and cash equivalents beginning of year 89 134
--------- --------
Cash and cash equivalents at end of period $ 84 $ 215
-------- -------
The effect of exchange rate changes on cash and cash equivalents was not
material. Cash payments for interest (net of amounts capitalized) were $224
million as of September 30, 1999, and $162 million as of September 30, 1998.
The accompanying notes are an integral part of the financial statements.
</TABLE>
4
<PAGE>
MONSANTO COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Unaudited
1. In 1998, Monsanto announced that it had entered into a definitive agreement
with Delta and Pine Land Company ("D&PL") to merge it with Monsanto. Under
terms of the agreement, D&PL shareowners would be entitled to receive
0.8625 shares of Monsanto's common stock in exchange for each share of D&PL
they hold. Approximately 33 million shares of Monsanto common stock would
be issued to D&PL shareowners. Based on Monsanto's closing stock price of
$53 1/2 per common share on May 8, 1998, the date of the merger agreement,
this would result in a purchase price for purchase accounting purposes of
approximately $1.8 billion. The merger, already approved by D&PL
shareowners, is subject to regulatory approvals and other customary
conditions. This transaction would be accounted for as a purchase.
Also during 1998, Monsanto completed its acquisition of DEKALB
Genetics Corporation. ("DEKALB") and acquired Plant Breeding International
Cambridge Limited ("PBIC") and certain international seed operations of
Cargill, Incorporated ("Cargill"). Monsanto accounted for these
acquisitions as purchases. The preliminary purchase price allocations are
based on assumptions that are subject to revision during 1999, pending
final valuation studies. Significant components of the current preliminary
purchase price allocation for the principal acquisitions made during 1998
are to goodwill, $2,835 million; germplasm and core technology, $324
million; trademarks, $206 million; in-process research and development,
$402 million; exit costs and employee termination liabilities, ($58)
million; inventories and other individually insignificant tangible assets
and liabilities, $259 million. The company is continuing to obtain
additional information related to intangible assets (primarily germplasm
and trademarks), litigation, costs to complete the exit plan for certain
activities of the acquired businesses, and inventories. The information
necessary to complete the allocation of purchase price is expected to be
obtained during the fourth quarter of 1999.
On October 20, 1999, Monsanto and Cargill announced that they had
reached an agreement that resolves outstanding issues related to Monsanto's
purchase of certain international seed operations of Cargill. Under terms
of the agreement, Cargill made a cash payment to Monsanto for the lost use
of certain germplasm and for damages caused by the delay in integrating
certain international seed operations. Additionally, Monsanto and Pioneer
Hi-Bred International, Inc. ("Pioneer") announced a resolution of the
litigation between them stemming from Monsanto's purchase of these Cargill
international seed operations. Under terms of this agreement, Monsanto is
required to destroy genetic material derived from Pioneer's seed lines and
pay damages to Pioneer. As a result, the purchase price for certain
international seed operations of Cargill has been reduced by $261 million
and final estimates related to the purchase price allocation to goodwill,
inventories, and other individually insignificant tangible assets are
expected to be completed and adjusted during the fourth quarter of 1999.
Any other adjustment to the purchase price allocation for the businesses
acquired is not expected to materially impact Monsanto's financial
position, results of operations, or cash flows.
2. Comprehensive income (loss) includes all non-shareowner changes in equity
and consists of net income, foreign currency translation adjustments,
unrealized gains and losses on available-for-sale securities, and minimum
pension liability adjustments. Total comprehensive income (loss) for the
three months and nine months ended September 30, 1999 and September 30,
1998, were as follows:
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
------- ------ ------ ------
Net Income (Loss) $ 49 $ (100) $ 525 $ 353
---- ------- ----- -----
Other Comprehensive Income (Loss):
Foreign Currency Translation Adjustments (43) 39 (360) (13)
Unrealized Investment Gains 10 9 16 17
------- ------- --------- -------
Total Other Comprehensive Income (Loss) (33) 48 (344) 4
------ ------ ------- --------
Total Comprehensive Income (Loss) $ 16 $ (52) $ 181 $ 357
====== ====== ====== =====
</TABLE>
5
<PAGE>
MONSANTO COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
Unaudited
3. In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"). FAS 133 requires all
derivatives to be recognized as assets or liabilities on the balance sheet
and measured at fair value. Changes in the fair value of derivatives should
be recognized in either Net Income or Other Comprehensive Income, depending
on the designated purpose of the derivative. This statement is effective
for Monsanto on Jan. 1, 2001. Because of the effect of recent acquisitions,
Monsanto is reassessing its position and has not yet determined the effect
this statement will have on its consolidated financial position or results
of operations.
4. Basic earnings per share ("EPS") from continuing operations were computed
using the weighted average number of common shares outstanding each period
(632.6 million and 600.4 million for the first nine months ended September
30, 1999 and 1998, respectively). Diluted EPS from continuing operations
were computed taking into account the effect of dilutive potential common
shares (16.0 million in 1999 and 26.5 million in 1998). Dilutive potential
common shares consist of outstanding stock options. Certain potential
common share equivalents were not included in the computation of diluted
earnings per share, because the effect of their exercise or conversion is
not dilutive, when based on the average market price of Monsanto common
stock for the period. These included approximately 61.7 million shares of
outstanding stock options, which expire through 2008, and 17.5 million of
Adjustable Conversion-rate Equity Securities ("ACES") that include stock
purchase contracts exercisable in November 2001.
5. Monsanto's 1998 restructuring plan resulted in the recognition of
liabilities totaling $280 million (current and long-term) at December 31,
1998. During the third quarter of 1999, 410 employees were severed at a
cost of approximately $23 million. Year-to-date severances for 1999 total
1,220 employees at a cost of $77 million. Cash outflows associated with
these separations were charged against the restructuring liability.
Monsanto completed a portion of the facility closures in the first nine
months of 1999, reducing the restructuring liability by another $18
million. In addition, in the third quarter of 1999, Monsanto reversed
restructuring liabilities of $61 million pretax which included $42 million
pretax related to discontinued operations. These restructuring liability
reversals were required as a result of lower actual severance and facility
shut-down expenses than originally estimated, primarily for the disposal of
the alginates business. Monsanto expects to complete the remaining
restructuring actions within the originally planned time frame.
<TABLE>
<S> <C> <C> <C>
Work Force Facility
Reduction Closures Total
1998 restructuring reserve balance as of
December 31, 1998 $ 219 $ 61 $ 280
Costs charged against reserves (77) (18) (95)
Restructuring reserve reversals (45) (16) (61)
-------- -------- --------
1998 restructuring reserve balance as of
September 30, 1999 $ 97 $ 27 $ 124
======= ======== ========
</TABLE>
6. Components of inventories as of September 30, 1999 and December 31, 1998
were as follows:
<TABLE>
<S> <C> <C>
September 30, December 31,
1999 1998
------------ -----------
Finished goods $ 698 $ 908
Goods in process 446 337
Raw materials and supplies 486 492
--------- ---------
Inventories, at FIFO cost 1,630 1,737
Excess of FIFO over LIFO cost (32) (35)
----------- ---------
Total $ 1,598 $ 1,702
======== =======
</TABLE>
6
<PAGE>
MONSANTO COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
Unaudited
7. During 1998, a jury verdict was returned against Monsanto in a lawsuit
filed in the California Superior Court. The lawsuit was brought by
Mycogen Corp., Agrigenetics Inc., and Mycogen Plant Sciences Inc.,
claiming that Monsanto delayed providing access to certain gene
technology under a 1989 agreement with Lubrizol Genetics Inc., a
company which Mycogen Corp. subsequently purchased. The jury awarded
$174.9 million in damages. Monsanto has filed an appeal of the verdict,
has meritorious defenses and grounds to overturn the award, and intends
to vigorously pursue all available means to have this verdict set
aside. No provision has been made in Monsanto's consolidated financial
statements with respect to this verdict.
In April 1999, a jury verdict was returned against DEKALB Genetics
Corporation (which became a wholly-owned subsidiary of Monsanto during
December 1998), in a lawsuit filed in U.S. District Court in North
Carolina. The lawsuit was brought by Rhone Poulenc Agrochimie S.A.,
claiming that a 1994 license agreement was induced by fraud stemming
from DEKALB's nondisclosure of relevant information and that DEKALB did
not have the right to license, make or sell products using Rhone
Poulenc's technology for glyphosate resistance under this agreement.
The jury awarded $15 million in actual damages for unjust enrichment
and $50 million in punitive damages. DEKALB has filed a motion to have
the damage award set aside and has filed a Motion for Judgment as a
Matter of Law to overturn the verdict. DEKALB has meritorious grounds
to overturn the verdict and intends to vigorously pursue all available
means to have the verdict overturned. No provision has been made in
Monsanto's consolidated financial statements with respect to the award
for punitive damages.
Monsanto is party to a number of lawsuits and claims, which it is
vigorously defending. Such matters arise in the normal course of
business and relate to a variety of issues. Certain of the lawsuits and
claims seek damages in very large amounts or seek to restrict
Monsanto's business activities.
Although the results of litigation cannot be predicted with certainty,
management's belief is that the final outcome of such litigation will
not have a material adverse effect on Monsanto's consolidated financial
position, profitability or liquidity.
7
<PAGE>
MONSANTO COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
Unaudited
8. On January 13, 1999, Monsanto announced its intent to sell its alginates
business and on July 1, 1999, Monsanto announced its intent to sell its
artificial sweetener and biogum businesses. As a result, these businesses
have been reclassified as discontinued operations and, for all periods
presented, the consolidated financial statements and notes have been
reclassified to conform to this presentation. The company expects to sell
these businesses for a gain within the next nine months. In addition,
Monsanto transferred the remaining Roundup(R)lawn-and-garden and nutrition
research operations of the former Nutrition and Consumer Products segment
to the Agricultural Products and Corporate and Other segments,
respectively.
Net sales, income and net assets from discontinued operations are as
follows:
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
------- ------ ------ ------
Net Sales $ 243 $ 274 $ 712 $ 971
Income from Discontinued Operations, Net of tax
of $15, $3, $30 and $35, respectively 27 11 57 74
Gain on Sale of Discontinued Operations:
Operating Income From Discontinued Operations,
Net of Tax of $11 million 23 23
Loss on Disposal of Discontinued Operations, Net of
tax of $7 million (11) (11)
---------- --------- --------- -------
Gain on Sale of Discontinued Operations, Net of
tax of $4 million 12 12
Net Income from Discontinued Operations $ 39 $ 11 $ 69 $ 74
====== ======= ======= =======
Net Assets of Discontinued Operations: As of September 30, 1999 As of December 31, 1998
------------------------- -----------------------
Current Assets $ 579 $ 1,039
Non-Current Assets 1,339 1,128
------- -------
Total Assets $1,918 $ 2,307
------ -------
Current Liabilities $ 182 $ 328
Non-Current Liabilities 150 132
-------- --------
Total Liabilities $ 332 $ 460
------- -------
Net Assets of Discontinued Operations $1,586 $ 1,847
====== =======
</TABLE>
On August 6, 1999, Monsanto announced the signing of a definitive
agreement to sell Stoneville Pedigreed Seed Company to an affiliate of
Hicks, Muse, Tate & Furst, Inc. Closing of this transaction is subject
to customary closing conditions; and Monsanto's obligation to close
this transaction is subject to satisfaction of all conditions precedent
to its merger with D&PL.
On September 7, 1999, Monsanto announced the sale of the alginates
business to International Specialty Products ("ISP"). The closing of
this transaction occurred on October 15, 1999 and is recorded in
results from discontinued operations. Proceeds from the sale were used
to pay down debt.
8
<PAGE>
MONSANTO COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
Unaudited
9. Business segment data for the three months and nine months ended
September 30, 1999 and September 30, 1998 were as follows for net
sales, EBIT (earnings before interest expense and income taxes) and
EBITDA (earnings before interest expense, income taxes, depreciation
and amortization). Segment EBIT and EBITDA exclude unusual items and
are indicated as "EBIT (excluding unusual items)" and "EBITDA
(excluding unusual items)". Total Monsanto consolidated EBIT includes
the effects of unusual items.
Net income and income from continuing operations for the third
quarter and first nine months of 1999 included unusual items after
-tax of $9 million and $25 million, respectively. These unusual items
included anafter-tax charge of $49 million principally associate
with the accelerated integration of the agricultural chemical
and seed operations offset by a net after-tax gain of $40 million
from the reversal of restructuring reserves established in 1998,
partially offset by the cost to exit the alginates business. Net
income and income from continuing operations for the third
quarter of 1998 included an after-tax charge of $187 million, or
$0.30 per share, for the write-off of in-process research and
development ("R&D") principally related to the acquisition of Plant
Breeding International Cambridge Limited ("PBIC"). This charge in
third quarter of 1998 was subsequently revised in fourth quarter
of 1998, as a result of clarified guidance on in-process R&D from
the United States Securities and Exchange Commission. Net income
and income from continuing operations for the first nine months of
1998 included an after-tax charge of $13 million, or $0.02 per
share, for the net cost of exiting the Company's optical products
business and an after-tax charge of $187 million, or $0.30 per share,
for the write-off of in-process R&D, partially offset by a
restructuring reserve reversal.
<TABLE>
<S> <C> <C> <C> <C>
Net Sales
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1999 1998 1999 1998
------- ------ ------ ------
Agricultural Products $ 951 $ 868 $4,020 $3,440
Pharmaceuticals 971 802 2,733 1,941
Corporate and Other 23 42 88 148
--------- --------- --------- --------
Total Net Sales $1,945 $1,712 $6,841 $5,529
====== ====== ====== ======
EBIT
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
1999 1998 1999 1998
------- ------ ------ ------
Segment EBIT (excluding unusual items):
Agricultural Products $ (25) $ 103 $ 778 $ 921
Pharmaceuticals 142 130 432 128
Corporate and Other (39) (73) (186) (209)
--------- -------- ------- -------
Total segment EBIT (excluding unusual items) 78 160 1,024 840
--------- ------- ------ ------
Restructuring and Other Unusual Items
from Continuing Operations - Net (38) (189) (38) (202)
--------- -------- -------- --------
Total EBIT from Continuing Operations $ 40 $ (29) $ 986 $ 638
======== ========== ======= =========
9
<PAGE>
MONSANTO COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
Unaudited
9. (Continued)
EBITDA (excluding unusual items)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Segment EBITDA (excluding unusual items):
Agricultural Products $ 91 $ 194 $1,121 $1,163
Pharmaceuticals 181 171 550 227
Corporate and Other (23) (70) (134) (208)
----- ----- ------- ------
Total Segment EBITDA (excluding unusual items) 249 295 1,537 1,182
----- ------ ------- -----
Interest Expense 83 49 287 144
Income Taxes (53) 33 243 215
Amortization Expense 92 51 259 167
Depreciation 87 84 262 198
Restructuring and Other Unusual Items - Net 30 189 30 179
------- ------ ------- -------
Income from Continuing Operations $ 10 $ (111) $ 456 $ 279
====== ======== ====== ======
Financial information for the third quarter or first nine months should
not be annualized. Monsanto's sales and operating income are
historically higher during the first half of the year, primarily
because of the concentration of sales from the Agricultural Products
segment in the first half of the year.
</TABLE>
10. In the third quarter of 1999, Monsanto recorded an after-tax charge of
$49 million for unusual items principally associated with the accelerated
integration of Monsanto's agricultural chemical and seed operations. Also
during the third quarter of 1999, a net after-tax gain of $40 million was
recorded from the reversal of restructuring liabilities originally
established in 1998, partially offset by $11 million of cost to exit the
alginates business. These restructuring liability reversals were required
as a result of lower actual severance and facility shut-down expenses than
originally estimated, primarily because of the disposal of the alginates
business. The following table represents the expenses / (income) components
of the net after-tax charge of $9 million that was recorded in the
Statement of Consolidated Income as the result of these unusual items. In
the third quarter of 1998, Monsanto recorded unusual items of $189 million
pretax for the write-off of in-process research and development ("R&D")
related to the acquisition of Plant Breeding International Cambridge
Limited ("PBIC"). This charge in third quarter of 1998 was subsequently
revised in fourth quarter of 1998, as a result of clarified guidance on
in-process R&D from the United States Securities and Exchange Commission.
Total Unusual Items
<TABLE>
<S> <C> <C> <C>
Unusual Restructuring Nine Months Ended
Charges Reversals September 30, 1999
------- ------------- ------------------
Cost of Goods Sold $ 20 $ - $ 20
Amortization of Intangible Assets 8 - 8
Restructuring Expense 47 (37) 10
------ ------ -------
(Income) Loss from Continuing
Operations Before Tax 75 (37) 38
Income Taxes (26) 13 (13)
------ ------ --------
(Income) Loss from Continuing Operations 49 (24) 25
Income from Discontinued Operations,
Net of tax of $15 - (27) (27)
Loss on Sale of Discontinued
Operations, Net of tax of $7 - 11 11
----------- -------- -------
Net (Income) Loss $ 49 $ (40) $ 9
======== ======== ========
</TABLE>
10
<PAGE>
MONSANTO COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Segment EBIT (earnings before interest expense and income taxes) and EBITDA
(earnings before interest expense, income taxes, depreciation and amortization)
exclude unusual items and are indicated as "EBIT (excluding unusual items)" and
"EBITDA (excluding unusual items)". Total Monsanto consolidated EBIT includes
the effects of unusual items.
Results from Continuing Operations - Third Quarter 1999 Compared with Third
- --------------------------------------------------------------------------------
Quarter 1998
- ------------
Net income for Monsanto totaled $49 million, or $0.08 per share, in the third
quarter of 1999 compared with a net loss of $100 million, or $0.17 per share,
for the third quarter of 1998. Monsanto recorded income from continuing
operations in the third quarter of 1999 of $10 million, or $0.02 per share,
compared with a loss from continuing operations of $111 million, or $0.18 per
share, for the prior year quarter. Net income and income from continuing
operations for the third quarter of 1999 included unusual items of $9 million
after-tax, or $0.01 per share, and $25 million, or $0.04 per share,
respectively. Unusual items included an after-tax charge of $49 million
principally associated with the accelerated integration of the agricultural
chemical and seed operations, offset by a net after-tax gain of $40 million from
the reversal of restructuring reserves established in 1998. This gain was
partially offset by the cost to exit the alginates business. The restructuring
reserve reversals were required as a result of lower actual severance and
facility shut-down expenses than originally estimated, primarily for the
disposal of the alginates business. Net income and income from continuing
operations for the third quarter of 1998 included an after-tax net charge of
$187 million, or $0.30 per share, for the write-off of in-process research and
development ("R&D"), principally related to the acquisition of Plant Breeding
International Cambridge Limited ("PBIC"). If the unusual charges were excluded
in 1999 and 1998, income from continuing operations would have been $35 million,
or $0.05 per share, in 1999, versus $76 million, or $0.12 per share, in 1998, a
decrease of $41 million, or $0.07 per share. The third quarter of 1998 included
one-time pretax payments of $140 million from Pfizer Inc. and $32 million from
The Scotts Company.
Consolidated earnings before interest expense and taxes ("EBIT") from continuing
operations was $40 million in the third quarter of 1999, compared with an EBIT
loss from continuing operations of $29 million in the third quarter of 1998. Net
sales increased to $1,945 million in the third quarter of 1999, compared with
net sales of $1,712 million for the same period a year ago. Selling, general and
administrative ("SG&A") expenses increased to $714 million in the third quarter
of 1999 compared with prior year quarter SG&A expenses of $517 million. The
inclusion in 1999 of SG&A expenses from acquired seed companies and continued
marketing spending associated with Celebrex(R) arthritis treatment were the
primary reasons for the increase.
Amortization of intangible assets increased to $92 million in the third quarter
of 1999, compared with $51 million for the same period a year ago, principally
because of the increase in intangible assets related to the seed company
acquisitions made in 1998. Monsanto financed the 1998 seed company acquisitions
primarily with long-term borrowings which created a higher debt level in third
quarter 1999 compared with the same period in the prior year. As a result,
interest expense increased to $83 million in the third quarter of 1999 versus
$49 million in the third quarter 1998. Other expense increased slightly in the
third quarter of 1999, to $37 million compared with $30 million in the prior
year quarter, primarily because of increases in minority interest expense and
higher foreign currency losses in the third quarter of 1999. A tax benefit of
$53 million was recorded for the third quarter of 1999 compared with a tax
expense of $33 million in the prior year quarter, primarily because of a change
in the cumulative effective tax rate for 1999. This benefit was driven by the
recognition of greater than anticipated foreign tax credits.
11
<PAGE>
In the first half of 1999, Monsanto announced its intent to sell the alginates,
artificial sweetener and biogum businesses. As a result, these businesses have
been reclassified as discontinued operations and, for all periods presented, the
consolidated financial statements and notes have been reclassified to conform to
this presentation. The company expects to sell these businesses for a gain
within the next nine months. In addition, Monsanto transferred the remaining
Roundup(R) lawn-and-garden and nutrition research operations of the former
Nutrition and Consumer Products segment to the Agricultural Products and
Corporate and Other segments, respectively. Business segment data for the three
months and nine months ended September 30, 1999 and September 30, 1998, were as
follows:
<TABLE>
<S> <C> <C> <C> <C>
Net Sales
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
1999 1998 1999 1998
------- ------ ------ ------
Agricultural Products $ 951 $ 868 $4,020 $3,440
Pharmaceuticals 971 802 2,733 1,941
Corporate and Other 23 42 88 148
--------- --------- --------- --------
Total Net Sales $1,945 $1,712 $6,841 $5,529
====== ====== ====== ======
EBIT
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
------- ------ ------ ------
Segment EBIT (excluding unusual items):
Agricultural Products $ (25) $ 103 $ 778 $ 921
Pharmaceuticals 142 130 432 128
Corporate and Other (39) (73) (186) (209)
--------- -------- ------- -------
Total Segment EBIT (excluding unusual items) 78 160 1,024 840
--------- ------- ------ ------
Restructuring and Other Unusual Items - Net (38) (189) (38) (202)
--------- -------- -------- --------
Total EBIT from Continuing Operations $ 40 $ (29) $ 986 $ 638
======== ========== ======= =======
</TABLE>
Agricultural Products Segment
- -----------------------------
The Agricultural Products segment recorded an EBIT (excluding unusual items)
loss of $25 million in the third quarter of 1999 compared with EBIT (excluding
unusual items) income of $103 million in the third quarter of 1998. The decrease
in EBIT (excluding unusual items) of $128 million was primarily attributed to
one-time events in the Roundup(R) lawn and garden business, increased
amortization expense, and timing of biotechnology marketing expenses. Revenues
from the Roundup(R) lawn and garden business declined by $36 million when
compared with revenues from the prior year quarter primarily because of changes
in the distribution network. Additionally, Roundup(R) lawn and garden results
for third quarter 1998 included a one-time $32 million payment from The Scotts
Company for the right to sell and market Roundup(R) herbicide for lawn and
garden uses. Amortization of intangible assets increased $35 million in the
third quarter of 1999 when compared with the prior year, principally because of
an increase in intangible assets related to seed company acquisitions in 1998.
SG&A expenses for the third quarter of 1999 increased over the prior year
quarter primarily because of the inclusion of seed companies and $22 million of
biotechnology marketing expenses, which historically have occurred in the fourth
quarter. Continued unfavorable economic conditions in certain Latin American and
eastern European countries caused an increase in bad debt expense in the third
quarter of 1999 compared with bad debt expense in the prior year quarter.
12
<PAGE>
Net sales for the Agricultural Products segment were $951 million, in the third
quarter of 1999, compared with net sales of $868 million in the third quarter of
1998, a 10 percent increase. The inclusion of sales from seed companies acquired
in 1998 accounted for the increase. Sales volumes for the family of Roundup(R)
herbicides in the third quarter of 1999 were higher when compared with sales
volumes in the third quarter of 1998. The higher sales volumes, led by increases
in the United States and strong recovery in Brazil, were primarily driven by
lower prices of Roundup(R) herbicides. These higher sales volumes were partially
offset by lower sales volumes in Argentina and eastern Europe because of
unfavorable economic conditions. Additionally, Asia and Australian sales volumes
were lower when compared with sales volumes in the prior year quarter because of
unfavorable weather conditions.
Pharmaceuticals Segment
- -----------------------
EBIT (excluding unusual items) for the Pharmaceuticals segment increased to $142
million for the third quarter of 1999, compared with EBIT (excluding unusual
items) of $130 million in the third quarter of 1998. EBIT (excluding unusual
items) for third quarter 1998 included $140 million in milestone payments from
Pfizer Inc. relating to Celebrex(R) arthritis treatment. The continued strong
product sales of Celebrex(R) arthritis treatment and increased sales of
Ambien(R) short-term treatment for insomnia were the primary reasons for the
increase. SG&A expenses rose because of increased spending associated with the
marketing of Celebrex(R) for the third quarter of 1999.
The Pharmaceuticals segment recorded net sales of $971 million in the third
quarter of 1999, compared with net sales of $802 million during the same period
in 1998, a 21 percent increase. The strong product sales of Celebrex(R) were
primarily responsible for the increase. The increase in net sales was partially
offset by a decrease in sales of Arthrotec(R) and Daypro(R) arthritis treatment
in the United States as market share shifted toward Celebrex(R). Sales of
Ambien(R) short-term treatment for insomnia increased $46 million, or 54
percent, in the third quarter of 1999, when compared to the prior year quarter,
as new and refill prescription rates continued to grow.
Corporate and Other Segment
- ---------------------------
Corporate and Other segment EBIT (excluding unusual items) increased 47 percent
in the third quarter of 1999 when compared with EBIT (excluding unusual items)
in the third quarter of the prior year, primarily because of lower SG&A expenses
as a result of cost adjustments associated with executive compensation programs
combined with lower incentive accruals in the current year quarter. Net sales
were $18 million lower in the third quarter of 1999 when compared with net sales
in the same period last year, primarily because of lower sales from the
Envirochem business. SG&A expenses were lower because of the absence of
businesses divested and lower incentive accruals.
Segment EBITDA (excluding unusual items)
- ---------------------------------------
Business segment earnings before interest expense, taxes, depreciation and
amortization (EBITDA) excluding unusual items for the three months and nine
months ended September 30, 1999 and September 30, 1998, were as follows:
13
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
EBITDA (excluding unusual items)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ----------------------
1999 1998 1999 1998
------- ------ ---- ----
EBITDA (excluding unusual items):
Agricultural Products $ 91 $ 194 $1,121 $1,163
Pharmaceuticals 181 171 550 227
Corporate and Other (23) (70) (134) (208)
------- ------- -------- ------
Total EBITDA from Continuing
Operations (excluding unusual items) 249 295 1,537 1,182
------- ------- ------ -----
Interest Expense 83 49 287 144
Income Taxes (53) 33 243 215
Amortization Expense 92 51 259 167
Depreciation 87 84 262 198
Restructuring and Other Unusual Items - Net 30 189 30 179
------- ------ ------- -------
Income from Continuing Operations $ 10 $ (111) $ 456 $ 279
======= ======== ====== ======
</TABLE>
Monsanto's EBITDA (excluding unusual items) in the third quarter of 1999 was
$249 million, compared with EBITDA (excluding unusual items) of $295 million in
the third quarter of 1998, a decrease of 16 percent. Results in 1998 reflected
one-time pretax payments from Pfizer Inc. of $140 million and from The Scotts
Company of $32 million. The absence of such transactions in the third quarter of
1999 was partially offset by the inclusion of the results from seed companies
acquired in 1998 and increased sales from Celebrex(R) arthritis treatment. On a
segment basis, Monsanto's Agricultural Products segment EBITDA (excluding
unusual items) decreased to $91 million in the third quarter of 1999 compared
with EBITDA (excluding unusual items) of $194 million in the third quarter of
1998. This decrease was primarily a result of one-time events in the Roundup(R)
lawn and garden business, and change in the timing of biotechnology marketing
expenses. On a quarter-to-quarter basis, Monsanto's Pharmaceuticals segment
EBITDA (excluding unusual items) improved to $181 million in the third quarter
of 1999, from EBITDA (excluding unusual items) of $171 million in the third
quarter of 1998, because of the strong product sales of Celebrex(R) arthritis
treatment and Ambien(R) short-term treatment for insomnia.
Financial information for the third quarter or first nine months of 1999 should
not be annualized. Monsanto's sales and operating income are historically higher
during the first half of the year, primarily because of the concentration of
sales from the Agricultural Products segment in the first half of the year.
Results from Continuing Operations - First Nine Months of 1999 Compared with
- --------------------------------------------------------------------------------
First Nine Months of 1998
- -------------------------
Net income for Monsanto totaled $525 million, or $0.81 per share, for the first
nine months of 1999, compared with net income of $353 million, or $0.56 per
share, for the first nine months of 1998. Monsanto earned income from continuing
operations for the first nine months of 1999 of $456 million, or $0.70 per
share, compared with income from continuing operations of $279 million, or $0.45
per share, for the same period in 1998. However, results from both years
included unusual items. Net income and income from continuing operations for the
first nine months of 1999 included unusual items after-tax of $9 million, or
$0.01 per share, and $25 million, or $0.04 per share, respectively. Unusual
items included an after-tax charge of $49 million principally associated with
the accelerated integration of the agricultural chemical and seed operations,
which was offset by a net after-tax gain of $40 million from the reversal of
restructuring reserves established in 1998. This gain was partially offset by an
after-tax charge of $11 million for the cost to exit the alginates business. The
restructuring reserve reversals were required as a result of lower actual
severance and facility shut-down expenses than originally estimated, primarily
for the disposal of the alginates business. Prior-year net income and income
14
<PAGE>
from continuing operations included an after-tax net charge of $13 million, or
$0.02 per share, for the net cost of exiting the company's optical products
business offset by a restructuring reserve reversal, and an after-tax net charge
of $187 million, or $0.30 per share, for the write-off of in-process research
and development ("R&D"), principally related to the acquisition of Plant
Breeding International Cambridge Limited ("PBIC"). Excluding the unusual items,
income from continuing operations would have totaled $481 million, or $0.74 per
share, in the first nine months of 1999, versus $479 million, or $0.76 per
share, in the same period of 1998.
Consolidated earnings before interest expense and taxes ("EBIT") from continuing
operations increased 55 percent to $986 million for the first nine months of
1999, compared with EBIT from continuing operations of $638 million for the
first nine months of 1998. Sales for the first nine months of 1999 grew to
$6,841 million, primarily because of the inclusion of seed companies acquired in
1998 and the strong performance of the Pharmaceuticals segment. Selling, general
and administrative ("SG&A") expenses increased to $2,107 million in the first
nine months of 1999 compared with SG&A expenses of $1,528 million in the same
period of 1998. Inclusion in the first nine months of 1999 of SG&A expenses from
acquired seed companies and continued marketing spending associated with
Celebrex(R) arthritis treatment were principally responsible for the increase.
Technological expenses rose 8 percent in the first nine months of 1999, compared
with technological expense in the first nine months of 1998, primarily due to
the inclusion in 1999 of acquired seed companies and continued spending on crop
biotechnology initiatives.
Amortization of intangible assets increased 55 percent for the first nine months
of 1999 compared with the first nine months of 1998, principally because of the
increase in intangible assets related to seed companies acquired in 1998.
Interest expense increased to $259 million for the first nine months of 1999
compared with interest expense of $144 million in the prior year period,
primarily due to higher debt levels. The higher debt level in 1999 was required
as Monsanto financed the 1998 seed company acquisitions primarily with long-term
borrowings. The decline in other income of $20 million in the first nine months
of 1999 primarily reflects lower equity income and higher foreign currency
losses. Equity income is lower by $14 million for the first nine months of 1999,
compared with equity income in the first nine months of 1998, primarily because
of losses associated with the divestment of the Kiel Partnership. Continued
economic weakness in certain Latin American and eastern European countries have
driven foreign currency losses higher in the first nine months of 1999 when
compared to the prior year period.
Agricultural Products Segment
- -----------------------------
Agricultural Products segment EBIT (excluding unusual items) was $778 million in
the first nine months of 1999, compared with EBIT (excluding unusual items) of
$921 million for the first nine months of 1998, a 16 percent decrease. The
decrease in EBIT (excluding unusual items) in the first nine months of 1999,
compared with the first nine months of 1998, was attributed to increases in
SG&A, technological, and amortization costs, as well as one-time events in the
Roundup(R) lawn and garden business, all of which more than offset increased
sales. The inclusion in 1999 of the acquired seed companies and spending on crop
biotechnology initiatives caused an increase in SG&A and technological expenses
in the first nine months of 1999. An increase in intangible assets related to
seed companies acquired in 1998 caused higher amortization expense year-to-date
compared with amortization expense in the prior year period. Revenues from the
Roundup(R) lawn and garden business declined by $36 million when compared with
revenue in the prior year period because of changes in the distribution network.
Additionally, Roundup(R) lawn and garden results for third quarter 1998 included
a one-time $32 million payment from The Scotts Company for the right to sell and
market Roundup(R) herbicide for lawn and garden uses. Continued unfavorable
economic conditions in certain Latin American and eastern European countries
caused an increase in bad debt expense in the first nine months of 1999 compared
with bad debt expense in the same period a year ago.
15
<PAGE>
Year-to-date net sales for the Agricultural Products segment increased $580
million, or 17 percent, compared to the prior year period, primarily because of
the inclusion of sales from seed companies acquired in 1998. In addition, higher
licensing revenues from crops developed through biotechnology, and sales for the
family of Roundup(R) herbicides, which were partially offset by lower sales of
other herbicides, contributed to the increase. Biotechnology licensing revenues
increased 61 percent in the first nine months of 1999 compared with the same
period in 1998.
Sales volume for the family of Roundup(R) herbicides increased primarily driven
by increased usage in conservation tillage and over-the-top use of
RoundupReady(R) crop applications. Sales volumes rose in many world areas,
especially North America and Asia. Sales associated with these volume increases
were largely offset by lower overall prices of Roundup(R) herbicides. Sales
volumes were relatively flat and prices were lower in Latin America due to the
weakened economy. Unfavorable weather conditions in Australia and Indonesia
partially offset sales volume increases of Roundup(R) herbicide in other world
areas in the first nine months of 1999.
Pharmaceuticals Segment
- -----------------------
EBIT (excluding unusual items) for the Pharmaceuticals segment increased to $432
million for the first nine months of 1999, compared with EBIT (excluding unusual
items) of $128 million in the same period a year ago. EBIT (excluding unusual
items) in the first nine months of 1998 included $240 million of milestone
payments from Pfizer Inc. related to Celebrex(R) arthritis treatment. The strong
EBIT (excluding unusual items) performance for the first nine months of 1999 can
primarily be attributed to the sales increase of Celebrex(R) arthritis treatment
and Ambien(R) short-term treatment for insomnia . SG&A expenses increased $463
million, or 63 percent primarily because of increased spending associated with
Celebrex(R) arthritis treatment marketing programs.
Net sales for the Pharmaceuticals segment rose to $2,733 million in the first
nine months of 1999, compared with net sales of $1,941 million in the same
period of 1998, an increase of 41 percent. The successful launch and continued
strong sales of Celebrex(R) arthritis treatment is the primary reason for the
increase. In addition, segment sales for the first nine months of 1999 reflect
significant increases in sales volumes of Arthrotec(R) arthritis treatments and
Ambien(R) short-term treatment for insomnia when compared with sales volumes in
the same period in 1998.
Corporate and Other Segment
- ---------------------------
Corporate and Other segment EBIT (excluding unusual items) increased $23
million, or 11 percent, for the first nine months of 1999 when compared with the
same period a year ago, primarily because 1998 included operating losses of
businesses which were divested. Net sales were $60 million lower in the first
nine months of 1999, primarily because of the disposal of the Orcolite(R) and
Diamonex(R) optical products businesses in 1998. SG&A expenses were $72 million
lower in the first nine months of 1999 compared with the same period a year ago,
primarily because of divested businesses and lower incentive accruals.
Results from Discontinued Operations
- ------------------------------------
Net sales in the third quarter of 1999 were $243 million compared with net sales
of $274 million in the same period of 1998. The decline was primarily because of
the January 1999 divestiture of the Ortho(R) lawn-and-garden products business.
Income from discontinued operations was $27 million in the third quarter of 1999
compared with the prior year of $11 million. Income from discontinued operations
for the third quarter 1999 and third quarter of 1998 is net of tax of $15
million and $3 million, respectively. Income from discontinued operations for
the third quarter of 1999 is associated with the partial reversal of
restructuring reserves established in 1998. The restructuring reserve reversals
were required as a result of lower actual severance and facility shut-down
expenses than originally estimated, primarily for the disposal of the alginates
business. The gain on sale of discontinued operations for the third quarter of
1999, which is the results of the discontinued business from June 30, 1999
through September 30, 1999, was $12 million, net of taxes of $4 million, and
included net after-tax costs of $11 million to exit the alginates business.
Net sales for the first nine months of 1999 were $712 million compared with net
sales of $971 million in the same period of the prior year, primarily because of
the divestiture of the Ortho(R) lawn-and-garden products business. Income from
discontinued operations was $57 million, net of taxes of $30 million, for the
first nine months of 1999, compared with $74 million, net of taxes of $35
million, in the prior year.
16
<PAGE>
Changes in Financial Condition - September 30, 1999 Compared with Dec. 31, 1998
- -------------------------------------------------------------------------------
Working capital as of September 30, 1999 increased to $2,076 million from $1,427
million as of December 31, 1998, primarily because of an increase in the
Agricultural Products segment's trade receivables. This increase was partially
offset by an inventory decrease of $104 million. The current ratio was 1.6 at
September 30, 1999 compared to 1.4 at year-end 1998. Accounts payable balance
remained relatively unchanged while short-term debt decreased $154 million when
compared to the 1998 year-end balance. The restructuring liability of $280
million established in 1998 was reduced by $95 million in the first nine months
of 1999 to cover the cost for employees severed and facility closures. In
addition, Monsanto reversed restructuring reserves established in 1998 totaling
$61 million pretax in the third quarter of 1999. These restructuring reserve
reversals were required as a result of lower actual severance and facility
shut-down expenses than originally estimated, primarily for the disposal of the
alginates business. Monsanto expects to complete the remaining restructuring
actions within the originally planned time frame. The percent of total debt to
total capitalization decreased to 57 percent as of September 30, 1999 compared
with 60 percent as of December 31, 1998 as collections of trade receivables were
used to pay down long-term debt by $298 million.
Operating activities from continuing operations provided a net $509 million of
cash in the first nine months of 1999, compared with $61 million of cash
provided from operations during the same period in 1998. The increase in cash
provided from operations resulted primarily from increased income from
continuing operations of $205 million and increase in non-cash charges for
amortization and depreciation of $156 million, primarily associated with seed
companies acquired in 1998. For comparative purposes, cash provided from
operations for the first nine months of 1998 included the collection of $225
million of miscellaneous receivables related to 1997 Pharmaceuticals licensing
and product rights sales. Investing activities in the first nine months of 1999
provided $49 million of cash compared with a use of cash of $1,204 million in
the first nine months of 1998. Investing activities for the 1999 period included
the proceeds from the divestment of the Ortho(R) lawn-and-garden business for
$340 million. Also, investing activities for the first nine months of 1999
included $335 million representing a refund of a portion of the original
purchase price for certain international seed operations of Cargill acquired in
1998. Financing activities for the first nine months of 1999 used $419 million
of cash compared with cash provided of $1,069 million of in the first nine
months of 1998. Financing activities for the first nine months of 1999 include a
net decrease in long-term financing of $323 million, and a net decrease in
short-term borrowings of $154 million. Financing activities for the first nine
months of 1998 included borrowings related to the 1998 seed company
acquisitions.
On June 4, 1999, Monsanto announced that the interest rate on $2.5 billion of
senior unsecured debt, issued in a private placement in late 1998, would
increase 25 basis points beginning June 8, 1999. These debt securities were to
be registered with the Securities and Exchange Commission ("SEC") by June 7,
1999. The registration statement relating to these debt securities, which was
filed in March 1999, is being reviewed by the staff of the SEC and will not be
declared effective until the staff review is completed. This interest rate
increase is temporary, and will be discontinued after the registration statement
is declared effective and other conditions are met.
On October 20, 1999, Monsanto and Cargill announced that they had reached an
agreement that resolves outstanding issues related to Monsanto's purchase of
certain international seed operations of Cargill. Under terms of the agreement,
Cargill made a cash payment to Monsanto for the lost use of certain germplasm
and for damages caused by the delay in integrating certain international seed
operations. Additionally, Monsanto and Pioneer Hi-Bred International, Inc.
("Pioneer") announced a resolution of the litigation between them stemming from
Monsanto's purchase of these Cargill international seed operations. Under terms
of this agreement, Monsanto is required to destroy genetic material derived from
Pioneer's seed lines and pay damages to Pioneer. As a result, the purchase price
for certain international seed operations of Cargill has been reduced by $261
million and final estimates related to the purchase price allocation to
goodwill, inventories, and other individually insignificant tangible assets are
expected to be completed and adjusted during the fourth quarter of 1999. Any
other adjustment to the purchase price allocation for the businesses acquired is
not expected to materially impact Monsanto's financial position, results of
operations, or cash flows.
17
<PAGE>
In 1998, Monsanto announced that it had entered into a definitive agreement with
Delta and Pine Land Company ("D&PL") to merge it with Monsanto. Under terms of
the agreement, D&PL shareowners would be entitled to receive 0.8625 shares of
Monsanto's common stock in exchange for each share of D&PL they hold.
Approximately 33 million shares of Monsanto common stock would be issued to D&PL
shareowners. Based on Monsanto's closing stock price of $53 1/2 per common share
on May 8, 1998, the date of the merger agreement, this would result in a
purchase price for purchase accounting purposes of approximately $1.8 billion.
The merger, already approved by D&PL shareowners, is subject to regulatory
approvals and other customary conditions. This transaction would be accounted
for as a purchase.
On September 7, 1999, Monsanto announced the sale of the alginates business to
International Specialty Products. The proceeds from the sale of the alginates
business have been recorded as part of discontinued operations and have been
used to pay down debt.
Outlook for Agricultural Products - Update
- ------------------------------------------
Worldwide agricultural economic conditions continue to be challenging to the
industry. Monsanto is monitoring the effect on the business of low commodity
prices and reduced farmer margins.
Monsanto continues to address concerns of consumers, public interest groups and
government regulators regarding acceptance and approval of agricultural and food
products developed through biotechnology. The European Union continues to delay
approvals for planting of seeds with agricultural biotechnology traits; and a
court decision in Brazil has delayed planting of RoundupReady(R) soybeans in
that country. Although seeds with Monsanto's agricultural biotechnology traits
have been well-accepted and successfully planted by farmers in the United States
and other countries, delays in import approvals and continuing public acceptance
issues may affect the market for these seeds in the United States and in other
countries where planting is permitted.
Outlook for Pharmaceuticals - Update
- ------------------------------------
On October 27, Monsanto announced that Searle, Monsanto's pharmaceutical
subsidiary, had acquired two cardiovascular products in a number of European
countries from AStraZeneca, which is divesting these products to comply with
European Commission merger conditions. Under terms of the agreement, Searle has
exclusive trademark rights to Beloc ZOC Comp(R) throughout Europe and exclusive
distribution rights to Tenormin(R) in Scandinavia.
Company Prepares for Year 2000
- ------------------------------
State of Readiness
- ------------------
Monsanto's preparations for Year 2000 are fundamentally complete. The company
has remediated and tested the internal business application systems, information
technology ("IT") infrastructure components, and embedded systems components
vital to serving customer needs. During the fourth quarter of 1999, the company
will continue to test systems and components; monitor the readiness of key
suppliers; and exercise and test business continuity plans. Monsanto is
committed to making certain that our systems and processes will continue to
function into the Year 2000 as they do today in order to minimize the
possibility of any inconvenience for our customers.
Background
- ----------
Beginning in 1996, the company initiated the Global Year 2000 Program (the "Y2K
Program") to ensure that its business would not be adversely affected by the
inability of many existing computer systems to distinguish between the year 1900
and the year 2000. The Y2K Program covers all company sites in all world areas.
The company's Y2K Program encompasses all areas of the company's internal
systems including conventional business applications, IT infrastructure, and
embedded systems. Embedded systems include process control/manufacturing,
laboratory automation systems, and site-specific facility management systems
such as elevators and heating and cooling systems. The remediation process
applied to each area consists of four-steps: Identification of the systems or
components that need to be replaced or fixed; assessment of the extent of the
work required (internal investigation or research with vendor or manufacturer);
prioritization of the work; and successful completion of the required
remediation activity.
All material remediation work for all business sectors (Agriculture,
Pharmaceuticals ), including all recent acquisitions, was completed by September
30, 1999.
18
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Contingency Planning
- --------------------
The company began a major contingency planning initiative in November 1998 with
the establishment of the Y2K Business Continuity Team. Continuity plans have
been prepared in critical functional areas throughout the company and have been
consolidated into comprehensive plans around key business sectors. These plans
include risk assessment, failure response, manual procedures, and emergency
communications, among other items.
Preparedness exercises are scheduled for the fourth quarter of 1999, and the
company will continue to adjust contingency plans as needed throughout 1999. The
plans include a multi-tiered Y2K communication center structure (world area,
business sector, and corporate) encompassing all critical regional locations.
The Y2K Communication Centers will be staffed 24 hours a day from December 31,
1999 continuing through January 3, 2000. The centers will monitor the transition
to the Year 2000 and will supplement existing problem resolution and emergency
communications processes. Although the company does not expect to experience any
significant Y2K problems, contingency plans will be ready to deal with any
emergency.
Costs
- -----
The company continues to evaluate the estimated costs associated with Y2K
compliance based on actual experience. The total cost is currently projected at
about $35 million, with approximately $32.6 million expended through September
30, 1999. Such costs encompass only the company's Y2K remediation efforts and do
not include expenses such as overtime wages, additional warehouse space or
increased finance costs which may be incurred upon implementation of the
company's contingency plans. The company does not expect the costs associated
with its Year 2000 efforts to be materially adverse to the company's business
operations, financial position, profitability or liquidity.
Risks
- -----
The company believes that the Y2K Program follows both prudent and best
demonstrated practices (including contingency planning) and makes use of
appropriate internal and external skills at the proper level and in the proper
amount to minimize the impact of any failures. However, since the Year 2000
problem is unprecedented in scope or complexity, no complete assurance of risk
avoidance can be given. In the company's case, failure to correct a material
Year 2000 problem could result in lost profits or breach of contract claims in
the event the company is unable to deliver its products pursuant to the terms of
its agreements or such products fail to meet contract specifications as well as
claims for personal injury or property damage at its facilities. The company may
also experience lost revenues in the event any of its customers experience Y2K
problems which cause them to order less product from the company or which cause
financial difficulties resulting in a breach of their payment obligations to the
company.
Euro Conversion
- ---------------
On Jan. 1, 1999, 11 of the 15 member countries of the European Union established
fixed conversion rates between their national currencies and the euro. During
the transition period from Jan. 1, 1999 until June 30, 2002, both the national
currencies and the euro will be legal currencies. Beginning July 1, 2002, the
national currencies of the participating countries no longer will be legal
tender for any transactions.
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<PAGE>
In Sept. 1997, Monsanto formed a cross-functional team and engaged a consultant
to prepare for the euro conversion. Since Jan. 1, 1999, Monsanto engaged in
euro-denominated transactions and is legally compliant. Monsanto expects to have
all affected information systems fully converted by April 2001. Monsanto does
not expect the euro conversion to have a material effect on its competitive
position, business operations, financial position or results of operations.
Forward Looking Information
- ---------------------------
Other important factors affecting Monsanto's business are discussed in Item 5 of
Part II of this Report, under the heading "Disclosure Regarding Forward Looking
Information", incorporated herein by reference.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Monsanto is exposed to market risk, including changes in interest rates,
currency exchange rates and commodity prices. To manage the volatility relating
to these exposures, the company enters into various derivative transactions.
Monsanto does not hold or issue derivative financial instruments for trading
purposes. For more information about how Monsanto manages specific risk
exposures, see the currency translation note, the inventory valuation note, and
the long-term debt note in Notes to Financial Statements in Monsanto's annual
report for the year ended December 31, 1998 ("1998 Annual Report"), incorporated
by reference in Monsanto's Annual Report on Form 10-K for the year ended
December 31, 1998 ("1998 Form 10-K").
The tables under Market Risk Management in the Management's Discussion and
Analysis section of the 1998 Annual Report, incorporated by reference in the
1998 Form 10-K, provide information about the company's derivative instruments
and other financial instruments that are sensitive to changes in interest rates,
currency exchange rates and commodity prices. There have been no material
changes to the information provided in the tables in the 1998 Annual Report and
Form 10-K except as noted below.
Significant interest rate risk sensitive instruments as of September 30, 1999
were:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Expected Maturity Date
1999 2000 2001 2002 2003 Thereafter TOTAL
------- ------ ---- ---- ---- ---------- -----
Long-Term Debt:
Fixed Rate ($US)
Principal Amount $ 161 $ 533 $ 19 $ 738 $ 2, 797 $ 4, 248
Average Interest Rate 6.1% 5.6% 8.3% 6.1% 6.7% 6.5%
Fixed Rate (Japanese Yen) $ 96 $ 96
Average Interest Rate 5.6% 5.6%
Variable Rate ($US)
Principal Amount (1) $ 60 $ 1,063 $ 72 $ 365 $ 208 $ 1,769
Average Interest Rate 5.1% 5.4% 5.0% 5.3% 4.1% 5.2%
Short-Term Debt:
Fixed Rate ($US)
Principal Amount $ 57 57
Average Interest Rate 7.5% 7.5%
Variable Rate ($US)
Principal Amount (2) $ 556 $ 556
Average Interest Rate 5.4% 5.4%
(1) Includes $1.0 billion of commercial paper that is assumed to be renewed through 2001, when the company's
$1.0 billion credit facility expires.
(2) Average variable rates are based on the variable rates on September 30, 1999. Actual rates may be higher or lower.
</TABLE>
20
<PAGE>
The instruments in the table of significant currency exchange rate risk
sensitive instruments that appeared in the 1998 Annual Report and Form 10-K were
no longer outstanding at September 30, 1999. At September 30, 1999, the
following significant forward contracts were outstanding (all expected to mature
by September 30, 2000): purchases of Brazilian real with a notional amount of
$10 million and an average exchange rate of 1.93 Brazilian real per U.S. dollar;
sales of Canadian dollars with a notional amount of $126 million and an average
exchange rate of 1.4742 Canadian dollars per U.S. dollar; sales of British
pounds with a notional amount of $400 million and an average exchange rate of
0.6126 British pounds per U.S. dollar; sales of Australian dollars with a
notional amount of $39 million and an average exchange rate of 1.5330 Australian
dollars per U.S. dollar; sales of Polish zlotys with a notional amount of $47
million and an average exchange rate of 4.1667 Polish zlotys per U.S. dollar;
purchases of Japanese yen with a notional amount of $87 million and an average
exchange rate of 106.86 Japanese yen per U.S. dollar; sales of South African
rand with a notional amount of $33 million and an average exchange rate of 6.114
South African rand per U.S. dollar; sales of Czech koruna with a notional amount
of $8 million and an average exchange rate of 34.3680 Czech koruna per U.S.
dollar; sales of Hungarian forint with a notional amount of $8 million and an
average exchange rate of 244.5 Hungarian forint per U.S. dollar; sales of
Indonesian rupiahs with a notional amount of $25 million and an average exchange
rate of 8302 Indonesian rupiah per U.S. dollar; sales of Philippines pesos with
a notional amount of $10 million and an average exchange rate of 40.05
Philippines pesos per U.S. dollar; sales of Thailand baht with a notional amount
of $5 million and an average exchange rate of 39.76 Thailand baht per U.S.
dollar; sales of Mexican pesos with a notional amount of $8 million and an
average exchange rate of 9.4410 Mexican pesos per U.S. dollar; and sales of
European euros with a notional amount of $121 million and an average exchange
rate of 0.9541 European euros per U.S. dollar. The fair market values of these
contracts approximated the notional amounts at September 30, 1999.
The instruments in the table of significant commodity price risk sensitive
instruments that appeared in the 1998 Annual Report and Form 10-K were no longer
outstanding at September 30, 1999. At September 30, 1999, the following
significant commodity price risk sensitive instruments were outstanding:
purchased soybean futures contracts totaling $109.1 million (20.4 million
bushels at a weighted average price per bushel of $5.36) with a fair value of
$100.2 million, purchased corn futures contracts totaling $28.4 million (12.8
million bushels at a weighted average price per bushel of $2.21) with a fair
value of $26.6 million, and sold lean hogs futures contracts totaling $6.6
million (0.1 million CWT with a weighted average price per CWT of $53.07) with a
fair value of $6.0 million.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Because of the size and nature of its business, Monsanto is a party to numerous
legal proceedings. Most of these proceedings have arisen in the ordinary course
of business and involve claims for money damages or seek to restrict the
company's business activities. While the results of litigation cannot be
predicted with certainty, Monsanto does not believe these matters or their
ultimate disposition will have a material adverse effect on Monsanto's financial
position, profitability or liquidity, as applicable.
21
<PAGE>
As described in the company's Annual Report on Form 10-K for the year ended
December 31, 1998, in 1974, Searle introduced in the United States an
intrauterine contraceptive product, commonly referred to as an intrauterine
device ("IUD"), under the name Cu-7. Following extensive testing by Searle and
review by the FDA, the Cu-7 was approved for sale as a prescription drug in the
United States. It was marketed internationally as the Gravigard. Searle has been
named as a defendant in a number of product liability lawsuits alleging that
this IUD caused personal injury resulting from pelvic inflammatory disease,
perforation, pregnancy or ectopic pregnancy. As of October 28, 1999, there
remains 1 case pending in the United States, and approximately 270 cases filed
outside the United States (the vast majority in Australia). On February 22,
1999, Searle received a defense verdict after a trial of the nine lead
Australian plaintiffs. Though not technically a class action, these nine
individuals are considered representative of the entire group of Australian
plaintiffs. Plaintiffs' are appealing that verdict. The lawsuits seek damages in
varying amounts, including compensatory and punitive damages, with most suits
seeking at least $50,000 in damages. Searle believes it has meritorious defenses
and is vigorously defending each of these lawsuits. On January 31, 1986, Searle
voluntarily discontinued the sale of the Cu-7 in the United States, citing the
cost of defending such litigation. Ex-U.S. sales were discontinued in 1990.
As described in the company's Annual Report on Form 10-K for the year ended
December 31, 1998, and in its Reports on Form 10-Q for the quarters ending March
31, 1999, and June 30, 1999, Searle has been named, together with numerous other
prescription pharmaceutical manufacturers and in some cases wholesalers or
distributors, as a defendant in a large number of related actions brought in
federal and/or state court, based on the practice of providing discounts or
rebates to managed care organizations and certain other large purchasers. The
federal cases have been consolidated for pre-trial proceedings in the Northern
District of Illinois. The federal suits include a certified class action on
behalf of retail pharmacies representing the majority of retail pharmacy sales
in the United States. The class plaintiffs alleged an industry-wide agreement in
violation of the Sherman Act to deny favorable pricing on sales of brand-name
prescription pharmaceuticals to certain retail pharmacies in the United States.
The other federal suits, brought as individual claims by several thousand
pharmacies, allege price discrimination in violation of the Robinson-Patman Act
as well as Sherman Act claims. Several defendants, not including Searle, settled
the federal class action case. Trial of the federal class action case commenced
on September 14, 1998. On November 30, 1998, Searle and its co-defendants
received a verdict for the defense and all claims were dismissed. On January 4,
1999, the class plaintiffs filed a notice of appeal with the U. S. Court of
Appeals for the Seventh Circuit. Following oral arguments in June 1999, the
Seventh Circuit Court of Appeals ruled on July 13, 1999. The opinion upheld most
of the lower court's decision to throw out price fixing charges against the
manufacturers as well as the wholesalers. The court reversed the trial judge on
one discrete issue involving the Consumer Price Index. Petitions for a rehearing
on that issue have been denied. Cases relating to the chain pharmacies that had
opted out of the class are in the final stages of discovery. In addition,
consumers and a number of retail pharmacies have filed suit in various state
courts throughout the country alleging violations of state antitrust and pricing
laws. While many of these suits have been settled, suits remain pending in a
number of states including California, Alabama and North Dakota.
As described in the company's Annual Report on Form 10-K for the year ended
December 31, 1998, in 1996 the company was the first to commercially introduce
cotton containing a gene encoding for Bacillus thuringiensis ("Bt") endotoxin.
Monsanto is a leader in this scientific field and has engaged in Bt research and
biotechnology development over many years and owns a number of present and
pending patents which relate to this technology. On October 22, 1996, Mycogen
Corporation ("Mycogen") filed suit in U.S. District Court in Delaware seeking
damages and injunctive relief against the company, DEKALB Genetics Corporation
("DEKALB") (subsequently acquired by Monsanto) and Delta & Pine Land Company
alleging infringement of Bt related U.S. Patent Nos. 5,567,600 and 5,567,862
issued to Mycogen on that date. Jury trial in this matter concluded on February
3, 1998 with a verdict in favor of all defendants. The patents of Mycogen were
found invalid on the basis that Monsanto was a prior inventor. On September 8,
1999, the District Court issued a revised order which upheld the jury verdict
and also ruled that Mycogen's patents were invalid due to their lack of
enablement. On September 17, 1999, Mycogen filed its notice of appeal in this
matter.
22
<PAGE>
As described in the company's Annual Report on Form 10-K for the year ended
December 31, 1998, on May 19, 1995, Mycogen initiated suit in U.S. District
Court in California against the company alleging infringement of U.S. Patent No.
5,380,831 involving synthetic Bt genes and seeking damages and injunctive
relief. The District Court has granted motions dismissing virtually all of
Mycogen's patent claims on the basis that products containing Bt genes made
prior to January 1995 do not infringe the patent. The company has various
meritorious defenses to the claims of Mycogen including non-infringement, lack
of validity, prior invention and collateral estoppel as a result of the outcome
in the jury trial in which Mycogen's related patents were found invalid.
Monsanto has made application to dismiss the Mycogen patent claims on the basis
that the related Delaware litigation is now subject to a final judgment.
Monsanto's application is under advisement by the District Court. The company is
also a party in interference proceedings against Mycogen in the U.S. Patent and
Trademark Office to determine the first party to invent certain inventions
related to Bt technology. In all of the foregoing actions the company is
vigorously litigating its position and is asserting that the final judgment in
the Delaware litigation is dispositive of Mycogen's claim for a valid patent.
As described in the company's Annual Report on Form 10-K for the year ended
December 31, 1998, in 1997 the company commercially introduced corn containing a
gene encoding for Bt endotoxin. Monsanto is a leader in this scientific field
and has engaged in Bt research and biotechnology development over many years and
owns a number of present and pending patents which relate to this technology. On
January 21, 1997, Novartis Seeds, Inc. ("Novartis") filed suits in U.S. District
Court in Delaware seeking damages and injunctive relief against the company and
DEKALB, alleging infringement of Bt related U.S. Patent No. 5,595,733 issued to
Ciba-Geigy Corporation (Seed Division) and now held by Novartis. The cases of
Monsanto and DEKALB were consolidated and tried to jury verdict in favor of
defendants on November 9, 1998. The jury determined that the Novartis patent was
invalid and not enabled. As part of a settlement of all pending litigation
between the company and Novartis, in November 1999 the parties stipulated to the
entry of final judgment on the jury verdict. Claims by or against Novartis or
Novartis entities in other lawsuits (USDC MN CA 97-2925; USDC MO 4:98CV00286CDP;
and the "Rockford Litigation" described herein) were also part of the
settlement. Under the settlement, various royalty-bearing licenses will be
extended to Novartis for Bt corn technology, genetic transformation of corn and
gluphosinate herbicide tolerance in addition to the other consideration to be
provided by Novartis, which will include licenses to certain Novartis corn
transformation technology and monetary payment for prior infringement of patents
owned by the company.
As described in the company's Annual Report on Form 10-K for the year ended
December. 31, 1998, and in its Report on Form 10-Q for the quarter ended June
30, 1999, the company and/ or DEKALB is the plaintiff in various legal actions
involving Bt technology, herbicide-resistant and/or insect-resistant transgenic
corn, or corn transformation patents. (a) The DEKALB patents involved in the
most significant DEKALB-initiated transactions are: U.S. Patent No. 5,484,956
covering fertile, transgenic corn plants expressing genes encoding Bacillus
thuringiensis (Bt) insecticidal proteins; U.S. Patent No. 5,489,520 covering the
microprojectile method for producing fertile, transgenic corn plants covering a
bar or pat gene, as well as the production and breeding of progeny of such
plants; U.S. Patent Nos. 5,538,880 and 5,538,877 directed to methods of
producing either herbicide-resistant or insect-resistant transgenic corn; and
U.S. Patent No. 5,550,318 directed to transgenic corn plants containing a bar or
pat gene (all lawsuits related to this patent have been stayed pending
resolution of an interference proceeding at the U.S. Patent and Trademark
Office). In each case DEKALB has asked the court to determine that infringement
has occurred, to enjoin further infringement and to award unspecified
compensatory and exemplary damages. Most of these actions have been filed in
U.S. District Court for the Northern District of Illinois (the "Rockford
Litigation"). By order dated June 30, 1999, a special master appointed in the
Rockford Litigation construed the patent claims in a manner largely in accord
23
<PAGE>
with the position of DEKALB. The judge has adopted the findings of the special
master and appointed a settlement mediator to conduct discussions among the
parties. The actions in the Rockford Litigation were initially filed on April
30, 1996, against Pioneer Hi-Bred International, Inc. ("Pioneer"), Mycogen
Corporation (and two of its subsidiaries) and Ciba-Geigy Corporation (a Novartis
entity). Additional actions were filed in the Rockford Litigation against:
Northrup King Co. (a Novartis entity) on June 10, 1996 and several Hoechst
Schering AgrEvo GmbH entities on August 27, 1996. On July 2, 1999, DEKALB sued
Pioneer in a patent interference action to declare that DEKALB was the first
inventor of the microprojectile method of producing fertile transgenic corn; on
July 30, 1999, DEKALB moved to consolidate the new suit with the remainder of
the Rockford Litigation for purposes of trial. In addition to the Rockford
Litigation, DEKALB sued Beck's Hybrids, Inc. and Countrymark Cooperative, Inc.
on July 23, 1996, in U. S. District Court for the Northern District of Indiana
(Indianapolis Division); this action has been stayed awaiting decision on the
Rockford Litigation. (b) On March 19, 1996, Monsanto was issued U.S. Patent No.
5,500,365 and filed suit in U.S. District Court in Delaware seeking damages and
injunctive relief against Mycogen Plant Science, Inc., Agrigenetics, Inc. and
Ciba-Geigy Corporation (Seed Division) (now Novartis Seeds, Inc.) for
infringement of that patent. Trial of this matter ended June 30, 1998, with a
jury verdict that while the patent was literally infringed by defendants, the
patent was not enforceable due to a finding of prior invention (now owned by
Monsanto) by another party, and not infringed due to the defense of the reverse
doctrine of equivalents. On September 8, 1999 the District Court affirmed in
part the jury's verdict on the issue of prior invention but overturned the
finding of non-infringment on the reverse doctrine of equivalents. Notice of
appeal was filed September 15, 1999 by Monsanto which is continuing to litigate
vigorously its position on appeal. In a settlement entered into in November
1999, Monsanto, DEKALB and Novartis agreed to dismiss all claims against
Novartis entities in the above-referenced lawsuits, in recognition of patent
license agreements among those parties.
As described in the company's Annual Report on Form 10-K for the year ended
December 31, 1998, and in its Reports on Form 10-Q for the quarters ending March
31, 1999 and June 30, 1999, in 1997 the company commercially introduced corn
containing a gene providing glyphosate resistance. On November 20, 1997, Rhone
Poulenc Agrochimie S. A. ("Rhone Poulenc") filed suit in the U. S. District
Court in North Carolina (Charlotte) against the company and DEKALB (now a
subsidiary of the company) alleging that a 1994 license agreement (the "1994
Agreement") between DEKALB and Rhone Poulenc was induced by fraud stemming from
DEKALB's nondisclosure of a research report involving testing of plants to
determine glyphosate tolerance. Rhone Poulenc also alleged that neither DEKALB
nor Monsanto has a right to license, make or sell products using Rhone Poulenc
technology for glyphosate resistance under the terms of the 1994 Agreement. On
April 5, 1999, the trial court rejected Rhone Poulenc's claim that the contract
language did not convey a license but found that a disputed issue of fact
existed as to whether the contract was obtained by fraud. Jury trial of the
fraud claims ended April 22, 1999, with a verdict for Rhone Poulenc and against
DEKALB. Monsanto was dismissed from the trial prior to verdict since it was not
involved in the inducement allegation and was involved in the case only due to
the fact that in 1996, DEKALB sublicensed to Monsanto certain technology
previously licensed by Rhone Poulenc. The jury awarded $15 million in actual
damages for "unjust enrichment" and $50 million in punitive damages. DEKALB has
filed motions with the trial court to set aside the damage award. DEKALB has
meritorious grounds to overturn the jury verdict and has filed a Motion for
Judgment as a Matter of Law to overturn the jury verdict. The trial was
bifurcated to allow claims against DEKALB and Monsanto for patent infringement
and misappropriation of trade secrets to be tried before a different jury. On
May 6, 1999, the District Court dismissed Monsanto from all remaining claims and
granted Monsanto's motion for summary judgment holding that Monsanto was a bona
fide purchaser which retained all license rights to the Rhone Poulenc technology
notwithstanding the prior verdict against DEKALB. The Court concurred that
Monsanto was not liable for trade secret or patent infringement claims since
Monsanto obtained its license from DEKALB without any knowledge of the claims
that allegedly gave rise to the jury verdict against DEKALB. Jury trial of the
patent infringement and misappropriation claims ended June 3, 1999, with a
verdict for Rhone Poulenc and against DEKALB. DEKALB is continuing to defend the
litigation and maintains that they remain licensed to use the Rhone Poulenc
technology notwithstanding the verdict or any subsequent action that may occur
to rescind the 1994 license between Rhone Poulenc and DEKALB. In addition to the
claim of license, DEKALB believes that they have other meritorious defenses to
the patent and trade secret allegations, including patent invalidity and absence
of trade secret status due to Rhone Poulenc's own public disclosure of the
24
<PAGE>
alleged trade secret. On July 16, 1999, a hearing occurred on all post-trial
motions including the request by Rhone Poulenc for injunctive relief against
future sales of DEKALB-brand RoundupReady(R) corn products if the material was
not currently in inventory or within the scope of the prior damage verdict. No
ruling has occurred on the post-trial motions. Pursuant to an agreement between
the company and Rhone Poulenc, certain RoundupReady(R) corn products are being
sold under a royalty bearing arrangement. DEKALB will vigorously appeal the
verdict to the Federal Circuit and will assert its meritorious defenses to all
remaining claims in the litigation and will vigorously seek to avoid further
claims of liability, the possible entry of injunctive relief and will seek to
overturn by appeal any judgment entered in the lawsuit.
As described in the company's Annual Report on Form 10-K for the year ended
December 31, 1998, and in its Report on Form 10-Q for the quarter ended June 30,
1999, on February 4, 1999, Pioneer Hi-Bred International, Inc. ("Pioneer") filed
suit against Monsanto Company (Civil Action No. 4-99-CV-90063, United States
District Court, Southern District of Iowa). The suit sought actual and
compensatory damages and injunctive relief, alleging that Monsanto
misappropriated Pioneer trade secrets through its acquisition of the
international seed operations of Cargill, Incorporated ("Cargill). Pioneer
alleged that certain of Cargill's employees misappropriated (via theft and
otherwise) germplasm belonging to Pioneer's corn seed business, bred the
misappropriated Pioneer germplasm into corn lines of Cargill's international
businesses, and sold the misappropriated materials to Monsanto. Pioneer filed a
related lawsuit directly against Cargill in October 1998 (Civil Action No.
4-98-90576, United States District Court, Southern District of Iowa).Under a
confidential agreement between Monsanto and Cargill, Monsanto returned to
Cargill certain germplasm acquired from Cargill, and Cargill made a substantial
cash payment to Monsanto. On October 22, 1999 the United States District Court
dismissed Pioneer's action against Monsanto on the basis of a prior settlement
between Monsanto and Pioneer. Under that confidential settlement agreement, the
companies agreed to the destruction of a significant volume of germplasm
originally obtained via the Cargill transaction and to certain future germplasm
exchanges in addition to a cash payment by Monsanto to Pioneer.
On October 28, 1998, two lawsuits were filed in U.S. District Court in Iowa: one
against Asgrow Seed company, L.L.C., a subsidiary of the company (No.
4-98-CV-70577); and the other against DEKALB (since acquired by the company)
(No. 4-98-CV-90578). The lawsuits allege that defendants misappropriated trade
secrets of Pioneer in their corn breeding programs. In addition to claims under
Iowa state law for trade secret misappropriation, Pioneer alleges violations of
the Lanham Act. Actual and exemplary damages and injunctive relief are sought.
Pioneer also asserts that defendants have violated an unspecified contractual
obligation not to breed with Pioneer germplasm. On October 8, 1999 Pioneer's
motion to add additional parties was granted and expanded the litigation to
include Monsanto and other entities as predecessors or successors in interest to
the original defendants. Trial of the DEKALB case is set for September 11, 2000.
The defendants have numerous meritorious defenses including preemption, laches,
statute of limitations, absence of trade secrets, ownership of the germplasm,
bona fide purchaser status, preemption by federal law and other defenses.
Defendants will vigorously defend against Pioneer's claims in the litigation.
On April 15, 1996, one hundred ten (110) current and former employees of Fisher
Controls International, Inc. ("Fisher"), a former subsidiary of Monsanto, filed
suit against the company in the District Court of Brazoria County, Texas, 149th
Judicial District (Cause No. 96M0975), alleging breach of contract, breach of a
duty of good faith and fair dealing, and fraud. Plaintiffs challenged Monsanto's
decision, pursuant to the terms of the stock option plans in effect, to curtail
the duration of plaintiffs' options to purchase common stock of Monsanto
following the divestiture of Fisher from the Monsanto corporate family in 1992.
On June 24, 1997, the trial court granted Monsanto's motion for summary judgment
and dismissed the case with prejudice. Plaintiffs appealed the judgment to the
Court of Appeals for the First District of Texas (No. 01-97-01142-CV). On
September 7, 1999, the Court of Appeals issued an opinion reversing the summary
judgment and remanding the case to the trial court for further proceedings. On
October 1, 1999, Monsanto filed a motion for rehearing or, in the alternative,
for rehearing en banc. That motion remains pending. Monsanto believes that the
decision of the trial court was correct and that its actions regarding the
Fisher employees were in accordance with the terms of the stock option plans and
entitled to substantial deference under Delaware law. Monsanto intends to pursue
its efforts to overturn the decision of the Court of Appeals and will continue
to vigorously defend against all claims of plaintiffs.
Other information with respect to legal proceedings appears in the company's
Report on Form 10-K for the year ended December 31, 1998, and the company's
Reports on Form 10-Q for the quarters ending March 31, 1999 and June 30, 1999.
25
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Item 5. OTHER INFORMATION
DISCLOSURE REGARDING FORWARD LOOKING INFORMATION
Under the Private Securities Litigation Reform Act of 1995, companies are
provided with a "safe harbor" for making forward-looking statements about the
potential risks and rewards of their strategies. Monsanto believes it's in the
best interest of its shareowners to use these provisions in discussing future
events. Forward-looking statements include Monsanto's plans for growth; the
potential for the development, regulatory approval, and public acceptance of new
products; and other factors that could affect Monsanto's future operations or
financial position. Such statements often include the words "believes,"
"expects," "anticipates," "intends," "plans," "estimates," or similar
expressions.
Monsanto's ability to achieve its goals depends on many known and unknown risks
and uncertainties, including changes in general economic and business
conditions. These factors could cause the anticipated performance and results of
the company to differ materially from those described or implied in
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below.
Factors Affecting the Agricultural Products Segment
Roundup Generic Competition: The family of Roundup(R) herbicides is a major
product line for Monsanto's Agricultural Products segment. These herbicides are
likely to face increasing competition from generic products. Patents protecting
Roundup(R) in several countries expired in 1991. Compound per se patent
protection for the active ingredient in Roundup(R) herbicide expires in the
United States in Sept. 2000. Monsanto believes that it can compensate for
increased generic competition both within and outside the United States and
continue to increase revenues and profits from Roundup(R) through a combination
of (1) marketing strategy, (2) pricing strategy, and (3) decreased production
costs.
Marketing Strategy. Monsanto expects to increase Roundup(R) sales by
focusing on brand premiums, providing unique formulations and services,
offering integrated seed and biotech solutions through cross selling
and the growth and introduction of RoundupReady(R) crops, and
continuing to encourage the practice of conservation tillage. In
addition, Monsanto will seek to enter into strategic agreements to
supply glyphosate to other herbicide producers. The success of the
company's Roundup(R) marketing strategy will depend on the continued
expansion of conservation tillage practices and the company's ability
to realize and promote cost and production benefits of its product
packages, introduce new RoundupReady(R) crops and economically produce
glyphosate in sufficient quantities to allow it to market to such
producers.
Pricing Strategy. Monsanto significantly reduced the sales price of
Roundup(R) in the United States. This price elasticity strategy is
designed to increase demand for Roundup(R) in the United States by
making Roundup(R) more economical, encouraging both new uses of the
product and expansion of the number of acres treated. Monsanto's
experience in numerous markets worldwide has been that price reductions
have stimulated volume growth. However, the volume increases in the
other countries also may have been influenced by a variety of other
factors, such as weather; the increased use of conservation tillage
practices; development of other new markets or applications for
Roundup(R); launch of new products including Roundup Ready(R) crops;
competitive products and practices; and an increase in agricultural
acres planted. Conditions, and therefore volume trends in one country
may or may not be duplicated in other world areas. As a result,
Monsanto's experience with price elasticity in markets outside the
United States may or may not be replicated in the United States.
Production Cost Decreases. Monsanto also believes that increased
volumes and technological innovations will lead to efficiencies that
will reduce the production cost of glyphosate. Such cost reductions
will depend on realizing such increased volumes and innovations, and
securing the resources required to expand production of Roundup(R).
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Realization and Introduction of New Biotech Products: The company's ability to
develop and introduce to market new agricultural biotech products, including new
Roundup Ready(R) crops, will be dependent, among other things, upon the
availability of sufficient financial resources to fund research and development
needs, demonstrated product effectiveness, the company's ability to develop,
purchase or license required technology, the existence of sufficient
distribution channels and the acceptance and competition factors discussed
below.
Governmental and Consumer Acceptance: The commercial success of agricultural and
food products developed through biotechnology will depend in part on government
and public acceptance of their cultivation, distribution and consumption.
Monsanto continues to work with consumers, customers and regulatory bodies to
encourage understanding of nutritional and agricultural biotechnology products.
However, public attitudes may be influenced by claims that genetically modified
plant products are unsafe for consumption or pose unknown risks to the
environment or to traditional social or economic practices. For instance,
consumer groups have brought lawsuits in various countries seeking to halt
industry activities with respect to products developed through biotechnology.
Securing governmental approvals for, and consumer confidence in, such products
poses numerous challenges, particularly outside the United States. Some
countries also have labeling requirements. In some markets, because these crops
are not yet approved for import, growers in other countries may be restricted
from introducing or selling their grain. In these cases, the grower may have to
arrange to sell the grain only in the domestic market or to use the grain for
feed on his or her farm. The market success of Monsanto's products developed
through biotechnology could be delayed or impaired in certain geographical areas
because of such factors.
Technological Change and Competition: A number of companies are engaged in plant
biotechnology research. Technological advances by others could render Monsanto's
products less competitive. In addition, the ability to be first to market a new
product can result in a significant competitive advantage. Monsanto believes
that competition will intensify, not only from agricultural biotechnology firms
but from major agrichemical, seed and food companies with biotechnology
laboratories. Some of Monsanto's agricultural competitors have substantially
greater financial, technical and marketing resources than Monsanto does.
Successful Integration of Recent Transactions: Monsanto has made significant
acquisitions, mergers and joint ventures involving seed, agricultural
biotechnology and grain processing companies. These transactions are designed to
strengthen Monsanto's capability to bring important new life sciences products
to customers worldwide, and to contribute to the company's long-term growth. The
Delta and Pine Land Co. (D&PL) transaction is subject to regulatory approval and
other customary conditions. It is anticipated that the pending D&PL transaction,
when final, and the recently completed acquisitions of DEKALB Genetics Corp.,
Plant Breeding International Cambridge, and certain international seed
operations of Cargill Inc., will significantly dilute Monsanto's financial
results for the next several years. Long term, Monsanto must integrate these
companies into its business to realize projected synergies and to provide the
distribution channels necessary to quickly and efficiently launch new products.
It must also fit such acquisitions, mergers and joint ventures into its growth
strategy to generate sufficient value to justify their cost. Mergers,
acquisitions, and joint ventures also present other challenges, including
geographical coordination, personnel integration, and the reconciliation of
corporate cultures. This integration could cause a temporary interruption of or
loss of momentum in Monsanto's business and the loss of key personnel from the
acquired company. There can be no assurance that the diversion of management's
attention to such matters or the delays or difficulties encountered in
connection with integrating these operations will not have an adverse effect on
Monsanto's business, results of operations, or financial condition.
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Planting Decisions and Weather: The company's agricultural products business is
highly seasonal. It is subject to weather conditions and natural disasters that
affect commodity prices, seed yields, and decisions by growers regarding
purchases of seed and herbicides. As they have for all of 1999, crop commodity
prices continue to be at historically low levels. There can be no assurance that
this trend will not continue. These lower commodity prices affect growers'
decisions about the types and amounts of crops to plant and may negatively
influence sales of Monsanto's herbicide and seed products.
Factors Affecting the Pharmaceuticals Segment
Ability to Realize Potential of Existing Pipeline Products: Pharmaceutical
research and development (R&D) is subject to inherent uncertainty, difficulties
and delays. These include, but are not limited to, successful completion of
clinical trials and the ability to obtain regulatory approval for the compounds
worldwide. Failure to receive government approvals as anticipated could preclude
or substantially delay commercialization of products in the company's R&D
programs.
Development and Commercialization of New Products and Expansion of Existing
Product Uses: The Pharmaceuticals Segment's long-term success will depend in
great part on its ability to commercialize new products (including second
generation products) and to expand the use of its existing products by
developing new indications for such products. Such efforts require substantial
funding of R&D and, in the case of new products, launch expenses. If Monsanto is
unable to earn or borrow sufficient resources to fund such expenses, its ability
to develop new products and expand uses of existing products will suffer.
Further, the outcome of R&D is inherently difficult to predict. Anticipated
results may never materialize, or they may not be promising enough. Even when
new pharmaceutical products are marketed, there can be no guarantees of their
commercial success. Consumer demand and competitive factors, including the
availability and price of treatment alternatives influence sales. In addition,
timing is crucial. The results of R&D of new pharmaceutical products are
difficult to forecast, and new products must be carefully deployed, with
resources sufficient to realize the full value of the products.
Product Liability and Consumer Acceptance: The sale of pharmaceutical products
always involves a risk of product liability claims and associated adverse
publicity. Substantial damage awards for injuries allegedly caused by the use of
pharmaceuticals have been made against certain companies in past years. In
addition, unexpected safety or efficacy concerns can arise with respect to
marketed products. Whether or not they are scientifically justified, such
concerns could lead to product recalls, withdrawals, or declining sales.
Competition: Pharmaceutical research is intense and highly competitive. It is
characterized by rapid technological change. Depending on the product involved,
competition may be encountered in price, delivery, service, performance,
innovation, brand recognition and quality. Many of Monsanto's pharmaceutical
competitors have greater research, financial, marketing and other resources than
Monsanto does. Some of Monsanto's trademarked pharmaceutical products also face
increasing pressures from producers of lower-priced generic products and from
new products entering the marketplace. Finally, as the company introduces new
products intended for use in the treatment of the same conditions as existing
Monsanto products, sales of such existing products may suffer.
Pricing: Managed care groups, health care organizations and government agencies
worldwide actively seek discounts and lower prices on pharmaceutical products.
Monsanto's challenge is to provide overall economic benefits to health care
providers and negotiate prices for specific products that will allow it to
profit at acceptable levels.
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Factors Affecting All Segments
Financial Requirements: Monsanto's recent acquisitions will require a
significant commitment of the company's financial resources. In addition, new
technological innovations generally require a significant investment for R&D and
product launch. Lack of funds for investment in these areas could hinder the
company's ability to make technological innovations and to introduce and
distribute new products. Monsanto expects to generate the required capital by
increasing the revenues of its core businesses, by seeking sufficient outside
financing and by containing costs. The company's ability to do so will depend
upon a variety of specific factors listed elsewhere in this report and upon
capital market conditions generally.
Intellectual Property: Monsanto has devoted significant resources to obtaining
and maintaining patent protection worldwide for its products. It seeks to
preserve its trade secrets and to operate without infringing the proprietary
rights of third parties. Monsanto's patents and trademarks are of material
importance in the operation of its business, particularly in the Agricultural
Products and Pharmaceuticals segments. Intellectual property positions are
becoming increasingly important within the agricultural biotechnology and
pharmaceutical industries, as products developed through biotechnology become a
larger part of the product landscape.
Monsanto generally relies upon patent and trademark laws worldwide to establish
and maintain its proprietary rights in its technology and products. There is
some uncertainty about the value of available patent protection in certain
countries outside the United States. Moreover, the patent positions of
biotechnology and pharmaceutical companies involve complex legal and factual
questions. Rapid technological advances and the number of companies performing
such research can create an uncertain environment. Patent applications in the
United States are kept secret: outside the United States, patent applications
are published 18 months after filing. Accordingly, competitors may be issued
patents from time to time without any prior warning to the company. That could
decrease the value of similar technologies under development at Monsanto.
Because of this rapid pace of change, some of the company's products may
unknowingly rely on key technologies developed by others. If that occurs, the
company must obtain licenses to such technologies in order to continue to use
them.
Certain of Monsanto's germplasm and other genetic material, patents, and
licenses are currently the subject of litigation and additional future
litigation is anticipated. Although the outcome of such litigation cannot be
predicted with certainty, Monsanto will continue to defend and litigate its
positions vigorously. The company believes it has meritorious defenses and
claims in the pending suits.
Markets Outside the United States: Sales outside the United States made up
approximately 45 percent of the company's 1998 revenues and Monsanto intends to
continue to actively explore international sales opportunities. Challenges the
company may face in international markets include changes in foreign currency
exchange rates, changes in a specific country's or region's political or
economic conditions, trade protection measures, import or export licensing
requirements, and unexpected changes in regulatory requirements. In particular,
the decline in certain Latin American economies may, if not reversed, adversely
affect future income. Also, future sales may decrease because the decline in
such economies could cause customers to purchase fewer goods in general, and
also because imported Monsanto products could become more expensive for
customers to purchase in their local currency.
Joint Ventures and Alliances: The company plans to continue to frequently
explore the potential benefits of possible strategic alliances and joint
ventures. Such arrangements can help speed the development and commercialization
of new products or assist in product distribution and marketing. However,
despite its efforts, the company may be unable to reach agreement with third
parties with whom it desires to enter into a joint venture or other alliance.
Restructuring: Monsanto has announced an aggressive plan to restructure its
business, including the elimination of a number of employment positions and the
divestiture of certain non-strategic assets. The inherent uncertainty related to
a restructuring, and the resulting increased demands on certain employees, could
cause a temporary interruption of or loss of momentum in Monsanto's business. In
addition, the success of the company's divestiture plan will depend on its
ability to negotiate acceptable sales prices for such assets which is in turn
largely dependent on the long-term prospects and strategic value of the divested
businesses and the availability of a buyer with sufficient financial resources.
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Year 2000 Readiness: The dates on which Monsanto believes the Year 2000 (Y2K)
Program will be completed are based on management's best estimates, which
include numerous assumptions about future events. There can be no guarantee that
these estimates will be achieved, or that there will not be a delay in, or
increased costs associated with, the implementation of the Y2K Program. Factors
that may cause delays in the Y2K Program or increased costs in connection with
it include, but are not limited to, the continued availability and cost of
experts trained in these areas, the ability to locate and correct all relevant
computer code and embedded systems, and the success of similar programs
conducted by suppliers and other third parties.
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Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - See the Exhibit Index.
(b.) Reports on Form 8-K during the quarter ended September 30, 1999
None
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MONSANTO COMPANY
----------------
(Registrant)
/S/ RICHARD B. CLARK
---------------------
Vice President and Controller
On behalf of the Registrant and
as Principal Accounting Officer)
Date: November 15, 1999
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EXHIBIT INDEX
Exhibit
Number Description
2 Omitted - Inapplicable
3 Omitted - Inapplicable
4 Omitted - Inapplicable
10 1. Monsanto Management Incentive Plan of 1996, as
amended April 25, 1997, July 25, 1997, August 18,
1997, February 26, 1998, September 25, 1998, April
23, 1999 and October 22, 1999 and as Adjusted to
Reflect Stock Split as of May 15, 1996 and Spin-off
as of September 1, 1997
2. Monsanto Management Incentive Plan of 1988/I, as
amended in 1988, 1989, 1991, 1992, April 1997, July
1997 and October 22, 1999
3. Monsanto Management Incentive Plan of 1988/II, as
amended in 1989, 1991, 1992, April 1997, July 1997
and October 22, 1999
4. Monsanto Management Incentive Plan of 1994, as
amended in April 1997, July 1997 and October 22, 1999
5. Form of Monsanto Company 1999 Non-Qualified
Premium Stock Option Certificate
11 Omitted - Inapplicable; see Note 4 of Notes to
Financial Statements
15 Omitted - Inapplicable
18 Omitted - Inapplicable
19 Omitted - Inapplicable
22 Omitted - Inapplicable
23 Omitted - Inapplicable
24 Omitted - Inapplicable
27 Financial Data Schedule
33
MONSANTO MANAGEMENT INCENTIVE PLAN OF 1996
As Amended April 25, 1997, July 25, 1997, August 18, 1997,
February 26, 1998, September 25, 1998, April 23, 1999 and
October 22, 1999 and As Adjusted to Reflect Stock
Split as of May 15, 1996
and Spin-off as of September 1, 1997
I. GENERAL PROVISIONS
1. PURPOSES
The Monsanto Management Incentive Plan of 1996 is designed to:
- focus management on business performance that creates stockholder value,
- encourage innovative approaches to the business of the Company,
- reward for results,
- encourage ownership of Monsanto common stock by management, and
- encourage taking higher risks with an opportunity for higher reward.
This Incentive Plan shall be effective April 15, 1996 ("Effective Date"),
subject to the approval of this Incentive Plan by the stockholders of the
Company.
2. DEFINITIONS
Except where the context otherwise indicates, the following definitions apply:
"Associated Company" means any corporation (or partnership, joint venture, or
other enterprise), of which the Company owns or controls, directly or
indirectly, 10% or more, but less than 50% of the outstanding shares of stock
normally entitled to vote for the election of directors (or comparable equity
participation and voting power).
"Award" means any Stock Option, Stock Appreciation Right, Restricted Share,
unrestricted Share, dividend equivalent unit or other award granted under this
Incentive Plan.
"Board" means Board of Directors of the Company.
"Committee" means the People Committee, or its permitted delegate.
"Compensation Committee" means one or more committees appointed by the People
Committee composed of one or more senior managers of the Company or a Subsidiary
to whom the People Committee may delegate its powers (or a portion thereof) to
administer this Incentive Plan pursuant to Section 3(a) of this Article I.
"People Committee" means the People Committee of the Board or such other
committee consisting of two or more members of the Board as may be appointed by
the Board to administer this Incentive Plan pursuant to Section 3(a) of this
Article I.
"Company" means Monsanto Company, a Delaware corporation.
"Eligible Participant" means any officer or other salaried employee (including a
director who is a salaried employee) of the Company, a Subsidiary, or an
Associated Company.
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"Incentive Plan" means the Monsanto Management Incentive Plan of 1996, set forth
herein.
"Fair Market Value" shall mean, with respect to any given day, the average of
the highest and lowest sales prices of the Shares reported as the New York Stock
Exchange-Composite Transactions for such day, or if the Shares were not traded
on the New York Stock Exchange on such day, then on the next preceding day on
which the Shares were traded, all as reported by The Wall Street Journal,
mid-west edition, under the heading New York Stock Exchange-Composite
Transactions or by such other source as the Committee may select.
"Incentive Stock Option" or "Incentive Option" means an option meeting the
definition of that term as set forth in Section 3 of Article II of this
Incentive Plan.
"1984 Plan" means the Monsanto Management Incentive Plan of 1984, as amended.
"1986 Plan" means the Searle Monsanto Stock Option Plan of 1986, as amended.
"1988/I Plan" means the Monsanto Management Incentive Plan of 1988/I, as
amended.
"1988/II Plan" means the Monsanto Management Incentive Plan of 1988/II, as
amended.
"1991 Plan" means the NutraSweet/Monsanto Stock Plan of 1991, as amended.
"1994 NutraSweet/Monsanto Plan" means the NutraSweet/Monsanto Stock Plan of
1994, as amended.
"1994 Plan" means the Monsanto Management Incentive Plan of 1994, as amended.
"1994 Searle/Monsanto Plan" means the Searle/Monsanto Stock Plan of 1994, as
amended.
"Non-Qualified Stock Option" or "Non-Qualified Option" means an option referred
to in Section 4 of Article II of this Incentive Plan.
"Participant" means an Eligible Participant to whom a Stock Option or a Stock
Appreciation Right has been granted, a bonus commitment made or a bonus awarded
pursuant to this Incentive Plan.
"Reporting Person" means a person subject to the reporting requirements of
Section 16(a) of the Securities Exchange Act of 1934 (or any law, rule,
regulation or other provision that may replace such statute) with respect to
Shares.
"Restricted Shares" means Shares that were made subject to restrictions in
accordance with Section 6 of Article II of this Incentive Plan.
"Shares" means shares of common stock of the Company and any shares of stock or
other securities received as a result of a Share adjustment as set forth in
Section 4 of this Article I.
"Stock Appreciation Right" means a right referred to in Section 5 of Article II
of this Incentive Plan.
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"Stock Appreciation Right Fair Market Value" or "SAR Fair Market Value" shall
mean a value established by the Committee for the exercise of a Stock
Appreciation Right. If such exercise occurs during any quarterly "window period"
as specified by Rule 16b-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended from time to time, or any law, rule,
regulation or other provision that may hereafter replace such Rule, the
Committee may establish a common value for exercises during such window period.
"Stock Option" or "Option" shall mean Incentive Stock Options and/or
Non-Qualified Stock Options.
"Subsidiary" means: (i) for the purpose of an Incentive Stock Option, any
corporation (other than the Company) in an unbroken chain of corporations
beginning with the Company if, at the time of the granting of the Option, each
of the corporations other than the last corporation in the unbroken chain owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain; and (ii) for the
purposes of a Non-Qualified Stock Option, a Stock Appreciation Right or an Award
of Shares (restricted or not), any corporation (or partnership, joint venture,
or other enterprise) of which the Company owns or controls, directly or
indirectly, 50% or more of the outstanding shares of stock normally entitled to
vote for the election of directors (or comparable equity participation and
voting power).
"Termination of Employment" means the discontinuance of employment of a
Participant for any reason other than a Transfer. In the event a Participant is
an employee of an entity that is a Subsidiary or Associated Company and the
entity ceases to be either a Subsidiary or Associated Company, the Participant
shall be deemed to incur a Termination of Employment for all purposes under this
Incentive Plan as of the date such entity ceases to be a Subsidiary or
Associated Company.
"Transfer" means: (i) for the purpose of an Incentive Stock Option, a change of
employment of a Participant within the group consisting of the Company and its
Subsidiaries; and (ii) for the purpose of a Non-Qualified Stock Option, a Stock
Appreciation Right or an Award of Shares (restricted or not), a change of
employment of a Participant within the group consisting of the Company and its
Subsidiaries, or, if the Committee so determines, a change of employment of a
Participant within the group consisting of the Company, its Subsidiaries and
Associated Companies.
3. ADMINISTRATION
(a) This Incentive Plan shall be administered by the People Committee, except
to the extent the People Committee delegates administration pursuant to
this paragraph. The People Committee may delegate all or a portion of the
administration of this Incentive Plan to one or more Compensation
Committees and may authorize further delegation by the Compensation
Committees to senior managers of the Company or its Subsidiaries; provided
that determinations regarding the timing, pricing, amount and terms of any
Award to a Reporting Person shall be made only by the People Committee.
(b) The Committee shall have the exclusive right to interpret this Incentive
Plan, to select the persons who are to receive Awards, and to act in all
matters pertaining to the granting of Awards under this Incentive Plan
including, without limitation, the timing, pricing, amount and terms of any
Award and the amendment thereof consistent with the provisions of this
Incentive Plan. No Eligible Participant shall have any right to be
considered for or to receive any Awards. All acts and decisions of the
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Committee with respect to any questions arising in connection with the
administration and interpretation of this Incentive Plan, including the
severability of any and all of the provisions thereof, shall be conclusive,
final and binding upon all Eligible Participants.
(c) The Committee may adopt and amend from time to time rules and regulations
of general application for the administration of this Incentive Plan.
(d) Without limiting the foregoing Sections 3(a), (b) and (c) of this Article I
(and notwithstanding any other provisions of this Incentive Plan), the
Committee is authorized to take such action as it determines to be
necessary or advisable, and fair and equitable to Participants, with
respect to Awards in the event of: a merger of the Company with,
consolidation of the Company into, or the acquisition of the Company by,
another corporation; a sale or transfer of all or substantially all of the
assets of the Company to another corporation or any other person or entity;
a separation from the Company, including any spin-off or other distribution
to stockholders other than an ordinary cash dividend; a tender or exchange
offer for Shares made by any corporation, person or entity (other than the
Company); or other reorganization in which the Company will not survive as
an independent, publicly-owned corporation. Such action may include (but
shall not be limited to) establishing, amending or waiving the forms,
terms, conditions and duration of Stock Options, Stock Appreciation Rights,
Awards of Restricted Shares and other Awards so as to provide for earlier,
later, extended or additional times for exercise or payments, differing
methods for calculating payments, alternate forms and amounts of payment,
accelerated release of restrictions or other modifications. The Committee
may take such actions pursuant to this Section 3(d) by adopting rules and
regulations of general applicability to all Participants or to certain
categories of Participants, by including, amending or waiving terms and
conditions in Awards (including, without limitation, agreements with
respect to Restricted Shares), or by taking action with respect to
individual Participants. The Committee may take such actions as part of the
Awards, or before or after the public announcement of any such merger,
consolidation, acquisition, sale or transfer of assets, separation, tender
or exchange offer or other reorganization.
4. SHARE ADJUSTMENTS
In the event that at any time or from time to time a stock dividend, stock
split, recapitalization, merger, consolidation, or other change in
capitalization, or a sale by the Company of all or part of its assets, or a
separation from the Company, including any spin-off or other distribution to
stockholders other than an ordinary cash dividend, results in (a) the
outstanding Shares, or any securities exchanged therefor or received in their
place, being exchanged for a different number or class of shares of stock or
other securities of the Company, or for shares of stock or other securities of
any other corporation; or (b) new, different or additional shares or other
securities of the Company or of any other corporation being received by the
holders of outstanding Shares, then:
(i) the total number of Shares authorized for Awards under this Incentive
Plan;
(ii) the number and class of Shares (A) that may be subject to Stock
Options or Stock Appreciation Rights, (B) which have not been issued
or transferred under outstanding Stock Options or Stock Appreciation
Rights, and (C) which have been awarded but are undelivered under this
Incentive Plan; and
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(iii) the purchase price to be paid per Share under outstanding Stock
Options and the number of Shares to be transferred in settlement of
outstanding Stock Appreciation Rights;
shall in each case be appropriately adjusted by the Committee in its discretion;
provided, however, that all adjustments made as the result of the foregoing in
respect of each Stock Option which is granted as an Incentive Stock Option shall
be made so that such Stock Option shall continue to be an Incentive Stock Option
as defined in Section 422 of the Internal Revenue Code of 1986, as may be
amended from time to time.
5. SHARES AUTHORIZED
The total number of Shares for which awards may be granted under this Incentive
Plan shall not exceed 87,605,305 Shares. Notwithstanding the foregoing, the
total number of Shares that shall be available for Awards of Restricted or
unrestricted Shares shall be 1/2 of 1% of the total number of Shares
outstanding. The limitations in this Section 5 are subject to the adjustments
provided for in Section 4 of this Article I; the provisions of Section 1(b) of
Article II of this Incentive Plan; and the provisions of Section 3(d) of Article
III of this Incentive Plan.
The total number of Shares for which Awards may be granted under this Incentive
Plan to any one Eligible Participant shall not exceed in any three-year period
15% of the total number of Shares for which Awards may be made under this
Incentive Plan, subject to the adjustments provided for in Section 4 of this
Article I.
II. AWARDS
1. SHARES USED FOR AWARDS
(a) The Shares for which Options may be granted under this Option Plan may be
authorized but unissued Shares, or treasury Shares, or both.
(b) In the event that any unexercised Stock Option granted hereunder lapses or
ceases to be exercisable for any reason other than a surrender of the
Option pursuant to Section l(c) of this Article II or the exercise of a
Stock Appreciation Right under Section 5 of this Article II, the Shares
subject to such Option shall again be available for Option grants under
this Option Plan without again being charged against the authorized Shares
set forth in Section 5 of Article I if not prohibited by Rule 16b-3 under
the Securities Exchange Act of 1934 (or any successor rule or provision).
Any amendment of any Option or Stock Appreciation Right by the Committee
pursuant to Article I, Section 3 of this Incentive Plan shall not be
considered the grant of a new Option for the purpose of Section 5 of
Article I.
(c) In the event of death or total and permanent disability as determined by
the Committee, the Committee may, with the consent of the Participant, his
legal representative, or in the event of death, a beneficiary designated in
writing by the Participant during his lifetime, authorize payment, in cash
or in Shares, or partly in cash and partly in Shares, as the Committee may
direct, of an amount equal to the difference at the time between the Fair
Market Value of the Shares subject to an Option and the Option price in
consideration of the surrender of the Option. In such an event the Shares
subject to the Option so surrendered shall be charged against the
limitations set forth in Section 5 of Article I.
(d) In the event that any Award or installment thereof ceases to be payable for
any reason, the Shares subject to such Award shall again be available for
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Award without again being charged against the limitations on the number of
Shares set forth in Section 5 of Article I if not prohibited by Rule 16b-3
under the Securities Exchange Act of 1934 (or any successor rule or
provision).
2. INCIDENTS OF OPTIONS AND STOCK APPRECIATION RIGHTS
(a) An Award of Stock Options or Stock Appreciation Rights may be made at such
time or times determined by the Committee following the Effective Date to
any Eligible Participant, except that Incentive Options may not be awarded
to employees of Associated Companies. Each Stock Option and Stock
Appreciation Right shall be granted subject to such terms and conditions,
if any, not inconsistent with this Incentive Plan, as shall be determined
by the Committee, including any provisions as to continued employment as
consideration for the grant or exercise of such Option or Stock
Appreciation Right, provisions as to performance conditions and any
provisions which may be advisable to comply with applicable laws,
regulations or rulings of any governmental authority.
(b) An Incentive Stock Option or Stock Appreciation Right shall not be
transferable by the Participant otherwise than by will, by the laws of
descent and distribution, or pursuant to a written beneficiary designation,
and shall be exercisable during the lifetime of the Participant only by him
or by his guardian or legal representative. A Non-Qualified Stock Option or
Stock Appreciation Right shall not be transferable except by will, by the
laws of descent and distribution, pursuant to a written beneficiary
designation, pursuant to a qualified domestic relations order as defined by
the Internal Revenue Code of 1986, as amended, or Title I of the Employee
Retirement Income Security Act or the rules thereunder, or in such
circumstances as would not result in the failure to comply with Rule 16b-3
under the Securities Exchange Act of 1934 (or any successor rule or
provision) if the transferor were a Reporting Person.
(c) Shares purchased upon exercise of a Stock Option shall be paid for in such
amounts, at such times and upon such terms as shall be determined by the
Committee and specified in the grant of the Option. Without limiting the
foregoing, the Committee may establish payment terms for the exercise of
Stock Options which permit the Participant to deliver Shares (or other
evidence of ownership of Shares satisfactory to the Company), including, at
the Committee's option, Restricted Shares, with a Fair Market Value equal
to the Option price as payment.
(d) The Option price per share shall be established by the grant and shall not
be decreased thereafter except pursuant to Section 4 of Article I of this
Incentive Plan.
(e) The Committee, in its discretion, may provide for the escalation of the
Option price per Share over all or part of the term of the Option.
(f) The Committee, in its discretion, may offer Participants the opportunity to
elect to receive an Option grant in lieu of a salary increase or a bonus or
may offer Participants the opportunity to purchase Options for cash or such
other consideration as the Committee in its discretion determines.
3. INCENTIVE OPTIONS
An Incentive Option shall be an "Incentive Stock Option" as that term is defined
in Section 422 of the Internal Revenue Code of 1986, as may be amended from time
to time, as in effect at the time of the grant of any such Option, or any
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statutory provision that may be enacted to replace such Section. Each provision
of this Incentive Plan and of each Incentive Stock Option granted hereunder
shall be construed so that each such Option shall be an Incentive Stock Option,
and any provision thereof that cannot be so construed shall be disregarded.
Incentive Stock Options shall be granted only to purchase unrestricted Shares
and only to Eligible Participants, each of whom may be granted one or more such
Options at such time or times determined by the Committee following the
Effective Date until April 14, 2006, subject to the following conditions:
(a) The Option price per Share shall be set by the grant but shall not be less
than 100% of the Fair Market Value at the time of the grant.
(b) The Option and its related Stock Appreciation Right, if any, may be
exercised in full or in part from time to time within ten (10) years from
the date of the grant, or such shorter period as may be specified by the
Committee in the grant, provided that in any event each shall lapse and
cease to be exercisable upon, or within such period following, Termination
of Employment as shall have been determined by the Committee and as
specified in the Option or Stock Appreciation Right; provided, however,
that such period following Termination of Employment shall not exceed
twelve months unless employment shall have terminated:
(i) as a result of retirement as defined by the Committee or total
and permanent disability as determined by the Committee, in
which event such period shall not exceed--
(A) in the case of an Option, the original term of the
Option; and
(B) in the case of a Stock Appreciation Right, one year
after such retirement or disability or after
resignation as an officer or director of the Company,
whichever shall last occur (unless earlier terminated
pursuant to Section 5(b) of this Article II);
or
(ii) as a result of death, or death shall have occurred following
Termination of Employment and while the Option or Stock
Appreciation Right was still exercisable; and
provided, further, that such period following Termination of Employment
shall in no event extend the original exercise period of the Option or
related Stock Appreciation Right, if any.
(c) The aggregate Fair Market Value (determined at the time the Option is
granted) of the Shares with respect to which Incentive Stock Options are
first exercisable during any calendar year by any Eligible Participant
shall not exceed $100,000; however, if the Fair Market Value of Incentive
Stock Option Shares (at date of grant) exceeds $100,000 in the calendar
year in which Incentive Stock Options are first exercisable, Shares with a
Fair Market Value at date of grant exceeding $100,000 shall not be deemed
to be Incentive Stock Options.
(d) Incentive Stock Options shall be granted only to an Eligible Participant
who, at the time the Option is granted, does not own stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company.
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(e) Any other terms and conditions which the Committee determines, upon advice
of counsel, should be imposed for the Option to qualify as an Incentive
Stock Option and any other terms and conditions not inconsistent with this
Incentive Plan as determined by the Committee; including provisions making
the Shares subject to such Option Restricted Shares or provisions making
vesting or the ability to exercise subject to performance conditions.
4. NON-QUALIFIED OPTIONS
One or more Options may be granted as Non-Qualified Options to purchase
unrestricted Shares or Restricted Shares to an Eligible Participant at such time
or times determined by the Committee, following the Effective Date, subject to
the following terms and conditions:
(a) The Option price per Share shall be established by the grant but shall
not be less than 100% of the Fair Market Value at the time of the grant
(or such later date as the Committee shall determine to be the grant
date).
(b) The Option and its related Stock Appreciation Right, if any, may be
exercised in full or in part from time to time within ten (10) years
from the date of the grant, or such shorter period as may be specified
by the Committee in the grant, provided that in any event each shall
lapse and cease to be exercisable upon, or within such period following
Termination of Employment as shall have been determined by the
Committee and as specified in the Option or Stock Appreciation Right;
provided, however, that such period following Termination of Employment
shall not exceed twelve months unless employment shall have terminated:
(i) as a result of retirement as defined by the Committee
or total and permanent disability as determined by
the Committee, in which event such period shall not
exceed--
(A) in the case of an Option, the original term
of the Option; and
(B) in the case of a Stock Appreciation Right,
one year after such retirement or disability
or after resignation as an officer or
director of the Company, whichever shall
last occur (unless earlier terminated
pursuant to Section 5(b) of this Article
II);
or
(ii) as a result of death, or death shall have occurred
following Termination of Employment and while the
Option or Stock Appreciation Right was still
exercisable; and
provided, further, that such period following Termination of
Employment shall in no event extend the original exercise
period of the Option or related Stock Appreciation Right, if
any.
(c) The Option grant may include any other terms and conditions not
inconsistent with this Incentive Plan as determined by the Committee,
including provisions making the Shares subject to such Option Restricted
Shares or provisions making vesting or the ability to exercise subject to
the satisfaction of performance conditions.
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5. STOCK APPRECIATION RIGHTS
A Stock Appreciation Right may be granted to an Eligible Participant in
connection with (and only in connection with) an Incentive Stock Option or a
Non-Qualified Option granted under this Incentive Plan, or under any other
incentive plan of the Company or its Subsidiaries which was approved by the
stockholders, subject to the following terms and conditions:
(a) Such Stock Appreciation Right shall entitle a holder of an Option within
the period specified for the exercise of the Option in the related Option
grant to surrender the unexercised Option (or a portion thereof) and to
receive in exchange therefor a payment in cash or Shares having an
aggregate value equal to the product of (i) the amount by which (A) the SAR
Fair Market Value of each Share exceeds (B) the Option price per Share,
times (ii) the number of Shares under the Option, or portion thereof, which
is surrendered.
(b) Except as expressly provided herein, each Stock Appreciation Right granted
hereunder shall be subject to the same terms and conditions as the related
Option. It shall be exercisable only to the extent such Option is
exercisable and shall terminate or lapse and cease to be exercisable when
the related Option terminates or lapses. The Committee may grant Stock
Appreciation Rights concurrently with grants of Options or in connection
with previously granted Options under this Incentive Plan, or under any
other incentive plan of the Company or its Subsidiaries which was approved
by the stockholders, which are unexercised and have not terminated or
lapsed. With respect to Stock Appreciation Rights granted in connection
with such previously granted Options, the Committee shall provide that such
Stock Appreciation Rights shall not be exercisable until the holder
completes six (6) months (or such longer period as the Committee shall
determine) of service with the Company, a Subsidiary, or an Associated
Company immediately following the date of the grant of such Stock
Appreciation Rights.
(c) The Committee shall have sole discretion to determine in each case whether
the payment will be in the form of all cash, all Shares (which may, at the
Committee's discretion, be Restricted Shares), or any combination thereof.
If payment is to be made in Shares, the number of Shares shall be
determined as follows: the amount payable in Shares shall be divided by the
SAR Fair Market Value of Shares. The payments to be made, in whole or in
part, in cash upon the exercise of Stock Appreciation Rights by any officer
of the Company shall be made in accordance with the provisions relating to
the exercise of stock appreciation rights of Rule 16b-3 of the General
Rules and Regulations under the Securities Exchange Act of 1934, as in
effect at the time of such exercise, or any law, rule, regulation or other
provision that may hereafter replace such Rule.
(d) Upon exercise of a Stock Appreciation Right, the number of Shares subject
to exercise under the related Option shall automatically be reduced by the
number of Shares represented by the Option or portion thereof which is
surrendered. To the extent that a Stock Appreciation Right shall be
exercised, any Shares transferred upon such exercise shall not be charged
against the maximum limitations upon the grant of Options set forth in this
Incentive Plan under which such Option shall have been granted but the
Option in connection with which a Stock Appreciation Right shall have been
granted shall be deemed to have been exercised for the purpose of such
maximum limitations.
(e) The Committee shall have sole discretion as to the timing of any payment
made in cash, Shares, or a combination thereof upon exercise of Stock
Appreciation Rights hereunder, whether in a lump sum, in annual
installments or otherwise deferred and the Committee shall have sole
discretion to determine whether such payments may bear amounts equivalent
to interest or cash dividends.
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(f) For purposes of this paragraph 5(f) of Article II:
(i) "Unrelated Party" means any party or group of parties acting
together other than (A) the Company, its directors and
officers, or (B) any nominee holder for any stock exchange;
(ii) "Offer" means any tender or exchange offer made by an
Unrelated Party for the Shares and shall be deemed to occur
upon the first purchase or exchange of such Shares;
(iii) "Change of Control" means any acquisition, beneficially or
otherwise, by any Unrelated Party of 25% or more of the
combined voting power of the common and preferred stock of the
Company and shall be deemed to occur upon the date that the
Unrelated Party attains control of said 25% or more of the
combined voting power;
(iv) "Change of Control Market Value" of the Shares means the higher
of--
(A) the value for which such Shares may be exchanged or
offered under any Offer pursuant to which Shares are
actually exchanged or purchased; or
(B) the Fair Market Value of such Shares on the date of
exercise of a Stock Appreciation Right.
Notwithstanding the foregoing provisions of this Section 5 of Article
II and without limiting the provisions of Section 3 of Article I of
this Incentive Plan, in the event of an Offer or Change of Control, a
Participant holding an unexercised Stock Appreciation Right may
exercise such Stock Appreciation Right and elect to be paid solely in
cash in an amount equal to the difference between the Option price and
the Change of Control Market Value of the Shares, unless within five
(5) business days after receipt of notification of such election by the
Secretary of the Company, the Committee acts to disapprove the cash
election. Unless it acts to disapprove, the Committee's consent shall
be deemed to be given at the close of business on the fifth business
day after the Secretary's receipt of notification of such election and
payment shall be made as soon as practicable after expiration of such
five (5) business day period. The election provided herein shall apply
only: (x) during the thirty (30) day period following the first
exchange or purchase of Shares pursuant to an Offer; or (y) during the
thirty (30) day period following the date on which sufficient Shares
are acquired to constitute a Change of Control.
(g) For purposes of this paragraph 5(g) of Article II:
(i) "Unrelated Party" means any party or group of parties
acting together other than (A) the Company, its
directors and officers, or (B) any nominee holder for
any stock exchange;
(ii) "Alternate Change of Control" means any acquisition,
beneficially or otherwise, by any Unrelated Party of
a percentage of the combined voting power of the
common and preferred stock of the Company specified
by the Committee (but not less than 10%) and shall be
deemed to occur upon the date that the Unrelated
Party attains control of said percentage of the
combined voting power;
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(iii) "Change of Control Termination of Employment" means
the termination of employment of a Participant by the
Company, the Subsidiaries or the Associated Companies
without cause (as defined by the Committee) or by the
Participant for good reason (as defined by the
Committee) within a period of time specified by the
Committee following an Alternate Change of Control;
(iv) "Alternate Change of Control Market Value" of the
Shares means the Fair Market Value of such Shares on
the date of exercise of a Stock Appreciation Right.
Notwithstanding the foregoing provisions of this Section 5 of Article
II and without limiting the provisions of Section 3 of Article I of
this Incentive Plan, in the event of an Alternate Change of Control and
a Change of Control Termination of Employment, a Participant holding an
unexercised Stock Appreciation Right who is selected by the Committee
may exercise such Stock Appreciation Right and elect to be paid solely
in cash in an amount equal to the difference between the Option price
and the Alternate Change of Control Market Value of the Shares, unless
within five (5) business days after receipt of notification of such
election by the Secretary of the Company, the Committee acts to
disapprove the cash election. Unless it acts to disapprove, the
Committee's consent shall be deemed to be given at the close of
business on the fifth business day after the Secretary's receipt of
notification of such election and payment shall be made as soon as
practicable after expiration of such five (5) business day period. The
election provided herein shall apply only during the thirty (30) day
period following a Change of Control Termination of Employment.
6. BONUS SHARES AND RESTRICTED SHARES
(a) An Award of Shares or Restricted Shares may be made at such time or times
determined by the Committee following the Effective Date to any person who
is an Eligible Participant. The Committee shall have full discretion to
determine the terms and conditions of payment of any Award, including
without limitation, what part of such Award shall be paid in unrestricted
Shares or Restricted Shares, the time or times of payment of any Award, and
the time or times of the lapse of the restrictions on Restricted Shares.
(b) For the purpose of determining the number of Shares to be used in payment
of an Award, the amount of the Award payable in Shares shall be divided by
the Fair Market Value of the Shares on the date of the determination of the
amount of the Award by the Committee, or if the Committee so directs, the
date immediately preceding the date the Award is paid.
(c) The portion of an Award payable in Restricted Shares shall be paid at the
time of the Award either by book-entry registration or by delivering to the
Participant, or a custodian or escrow designated by the Committee and the
Participant, a certificate or certificates for such Restricted Shares,
registered in the name of such Participant. The Participant shall have all
of the rights of a stockholder with respect to such Shares, subject to such
terms and conditions, including withholding of dividends, forfeitures or
resale to the Company, if any, as may be determined by the Committee. The
Committee and the Participant may designate the Company or one or more of
its employees to act as custodian or escrow for the certificates.
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(d) Restricted Shares shall be subject to such terms and conditions, including
forfeiture, if any, and to such restrictions against sale, transfer or
other disposition as may be determined by the Committee at the time a
Non-Qualified Option for the purchase of Restricted Shares is granted, at
the time a Stock Appreciation Right to be settled with Restricted Shares is
granted or at the time of making a bonus award of Restricted Shares. Any
new or additional or different Shares or other securities resulting from
any adjustment of such Shares of the type described in Section 4 of Article
I shall be subject to the same terms, conditions, and restrictions as the
Restricted Shares prior to such adjustment. The Committee may, in its
discretion, remove, modify or accelerate the release of restrictions on any
Restricted Shares in the event of hardship or disability of the Participant
while employed, in the event that the Participant ceases to be an employee
of the Company, a Subsidiary or Associated Company, as the result of death
or otherwise, in the event of a relocation of a Participant to another
country or for such other reasons as the Committee may deem appropriate. In
the event of the death of a Participant following the transfer of
Restricted Shares to him, the legal representative of the Participant, the
beneficiary designated in writing by the Participant during his lifetime,
or the person receiving such Shares under his will or under the laws of
descent and distribution shall take such Shares subject to the same
restrictions, conditions and provisions in effect at the time of his death,
to the extent applicable.
7. DIVIDENDS, DIVIDEND EQUIVALENTS AND INTEREST EQUIVALENTS
(a) No cash dividends shall be paid on Shares which have been awarded but not
registered or delivered. The Committee may provide, however, that a
Participant to whom an Option has been awarded which is exercisable in
whole or in part at a future time for Shares or a Participant who has been
awarded Shares payable in whole or in part at a future time, shall be
entitled to receive an amount per Share, equal in value to the cash
dividends, if any, paid per Share on issued and outstanding Shares, as of
the dividend record dates occurring during the period between the date of
the award and the time each such Share is delivered. Such amounts (herein
called "dividend equivalents") may, in the discretion of the Committee, be:
(i) paid in cash or Shares either from time to time prior
to or at the time of the delivery of such Shares or
upon expiration of the Option if it shall not have
been fully exercised (except that payment of the
dividend equivalents on Incentive Options may not be
made prior to exercise); or
(ii) converted into contingently credited Shares (with
respect to which dividend equivalents shall accrue)
in such manner, at such value, and deliverable at
such time or times, as may be determined by the
Committee.
Such Shares (whether delivered or contingently credited) shall
be charged against the limitations set forth in Section 5 of
Article I.
(b) The Committee, in its discretion, may authorize payment of interest
equivalents on any portion of any Award payable at a future time in cash,
and interest equivalents on dividend equivalents which are payable in cash
at a future time.
(c) The Committee, in its discretion, may provide that dividends paid on
restricted Shares shall, during the applicable restricted period, be held
by the Company to be paid upon the lapse of restrictions or to be forfeited
upon forfeiture of the Shares.
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III. MISCELLANEOUS PROVISIONS
1. Neither a Stock Option nor a Stock Appreciation Right shall be
transferable except as provided for herein. If any Participant
makes such a transfer in violation hereof, any obligation of the
Company with respect to such Stock Option or Stock Appreciation
Right shall forthwith terminate.
2. Nothing in this Incentive Plan or any booklet or other document
describing or referring to this Incentive Plan shall be deemed to
confer on any employee or Participant the right to continue in
the employ of his employer or affect the right of his employer to
terminate the employment of any such person with or without
cause.
3. Nothing contained herein shall require the Company to segregate
any monies from its general funds, or to create any trusts, or to
make any special deposits for any immediate or deferred amounts
payable to any Participant.
4. This Incentive Plan and all actions taken hereunder shall be
governed by the laws of the State of Delaware.
5. The Company may make such provisions and take such steps as it
may deem necessary or appropriate for the withholding of any
taxes which the Company is required by any law or regulation of
any governmental authority, whether federal, state or local,
domestic or foreign, to withhold in connection with any Stock
Option or the exercise thereof, any Stock Appreciation Right or
the exercise thereof, or the payment of any bonus award,
including, but not limited to, the withholding of cash or Shares
which would be paid or delivered pursuant to such exercise or
award or another exercise or award under this Incentive Plan
until the Participant reimburses the Company for the amount the
Company is required to withhold with respect to such taxes, or
cancelling any portion of such award or another award under this
Incentive Plan in an amount sufficient to reimburse itself for
the amount it is required to so withhold, or selling any property
contingently credited by the Company for the purpose of paying
such award or another award under this Incentive Plan, in order
to withhold or reimburse itself for the amount it is required to
so withhold. The Committee may permit a Participant (or any
beneficiary or other person authorized to act) to elect to pay a
portion or all of any amounts required or permitted to be
withheld to satisfy federal, state, local or foreign tax
obligations by directing the Company to withhold a number of
whole Shares which would otherwise be distributed and which have
a fair market value sufficient to cover the amount of such
required or permitted withholding taxes.
6. The Committee may grant Stock Options to Eligible Participants
who are foreign nationals or who are employed by the Company, a
Subsidiary, or an Associated Company outside of the United States
of America. In order to facilitate the granting of Stock Options,
the Committee may provide for special terms and conditions for
grants to employees who are foreign nationals or who are employed
by the Company, a Subsidiary, or an Associated Company outside of
the United States of America, as the Committee may consider
necessary or appropriate to accommodate differences in local law,
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tax policy or custom in other countries in which the Company, a
Subsidiary, or an Associated Company operates or has employees.
The Committee may also provide for such substitutes for the Stock
Options for employees who are foreign nationals or who are
employed by the Company, a Subsidiary, or an Associated Company
outside of the United States of America as may be deemed
necessary or appropriate by the Committee.
Available Information: Each Malaysian Participant may request copies
of the Company's most recent audited financial statements
available.
7. Notwithstanding any other provision of this Incentive Plan, for
purposes of any Award that is outstanding as of the date that the
Company spins off the Company's chemical businesses into a new
publicly traded company ("Chemicals") and is held by a
Participant who in connection with such spinoff becomes an
employee of Chemicals (or a subsidiary or associated company of
Chemicals) rather than an employee of the Company (or a
Subsidiary or Associated Company of the Company), such change of
employment shall not constitute a Termination of Employment. With
respect to any such Award held by such a Participant, Termination
of Employment shall mean such Participant's termination of
employment with Chemicals other than a Transfer, with Transfer
defined as a change of employment of a Participant within the
group consisting of Chemicals and its subsidiaries, or, if the
Committee so determines, a change of employment of a Participant
within the group consisting of Chemicals, its subsidiaries, and
its associated companies. For purposes of this section, a
subsidiary of Chemicals means any corporation (or partnership,
joint venture, or other enterprise) of which Chemicals owns or
controls, directly or indirectly, 50% or more of the outstanding
shares of stock normally entitled to vote for the election of
directors (or comparable equity participation and voting power)
and an associated company of Chemicals means any corporation (or
partnership, joint venture, or other enterprise), of which
Chemicals owns or controls, directly or indirectly, 10% or more,
but less than 50% of the outstanding shares of stock normally
entitled to vote for the election of directors (or comparable
equity participation and voting power).
IV. AMENDMENTS
1. The Board, upon recommendation of the Committee but not
otherwise, may from time to time amend or modify this Incentive
Plan, including, but not limited to, an amendment which would
authorize the Committee to make Awards payable in other
securities or other forms of property of a kind to be determined
by the Committee, and such other amendments as may be necessary
or desirable to implement such Awards, or discontinue this
Incentive Plan or any provision thereof, provided that no
amendments or modifications to this Incentive Plan shall, without
the prior approval of the stockholders normally entitled to vote
for the election of directors of the Company:
(a) permit the Company to decrease the Option price on any
outstanding Option;
(b) permit any change which would require the approval of
stockholders under Section 16 of the Securities Exchange Act
of 1934 or the rules thereunder or under Section 422 of the
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Internal Revenue Code of 1986, or the rules thereunder (or
any law, rule, regulation or other provision that may
replace such statutes or rules); or
(c) change any of the provisions of this Article IV.
2. No amendment to or discontinuance of this Incentive Plan or any
provision thereof by the Board or the stockholders of the Company
shall, without the written consent of the Participant, adversely
affect any Stock Option or Stock Appreciation Right theretofore
granted or bonus commitment or bonus award theretofore made to
such Participant under this Incentive Plan.
V. INTERPRETATION
1. This Incentive Plan is not intended to and shall not affect any
option or stock appreciation right grant or bonus commitment or
award under the 1984 Plan, the 1986 Plan, the 1988/I Plan, the
1988/II Plan, the 1991 Plan, the 1994 Plan, the 1994
Searle/Monsanto Plan, or the 1994 NutraSweet/Monsanto Plan (or
any other incentive plan of the Company, its Subsidiaries, and
Associated Companies). No stock options or stock appreciation
rights or Awards of Restricted or unrestricted Shares shall be
granted under the 1994 Plan, the 1994 Searle/Monsanto Plan, or
the 1994 NutraSweet/Monsanto Plan after April 14, 1996.
2. This Incentive Plan is not intended to and shall not preclude the
establishment or operation by the Company or any Subsidiary of
(a) any thrift, savings and investment, achievement award, stock
purchase, employee recognition or other benefit plan or
arrangement for any group of employees, or (b) any other
incentive or bonus plan or arrangement for any employees
(hereinafter "Other Plan"), and any such Other Plan may be
authorized and payments made thereunder independently of this
Incentive Plan; provided, however, that no such Other Plan shall
provide for the granting of options or stock appreciation rights
to purchase or receive the appreciation on the shares of any
class of stock of the Company, or the making of bonus commitments
or bonus awards payable in any class of stock of the Company,
which in either form or substance are comparable to those
authorized under this Incentive Plan, unless (i) such Other Plan
is established or operated in connection with the assumption by
the Company or a Subsidiary of the plans, options, stock
appreciation rights, bonus commitments or bonus awards of another
corporation, or the substitution of an Other Plan or options,
stock appreciation rights, bonus commitments or bonus awards
under such Other Plan in lieu of the plans, options, stock
appreciation rights, bonus commitments or bonus awards of such
other corporation, arising out of a merger or consolidation with,
or the acquisition of assets or stock of, such other corporation,
or other transaction described in Section 424(a) of the Internal
Revenue Code of 1986, as may be amended from time to time, as in
effect at the time, or (ii) such Other Plan provides for grants
of options, stock appreciation rights, bonus commitments or bonus
awards to employees substantially all of whom are not
Participants.
MONSANTO MANAGEMENT INCENTIVE PLAN
OF 1988/I
(As Amended Effective October 22, 1999)
[This Plan was originally approved by the Company's Stockholders on April 22,
1988. Amendments were approved by the Board of Directors on March 25, 1988,
September 22, 1989, February 22, 1991, April 25, 1997, July 25, 1997, and
October 22, 1999, and by the Stockholders at the April 26, 1991 Annual Meeting.]
<PAGE>
Monsanto Management Incentive Plan of 1988/I
(As Amended Effective October 22, 1999)
I. General Provisions
1. PURPOSES
The Monsanto Management Incentive Plan of 1988/I is designed to attract
and retain for the Company and its Subsidiaries and Associated Companies
personnel of exceptional ability; to motivate such personnel through
added incentives to make a maximum contribution to greater
profitability; to develop and maintain a highly competent management
team; and to be competitive with other companies in the executive
compensation area. This Incentive Plan is composed of (a) the 1988 Stock
Option Plan and (b) the 1988 Bonus Plan, and shall be effective January
1, 1988 ("Effective Date"), subject to the approval of this Incentive
Plan by the stockholders of the Company.
2. DEFINITIONS
Except where the context otherwise indicates, the following definitions
apply:
"Associated Company" means any corporation (or partnership, joint
venture, or other enterprise), of which the Company owns or
controls, directly or indirectly, 10% or more, but less than 50%
of the outstanding shares of stock normally entitled to vote for
the election of directors (or comparable equity participation and
voting power).
"Board" means Board of Directors of the Company.
"Bonus Plan" or "1988 Bonus Plan" means the bonus plan set forth
in Article III of this Incentive Plan.
"Committee" means the Executive Compensation and Development
Committee or such other committee consisting of three or more
members of the Board as may be appointed by the Board to
administer this Incentive Plan pursuant to Section 3(a)of this
Article I.
"Company" means Monsanto Company, a Delaware corporation.
"Eligible Participant" means any officer or other salaried
employee (including a director who is a salaried employee) of the
Company, a Subsidiary or an Associated Company.
"Incentive Plan" means the Monsanto Management Incentive Plan of
1988/I, set forth herein.
"Fair Market Value" shall mean, with respect to any given day,
the average of the highest and lowest prices of the Shares
reported as the New York Stock Exchange-Composite Transactions
for such day, or if the Shares were not traded on the New York
Stock Exchange on such day, then on the next preceding day on
which the Shares were traded, all as reported by such source as
the Committee may select.
"Incentive Stock Option" or "Incentive Option" means an option
meeting the definition of that term as set forth in Section 3 of
Article II of this Incentive Plan.
"1974 Plan" means the Monsanto Management Incentive Plan of 1974,
as amended.
<PAGE>
"1984 Plan" means the Monsanto Management Incentive Plan of 1984,
as amended.
"1988/II Incentive Plan" means the Monsanto Management Incentive
Plan of 1988/II.
"Non-Qualified Stock Option" or "Non-Qualified Option" means an
option referred to in Section 4 of Article II of this Incentive
Plan.
"Option Plan" or "1988 Stock Option Plan" means the 1988 Stock
Option Plan set forth in Article II of this Incentive Plan.
"Participant" means an Eligible Participant to whom a Stock
Option or a Stock Appreciation Right has been granted, a bonus
commitment made or a bonus awarded pursuant to this Incentive
Plan.
"Performance Year" means the year or years for which a bonus is
awarded or a bonus commitment is made under the 1988 Bonus Plan.
"Restricted Shares" means Shares that were made subject to
restrictions in accordance with Article IV of this Incentive
Plan.
"Shares" means shares of common stock of the Company and any
shares of stock or other securities received as a result of a
Share adjustment as set forth in Section 4 of this Article I.
"Stock Appreciation Right" means a right referred to in Section 5
of Article II of this Incentive Plan.
"Stock Appreciation Right Fair Market Value" or "SAR Fair Market
Value" shall mean a value established by the Committee for the
exercise of a Stock Appreciation Right. If such exercise occurs
during any quarterly "window period" as specified by Rule 16b-3
of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended from time to time, or any law,
rule, regulation or other provision that may hereafter replace
such Rule, the Committee may establish a common value for
exercises during such window period.
"Stock Option" or "Option" shall mean Incentive Stock Options
and/or Non-Qualified Stock Options.
"Subsidiary" means: (i) for the purpose of an Incentive Stock
Option, any corporation (other than the Company) in an unbroken
chain of corporations beginning with the Company if, at the time
of the granting of the Option, each of the corporations other
than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain;
and (ii) for the purposes of a Non-Qualified Stock Option, a
Stock Appreciation Right, and the 1988 Bonus Plan, any
corporation (or partnership, joint venture, or other enterprise)
of which the Company owns or controls, directly or indirectly,
50% or more of the outstanding shares of stock normally entitled
to vote for the election of directors (or comparable equity
participation and voting power).
"Termination of Employment" means the discontinuance of
employment of a Participant for any reason other than a Transfer.
In the event a Participant is an employee of an entity that is a
Subsidiary or Associated Company and the entity ceases to be
either a Subsidiary or Associated Company, the Participant shall
be deemed to incur a Termination of Employment for all purposes
under this Incentive Plan as of the date such entity ceases to be
a Subsidiary or Associated Company.
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"Transfer" means: (i) for the purpose of an Incentive Stock
Option, a change of employment of a Participant within the group
consisting of the Company and its Subsidiaries; and (ii) for the
purpose of a Non-Qualified Stock Option, a Stock Appreciation
Right and the 1988 Bonus Plan, a change of employment of a
Participant within the group consisting of the Company and its
Subsidiaries, or, if the Committee so determines, a change of
employment of a Participant within the group consisting of the
Company, its Subsidiaries and Associated Companies.
3. ADMINISTRATION
(a) This Incentive Plan shall be administered by the Committee. No
person shall be eligible or continue to serve as a member of such
Committee unless such person is a "disinterested person" within
the meaning of Rule l6b-3 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended from time
to time, or any law, rule, regulation or other provision that may
hereafter replace such Rule, and no person shall be eligible for
the grant of a Stock Option or Stock Appreciation Right, the
receipt of a bonus commitment or the award of a bonus (including,
without limitation, Restricted Shares) under this Incentive Plan
while serving as a member of such Committee.
(b) The Committee shall have the exclusive right to interpret this
Incentive Plan, to select the persons who are to receive Stock
Options, Stock Appreciation Rights, bonus commitments and bonus
awards, and to act in all matters pertaining to the granting of
Options, Stock Appreciation Rights, the making of bonus
commitments and the awarding of bonuses under this Incentive Plan
including, without limitation, the determination of the number of
Shares to be subject to and the form, terms, conditions and
duration of each Stock Option and Stock Appreciation Right, and
the amount, form, terms and conditions of each bonus commitment
and bonus award, and the amendment thereof consistent with the
provisions of this Incentive Plan. No Eligible Participant shall
have any right to be considered for or to receive any Stock
Options, Stock Appreciation Rights, bonus commitments or bonus
awards. All acts and decisions of the Committee with respect to
any questions arising in connection with the administration and
interpretation of this Incentive Plan, including the severability
of any and all of the provisions thereof, shall be conclusive,
final and binding upon all Eligible Participants.
(c) The Committee may adopt rules and regulations of general
application for the administration of this Incentive Plan.
(d) Without limiting the foregoing Sections 3(a), (b) and (c) of this
Article I (and notwithstanding any other provisions of this
Incentive Plan), the Committee is authorized to take such action
as it determines to be necessary or advisable, and fair and
equitable to Participants, with respect to Options, Stock
Appreciation Rights, bonus commitments and bonus awards
(including, without limitation, awards of Restricted Shares) in
the event of: a merger of the Company with, consolidation of the
Company into, or the acquisition of the Company by, another
corporation; a sale or transfer of all or substantially all of
the assets of the Company to another corporation or any other
person or entity, a tender or exchange offer for Shares made by
any corporation, person or entity (other than the Company); or
other reorganization in which the Company will not survive as an
independent, publicly owned corporation. Such action may include
(but shall not be limited to) establishing, amending or waiving
the forms, terms, conditions and duration of Stock Options, Stock
Appreciation Rights, bonus commitments and bonus awards
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<PAGE>
(including, without limitation, awards of Restricted Shares) so
as to provide for earlier, later, extended or additional times
for exercise or payments, differing methods for calculating
payments, alternate forms and amounts of payment, accelerated
release of restrictions or other modifications. The Committee may
take such actions pursuant to this Section 3(d) by adopting rules
and regulations of general applicability to all Participants or
to certain categories of Participants, by including, amending or
waiving terms and conditions in Option and Stock Appreciation
Right grants, bonus commitments and bonus awards (including,
without limitation, agreements with respect to Restricted
Shares), or by taking action with respect to individual
Participants. The Committee may take such actions as part of the
grants, commitments or awards, or before or after the public
announcement of any such merger, consolidation, acquisition, sale
or transfer of assets, tender or exchange offer or other
reorganization.
4. SHARE ADJUSTMENTS
In the event that at any time or from time to time a stock dividend,
stock split, recapitalization, merger, consolidation, or other change in
capitalization, or a sale by the Company of all or part of its assets,
or any distribution to stockholders other than a cash dividend results
in (a) the outstanding Shares, or any securities exchanged therefor or
received in their place, being exchanged for a different number or class
of shares of stock or other securities of the Company, or for shares of
stock or other securities of any other corporation; or (b) new,
different or additional shares or other securities of the Company or of
any other corporation being received by the holders of outstanding
Shares, then:
(i) the limitation of 4,400,000 Shares set forth in Section
l(a) of Article II and Section 2(b) of Article III of this
Incentive Plan;
(ii) the number and class of Shares (A) that may be subject to
Stock Options or Stock Appreciation Rights, (B) which have
not been issued or transferred under outstanding Stock
Options or Stock Appreciation Rights, and (C) which are
subject to a bonus commitment or have been awarded but are
undelivered under the 1988 Bonus Plan; and
(iii) the purchase price to be paid per Share under outstanding
Stock Options and the number of Shares to be transferred
in settlement of outstanding Stock Appreciation Rights;
shall in each case be equitably adjusted; provided, however, that all
adjustments made as the result of the foregoing in respect of each Stock
Option which is granted as an Incentive Stock Option shall be made so
that such Stock Option shall continue to be an Incentive Stock Option as
defined in Section 422A of the Internal Revenue Code of l986, as may be
amended from time to time, or any provisions that may hereafter be
enacted in lieu thereof.
II. 1988 Stock Option Plan
1. OPTION SHARES
(a) (i) The total number of Shares for which Options may be
granted under this Option Plan shall not exceed 4,400,000
Shares, subject to: (A) the adjustments provided for in
Section 4 of Article I of this Incentive Plan; (B) the
provisions of Section l(b) of this Article II; and (C)
reduction by the number of Shares committed or awarded
pursuant to Article III of this Incentive Plan. Such
Shares may be authorized but unissued, or treasury Shares,
or both.
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(ii) The total number of Shares for which Options may be
granted under this Incentive Plan to any one Eligible
Participant shall not exceed in any one calendar year 15%
of the total number of Shares for which Options may be
granted under this Incentive Plan, subject to the
adjustments provided for in Section 4 of Article I of this
Incentive Plan.
(b) In the event that any unexercised Stock Option granted hereunder
lapses or ceases to be exercisable for any reason other than a
surrender of the Option pursuant to Section l(c) of this Article
II or the exercise of a Stock Appreciation Right under Section 5
of this Article II, the Shares subject to such Option shall again
be available for Option grants under this Option Plan without
again being charged against the limitation of 4,400,000 Shares
set forth in Section 1(a) of this Article II. Any amendment of
any Option or Stock Appreciation Right by the Committee pursuant
to Article I, Section 3 of this Incentive Plan shall not be
considered the grant of a new Option for the purpose of Section
1(a) of this Article II.
(c) In the event of death or total and permanent disability as
determined by the Committee, the Committee may, with the consent
of the Participant or his legal representative, authorize
payment, in cash or in Shares, or partly in cash and partly in
Shares, as the Committee may direct, of an amount equal to the
difference at the time between the Fair Market Value of the
Shares subject to an Option and the Option price in consideration
of the surrender of the Option. In such an event the Shares
subject to the Option so surrendered shall be charged against the
limitations set forth in Section 1(a) of this Article II.
2. INCIDENTS OF OPTIONS AND STOCK APPRECIATION RIGHTS
(a) Each Stock Option and Stock Appreciation Right shall be granted
subject to such terms and conditions, if any, not inconsistent
with this Incentive Plan, as shall be determined by the
Committee, including any provisions as to continued employment as
consideration for the grant or exercise of such Option or Stock
Appreciation Right and any provisions which may be advisable to
comply with applicable laws, regulations or rulings of any
governmental authority.
(b) A Stock Option or Stock Appreciation Right shall not be
transferable by the Participant otherwise than by will, by the
laws of descent and distribution or pursuant to a written
beneficiary designation, and shall be exercisable during the
lifetime of the Participant only by him or by his guardian or
legal representative.
(c) Shares purchased upon exercise of a Stock Option shall be paid
for in such amounts, at such times and upon such terms as shall
be determined by the Committee and specified in the grant of the
Option. Without limiting the foregoing, the Committee may
establish payment terms for the exercise of Stock Options which
permit the Participant to deliver Shares (or other evidence of
ownership of Shares satisfactory to the Company), including, at
the Committee's option, Restricted Shares, with a Fair Market
Value equal to the Option price as payment.
(d) No cash dividends shall be paid on Shares subject to unexercised
Stock Options. The Committee may provide, however, that a
Participant to whom an Option has been granted which is
exercisable in whole or in part at a future time for Shares
(including Restricted Shares) shall be entitled to receive an
amount per Share equal in value to the cash dividends, if any,
paid per Share on issued and outstanding Shares, as of the
dividend record dates occurring during the period between the
date of the grant and the time each such Share is delivered
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<PAGE>
pursuant to exercise of such Stock Option or the related Stock
Appreciation Right. Such amounts (herein called "dividend
equivalents") may, in the discretion of the Committee, be:
(i) paid in cash or Shares either from time to time
prior to, or at the time of the delivery of, such
Shares, or upon expiration of the Option if it
shall not have been fully exercised; or
(ii) converted into contingently credited Shares (with
respect to which dividend equivalents may accrue)
in such manner, at such value, and deliverable at
such time or times, as may be determined by the
Committee.
Such Shares (whether delivered or contingently credited) shall be
charged against the limitations set forth in Section l(a) of this
Article II.
(e) The Committee, in its discretion, may authorize payment of
interest equivalents on dividend equivalents which are payable in
cash at a future time.
3. INCENTIVE OPTIONS
An Incentive Option shall be an "Incentive Stock Option" as that term is
defined in Section 422A of the Internal Revenue Code of 1986, as may be
amended from time to time, as in effect at the time of the grant of any
such Option, or any statutory provision that may be enacted to replace
such Section. Each provision of this Option Plan and of each Incentive
Stock Option granted hereunder shall be construed so that each such
Option shall be an Incentive Stock Option, and any provision thereof
that cannot be so construed shall be disregarded. Incentive Stock
Options shall be granted only to purchase unrestricted Shares and only
to Eligible Participants, each of whom may be granted one or more such
Options at such time or times determined by the Committee following the
Effective Date until December 31, 1997, subject to the following
conditions:
(a) The Option price per Share shall be set by the grant but shall
not be less than 100% of the Fair Market Value at the time of the
grant.
(b) The Option and its related Stock Appreciation Right, if any, may
be exercised in full or in part from time to time within ten (10)
years from the date of the grant, or such shorter period as may
be specified by the Committee in the grant, provided that in any
event each shall lapse and cease to be exercisable upon, or
within such period following, Termination of Employment as shall
have been determined by the Committee and as specified in the
Option or Stock Appreciation Right; provided, however, that such
period following Termination of Employment shall not exceed three
months unless employment shall have terminated:
(i) as a result of retirement pursuant to, and as
defined in, the applicable pension plan of the
Company, its Subsidiary or Associated Company or
total and permanent disability as determined by
the Committee, in which event such period shall
not exceed
(A) in the case of an Option, the original term
of the Option; and
(B) in the case of a Stock Appreciation Right,
one year after such retirement or
disability or after resignation as an
officer or director of the Company,
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<PAGE>
whichever shall last occur (unless earlier
terminated pursuant to Section 5(b) of this
Article II);
or
(ii) as a result of death or death shall have occurred
following Termination of Employment and while the
Option or Stock Appreciation Right was still
exercisable; and
provided, further, that such period following Termination of
Employment shall in no event extend the original exercise period
of the Option or related Stock Appreciation Right, if any.
(c) The aggregate Fair Market Value (determined at the time the
Option is granted) of the Shares with respect to which Incentive
Stock Options are first exercisable during any calendar year by
any Eligible Participant shall not exceed $100,000.
(d) Incentive Stock Options shall be granted only to an Eligible
Participant who, at the time the Option is granted, does not own
stock possessing more than 10% of the total combined voting power
of all classes of stock of the Company.
(e) Any other terms and conditions which the Committee determines,
upon advice of counsel, should be imposed for the Option to
qualify as an Incentive Stock Option and any other terms and
conditions not inconsistent with this Option Plan as determined
by the Committee.
4. NON-QUALIFIED OPTIONS
One or more Options may be granted as Non-Qualified Options to purchase
unrestricted Shares or Restricted Shares to an Eligible Participant at
such time or times determined by the Committee, following the Effective
Date, subject to the following terms and conditions:
(a) The Option price per Share shall be established by the grant but
shall not be less than 100% of the Fair Market Value at the time
of the grant (or such later date as the Committee shall
determine).
(b) The Option and its related Stock Appreciation Right, if any, may
be exercised in full or in part from time to time within ten (10)
years and thirty (30) days from the date of the grant, or such
shorter period as may be specified by the Committee in the grant,
provided that in any event each shall lapse and cease to be
exercisable upon, or within such period following, Termination of
Employment as shall have been determined by the Committee and as
specified in the Option or Stock Appreciation Right; provided,
however, that such period following Termination of Employment
shall not exceed three months unless employment shall have
terminated:
(i) as a result of retirement pursuant to, and as
defined in, the applicable pension plan of the
Company, its Subsidiary or Associated Company or
total and permanent disability as determined by
the Committee, in which event such period shall
not exceed
(A) in the case of an Option, the original term
of the Option; and
(B) in the case of a Stock Appreciation Right,
one year after such retirement or
disability or after resignation as an
officer or director of the Company,
whichever shall last occur (unless earlier
terminated pursuant to Section 5(b) of
this Article II);
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<PAGE>
or
(ii) as a result of death or death shall have occurred
following Termination of Employment and while the
Option or Stock Appreciation Right was still
exercisable; and
provided, further, that such period following Termination of
Employment shall in no event extend the original exercise period
of the Option or related Stock Appreciation Right, if any.
(c) The Option grant may include any other terms and conditions not
inconsistent with this Option Plan as determined by the
Committee, including provisions making the Shares subject to such
Option Restricted Shares.
5. STOCK APPRECIATION RIGHTS
A Stock Appreciation Right may be granted to an Eligible Participant in
connection with (and only in connection with) an Incentive Stock Option
or a Non-Qualified Option granted under this Option Plan, the 1988/II
Incentive Plan, the 1984 Plan or the 1974 Plan, subject to the following
terms and conditions:
(a) Such Stock Appreciation Right shall entitle a holder of an Option
within the period specified for the exercise of the Option in the
related Option grant to surrender the unexercised Option (or a
portion thereof) and to receive in exchange therefor a payment in
cash or Shares having an aggregate value equal to the product of
(i) the amount by which (A) the SAR Fair Market Value of each
Share exceeds (B) the Option price per Share, times (ii) the
number of Shares under the Option, or portion thereof, which is
surrendered.
(b) Each Stock Appreciation Right granted hereunder shall be subject
to the same terms and conditions as the related Option. It shall
be exercisable only to the extent such Option is exercisable and
shall terminate or lapse and cease to be exercisable when the
related Option terminates or lapses. The Committee may grant
Stock Appreciation Rights concurrently with grants of Options or
in connection with previously granted Options under this Option
Plan, the 1988/II Incentive Plan, the 1984 Plan or the 1974 Plan
which are unexercised and have not terminated or lapsed. With
respect to Stock Appreciation Rights granted in connection with
such previously granted Options, the Committee shall provide that
such Stock Appreciation Rights shall not be exercisable until the
holder completes six (6) months (or such longer period as the
Committee shall determine) of service with the Company, a
Subsidiary, or an Associated Company immediately following the
date of the grant of such Stock Appreciation Rights.
(c) The Committee shall have sole discretion to determine in each
case whether the payment will be in the form of all cash, all
Shares (which may, at the Committee's discretion, be Restricted
Shares), or any combination thereof. If payment is to be made in
Shares, the number of Shares shall be determined as follows: the
amount payable in Shares shall be divided by the SAR Fair Market
Value of Shares. The payments to be made, in whole or in part, in
cash upon the exercise of Stock Appreciation Rights by any
officer of the Company shall be made in accordance with the
provisions relating to the exercise of stock appreciation rights
of Rule l6b-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as in effect at the time of such
exercise, or any law, rule, regulation or other provision that
may hereafter replace such Rule.
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(d) Upon exercise of a Stock Appreciation Right, the number of Shares
subject to exercise under the related Option shall automatically
be reduced by the number of Shares represented by the Option or
portion thereof which is surrendered. To the extent that a Stock
Appreciation Right shall be exercised, any Shares transferred
upon such exercise shall not be charged against the maximum
limitations upon the grant of Options set forth in the Incentive
Plan under which such Option shall have been granted but the
Option in connection with which a Stock Appreciation Right shall
have been granted shall be deemed to have been exercised for the
purpose of such maximum limitations.
(e) The Committee shall have sole discretion as to the timing of any
payment made in cash, Shares, or a combination thereof upon
exercise of Stock Appreciation Rights hereunder, whether in a
lump sum, in annual installments or otherwise deferred and the
Committee shall have sole discretion to determine whether such
payments may bear amounts equivalent to interest or cash
dividends.
(f) For purposes of this paragraph 5(f) of Article II:
(i) "Unrelated Party" means any party or group of
parties acting together other than (A) the
Company, its directors and officers, or (B) any
nominee holder for any stock exchange;
(ii) "Offer" means any tender or exchange offer made by
an Unrelated Party for the Shares and shall be
deemed to occur upon the first purchase or
exchange of such Shares;
(iii) "Change of Control" means any acquisition,
beneficially or otherwise, by any Unrelated Party
of 25% or more of the combined voting power of the
common and preferred stock of the Company and
shall be deemed to occur upon the date that the
Unrelated Party attains control of said 25% or
more of the combined voting power;
(iv) "Change of Control Market Value" of the Shares
means the higher of--
(A) the value for which such Shares may be
exchanged or offered under any Offer
pursuant to which Shares are actually
exchanged or purchased; or
(B) the Fair Market Value of such Shares on
the date of exercise of a Stock
Appreciation Right.
Notwithstanding the foregoing provisions of this Section 5 of
Article II and without limiting the provisions of Section 3 of
Article I of this Incentive Plan, in the event of an Offer or
Change of Control, a Participant holding an unexercised Stock
Appreciation Right may exercise such Stock Appreciation Right and
elect to be paid solely in cash in an amount equal to the
difference between the Option price and the Change of Control
Market Value of the Shares, unless within five (5) business days
after receipt of notification of such election by the Secretary
of the Company, the Committee acts to disapprove the cash
election. Unless it acts to disapprove, the Committee's consent
shall be deemed to be given at the close of business on the fifth
business day after the Secretary's receipt of notification of
such election and payment shall be made as soon as practicable
after expiration of such five (5) business day period. The
election provided herein shall apply only: (x) during the thirty
(30) day period following the first exchange or purchase of
Shares pursuant to an Offer; or (y) during the thirty (30) day
period following the date on which sufficient Shares are acquired
to constitute a Change of Control.
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(g) For purposes of this paragraph 5(g) of Article II:
(i) "Unrelated Party" means any party or group of parties
acting together other than (A) the Company, its
directors and officers, or (B) any nominee holder for
any stock exchange;
(ii) "Alternate Change of Control" means any acquisition,
beneficially or otherwise, by any Unrelated Party of
a percentage of the combined voting power of the
common and preferred stock of the Company specified
by the Committee (but not less than 10%) and shall be
deemed to occur upon the date that the Unrelated
Party attains control of said percentage of the
combined voting power;
(iii) "Change of Control Termination of Employment" means
the termination of employment of a Participant by the
Company, the Subsidiaries or the Associated Companies
without cause (as defined by the Committee) or by the
Participant for good reason (as defined by the
Committee) within a period of time specified by the
Committee following an Alternate Change of Control;
(iv) "Alternate Change of Control Market Value" of the
Shares means the Fair Market Value of such Shares on
the date of exercise of a Stock Appreciation Right.
Notwithstanding the foregoing provisions of this Section 5 of Article
II and without limiting the provisions of Section 3 of Article I of
this Incentive Plan, in the event of an Alternate Change of Control and
a Change of Control Termination of Employment, a Participant holding an
unexercised Stock Appreciation Right who is selected by the Committee
may exercise such Stock Appreciation Right and elect to be paid solely
in cash in an amount equal to the difference between the Option price
and the Alternate Change of Control Market Value of the Shares, unless
within five (5) business days after receipt of notification of such
election by the Secretary of the Company, the Committee acts to
disapprove the cash election. Unless it acts to disapprove, the
Committee's consent shall be deemed to be given at the close of
business on the fifth business day after the Secretary's receipt of
notification of such election and payment shall be made as soon as
practicable after expiration of such five (5) business day period. The
election provided herein shall apply only during the thirty (30) day
period following a Change of Control Termination of Employment.
III. 1988 Bonus Plan
1. BONUS COMMITMENTS AND AWARDS
(a) Bonus Commitments
A commitment to award a bonus at a future date for all or part of
any Performance Year may be made at such time or times determined
by the Committee following the Effective Date to any person who
is an Eligible Participant at the time of such commitment. The
Committee shall have full discretion to determine the terms and
conditions of the commitment including, without limitation,
whether the corresponding bonus award shall be contingent upon
the attainment of prescribed goals and provisions with respect to
the rights of the Participant upon Termination of Employment.
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(b) Bonus Awards
A bonus may be awarded at such time or times determined by the
Committee following the Effective Date to any person who was an
Eligible Participant during all or part of any Performance Year,
payable either wholly in cash or wholly in Shares, or partially
in cash and partially in Shares. The Committee shall have full
discretion to determine the terms and conditions of payment of
any award, including without limitation, what part of such award
shall be paid in cash, unrestricted Shares and Restricted Shares,
the time or times of payment of any award, and the time or times
of the lapse of the restrictions on Restricted Shares. Any
Eligible Participant may receive more than one bonus award for a
Performance Year and any bonus award may be made pursuant to or
without a prior commitment to make such award.
2. BONUS SHARES--SOURCE, LIMIT AND VALUATION
(a) Shares used for bonus purposes may be authorized but unissued
Shares, treasury Shares, or any combination thereof. Any Shares
held by the Company for use under this Bonus Plan shall, unless
and until transferred in payment of an award in accordance with
this Bonus Plan, remain the property of the Company, irrespective
of whether such Shares are entered in a special bonus account,
and such Shares shall at all times be available, unless and until
so transferred, for any corporate purpose.
(b) The total number of Shares which may be awarded pursuant to bonus
awards under this Bonus Plan shall not exceed 4,400,000 shares,
subject to:
(i) the adjustments provided for in Section 4 of
Article I of this Incentive Plan; and
(ii) reduction by the number of Shares for which Stock
Options have been granted pursuant to Article II
of this Incentive Plan (except as provided in
Section l(b) of said Article II).
(c) For the purpose of determining the number of Shares to be used in
payment of an award, the amount of the award payable in Shares
shall be divided by the Fair Market Value of the Shares on the
date of the determination of the amount of the award by the
Committee.
3. AWARDS
(a) Subject to the provisions of Section 3(f) of this Article III,
bonus commitments and bonus awards may be made by the Committee
in such amount and at such time or times as may be determined
solely by the Committee. An Eligible Participant shall have no
right to be considered for or to receive any bonus commitment or
bonus award. The Committee may, in its discretion, allow any
Participant who receives a bonus award or bonus commitment under
this Incentive Plan to elect to defer payment of such award, or
of any award to be made pursuant to such bonus commitment, in
accordance with such terms and conditions and in such manner as
the Committee may prescribe. Any amendment of any bonus
commitment and bonus award by the Committee pursuant to Article
I, Section 3 of this Incentive Plan shall not be considered the
grant of a new bonus commitment or bonus award for purposes of
Section 2(b) of this Article III.
(b) Commitments to make payment on account of bonuses for a
Performance Year may be made by the Committee in advance of the
close of such Performance Year upon such terms and conditions as
the Committee may determine.
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<PAGE>
(c) The portion of a bonus award payable in cash or unrestricted
Shares or both may, in the discretion of the Committee, be paid
or delivered in whole or in part at such time or times and under
such terms and conditions as may be determined by the Committee
including, but not limited to, the following times:
(i) in full at the time of the award; or
(ii) in any number of annual installments, equal or unequal,
during employment or following Termination of Employment;
or
(iii) in full after a period of time.
(d) In the event that any bonus commitment or bonus award or
installment thereof which is to be paid in Shares ceases to be
payable for any reason, the Shares subject to such bonus
commitment or bonus award shall again be available for bonus
purposes without again being charged against the limitation of
4,400,000 Shares set forth in Section 2(b) of this Article III.
(e) The portion of an award payable in Restricted Shares shall be
paid at the time of the award by delivering to the Participant,
or a custodian or escrow designated by the Committee and the
Participant, a certificate or certificates for such Restricted
Shares, registered in the name of such Participant who shall have
all of the rights of a stockholder with respect to such Shares,
subject to such terms and conditions, including forfeitures or
resale to the Company, if any, as may be determined by the
Committee and to the restrictions and provisions pursuant to
Article IV of this Incentive Plan. The Committee and the
Participant may designate the Company or one or more of its
employees to act as custodian or escrow for the certificates.
(f) Anything in this Incentive Plan to the contrary notwithstanding,
no bonus awards shall be made for any Performance Year during
which no dividend on the outstanding Shares has been paid; bonus
awards covering more than one Performance Year and made pursuant
to a bonus commitment shall be reduced by the ratio of the number
of such Performance Years during which no dividends were paid to
the number of Performance Years covered by the bonus awards.
4. DIVIDENDS, DIVIDEND EQUIVALENTS AND INTEREST EQUIVALENTS
(a) No cash dividends shall be paid on Shares which have been awarded
but not delivered. The Committee may provide, however, that a
Participant to whom a bonus has been awarded which is payable in
whole or in part at a future time in Shares shall be entitled to
receive an amount per Share, equal in value to the cash
dividends, if any, paid per Share on issued and outstanding
Shares, as of the dividend record dates occurring during the
period between the date of the award and the time each such Share
is delivered. Such amounts (herein called "dividend equivalents")
may, in the discretion of the Committee, be:
(i) paid in cash or Shares either from time to time
prior to or at the time of the delivery of such
Shares; or
(ii) converted into contingently credited Shares (with
respect to which dividend equivalents shall
accrue) in such manner, at such value, and
deliverable at such time or times, as may be
determined by the Committee.
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Such Shares (whether delivered or contingently credited) shall be
charged against the limitations set forth in Section 2(b) of this
Article III.
(b) The Committee, in its discretion, may authorize payment of
interest equivalents on any portion of any award payable at a
future time in cash, and interest equivalents on dividend
equivalents which are payable in cash at a future time.
5. DEATH OF PARTICIPANT
Following the death of a Participant, all unpaid cash awards and all
undelivered unrestricted Share awards to such Participant hereunder,
together with all dividend equivalents and interest equivalents, if any,
payable in connection with any such award or awards, which have not been
cancelled and which are not then cancellable shall be paid and delivered
to his legal representative at the time or times provided for in the
award unless the Committee shall otherwise direct. The Committee may, in
its discretion, permit a Participant to designate a beneficiary or
beneficiaries to receive such award or awards. Restricted Shares held by
such Participant at the time of his death shall be governed by the
provisions of Article IV of this Incentive Plan.
IV. Restricted Shares
Restricted Shares shall be subject to such terms and conditions,
including forfeiture, if any, and to such restrictions against sale,
transfer or other disposition as may be determined by the Committee at
the time a Non-Qualified Option for the purchase of Restricted Shares is
granted, at the time a Stock Appreciation Right to be settled with
Restricted Shares is granted or at the time of making a bonus award of
Restricted Shares. Any new or additional or different Shares or other
securities resulting from any adjustment of such Shares of the type
described in Section 4 of Article I shall be subject to the same terms,
conditions, and restrictions as the Restricted Shares prior to such
adjustment. The Committee may, in its discretion, remove, modify or
accelerate the release of restrictions on any Restricted Shares in the
event of hardship or disability of the Participant while employed, in
the event that the Participant ceases to be an employee of the Company,
a Subsidiary or Associated Company, as the result of death or otherwise,
in the event of a relocation of a Participant to another country or for
such other reasons as the Committee may deem appropriate. In the event
of the death of a Participant following the transfer of Restricted
Shares to him, the legal representative of the Participant, the
beneficiary designated in writing by the Participant during his
lifetime, or the person receiving such Shares under his will or under
the laws of descent and distribution shall take such Shares subject to
the same restrictions, conditions and provisions in effect at the time
of his death, to the extent applicable.
V. Miscellaneous Provisions
1. Neither a Stock Option, Stock Appreciation Right, bonus
commitment nor an unpaid bonus award or any installment thereof,
shall be transferable except as provided for herein in the case
of death. If any Participant makes such a transfer in violation
hereof, any obligation of the Company shall forthwith terminate.
2. Nothing in this Incentive Plan or any booklet or other document
describing or referring to this Incentive Plan shall be deemed to
confer on any employee or Participant the right to continue in
the employ of his employer or affect the right of his employer to
terminate the employment of any such person with or without
cause. 13
<PAGE>
3. Nothing contained herein shall require the Company to segregate
any monies from its general funds, or to create any trusts, or to
make any special deposits for any immediate or deferred amounts
payable to any Participant.
4. This Incentive Plan and all actions taken hereunder shall be
governed by the laws of the State of Delaware.
5. The Company may make such provisions and take such steps as it
may deem necessary or appropriate for the withholding of any
taxes which the Company is required by any law or regulation of
any governmental authority, whether federal, state or local,
domestic or foreign, to withhold in connection with any Stock
Option or the exercise thereof, any Stock Appreciation Right or
the exercise thereof, or the payment of any bonus award,
including, but not limited to, the withholding of payment of all
or any portion of such award or another award under this
Incentive Plan until the Participant reimburses the Company for
the amount the Company is required to withhold with respect to
such taxes, or cancelling any portion of such award or another
award under this Incentive Plan in an amount sufficient to
reimburse itself for the amount it is required to so withhold, or
selling any property contingently credited by the Company for the
purpose of paying such award or another award under this
Incentive Plan, in order to withhold or reimburse itself for the
amount it is required to so withhold.
6. Notwithstanding any other provision of this Incentive Plan, for
purposes of any Award that is outstanding as of the date that the
Company spins off the Company's chemical businesses into a new
publicly traded company ("Chemicals") and is held by a
Participant who in connection with such spinoff becomes an
employee of Chemicals (or a subsidiary or associated company of
Chemicals) rather than an employee of the Company (or a
Subsidiary or Associated Company of the Company), such change of
employment shall not constitute a Termination of Employment. With
respect to any such award held by such a Participant, Termination
of Employment shall mean such Participant's termination of
employment with Chemicals other than a Transfer, with Transfer
defined as a change of employment of a Participant within the
group consisting of Chemicals and its subsidiaries, or, if the
Committee so determines, a change of employment of a Participant
within the group consisting of Chemicals, its subsidiaries, and
its associated companies. For purposes of this section, a
subsidiary of Chemicals means any corporation (or partnership,
joint venture, or other enterprise) of which Chemicals owns or
controls, directly or indirectly, 50% or more of the outstanding
shares of stock normally entitled to vote for the election of
directors (or comparable equity participation and voting power)
and an associated company of Chemicals means any corporation (or
partnership, joint venture, or other enterprise), of which
Chemicals owns or controls, directly or indirectly, 10% or more,
but less than 50% of the outstanding shares of stock normally
entitled to vote for the election of directors (or comparable
equity participation and voting power).
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VI. Amendments
1. The Board, upon recommendation of the Committee but not
otherwise, may from time to time amend or modify this Incentive
Plan, including, but not limited to, an amendment which would
authorize the Committee to make bonus commitments and bonus
awards payable in other securities or other forms of property of
a kind to be determined by the Committee, in addition to cash,
unrestricted Shares and Restricted Shares, and such other
amendments as may be necessary or desirable to implement such
commitments and awards, or discontinue this Incentive Plan or any
provision thereof, provided that no amendments or modifications
to this Incentive Plan shall, without the prior approval of the
stockholders normally entitled to vote for the election of
directors of the Company:
(a) change the number of Shares for which Stock Options may be
granted, or the percentage thereof which may be made
subject to Options to any one Eligible Participant, as set
forth in Section 1(a) of Article II of this Incentive
Plan;
(b) change the total number of Shares which may be awarded
pursuant to bonus awards as provided for in Section 2(b)
of Article III of this Incentive Plan;
(c) make any member of the Committee eligible for the grant of
a Stock Option, Stock Appreciation Right or a bonus
commitment or a bonus award;
(d) limit or restrict the powers of the Committee with respect
to the administration of this Incentive Plan;
(e) change the definition of an Eligible Participant for the
purpose of an Incentive Stock Option or increase the limit
or the value of Shares for which an Eligible Participant
may be granted an Incentive Stock Option;
(f) materially increase the benefits accruing to Participants
under this Incentive Plan;
(g) materially modify the requirements as to eligibility for
participation in this Incentive Plan; or
(h) change any of the provisions of this Article VI.
2. No amendment to or discontinuance of this Incentive Plan or any
provision thereof by the Board or the stockholders of the Company
shall, without the written consent of the Participant, adversely
affect any Stock Option or Stock Appreciation Right theretofore
granted or bonus commitment or bonus award theretofore made to
such Participant under this Incentive Plan.
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VII. Interpretation
1. Except as authorized herein with respect to Stock Appreciation
Rights, this Incentive Plan is not intended to and shall not
affect any option or stock appreciation right grant or bonus
commitment or award under the 1974 Plan, the 1984 Plan or the
1988/II Incentive Plan (or any other incentive plan of the
Company, its Subsidiaries and Associated Companies). No stock
options or stock appreciation rights shall be granted under the
1984 Plan after September 15, 1988. No bonus commitments or bonus
awards shall be made under the 1984 Plan after the Effective Date
and no bonus commitments or bonus awards shall be made under this
Incentive Plan with respect to Performance Years prior to January
1, 1988, except that bonus awards may be made under the 1984 Plan
(a) with respect to Performance Years ending prior to January 1,
1988 or (b) pursuant to bonus commitments made on or prior to
December 31, 1987.
2. This Incentive Plan is not intended to and shall not preclude the
establishment or operation by the Company or any Subsidiary of
(a) any thrift, savings and investment, achievement award, stock
purchase, employee recognition or other benefit plan or
arrangement for any group of employees, or (b) any other
incentive or bonus plan or arrangement for any employees
(hereinafter "Other Plan"), and any such Other Plan may be
authorized and payments made thereunder independently of this
Incentive Plan; provided, however, that (i) no director of the
Company and no officer of the Company elected by the Board (other
than assistant officers) shall participate in any Other Plan,
other than the 1984 Plan, and (ii) no such Other Plan, other than
the 1984 Plan, a stock option plan for G. D. Searle & Co. and the
1988/II Incentive Plan, shall provide for the granting of options
or stock appreciation rights to purchase or receive the
appreciation on the shares of any class of stock of the Company,
or the making of bonus commitments or bonus awards payable in any
class of stock of the Company, which in either form or substance
are comparable to those authorized under this Incentive Plan,
unless such Other Plan is established or operated in connection
with the assumption by the Company or a Subsidiary of the plans,
options, stock appreciation rights, bonus commitments or bonus
awards of another corporation, or the substitution of an Other
Plan or options, stock appreciation rights, bonus commitments or
bonus awards under such Other Plan in lieu of the plans, options,
stock appreciation rights, bonus commitments or bonus awards of
such other corporation, arising out of a merger or consolidation
with, or the acquisition of assets or stock of, such other
corporation, or other transaction described in Section 425(a) of
the Internal Revenue Code of 1986, as may be amended from time to
time, as in effect at the time.
MONSANTO MANAGEMENT INCENTIVE PLAN
OF 1988/II
(As Amended Effective October 22, 1999)
[This Plan was originally approved by the Company's Stockholders on April 22,
1988. Amendments were approved by the Board of Directors on September 22, 1989,
February 22, 1991, April 25, 1997, July 25, 1997 and October 22, 1999 and by the
Stockholders at the April 26, 1991 Annual Meeting.]
<PAGE>
Monsanto Management Incentive Plan of 1988/II
(As Amended Effective October 22, 1999)
I. General Provisions
1. PURPOSES
The Monsanto Management Incentive Plan of 1988/II is designed to
attract and retain for the Company and its Subsidiaries and Associated
Companies personnel of exceptional ability; to motivate such personnel
through added incentives to make a maximum contribution to Company
objectives; and to be competitive with other companies. This Incentive
Plan is composed of (a) the 1988 Stock Option Plan and (b) the 1988
Bonus Plan, and shall be effective January 1, 1988 ("Effective Date"),
subject to the approval of this Incentive Plan by the stockholders of
the Company.
2. DEFINITIONS
Except where the context otherwise indicates, the following definitions
apply:
"Associated Company" means any corporation (or partnership, joint
venture, or other enterprise), of which the Company owns or
controls, directly or indirectly, 10% or more, but less than 50%
of the outstanding shares of stock normally entitled to vote for
the election of directors (or comparable equity participation and
voting power).
"Board" means Board of Directors of the Company.
"Bonus Plan" or "1988 Bonus Plan" means the bonus plan set forth
in Article III of this Incentive Plan.
"Committee" means the ECDC and, to the extent delegated by the
ECDC, one or more Unit Compensation Committees.
"Company" means Monsanto Company, a Delaware corporation.
"ECDC" means the Executive Compensation and Development Committee
or such other committee consisting of three or more members of
the Board as may be appointed by the Board to administer this
Incentive Plan pursuant to Section 3(a) of this Article I.
<PAGE>
"Eligible Participant" means any employee of the Company, a
Subsidiary or an Associated Company.
"Fair Market Value" shall mean, with respect to any given day,
the average of the highest and lowest prices of the Shares
reported as the New York Stock ExchangeComposite Transactions for
such day, or if the Shares were not traded on the New York Stock
Exchange on such day, then on the next preceding day on which the
Shares were traded, all as reported by such source as the
Committee may select.
"Incentive Plan" means the Monsanto Management Incentive Plan of
1988/II, set forth herein.
"Incentive Stock Option" or "Incentive Option" means an option
meeting the definition of that term as set forth in Section 3 of
Article II of this Incentive Plan.
"1984 Plan" means the Monsanto Management Incentive Plan of 1984,
as amended.
"1988/I Incentive Plan" means the Monsanto Management Incentive
Plan of 1988/I.
"Non-Qualified Stock Option" or "Non-Qualified Option" means an
option referred to in Section 4 of Article II of this Incentive
Plan.
"Option Plan" or "1988 Stock Option Plan" means the 1988 Stock
Option Plan set forth in Article II of this Incentive Plan.
"Participant" means an Eligible Participant to whom a Stock
Option has been granted, a bonus commitment made or a bonus
awarded pursuant to this Incentive Plan.
"Performance Year" means the year or years for which a bonus is
awarded or a bonus commitment is made under the 1988 Bonus Plan.
"Restricted Shares" means Shares that were made subject to
restrictions in accordance with Article IV of this Incentive
Plan.
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"Shares" means shares of common stock of the Company and any
shares of stock or other securities received as a result of a
Share adjustment as set forth in Section 4 of this Article I.
"Stock Option" or "Option" shall mean Incentive Stock Options
and/or Non-Qualified Stock Options.
"Subsidiary" means: (i) for the purpose of an Incentive Stock
Option, any corporation (other than the Company) in an unbroken
chain of corporations beginning with the Company if, at the time
of the granting of the Option, each of the corporations other
than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain;
and (ii) for the purposes of a Non-Qualified Stock Option and the
1988 Bonus Plan, any corporation (or partnership, joint venture,
or other enterprise) of which the Company owns or controls,
directly or indirectly, 50% or more of the outstanding shares of
stock normally entitled to vote for the election of directors (or
comparable equity participation and voting power).
"Termination of Employment" means the discontinuance of
employment of a Participant for any reason other than a Transfer.
In the event a Participant is an employee of an entity that is a
Subsidiary or Associated Company and the entity ceases to be
either a Subsidiary or Associated Company, the Participant shall
be deemed to incur a Termination of Employment for all purposes
under this Incentive Plan as of the date such entity ceases to be
a Subsidiary or Associated Company.
"Transfer" means: (i) for the purpose of an Incentive Stock
Option, a change of employment of a Participant within the group
consisting of the Company and its Subsidiaries; and (ii) for the
purpose of a NonQualified Stock Option and the 1988 Bonus Plan, a
change of employment of a Participant within the group consisting
of the Company and its Subsidiaries, or, if the Committee so
determines, a change of employment of a Participant within the
group consisting of the Company, its Subsidiaries and Associated
Companies.
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<PAGE>
"Unit Compensation Committee" means one or more committees
appointed by the ECDC composed of management employees of the
Company or a Subsidiary to whom the ECDC may delegate its powers
(or a portion thereof) to administer this Incentive Plan pursuant
to Section 3(a) of this Article I.
3. ADMINISTRATION.
(a) This Incentive Plan shall be administered by the ECDC. The ECDC
may delegate all or a portion of the administration of this
Incentive Plan to one or more Unit Compensation Committees. No
person serving as a member of the Committee shall be eligible for
the grant of a Stock Option, the receipt of a bonus commitment or
the award of a bonus (including, without limitation, Restricted
Shares) under this Incentive Plan while serving as a member of
such Committee.
(b) The Committee shall have the exclusive right to interpret this
Incentive Plan, to select the persons who are to receive Stock
Options, bonus commitments and bonus awards, and to act in all
matters pertaining to the granting of Options, the making of
bonus commitments and the awarding of bonuses under this
Incentive Plan including, without limitation, the determination
of the number of Shares to be subject to and the form, terms,
conditions and duration of each Stock Option, and the amount,
form, terms and conditions of each bonus commitment and bonus
award, and the amendment thereof consistent with the provisions
of this Incentive Plan. No Eligible Participant shall have any
right to be considered for or to receive any Stock Options, bonus
commitments or bonus awards. All acts and decisions of the
Committee with respect to any questions arising in connection
with the administration and interpretation of this Incentive
Plan, including the severability of any and all of the provisions
thereof, shall be conclusive, final and binding upon all Eligible
Participants.
(c) The Committee may adopt rules and regulations of general
application for the administration of all or any portion of this
Incentive Plan.
(d) Without limiting the foregoing Sections 3(a), (b) and (c) of this
Article I (and notwithstanding any other provisions of this
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<PAGE>
Incentive Plan), the Committee is authorized to take such action
as it determines to be necessary or advisable, and fair and
equitable to Participants, with respect to Options, bonus
commitments and bonus awards (including, without limitation,
awards of Restricted Shares) in the event of: a merger of the
Company with, consolidation of the Company into, or the
acquisition of the Company by, another corporation; a sale or
transfer of all or substantially all of the assets of the Company
to another corporation or any other person or entity, a tender or
exchange offer for Shares made by any corporation, person or
entity (other than the Company); or other reorganization in which
the Company will not survive as an independent, publicly owned
corporation. Such action may include (but shall not be limited to
establishing, amending or waiving the forms, terms, conditions
and duration of Stock Options, bonus commitments and bonus awards
(including, without limitation, awards of Restricted Shares) so
as to provide for earlier, later, extended or additional times
for exercise or payments, differing methods for calculating
payments, alternate forms and amounts of payment, accelerated
release of restrictions or other modifications. The Committee may
take such actions pursuant to this Section 3(d) by adopting rules
and regulations of general applicability to all Participants or
to certain categories of Participants, by including, amending or
waiving terms and conditions in Option grants, bonus commitments
and bonus awards (including, without limitation, agreements with
respect to Restricted Shares), or by taking action with respect
to individual Participants. The Committee may take such actions
as part of the grants, commitments or awards, or before or after
the public announcement of any such merger, consolidation,
acquisition, sale or transfer of assets, tender or exchange offer
or other reorganization.
4. SHARE ADJUSTMENTS
In the event that at any time or from time to time a stock dividend,
stock split, recapitalization, merger, consolidation, or other change
in capitalization, or a sale by the Company of all or part of its
assets, or any distribution to stockholders other than a cash dividend
results in (a) the outstanding Shares, or any securities exchanged
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<PAGE>
therefor or received in their place, being exchanged for a different
number or class of shares of stock or other securities of the Company,
or for shares of stock or other securities of any other corporation; or
(b) new, different or additional shares or other securities of the
Company or of any other corporation being received by the holders of
outstanding Shares, then:
(i) the limitation of 7,900,000 Shares set forth in Section
l(a) of Article II and Section 2(b) of Article III of this
Incentive Plan;
(ii) the number and class of Shares (A) that may be subject to
Stock Options, (B) which have not been issued or
transferred under outstanding Stock Options, and (C) which
are subject to a bonus commitment or have been awarded but
are undelivered under the 1988 Bonus Plan; and
(iii) the purchase price to be paid per Share under outstanding
Stock Options;
shall in each case be equitably adjusted; provided, however, that all
adjustments made as the result of the foregoing in respect of each
Stock Option which is granted as an Incentive Stock Option shall be
made so that such Stock Option shall continue to be an Incentive Stock
Option as defined in Section 422A of the Internal Revenue Code of 1986,
as may be amended from time to time, or any provisions that may
hereafter be enacted in lieu thereof.
II. 1988 Stock Option Plan
1. OPTION SHARES
(a) (i) The total number of Shares for which Options may be granted
under this Option Plan shall not exceed 7,900,000 Shares, subject
to: (A) the adjustments provided for in Section 4 of Article I of
this Incentive Plan; (B) the provisions of Section l(b) of this
Article II; and (C) reduction by the number of Shares committed
or awarded pursuant to Article III of this Incentive Plan. Such
Shares may be authorized but unissued, or treasury Shares, or
both.
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<PAGE>
(ii) The total number of Shares for which Options may be granted
under this Incentive Plan to any one Eligible Participant shall
not exceed in any one calendar year 15% of the total number of
Shares for which Options may be granted under this Incentive
Plan, subject to the adjustments provided for in Section 4 of
Article I of this Incentive Plan.
(b) In the event that any unexercised Stock Option granted hereunder
lapses or ceases to be exercisable for any reason other than a
surrender of the Option pursuant to Section l(c) of this Article
II, the Shares subject to such Option shall again be available
for Option grants under this Option Plan without again being
charged against the limitation of 7,900,000 Shares set forth in
Section l(a) of this Article II. Any amendment of any Option by
the Committee pursuant to Article I, Section 3 of this Incentive
Plan shall not be considered the grant of a new Option for the
purpose of Section l(a) of this Article II.
(c) In the event of death or total and permanent disability as
determined by the Committee, the Committee may, with the consent
of the Participant, his legal representative, or in the event of
death, a beneficiary designated in writing by the Participant
during his lifetime, authorize payment, in cash or in Shares, or
partly in cash and partly in Shares, as the Committee may direct,
of an amount equal to the difference at the time between the Fair
Market Value of the Shares subject to an Option and the Option
price in consideration of the surrender of the Option. In such an
event the Shares subject to the Option so surrendered shall be
charged against the limitations set forth in Section l(a) of this
Article II.
2. INCIDENTS OF OPTIONS
(a) Each Stock Option shall be granted subject to such terms and
conditions, if any, not inconsistent with this Incentive Plan, as
shall be determined by the Committee, including any provisions as
to continued employment as consideration for the grant or
exercise of such Option and any provisions which may be advisable
to comply with applicable laws, regulations or rulings of any
governmental authority.
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<PAGE>
(b) A Stock Option shall not be transferable by the Participant
otherwise than by will, by the laws of descent and distribution
or pursuant to a written beneficiary designation, and shall be
exercisable during the lifetime of the Participant only by him or
by his guardian or legal representative.
(c) Shares purchased upon exercise of a Stock Option shall be paid
for in such amounts, at such times and upon such terms as shall
be determined by the Committee and specified in the grant of the
Option. Without limiting the foregoing, the Committee may
establish payment terms for the exercise of Stock Options which
permit the Participant to deliver Shares (or other evidence of
ownership of Shares satisfactory to the Company), with a Fair
Market Value equal to the Option price as payment.
(d) No cash dividends shall be paid on Shares subject to unexercised
Stock Options.
3. INCENTIVE OPTIONS
An Incentive Option shall be an "Incentive Stock Option" as that term
is defined in Section 422A of the Internal Revenue Code of 1986, as may
be amended from time to time, as in effect at the time of the grant of
any such Option, or any statutory provision that may be enacted to
replace such Section. Each provision of this Option Plan and of each
Incentive Stock Option granted hereunder shall be construed so that
each such Option shall be an Incentive Stock Option, and any provision
thereof that cannot be so construed shall be disregarded. Incentive
Stock Options shall be granted only to purchase unrestricted Shares and
only to Eligible Participants, each of whom may be granted one or more
such Options at such time or times determined by the Committee
following the Effective Date until December 31, 1997, subject to the
following conditions:
(a) The Option price per Share shall be set by the grant but shall
not be less than 100% of the Fair Market Value at the time of
the grant.
(b) The Option may be exercised in full or in part from time to
time within ten (10) years from the date of the grant, or such
shorter period as may be specified by the Committee in the
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<PAGE>
grant, provided that in any event each shall lapse and cease
to be exercisable upon, or within such period following,
Termination of Employment as shall have been determined by the
Committee and as specified in the Option; provided, however,
that such period following Termination of Employment shall not
exceed three months unless employment shall have terminated:
(i) as a result of retirement pursuant to, and as
defined in, the applicable pension plan of the
Company, its Subsidiary or Associated Company or
total and permanent disability as determined by
the Committee, in which event such period shall
not exceed the original term of the Option; or
(ii) as a result of death or death shall have occurred
following Termination of Employment and while the
Option was still exercisable; and
provided, further, that such period following Termination of
Employment shall in no event extend the original exercise
period of the Option.
(c) The aggregate Fair Market Value (determined at the time the
Option is granted) of the Shares with respect to which
Incentive Stock Options are first exercisable during any
calendar year by any Eligible Participant shall not exceed
$100,000.
(d) Incentive Stock Options shall be granted only to an Eligible
Participant who, at the time the Option is granted, does not
own stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company.
(e) Any other terms and conditions which the Committee determines,
upon advice of counsel, should be imposed for the Option to
qualify as an Incentive Stock Option and any other terms and
conditions not inconsistent with this Option Plan as
determined by the Committee.
4. NON-QUALIFIED OPTIONS
One or more Options may be granted as Non-Qualified Options to purchase
unrestricted Shares or Restricted Shares to an Eligible Participant at
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<PAGE>
such time or times determined by the Committee, following the Effective
Date, subject to the following terms and conditions:
(a) The Option price per Share shall be established by the grant
but shall not be less than 100% of the Fair Market Value at
the time of the grant (or such later date as the Committee
shall determine).
(b) The Option may be exercised in full or in part from time to
time within ten (10) years and thirty (30) days from the date
of the grant, or such shorter period as may be specified by
the Committee in the grant, provided that in any event each
shall lapse and cease to be exercisable upon, or within such
period following, Termination of Employment as shall have been
determined by the Committee and as specified in the Option;
provided, however, that such period following Termination of
Employment shall not exceed twelve months unless employment
shall have terminated:
(i) as a result of retirement pursuant to, and as
defined in, the applicable pension plan of the
Company, its Subsidiary or Associated Company or
total and permanent disability as determined by
the Committee, in which event such period shall
not exceed the original term of the Option; or
(ii) as a result of death or death shall have occurred
following Termination of Employment and while the
Option was still exercisable; and
provided, further, that such period following Termination of Employment
shall in no event extend the original exercise period of the Option.
(c) The Option grant may include any other terms and conditions
not inconsistent with this Option Plan as determined by the
Committee, including provisions making the Shares subject to
such Option Restricted Shares.
10
<PAGE>
III. 1988 Bonus Plan
1. BONUS COMMITMENTS AND AWARDS
(a) Bonus Commitments
A commitment to award a bonus at a future date for all or part
of any Performance Year may be made at such time or times
determined by the Committee following the Effective Date to
any person who is an Eligible Participant at the time of such
commitment. The Committee shall have full discretion to
determine the terms and conditions of the commitment
including, without limitation, whether the corresponding bonus
award shall be contingent upon the attainment of prescribed
goals and provisions with respect to the rights of the
Participant upon Termination of Employment.
(b) Bonus Awards
A bonus may be awarded at such time or times determined by the
Committee following the Effective Date to any person who was
an Eligible Participant during all or part of any Performance
Year, payable either wholly in cash or wholly in Shares, or
partially in cash and partially in Shares. The Committee shall
have full discretion to determine the terms and conditions of
payment of any award, including without limitation, what part
of such award shall be paid in cash, unrestricted Shares and
Restricted Shares, the time or times of payment of any award,
and the time or times of the lapse of the restrictions on
Restricted Shares. Any Eligible Participant may receive more
than one bonus award for a Performance Year and any bonus
award may be made pursuant to or without a prior commitment to
make such award.
2. BONUS SHARES--SOURCE, LIMIT AND VALUATION
(a) Shares used for bonus purposes may be authorized but unissued
Shares, treasury Shares, or any combination thereof. Any
Shares held by the Company for use under this Bonus Plan
shall, unless and until transferred in payment of an award in
accordance with this Bonus Plan, remain the property of the
Company, irrespective of whether such Shares are entered in a
11
<PAGE>
special bonus account, and such Shares shall at all times be
available, unless and until so transferred, for any corporate
purpose.
(b) The total number of Shares which may be awarded pursuant to
bonus awards under this Bonus Plan shall not exceed 7,900,000
Shares, subject to:
(i) the adjustments provided for in Section 4 of Article
I of this Incentive Plan; and
(ii) reduction by the number of Shares for which Stock
Options have been granted pursuant to Article II of
this Incentive Plan (except as provided in Section
l(b) of said Article II).
(c) For the purpose of determining the number of Shares to be used
in payment of an award, the amount of the award payable in
Shares shall be divided by the Fair Market Value of the Shares
on the date of the determination of the amount of the award by
the Committee.
3. AWARDS
(a) Subject to the provisions of Section 3(f) of this Article III,
bonus commitments and bonus awards may be made by the Committee
in such amount and at such time or times as may be determined
solely by the Committee. An Eligible Participant shall have no
right to be considered for or to receive any bonus commitment or
bonus award. The Committee may, in its discretion, allow any
Participant who receives a bonus award or bonus commitment under
this Incentive Plan to elect to defer payment of such award, or
of any award to be made pursuant to such bonus commitment, in
accordance with such terms and conditions and in such manner as
the Committee may prescribe. Any amendment of any bonus
commitment and bonus award by the Committee pursuant to Article
I, Section 3 of this Incentive Plan shall not be considered the
grant of a new bonus commitment or bonus award for purposes of
Section 2(b) of this Article III.
(b) Commitments to make payment on account of bonuses for a
Performance Year may be made by the Committee in advance of the
close of such Performance Year upon such terms and conditions as
the Committee may determine.
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<PAGE>
(c) The portion of a bonus award payable in cash or unrestricted
Shares or both may, in the discretion of the Committee, be paid
or delivered in whole or in part at such time or times and under
such terms and conditions as may be determined by the Committee
including, but not limited to, the following times:
(i) in full at the time of the award; or
(ii) in any number of annual installments, equal or unequal
during employment or following Termination of
Employment; or
(iii) in full after a period of time.
(d) In the event that any bonus commitment or bonus award or
installment thereof which is to be paid in Shares ceases to be
payable for any reason, the Shares subject to such bonus
commitment or bonus award shall again be available for bonus
purposes without again being charged against the limitation of
7,900,000 Shares set forth in Section 2(b) of this Article III.
(e) The portion of an award payable in Restricted Shares shall be
paid at the time of the award by delivering to the Participant,
or a custodian or escrow designated by the Committee and the
Participant, a certificate or certificates for such Restricted
Shares, registered in the name of such Participant who shall have
all of the rights of a stockholder with respect to such Shares,
subject to such terms and conditions, including forfeitures or
resale to the Company, if any, as may be determined by the
Committee and to the restrictions and provisions pursuant to
Article IV of this Incentive Plan. The Committee and the
Participant may designate the Company or one or more of its
employees to act as custodian or escrow for the certificates.
(f) Anything in this Incentive Plan to the contrary notwithstanding,
no bonus awards shall be made for any Performance Year during
which no dividend on the outstanding Shares has been paid; bonus
awards covering more than one Performance Year and made pursuant
to a bonus commitment shall be reduced by the ratio of the number
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<PAGE>
of such Performance Years during which no dividends were paid to
the number of Performance Years covered by the bonus awards.
4. DIVIDENDS, DIVIDEND EQUIVALENTS AND INTEREST EQUIVALENTS
(a) No cash dividends shall be paid on Shares which have been
awarded but not delivered. The Committee may provide, however,
that a Participant to whom a bonus has been awarded which is
payable in whole or in part at a future time in Shares shall
be entitled to receive an amount per Share, equal in value to
the cash dividends, if any, paid per Share on issued and
outstanding Shares, as of the dividend record dates occurring
during the period between the date of the award and the time
each such Share is delivered. Such amounts (herein called
"dividend equivalents") may, in the discretion of the
Committee, be:
(i) paid in cash or Shares either from time to time
prior to or at the time of the delivery of such
Shares; or
(ii) converted into contingently credited Shares (with
respect to which dividend equivalents shall
accrue) in such manner, at such value, and
deliverable at such time or times, as may be
determined by the Committee.
Such Shares (whether delivered or contingently
credited) shall be charged against the limitations set
forth in Section 2(b) of this Article III.
(b) The Committee, in its discretion, may authorize payment of
interest equivalents on any portion of any award payable at a
future time in cash, and interest equivalents on dividend
equivalents which are payable in cash at a future time.
5. DEATH OF PARTICIPANT
Following the death of a Participant, all unpaid cash awards and all
undelivered unrestricted Share awards to such Participant hereunder,
together with all dividend equivalents and interest equivalents, if
any, payable in connection with any such award or awards, which have
not been cancelled and which are not then cancellable shall be paid and
14
<PAGE>
delivered to his legal representative at the time or times provided for
in the award unless the Committee shall otherwise direct. The Committee
may, in its discretion, permit a Participant to designate a beneficiary
or beneficiaries to receive such award or awards. Restricted Shares
held by such Participant at the time of his death shall be governed by
the provisions of Article IV of this Incentive Plan.
IV. Restricted Shares
Restricted Shares shall be subject to such terms and conditions,
including forfeiture, if any, and to such restrictions against sale,
transfer or other disposition as may be determined by the Committee at
the time a Non-Qualified Option for the purchase of Restricted Shares
is granted or at the time of making a bonus award of Restricted Shares.
Any new or additional or different Shares or other securities resulting
from any adjustment of such Shares of the type described in Section 4
of Article I shall be subject to the same terms, conditions, and
restrictions as the Restricted Shares prior to such adjustment. The
Committee may, in its discretion, remove, modify or accelerate the
release of restrictions on any Restricted Shares in the event of
hardship or disability of the Participant while employed, in the event
that the Participant ceases to be an employee of the Company, a
Subsidiary or Associated Company, as the result of death or otherwise,
or in the event of a relocation of a Participant to another country, or
for such other reasons as the Committee may deem appropriate. In the
event of the death of a Participant following the transfer of
Restricted Shares to him, the legal representative of the Participant,
the beneficiary designated in writing by the Participant during his
lifetime, or the person receiving such Shares under his will or under
the laws of descent and distribution shall take such Shares subject to
the same restrictions, conditions and provisions in effect at the time
of his death, to the extent applicable.
V. Miscellaneous Provisions
1. Neither a Stock Option, bonus commitment nor an unpaid bonus
award or any installment thereof, shall be transferable except as
provided for herein in the case of death. If any Participant
makes such a transfer in violation hereof, any obligation of the
Company shall forthwith terminate.
15
<PAGE>
2. Nothing in this Incentive Plan or any booklet or other document
describing or referring to this Incentive Plan shall be deemed to
confer on any employee or Participant the right to continue in
the employ of his employer or affect the right of his employer to
terminate the employment of any such person with or without
cause.
3. Nothing contained herein shall require the Company to segregate
any monies from its general funds, or to create any trusts, or to
make any special deposits for any immediate or deferred amounts
payable to any Participant.
4. This Incentive Plan and all actions taken hereunder shall be
governed by the laws of the State of Delaware.
5. The Company may make such provisions and take such steps as it
may deem necessary or appropriate for the withholding of any
taxes which the Company is required by any law or regulation of
any governmental authority, whether federal, state or local,
domestic or foreign, to withhold in connection with any Stock
Option or the exercise thereof or the payment of any bonus award,
including, but not limited to, the withholding of payment of all
or any portion of such award or another award under this
Incentive Plan until the Participant reimburses the Company for
the amount the Company is required to withhold with respect to
such taxes, or cancelling any portion of such award or another
award under this Incentive Plan in an amount sufficient to
reimburse itself for the amount it is required to so withhold, or
selling any property contingently credited by the Company for the
purpose of paying such award or another award under this
Incentive Plan, in order to withhold or reimburse itself for the
amount it is required to so withhold.
6. Notwithstanding any other provision of this Incentive Plan, for
purposes of any award that is outstanding as of the date that the
Company spins off the Company's chemical businesses into a new
publicly traded company ("Chemicals") and is held by a
Participant who in connection with such spinoff becomes an
16
<PAGE>
employee of Chemicals (or a subsidiary or associated company of
Chemicals) rather than an employee of the Company (or a
Subsidiary or Associated Company of the Company), such change of
employment shall not constitute a Termination of Employment. With
respect to any such award held by such a Participant, Termination
of Employment shall mean such Participant's termination of
employment with Chemicals other than a Transfer, with Transfer
defined as a change of employment of a Participant within the
group consisting of Chemicals and its subsidiaries, or, if the
Committee so determines, a change of employment of a Participant
within the group consisting of Chemicals, its subsidiaries, and
its associated companies. For purposes of this section, a
subsidiary of Chemicals means any corporation (or partnership,
joint venture, or other enterprise) of which Chemicals owns or
controls, directly or indirectly, 50% or more of the outstanding
shares of stock normally entitled to vote for the election of
directors (or comparable equity participation and voting power)
and an associated company of Chemicals means any corporation(or
partnership, joint venture, or other enterprise), of which
Chemicals owns or controls, directly or indirectly, 10% or more,
but less than 50% of the outstanding shares of stock normally
entitled to vote for the election of directors (or comparable
equity participation and voting power).
VI. Amendments
1. The Board, upon recommendation of the ECDC but not otherwise, may
from time to time amend or modify this Incentive Plan, including,
but not limited to, an amendment which would authorize the
Committee to make bonus commitments and bonus awards payable in
other securities or other forms of property of a kind to be
determined by the ECDC, in addition to cash, unrestricted Shares
and Restricted Shares, and such other amendments as may be
necessary or desirable to implement such commitments and awards,
or discontinue this Incentive Plan or any provision thereof,
provided that no amendments or modifications to this Incentive
Plan shall, without the prior approval of the stockholders
normally entitled to vote for the election of directors of the
Company:
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<PAGE>
(a) change the number of Shares for which Stock Options may be
granted, or the percentage thereof which may be made subject
to Options to any one Eligible Participant, as set forth in
Section l(a) of Article II of this Incentive Plan;
(b) change the total number of Shares which may be awarded
pursuant to bonus awards as provided for in Section 2(b) of
Article III of this Incentive Plan;
(c) make any member of the Committee eligible for the grant of a
Stock Option or a bonus commitment or a bonus award under this
Incentive Plan;
(d) change the definition of an Eligible Participant for the
purpose of an Incentive Stock Option or increase the limit or
the value of Shares for which an Eligible Participant may be
granted an Incentive Stock Option; or
(e) change any of the provisions of this Article VI.
2. No amendment to or discontinuance of this Incentive Plan or any
provision thereof by the Board or the stockholders of the Company
shall, without the written consent of the Participant, adversely
affect any Stock Option theretofore granted or bonus commitment
or bonus award theretofore made to such Participant under this
Incentive Plan.
VII. Interpretation
1. This Incentive Plan is not intended to and shall not affect any
option or stock appreciation right grant or bonus commitment or
award under the 1984 Plan or the 1988/I Incentive Plan (or any
other incentive plan of the Company, its Subsidiaries and
Associated Companies).
2. This Incentive Plan is not intended to and shall not preclude the
establishment or operation by the Company or any Subsidiary of
(a) any thrift, savings and investment, achievement award, stock
purchase, employee recognition or other benefit plan or
arrangement for any group of employees, or (b) any other
incentive or bonus plan or arrangement for any employees
(hereinafter "Other Plan"), and any such Other Plan may be
17
<PAGE>
authorized and payments made thereunder independently of this
Incentive Plan; provided, however, that no such Other Plan, other
than the 1984 Plan, the 1988/I Incentive Plan, a stock option
plan for G. D. Searle & Co., or a stock option plan for The
NutraSweet Company, shall provide for the granting of options or
stock appreciation rights to purchase or receive the appreciation
on the shares of any class of stock of the Company, or the making
of bonus commitments or bonus awards payable in any class of
stock of the Company, which in either form or substance are
comparable to those authorized under this Incentive Plan, unless
such Other Plan is established or operated in connection with the
assumption by the Company or a Subsidiary of the plans, options,
stock appreciation rights, bonus commitments or bonus awards of
another corporation, or the substitution of an Other Plan or
options, stock appreciation rights, bonus commitments or bonus
awards under such Other Plan in lieu of the plans, options, stock
appreciation rights, bonus commitments or bonus awards of such
other corporation, arising out of a merger or consolidation with,
or the acquisition of assets or stock of, such other corporation,
or other transaction described in Section 425(a) of the Internal
Revenue Code of 1986, as may be amended from time to time, as in
effect at the time.
18
MONSANTO MANAGEMENT INCENTIVE PLAN
OF 1994
(As Amended April 25, 1997, July 25, 1997 and October 22, 1999)
<PAGE>
Monsanto Management Incentive Plan of 1994
(As Amended April 25, 1997, July 25, 1997 and October 22, 1999)
I. General Provisions
1. PURPOSES
The Monsanto Management Incentive Plan of 1994 is designed:
- to attract, motivate and retain for the Company and its Subsidiaries
and Associated Companies personnel of exceptional ability,
- to encourage ownership of Monsanto common stock by management,
- to align management interests with those of stockholders, and
- to provide a competitive executive compensation program.
This Incentive Plan shall be effective February 1, 1994 ("Effective
Date"), subject to the approval of this Incentive Plan by the
stockholders of the Company.
2. DEFINITIONS
Except where the context otherwise indicates, the following definitions
apply:
"Associated Company" means any corporation (or partnership,
joint venture, or other enterprise), of which the Company owns
or controls, directly or indirectly, 10% or more, but less
than 50% of the outstanding shares of stock normally entitled
to vote for the election of directors (or comparable equity
participation and voting power).
"Award" means any Stock Option, Stock Appreciation Right,
Restricted Share, unrestricted Share, dividend equivalent unit
or other award granted under this Incentive Plan.
"Board" means Board of Directors of the Company.
"Committee" means the ECDC, or its permitted delegate.
"ECDC" means the Executive Compensation and Development
Committee or such other committee consisting of two or more
members of the Board as may be appointed by the Board to
<PAGE>
administer this Incentive Plan pursuant to Section 3(a) of
this Article I.
"Company" means Monsanto Company, a Delaware corporation.
"Eligible Participant" means any officer or other salaried
employee (including a director who is a salaried employee) of
the Company, a Subsidiary or an Associated Company.
"Incentive Plan" means the Monsanto Management Incentive Plan
of 1994, set forth herein.
"Fair Market Value" shall mean, with respect to any given day,
the average of the highest and lowest sales prices of the
Shares reported as the New York Stock Exchange-Composite
Transactions for such day, or if the Shares were not traded on
the New York Stock Exchange on such day, then on the next
preceding day on which the Shares were traded, all as reported
by The Wall Street Journal, mid-west edition, under the
heading New York Stock Exchange-Composite Transactions or by
such other source as the Committee may select.
"Incentive Stock Option" or "Incentive Option" means an option
meeting the definition of that term as set forth in Section 3
of Article II of this Incentive Plan.
"1984 Plan" means the Monsanto Management Incentive Plan of
1984, as amended.
"1988/I Plan" means the Monsanto Management Incentive Plan of
1988/I, as amended.
"1988/II Plan" means the Monsanto Management Incentive Plan of
1988/II, as amended.
"Non-Qualified Stock Option" or "Non-Qualified Option" means
an option referred to in Section 4 of Article II of this
Incentive Plan.
"Participant" means an Eligible Participant to whom a Stock
Option or a Stock Appreciation Right has been granted, a bonus
commitment made or a bonus awarded pursuant to this Incentive
Plan.
"Reporting Person" means a person subject to the reporting
requirements of Section 16(a) of the Securities Exchange Act
of 1934 (or any law, rule, regulation or other provision that
may replace such statute) with respect to Shares.
"Restricted Shares" means Shares that were made subject to
2
<PAGE>
restrictions in accordance with Section 6 of Article II of
this Incentive Plan.
"Shares" means shares of common stock of the Company and any
shares of stock or other securities received as a result of a
Share adjustment as set forth in Section 4 of this Article I.
"Stock Appreciation Right" means a right referred to in
Section 5 of Article II of this Incentive Plan.
"Stock Appreciation Right Fair Market Value" or "SAR Fair
Market Value" shall mean a value established by the Committee
for the exercise of a Stock Appreciation Right. If such
exercise occurs during any quarterly "window period" as
specified by Rule 16b-3 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended from
time to time, or any law, rule, regulation or other provision
that may hereafter replace such Rule, the Committee may
establish a common value for exercises during such window
period.
"Stock Option" or "Option" shall mean Incentive Stock Options
and/or Non-Qualified Stock Options.
"Subsidiary" means: (i) for the purpose of an Incentive Stock
Option, any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if,
at the time of the granting of the Option, each of the
corporations other than the last corporation in the unbroken
chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other
corporations in such chain; and (ii) for the purposes of a
Non-Qualified Stock Option, a Stock Appreciation Right or an
Award of Shares (restricted or not), any corporation (or
partnership, joint venture, or other enterprise) of which the
Company owns or controls, directly or indirectly, 50% or more
of the outstanding shares of stock normally entitled to vote
for the election of directors (or comparable equity
participation and voting power).
"Termination of Employment" means the discontinuance of
employment of a Participant for any reason other than a
Transfer. In the event a Participant is an employee of an
entity that is a Subsidiary or Associated Company and the
entity ceases to be either a Subsidiary or Associated Company,
the Participant shall be deemed to incur a Termination of
Employment for all purposes under this Incentive Plan as of
the date such entity ceases to be a Subsidiary or Associated
Company.
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<PAGE>
"Transfer" means: (i) for the purpose of an Incentive Stock
Option, a change of employment of a Participant within the
group consisting of the Company and its Subsidiaries; and (ii)
for the purpose of a Non-Qualified Stock Option, a Stock
Appreciation Right or an Award of Shares (restricted or not),
a change of employment of a Participant within the group
consisting of the Company and its Subsidiaries, or, if the
Committee so determines, a change of employment of a
Participant within the group consisting of the Company, its
Subsidiaries and Associated Companies.
"Unit Compensation Committee" means one or more committees
appointed by the ECDC composed of one or more senior managers
of the Company or a Subsidiary to whom the ECDC may delegate
its powers (or a portion thereof) to administer this Incentive
Plan pursuant to Section 3(a) of this Article I.
3. ADMINISTRATION
(a) This Incentive Plan shall be administered by the ECDC,
except to the extent the ECDC delegates administration
pursuant to this paragraph. The ECDC may delegate all or a
portion of the administration of this Incentive Plan to one
or more Unit Compensation Committees and may authorize
further delegation by the Unit Compensation Committees to
senior managers of the Company or its Subsidiaries; provided
that determinations regarding the timing, pricing, amount
and terms of any Award to a Reporting Person shall be made
only by the ECDC. No person shall be eligible or continue to
serve as a member of the ECDC unless such person is a
"disinterested person" within the meaning of Rule 16b-3 of
the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended from time to time, or any
law, rule, regulation or other provision that may hereafter
replace such Rule, and no person shall be eligible for the
grant of an Award under this Incentive Plan while serving as
a member of the ECDC.
(b) The Committee shall have the exclusive right to interpret
this Incentive Plan, to select the persons who are to
receive Awards, and to act in all matters pertaining to the
granting of Awards under this Incentive Plan including,
without limitation, the timing, pricing, amount and terms of
any Award and the amendment thereof consistent with the
provisions of this Incentive Plan. No Eligible Participant
4
<PAGE>
shall have any right to be considered for or to receive any
Awards. All acts and decisions of the Committee with respect
to any questions arising in connection with the
administration and interpretation of this Incentive Plan,
including the severability of any and all of the provisions
thereof, shall be conclusive, final and binding upon all
Eligible Participants.
(c) The Committee may adopt and amend from time to time rules
and regulations of general application for the
administration of this Incentive Plan.
(d) Without limiting the foregoing Sections 3(a), (b) and (c) of
this Article I (and notwithstanding any other provisions of
this Incentive Plan), the Committee is authorized to take
such action as it determines to be necessary or advisable,
and fair and equitable to Participants, with respect to
Awards in the event of: a merger of the Company with,
consolidation of the Company into, or the acquisition of the
Company by, another corporation; a sale or transfer of all
or substantially all of the assets of the Company to another
corporation or any other person or entity, a tender or
exchange offer for Shares made by any corporation, person or
entity (other than the Company); or other reorganization in
which the Company will not survive as an independent,
publicly-owned corporation. Such action may include (but
shall not be limited to) establishing, amending or waiving
the forms, terms, conditions and duration of Stock Options,
Stock Appreciation Rights, Awards of Restricted Shares and
other Awards so as to provide for earlier, later, extended
or additional times for exercise or payments, differing
methods for calculating payments, alternate forms and
amounts of payment, accelerated release of restrictions or
other modifications. The Committee may take such actions
pursuant to this Section 3(d) by adopting rules and
regulations of general applicability to all Participants or
to certain categories of Participants, by including,
amending or waiving terms and conditions in Awards
(including, without limitation, agreements with respect to
Restricted Shares), or by taking action with respect to
individual Participants. The Committee may take such actions
as part of the Awards, or before or after the public
announcement of any such merger, consolidation, acquisition,
sale or transfer of assets, tender or exchange offer or
other reorganization.
5
<PAGE>
4. SHARE ADJUSTMENTS
In the event that at any time or from time to time a stock
dividend, stock split, recapitalization, merger,
consolidation, or other change in capitalization, or a sale by
the Company of all or part of its assets, or any distribution
to stockholders other than a cash dividend results in (a) the
outstanding Shares, or any securities exchanged therefor or
received in their place, being exchanged for a different
number or class of shares of stock or other securities of the
Company, or for shares of stock or other securities of any
other corporation; or (b) new, different or additional shares
or other securities of the Company or of any other corporation
being received by the holders of outstanding Shares, then:
(i) the total number of Shares authorized for Awards under
this Incentive Plan;
(ii) the number and class of Shares (A) that may be
subject to Stock Options or Stock Appreciation
Rights, (B) which have not been issued or transferred
under outstanding Stock Options or Stock Appreciation
Rights, and (C) which have been awarded but are
undelivered under this Incentive Plan; and
(iii) the purchase price to be paid per Share under
outstanding Stock Options and the number of Shares to
be transferred in settlement of outstanding Stock
Appreciation Rights;
shall in each case be equitably adjusted as determined by the
Committee in its discretion; provided, however, that all
adjustments made as the result of the foregoing in respect of
each Stock Option which is granted as an Incentive Stock
Option shall be made so that such Stock Option shall continue
to be an Incentive Stock Option as defined in Section 422 of
the Internal Revenue Code of 1986, as may be amended from time
to time, or any provisions that may hereafter be enacted in
lieu thereof.
5. SHARES AUTHORIZED
The total number of Shares for which awards may be granted
under this Incentive Plan shall not exceed 3,000,000 Shares;
provided that if during the term of this Incentive Plan the
Company repurchases shares of Common Stock, on the open market
or otherwise and in compliance with the rules and regulations
of the Securities and Exchange Commission, additional Shares
may be used for awards up to the lesser of (a) 2,820,000 and
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(b) the number of Shares repurchased. Notwithstanding the
foregoing, the total number of Shares that shall be available
for Awards of Restricted or unrestricted Shares shall be 1/2
of 1% of the total number of Shares outstanding. The
limitations in this Section 5 are subject to the adjustments
provided for in Section 4 of this Article I; the provisions of
Section 1(b) of Article II of this Incentive Plan; and the
provisions of Section 3(d) of Article III of this Incentive
Plan.
The total number of Shares for which Awards may be granted
under this Incentive Plan to any one Eligible Participant
shall not exceed in any three-year period 15% of the total
number of Shares for which Awards may be made under this
Incentive Plan, subject to the adjustments provided for in
Section 4 of this Article I.
II. Awards
1. SHARES USED FOR AWARDS
(a) The Shares for which Options may be granted under this
Option Plan may be authorized but unissued Shares, or
treasury Shares, or both.
(b) In the event that any unexercised Stock Option granted
hereunder lapses or ceases to be exercisable for any reason
other than a surrender of the Option pursuant to Section
l(c) of this Article II or the exercise of a Stock
Appreciation Right under Section 5 of this Article II, the
Shares subject to such Option shall again be available for
Option grants under this Option Plan without again being
charged against the authorized Shares set forth in Section 5
of Article I, provided the Participant whose Stock Option
has lapsed or ceased to be exercisable has received no
benefits of ownership from the Shares. Any amendment of any
Option or Stock Appreciation Right by the Committee pursuant
to Article I, Section 3 of this Incentive Plan shall not be
considered the grant of a new Option for the purpose of
Section 5 of Article I.
(c) In the event of death or total and permanent disability as
determined by the Committee, the Committee may, with the
consent of the Participant, his legal representative, or in
the event of death, a beneficiary designated in writing by
the Participant during his lifetime, authorize payment, in
cash or in Shares, or partly in cash and partly in Shares,
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as the Committee may direct, of an amount equal to the
difference at the time between the Fair Market Value of the
Shares subject to an Option and the Option price in
consideration of the surrender of the Option. In such an
event the Shares subject to the Option so surrendered shall
be charged against the limitations set forth in Section 5 of
Article I.
(d) In the event that any Award or installment thereof ceases to
be payable for any reason, the Shares subject to such Award
shall again be available for Award without again being
charged against the limitations on the number of Shares set
forth in Section 5 of Article I, provided the Participant
whose Award ceases to be payable has received no benefits of
ownership from the Shares.
2. INCIDENTS OF OPTIONS AND STOCK APPRECIATION RIGHTS
(a) An Award of Stock Options or Stock Appreciation Rights may
be made at such time or times determined by the Committee
following the Effective Date to any Eligible Participant,
except that Incentive Options may not be awarded to
employees of Associated Companies. Each Stock Option and
Stock Appreciation Right shall be granted subject to such
terms and conditions, if any, not inconsistent with this
Incentive Plan, as shall be determined by the Committee,
including any provisions as to continued employment as
consideration for the grant or exercise of such Option or
Stock Appreciation Right, provisions as to performance
conditions and any provisions which may be advisable to
comply with applicable laws, regulations or rulings of any
governmental authority.
(b) An Incentive Stock Option or Stock Appreciation Right shall
not be transferable by the Participant otherwise than by
will, by the laws of descent and distribution, or pursuant
to a written beneficiary designation, and shall be
exercisable during the lifetime of the Participant only by
him or by his guardian or legal representative. A
Non-Qualified Stock Option or Stock Appreciation Right shall
not be transferrable except by will, by the laws of descent
and distribution, pursuant to a written beneficiary
designation, pursuant to a qualified domestic relations
order as defined by the Internal Revenue Code of 1986, as
amended, or Title I of the Employee Retirement Income
Security Act or the rules thereunder, or in such
circumstances as would not result in the failure to comply
with Rule 16b-3 under the Securities Exchange Act of 1934
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(or any successor rule or provision) if the transferor were
a Reporting Person.
(c) Shares purchased upon exercise of a Stock Option shall be
paid for in such amounts, at such times and upon such terms
as shall be determined by the Committee and specified in the
grant of the Option. Without limiting the foregoing, the
Committee may establish payment terms for the exercise of
Stock Options which permit the Participant to deliver Shares
(or other evidence of ownership of Shares satisfactory to
the Company), including, at the Committee's option,
Restricted Shares, with a Fair Market Value equal to the
Option price as payment.
(d) The Option price per share shall be established by the grant
and shall not be decreased thereafter except pursuant to
Section 4 of Article I of this Incentive Plan.
(e) The Committee, in its discretion, may provide for the
escalation of the Option price per Share over all or part of
the term of the Option.
(f) The Committee, in its discretion, may offer Participants the
opportunity to elect to receive an Option grant in lieu of a
salary increase or a bonus or may offer Participants the
opportunity to purchase Options for cash or such other
consideration as the Committee in its discretion determines.
3. INCENTIVE OPTIONS
An Incentive Option shall be an "Incentive Stock Option" as
that term is defined in Section 422 of the Internal Revenue
Code of 1986, as may be amended from time to time, as in
effect at the time of the grant of any such Option, or any
statutory provision that may be enacted to replace such
Section. Each provision of this Incentive Plan and of each
Incentive Stock Option granted hereunder shall be construed so
that each such Option shall be an Incentive Stock Option, and
any provision thereof that cannot be so construed shall be
disregarded. Incentive Stock Options shall be granted only to
purchase unrestricted Shares and only to Eligible
Participants, each of whom may be granted one or more such
Options at such time or times determined by the Committee
following the Effective Date until January 31, 2004, subject
to the following conditions:
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(a) The Option price per Share shall be set by the grant but
shall not be less than 100% of the Fair Market Value at the
time of the grant.
(b) The Option and its related Stock Appreciation Right, if any,
may be exercised in full or in part from time to time within
ten (10) years from the date of the grant, or such shorter
period as may be specified by the Committee in the grant,
provided that in any event each shall lapse and cease to be
exercisable upon, or within such period following,
Termination of Employment as shall have been determined by
the Committee and as specified in the Option or Stock
Appreciation Right; provided, however, that such period
following Termination of Employment shall not exceed twelve
months unless employment shall have terminated:
(i) as a result of retirement pursuant to, and as
defined in, an applicable pension plan of the
Company, its Subsidiary or Associated Company or
total and permanent disability as determined by the
Committee, in which event such period shall not
exceed--
(A) in the case of an Option, the original term of
the Option; and
(B) in the case of a Stock Appreciation Right, one
year after such retirement or disability or
after resignation as an officer or director of
the Company, whichever shall last occur (unless
earlier terminated pursuant to Section 5(b)
of this Article II);
or
(ii) as a result of death or death shall have
occurred following Termination of Employment
and while the Option or Stock Appreciation
Right was still exercisable; and
provided, further, that such period following
Termination of Employment shall in no event extend
the original exercise period of the Option or related
Stock Appreciation Right, if any.
(c) The aggregate Fair Market Value (determined at the time the
Option is granted) of the Shares with respect to which
Incentive Stock Options are first exercisable during any
calendar year by any Eligible Participant shall not exceed
$100,000; however, if the Fair Market Value of Incentive
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<PAGE>
Stock Option Shares (at date of grant) exceeds $100,000 in
the calendar year in which Incentive Stock Options are first
exercisable, Shares with a Fair Market Value at date of
grant exceeding $100,000 shall not be deemed to be Incentive
Stock Options.
(d) Incentive Stock Options shall be granted only to an Eligible
Participant who, at the time the Option is granted, does not
own stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company.
(e) Any other terms and conditions which the Committee
determines, upon advice of counsel, should be imposed for
the Option to qualify as an Incentive Stock Option and any
other terms and conditions not inconsistent with this
Incentive Plan as determined by the Committee; including
provisions making the Shares subject to such Option
Restricted Shares or provisions making vesting or the
ability to exercise subject to performance conditions.
4. NON-QUALIFIED OPTIONS
One or more Options may be granted as Non-Qualified Options to
purchase unrestricted Shares or Restricted Shares to an
Eligible Participant at such time or times determined by the
Committee, following the Effective Date, subject to the
following terms and conditions:
(a) The Option price per Share shall be established by the
grant but shall not be less than 100% of the Fair
Market Value at the time of the grant (or such later
date as the Committee shall determine to be the grant
date).
(b) The Option and its related Stock Appreciation Right, if
any, may be exercised in full or in part from time to
time within ten (10) years from the date of the grant,
or such shorter period as may be specified by the
Committee in the grant, provided that in any event each
shall lapse and cease to be exercisable upon, or within
such period following, Termination of Employment as
shall have been determined by the Committee and as
specified in the Option or Stock Appreciation Right;
provided, however, that such period following
Termination of Employment shall not exceed twelve
months unless employment shall have terminated:
(i) as a result of retirement pursuant to, and
as defined in, the applicable pension plan
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<PAGE>
of the Company, its Subsidiary or Associated
Company or total and permanent disability as
determined by the Committee, in which event
such period shall not exceed--
(A) in the case of an Option, the
original term of the Option; and
(B) in the case of a Stock Appreciation
Right, one year after such
retirement or disability or after
resignation as an officer or
director of the Company, whichever
shall last occur (unless earlier
terminated pursuant to Section 5(b)
of this Article II);
or
(ii) as a result of death or death shall have
occurred following Termination of Employment
and while the Option or Stock Appreciation
Right was still exercisable; and
provided, further, that such period following
Termination of Employment shall in no event extend
the original exercise period of the Option or related
Stock Appreciation Right, if any.
(c) The Option grant may include any other terms and
conditions not inconsistent with this Incentive Plan as
determined by the Committee, including provisions
making the Shares subject to such Option Restricted
Shares or provisions making vesting or the ability to
exercise subject to the satisfaction of performance
conditions.
5. STOCK APPRECIATION RIGHTS
A Stock Appreciation Right may be granted to an Eligible
Participant in connection with (and only in connection with)
an Incentive Stock Option or a Non- Qualified Option granted
under this Incentive Plan, or under any other incentive plan
of the Company or its Subsidiaries which was approved by the
stockholders, subject to the following terms and conditions:
(a) Such Stock Appreciation Right shall entitle a holder of
an Option within the period specified for the exercise
of the Option in the related Option grant to surrender
the unexercised Option (or a portion thereof) and to
receive in exchange therefor a payment in cash or
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<PAGE>
Shares having an aggregate value equal to the product
of (i) the amount by which (A) the SAR Fair Market
Value of each Share exceeds (B) the Option price per
Share, times (ii) the number of Shares under the
Option, or portion thereof, which is surrendered.
(b) Except as expressly provided herein, each Stock
Appreciation Right granted hereunder shall be subject
to the same terms and conditions as the related Option.
It shall be exercisable only to the extent such Option
is exercisable and shall terminate or lapse and cease
to be exercisable when the related Option terminates or
lapses. The Committee may grant Stock Appreciation
Rights concurrently with grants of Options or in
connection with previously granted Options under this
Incentive Plan, or under any other incentive plan of
the Company or its Subsidiaries which was approved by
the stockholders, which are unexercised and have not
terminated or lapsed. With respect to Stock
Appreciation Rights granted in connection with such
previously granted Options, the Committee shall provide
that such Stock Appreciation Rights shall not be
exercisable until the holder completes six (6) months
(or such longer period as the Committee shall
determine) of service with the Company, a Subsidiary,
or an Associated Company immediately following the date
of the grant of such Stock Appreciation Rights.
(c) The Committee shall have sole discretion to determine
in each case whether the payment will be in the form of
all cash, all Shares (which may, at the Committee's
discretion, be Restricted Shares), or any combination
thereof. If payment is to be made in Shares, the number
of Shares shall be determined as follows: the amount
payable in Shares shall be divided by the SAR Fair
Market Value of Shares. The payments to be made, in
whole or in part, in cash upon the exercise of Stock
Appreciation Rights by any officer of the Company shall
be made in accordance with the provisions relating to
the exercise of stock appreciation rights of Rule 16b-3
of the General Rules and Regulations under the
Securities Exchange Act of 1934, as in effect at the
time of such exercise, or any law, rule, regulation or
other provision that may hereafter replace such Rule.
(d) Upon exercise of a Stock Appreciation Right, the number
of Shares subject to exercise under the related Option
shall automatically be reduced by the number of Shares
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<PAGE>
represented by the Option or portion thereof which is
surrendered. To the extent that a Stock Appreciation
Right shall be exercised, any Shares transferred upon
such exercise shall not be charged against the maximum
limitations upon the grant of Options set forth in this
Incentive Plan under which such Option shall have been
granted but the Option in connection with which a Stock
Appreciation Right shall have been granted shall be
deemed to have been exercised for the purpose of such
maximum limitations.
(e) The Committee shall have sole discretion as to the
timing of any payment made in cash, Shares, or a
combination thereof upon exercise of Stock Appreciation
Rights hereunder, whether in a lump sum, in annual
installments or otherwise deferred and the Committee
shall have sole discretion to determine whether such
payments may bear amounts equivalent to interest or
cash dividends.
(f) For purposes of this paragraph 5(f) of Article II:
(i) "Unrelated Party" means any party or group
of parties acting together other than (A)
the Company, its directors and officers, or
(B) any nominee holder for any stock
exchange;
(ii) "Offer" means any tender or exchange offer
made by an Unrelated Party for the Shares
and shall be deemed to occur upon the first
purchase or exchange of such Shares;
(iii) "Change of Control" means any acquisition,
beneficially or otherwise, by any Unrelated
Party of 25% or more of the combined voting
power of the common and preferred stock of
the Company and shall be deemed to occur
upon the date that the Unrelated Party
attains control of said 25% or more of the
combined voting power;
(iv) "Change of Control Market Value" of the
Shares means the higher of--
(A) the value for which such Shares may
be exchanged or offered under any
Offer pursuant to which Shares are
actually exchanged or purchased; or
(B) the Fair Market Value of such Shares
on the date of exercise of a Stock
Appreciation Right.
Notwithstanding the foregoing provisions of this
Section 5 of Article II and without limiting the
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<PAGE>
provisions of Section 3 of Article I of this
Incentive Plan, in the event of an Offer or Change of
Control, a Participant holding an unexercised Stock
Appreciation Right may exercise such Stock
Appreciation Right and elect to be paid solely in
cash in an amount equal to the difference between the
Option price and the Change of Control Market Value
of the Shares, unless within five (5) business days
after receipt of notification of such election by the
Secretary of the Company, the Committee acts to
disapprove the cash election. Unless it acts to
disapprove, the Committee's consent shall be deemed
to be given at the close of business on the fifth
business day after the Secretary's receipt of
notification of such election and payment shall be
made as soon as practicable after expiration of such
five (5) business day period. The election provided
herein shall apply only: (x) during the thirty (30)
day period following the first exchange or purchase
of Shares pursuant to an Offer; or (y) during the
thirty (30) day period following the date on which
sufficient Shares are acquired to constitute a Change
of Control.
(g) For purposes of this paragraph 5(g) of Article II:
(i) "Unrelated Party" means any party or group
of parties acting together other than (A)
the Company, its directors and officers, or
(B) any nominee holder for any stock
exchange;
(ii) "Alternate Change of Control" means any
acquisition, beneficially or otherwise, by
any Unrelated Party of a percentage of the
combined voting power of the common and
preferred stock of the Company specified by
the Committee (but not less than 10%) and
shall be deemed to occur upon the date that
the Unrelated Party attains control of said
percentage of the combined voting power;
(iii) "Change of Control Termination of
Employment" means the termination of
employment of a Participant by the Company,
the Subsidiaries or the Associated Companies
without cause (as defined by the Committee)
or by the Participant for good reason (as
defined by the Committee) within a period of
time specified by the Committee following an
Alternate Change of Control;
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<PAGE>
(iv) "Alternate Change of Control Market Value"
of the Shares means the Fair Market Value of
such Shares on the date of exercise of a
Stock Appreciation Right.
Notwithstanding the foregoing provisions of this
Section 5 of Article II and without limiting the
provisions of Section 3 of Article I of this
Incentive Plan, in the event of an Alternate Change
of Control and a Change of Control Termination of
Employment, a Participant holding an unexercised
Stock Appreciation Right who is selected by the
Committee may exercise such Stock Appreciation Right
and elect to be paid solely in cash in an amount
equal to the difference between the Option price and
the Alternate Change of Control Market Value of the
Shares, unless within five (5) business days after
receipt of notification of such election by the
Secretary of the Company, the Committee acts to
disapprove the cash election. Unless it acts to
disapprove, the Committee's consent shall be deemed
to be given at the close of business on the fifth
business day after the Secretary's receipt of
notification of such election and payment shall be
made as soon as practicable after expiration of such
five (5) business day period. The election provided
herein shall apply only during the thirty (30) day
period following a Change of Control Termination of
Employment.
6. BONUS SHARES AND RESTRICTED SHARES
(a) An Award of Shares or Restricted Shares may be made at
such time or times determined by the Committee
following the Effective Date to any person who is an
Eligible Participant. The Committee shall have full
discretion to determine the terms and conditions of
payment of any award, including without limitation,
what part of such award shall be paid in unrestricted
Shares and Restricted Shares, the time or times of
payment of any Award, and the time or times of the
lapse of the restrictions on Restricted Shares.
(b) For the purpose of determining the number of Shares to
be used in payment of an Award, the amount of the Award
payable in Shares shall be divided by the Fair Market
Value of the Shares on the date of the determination of
the amount of the Award by the Committee, or if the
Committee so directs, the date immediately preceding
the date the Award is paid.
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<PAGE>
(c) The portion of an Award payable in Restricted Shares
shall be paid at the time of the award either by
book-entry registration or by delivering to the
Participant, or a custodian or escrow designated by the
Committee and the Participant, a certificate or
certificates for such Restricted Shares, registered in
the name of such Participant. The Participant shall
have all of the rights of a stockholder with respect to
such Shares, subject to such terms and conditions,
including forfeitures or resale to the Company, if any,
as may be determined by the Committee. The Committee
and the Participant may designate the Company or one or
more of its employees to act as custodian or escrow for
the certificates.
(d) Restricted Shares shall be subject to such terms and
conditions, including forfeiture, if any, and to such
restrictions against sale, transfer or other
disposition as may be determined by the Committee at
the time a Non-Qualified Option for the purchase of
Restricted Shares is granted, at the time a Stock
Appreciation Right to be settled with Restricted Shares
is granted or at the time of making a bonus award of
Restricted Shares. Any new or additional or different
Shares or other securities resulting from any
adjustment of such Shares of the type described in
Section 4 of Article I shall be subject to the same
terms, conditions, and restrictions as the Restricted
Shares prior to such adjustment. The Committee may, in
its discretion, remove, modify or accelerate the
release of restrictions on any Restricted Shares in the
event of hardship or disability of the Participant
while employed, in the event that the Participant
ceases to be an employee of the Company, a Subsidiary
or Associated Company, as the result of death or
otherwise, in the event of a relocation of a
Participant to another country or for such other
reasons as the Committee may deem appropriate. In the
event of the death of a Participant following the
transfer of Restricted Shares to him, the legal
representative of the Participant, the beneficiary
designated in writing by the Participant during his
lifetime, or the person receiving such Shares under his
will or under the laws of descent and distribution
shall take such Shares subject to the same
restrictions, conditions and provisions in effect at
the time of his death, to the extent applicable.
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<PAGE>
7. DIVIDENDS, DIVIDEND EQUIVALENTS AND INTEREST EQUIVALENTS
(a) No cash dividends shall be paid on Shares which have
been awarded but not delivered. The Committee may
provide, however, that a Participant to whom an Option
has been awarded which is exercisable in whole or in
part at a future time for Shares or a Participant who
has been awarded Shares payable in whole or in part at
a future time, shall be entitled to receive an amount
per Share, equal in value to the cash dividends, if
any, paid per Share on issued and outstanding Shares,
as of the dividend record dates occurring during the
period between the date of the award and the time each
such Share is delivered. Such amounts (herein called
"dividend equivalents") may, in the discretion of the
Committee, be:
(i) paid in cash or Shares either from time to
time prior to or at the time of the delivery
of such Shares or upon expiration of the
Option if it shall not have been fully
exercised (except that payment of the
dividend equivalents on Incentive Options
may not be made prior to exercise); or
(ii) converted into contingently credited Shares
(with respect to which dividend equivalents
shall accrue) in such manner, at such value,
and deliverable at such time or times, as
may be determined by the Committee.
Such Shares (whether delivered or contingently
credited) shall be charged against the limitations
set forth in Section 5 of Article I.
(b) The Committee, in its discretion, may authorize payment
of interest equivalents on any portion of any Award
payable at a future time in cash, and interest
equivalents on dividend equivalents which are payable
in cash at a future time.
(c) The Committee, in its discretion, may provide that
dividends paid on restricted Shares shall, during the
applicable restricted period, be held by the Company to
be paid upon the lapse of restrictions or to be
forfeited upon forfeiture of the Shares.
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III. Miscellaneous Provisions
1. Neither a Stock Option nor a Stock Appreciation Right shall be
transferable except as provided for herein. If any Participant makes
such a transfer in violation hereof, any obligation of the Company
with respect to such Stock Option or Stock Appreciation Right shall
forthwith terminate.
2. Nothing in this Incentive Plan or any booklet or other document
describing or referring to this Incentive Plan shall be deemed to
confer on any employee or Participant the right to continue in the
employ of his employer or affect the right of his employer to
terminate the employment of any such person with or without cause.
3. Nothing contained herein shall require the Company to segregate any
monies from its general funds, or to create any trusts, or to make any
special deposits for any immediate or deferred amounts payable to any
Participant.
4. This Incentive Plan and all actions taken hereunder shall be governed
by the laws of the State of Delaware.
5. The Company may make such provisions and take such steps as it may
deem necessary or appropriate for the withholding of any taxes which
the Company is required by any law or regulation of any governmental
authority, whether federal, state or local, domestic or foreign, to
withhold in connection with any Stock Option or the exercise thereof,
any Stock Appreciation Right or the exercise thereof, or the payment
of any bonus award, including, but not limited to, the withholding of
cash or Shares which would be paid or delivered pursuant to such
exercise or award or another exercise or award under this Incentive
Plan until the Participant reimburses the Company for the amount the
Company is required to withhold with respect to such taxes, or
cancelling any portion of such award or another award under this
Incentive Plan in an amount sufficient to reimburse itself for the
amount it is required to so withhold, or selling any property
contingently credited by the Company for the purpose of paying such
award or another award under this Incentive Plan, in order to withhold
or reimburse itself for the amount it is required to so withhold. The
Committee may permit a Participant (or any beneficiary or other person
authorized to act) to elect to pay a portion or all of any amounts
required or permitted to be withheld to satisfy federal, state, local
or foreign tax obligations by directing the Company to withhold a
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number of whole Shares which would otherwise be distributed and which
have a fair market value sufficient to cover the amount of such
required or permitted withholding taxes.
6. Notwithstanding any other provision of this Incentive Plan, for
purposes of any Award that is outstanding as of the date that the
Company spins off the Company's chemical businesses into a new
publicly traded company ("Chemicals") and is held by a Participant who
in connection with such spinoff becomes an employee of Chemicals (or a
subsidiary or associated company of Chemicals) rather than an employee
of the Company (or a Subsidiary or Associated Company of the Company),
such change of employment shall not constitute a Termination of
Employment. With respect to any such Award held by such a Participant,
Termination of Employment shall mean such Participant's termination of
employment with Chemicals other than a Transfer, with Transfer defined
as a change of employment of a Participant within the group consisting
of Chemicals and its subsidiaries, or, if the Committee so determines,
a change of employment of a Participant within the group consisting of
Chemicals, its subsidiaries, and its associated companies. For
purposes of this section, a subsidiary of Chemicals means any
corporation (or partnership, joint venture, or other enterprise) of
which Chemicals owns or controls, directly or indirectly, 50% or more
of the outstanding shares of stock normally entitled to vote for the
election of directors (or comparable equity participation and voting
power) and an associated company of Chemicals means any corporation
(or partnership, joint venture, or other enterprise), of which
Chemicals owns or controls, directly or indirectly, 10% or more, but
less than 50% of the outstanding shares of stock normally entitled to
vote for the election of directors (or comparable equity participation
and voting power).
IV. Amendments
1. The Board, upon recommendation of the Committee but not otherwise, may
from time to time amend or modify this Incentive Plan, including, but
not limited to, an amendment which would authorize the Committee to
make Awards payable in other securities or other forms of property of
a kind to be determined by the Committee, and such other amendments as
may be necessary or desirable to implement such Awards, or discontinue
this Incentive Plan or any provision thereof, provided that no
amendments or modifications to this Incentive Plan shall, without the
prior approval of the stockholders normally entitled to vote for the
election of directors of the Company:
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(a) permit the Company to decrease the Option price on any
outstanding Option;
(b) permit any change which would require the approval of
stockholders under Section 16 of the Securities Exchange Act of
1934 or the rules thereunder or under Section 422 of the Internal
Revenue Code of 1986, or the rules thereunder (or any law, rule,
regulation or other provision that may replace such statutes or
rules); or
(c) change any of the provisions of this Article IV.
2. No amendment to or discontinuance of this Incentive Plan or any
provision thereof by the Board or the stockholders of the Company
shall, without the written consent of the Participant, adversely
affect any Stock Option or Stock Appreciation Right theretofore
granted or bonus commitment or bonus award theretofore made to such
Participant under this Incentive Plan.
V. Interpretation
1. Except as authorized herein with respect to Stock Appreciation Rights,
this Incentive Plan is not intended to and shall not affect any option
or stock appreciation right grant or bonus commitment or award under
the 1984 Plan, the 1988/I Plan or the 1988/II Plan (or any other
incentive plan of the Company, its Subsidiaries and Associated
Companies). No stock options or stock appreciation rights or Awards of
Restricted or unrestricted Shares shall be granted under either the
1988/I Plan or the 1988/II Plan after February 1, 1994.
2. This Incentive Plan is not intended to and shall not preclude the
establishment or operation by the Company or any Subsidiary of (a) any
thrift, savings and investment, achievement award, stock purchase,
employee recognition or other benefit plan or arrangement for any
group of employees, or (b) any other incentive or bonus plan or
arrangement for any employees (hereinafter "Other Plan"), and any such
Other Plan may be authorized and payments made thereunder
independently of this Incentive Plan; provided, however, that no such
Other Plan, other than a plan for G. D. Searle & Co. and a plan for
The NutraSweet Company, shall provide for the granting of options or
stock appreciation rights to purchase or receive the appreciation on
the shares of any class of stock of the Company, or the making of
bonus commitments or bonus awards payable in any class of stock of the
Company, which in either form or substance are comparable to those
authorized under this Incentive Plan, unless such Other Plan is
21
<PAGE>
established or operated in connection with the assumption by the
Company or a Subsidiary of the plans, options, stock appreciation
rights, bonus commitments or bonus awards of another corporation, or
the substitution of an Other Plan or options, stock appreciation
rights, bonus commitments or bonus awards under such Other Plan in
lieu of the plans, options, stock appreciation rights, bonus
commitments or bonus awards of such other corporation, arising out of
a merger or consolidation with, or the acquisition of assets or stock
of, such other corporation, or other transaction described in Section
424(a) of the Internal Revenue Code of 1986, as may be amended from
time to time, as in effect at the time.
22
FORM OF
MONSANTO COMPANY
1999 NON-QUALIFIED PREMIUM STOCK OPTION CERTIFICATE
(NOT TRANSFERABLE)
MONSANTO COMPANY, a Delaware corporation (the
"Company"), pursuant to action of
Monsanto Company's People Committee
(the "Committee")
hereby grants to (the "Optionee")
(Employee ID )
as a separate inducement in connection with the Optionee's employment
and not in lieu of any salary or other compensation for the Optionee's services,
a Non-Qualified Premium Stock Option
to purchase from the Company shares of its common stock,
par value $2.00 per share (the "Optioned Shares"),
at a price of per share,
pursuant to and subject to the provisions of the Monsanto Management Incentive
Plan of 1996 (the "Plan") and to the Terms and Conditions set forth below,
which constitute the entire understanding between the Company and the
Optionee with respect to this Option.
Option granted as of _______, 1999 (the "Option Grant Date").
<PAGE>
1999 STOCK OPTION
TERMS AND CONDITIONS
1. Option Grant. Monsanto Company, a Delaware corporation (the "Company"),
pursuant to authorization by the People Committee of the Company's Board of
Directors (the "Committee"), has granted, as of July 1, 1999 (the "Option
Grant Date"), to certain specified employees of the Company (each such
recipient referred to herein as the "Optionee"), as a separate inducement
in connection with the Optionee's employment and not in lieu of any salary
or other compensation for the Optionee's services, a Non-Qualified Premium
Stock Option to purchase from the Company the number of Shares set forth on
such Optionee's 1999 Premium Stock Option Certificate (the "Optioned
Shares"), at a per share price equal to $51.00, pursuant to and subject to
the provisions of the Monsanto Management Incentive Plan of 1996 (the
"Plan") and to these Terms and Conditions, which constitute the entire
understanding between the Company and the Optionee with respect to this
Option.
2. Definitions. The terms "Termination of Employment", "Fair Market Value" and
"Shares" when used herein, shall have the meanings set forth in the Plan.
3. Exercise Rights. The Option shall be exercisable, during the Option term
set forth in paragraph 4 and subject to the other terms and conditions
hereof, as of the later to occur of (a) the first business day next
following a period of ten (10) consecutive trading days during which the
Fair Market Value of the of the Optioned Shares equals or exceeds $51.00
per share or (b) March 1, 2001.
4. Option Term.
The Option term will expire at the end of the day next preceding ten (10)
years from the Option Grant Date (the "Fixed Termination Date"), or on
Termination of Employment of the Optionee, whichever shall first occur,
provided that, if Termination of Employment occurs on or after the March 1,
2001, the Optionee (or in the event of death, the Optionee's legal
representative, beneficiary or transferee pursuant to paragraph 11 hereof)
may exercise the Option with respect to the number of shares determined
under paragraph 4(b) hereof:
(a) within twelve (12) months after Termination of Employment (but
no later than the Fixed Termination Date) if employment is
terminated by the Company and its Subsidiaries, except for
cause (as determined by the Committee in the sole but not
unreasonable exercise of its judgment);
(b) within five (5) years after Termination of Employment (but no
later than the Fixed Termination Date) if employment is
terminated (i) by total and permanent disability (as
determined by the Committee in the sole but not unreasonable
exercise of its judgment) or (ii) after age 50, except for
cause ("Retirement");
2
<PAGE>
(c) within five (5) years after Termination of Employment (but no
later than the Fixed Termination Date) (i) if employment
terminates as a result of the death of the Optionee while
employed by the Company and its Subsidiaries or (ii) if the
Optionee dies after terminating employment as specified in
clause (b) above and within five years after the date of
Termination of Employment; or
(d) within three (3) months after Termination of Employment (but
no later than the Fixed Termination Date) if employment is
voluntarily terminated by the Optionee (excluding Retirement).
Notwithstanding the foregoing, if Termination of Employment is for cause, the
Option term will in all cases expire upon Termination of Employment.
5. Method of Exercise. The Option shall be exercised by (a) written notice
given to the Company, or its designee (at the address specified by the
Company from time to time) specifying the Option Grant Date and the number
of shares as to which the Option is being exercised, plus (b) payment to
the Company in full for the Shares so specified. Within a reasonable time
after exercise of the Option, the Company shall deliver Shares to the
Optionee (or in the event of the Optionee's death, to the Optionee's legal
representative or transferee pursuant to paragraph 11 hereof) in respect of
which the Option shall have been exercised and shall pay all stamp taxes in
respect thereof, provided that upon or prior to the issuance of such
Shares, provision (as specified by the Company from time to time) shall be
made by the Optionee for the payment to the employer of any and all taxes
which it shall be required to withhold, in connection with exercise of the
Option, by any law or regulation of any government, whether federal, state
or local and whether domestic or foreign. Payment may be made by delivery
of Shares (or other evidence of ownership of Shares satisfactory to the
Company) with a Fair Market Value equal to the Option price as payment.
6. Stockholder Status. The Optionee shall have no rights as a stockholder with
respect to any Optioned Shares unless and until the Optionee shall have
become the holder of record of such Shares and, subject to the provisions
of paragraph 7 hereof, no adjustment shall be made for dividends, ordinary
or extraordinary (whether in cash or securities or other property), or
other distributions, or other rights in respect of such shares as to which
the record date is prior to the date upon which the Optionee shall have
become the holder of record thereof.
7. Share and Price Adjustment. Upon the occurrence of any event described in
Section 4 of Article I of the Plan or in Section 3(d) of Article I of the
Plan, the Option (including, without limitation, the price per Share) shall
be modified as provided in the Plan. The Optionee shall be notified of any
such modifications and any modification, or failure to modify, shall be
final and binding upon the Company and the Optionee.
3
<PAGE>
8. Change of Control. For purposes of this Option, "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 complies with clauses (i),
(ii) and (iii) of subsection (c) of this paragraph 8; or
(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
4
<PAGE>
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 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.
Immediately following any Change of Control: (a) this Option shall
become fully exercisable by the Optionee without regard to satisfaction
of the criteria specified in paragraph 3 above; and (b) the applicable
period for exercise as set forth in paragraph 4 hereof shall apply
whether or not the Change of Control occurs prior to or after March 1,
2001.
9. Employment and Termination. The grant of this Option is a separate
inducement in connection with the Optionee's employment and not in lieu of
any salary or other compensation for the Optionee's services. Neither the
Option nor any provision hereof shall confer any employment right on the
Optionee or affect the right of the Optionee's employer to terminate the
employment of the Optionee at any time, with or without cause or assigning
a reason therefor, and grant of this Option neither implies nor precludes
the grant of a stock option in the future.
10. Option Subject to Laws and Regulations. Each exercise of the Option shall
be subject to all requirements as to (a) the listing registration or
qualification of the Optioned Shares upon any securities exchange on which
Shares are listed or under any applicable federal, state or other law, (b)
the consent or approval of any governmental body determined by the Company
to be necessary or desirable and (c) compliance with any economic
stabilization or other government regulation at the time in effect.
Anything herein to the contrary notwithstanding, the Option may not be
exercised, in whole or in part, unless and until the Company shall have
been able to comply with all such requirements and regulations free of any
conditions not acceptable to the Company. As a condition to the exercise of
the Option, either in whole or in part, the Optionee shall execute such
documents and take such action as the Company in its sole discretion deems
necessary or advisable to assist the Company in compliance with any such
requirements, and Optionee shall comply with all requirements of any
regulatory authority having control or supervision.
5
<PAGE>
11. General Provisions. The Option is not transferable by the Optionee
otherwise than by will, by the laws of descent and distribution or to a
beneficiary designated in writing by the Optionee during his lifetime, and
during the lifetime of the Optionee shall be exercisable only by the
Optionee.
In the event the Company's method of accounting for the Option changes in a
manner that the Committee in its discretion determines is detrimental to
the Company, the Committee may cancel the Option or amend it.
The validity, interpretation, performance and enforcement of this
Option shall be governed by the laws of the State of Delaware without
regard to its conflict of law provisions (except for Nonprobate
Transfers Laws to the extent applicable as determined by the
Committee).
Each and every provision of the Option shall be administered, construed
and interpreted so that the Option shall in all respects conform to the
provisions of the Plan and any provision that cannot be so administered
shall be deemed appropriately modified, or, if necessary, disregarded.
The Plan and these terms and conditions constitute the entire
understanding between the Company and the Optionee with respect to this
Option. In no event shall this Option be deemed to be an Incentive
Stock Option under Section 422 of the Internal Revenue Code of 1986, as
amended.
6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE STATEMENT OF CONSOLIDATED INCOME OF MONSANTO COMPANY AND
SUBSIDIARIES FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999, AND THE
STATEMENT OF CONSOLIDATED FINANCIAL POSITION AS OF SEPTEMBER 30, 1999.
SUCH INFORMATION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 84
<SECURITIES> 0
<RECEIVABLES> 3,450
<ALLOWANCES> 0
<INVENTORY> 1,598
<CURRENT-ASSETS> 5,635
<PP&E> 5,438
<DEPRECIATION> 2,388
<TOTAL-ASSETS> 15,971
<CURRENT-LIABILITIES> 3,555
<BONDS> 5,961
1,694
0
<COMMON> 0
<OTHER-SE> 3,568
<TOTAL-LIABILITY-AND-EQUITY> 15,971
<SALES> 6,841
<TOTAL-REVENUES> 6,841
<CGS> 2,450
<TOTAL-COSTS> 2,450
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 287
<INCOME-PRETAX> 699
<INCOME-TAX> 243
<INCOME-CONTINUING> 456
<DISCONTINUED> 69
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 525
<EPS-BASIC> .83
<EPS-DILUTED> .81
</TABLE>
