<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 31, 2000
Pharmacia Corporation
(Exact Name of Registrant as Specified in Charter)
Delaware 1- 2516 43-0420020
(State or Other Jurisdiction (Commission File Number) (IRS Employer/
of Incorporation) Identification No.)
100 Route 206 North, Peapack, New Jersey 07977
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (908) 901-8000
Monsanto Company
800 North Lindbergh Boulevard, St. Louis, Missouri 63167
(Former Name or Former Address, if Changed Since Last Report)
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ITEM 1. NOT APPLICABLE
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On March 31, 2000, MP Sub, Incorporated, a Delaware corporation ("Merger Sub")
wholly owned by Pharmacia Corporation (formerly Monsanto Company), a Delaware
corporation ("Registrant"), merged (the "Merger") with and into Pharmacia &
Upjohn, Inc., a Delaware corporation ("Pharmacia & Upjohn"), pursuant to an
Agreement and Plan of Merger, dated as of December 19, 1999, as amended (the
"Merger Agreement").
Pursuant to the Merger Agreement, each share of common stock, par value $0.01
per share, of Pharmacia & Upjohn ("Pharmacia & Upjohn Common Stock") issued and
outstanding, other than shares owned or held directly or indirectly by
Registrant or directly or indirectly by Pharmacia & Upjohn, was converted into
1.19 shares of common stock, par value $2.00 per share, of Registrant
("Registrant Common Stock") and each share of Series A Convertible Perpetual
Preferred Stock, par value $0.01 per share, of Pharmacia & Upjohn issued and
outstanding was converted into one share of a new series of convertible
preferred stock of Registrant designated as Series B Convertible Perpetual
Preferred Stock. The Merger Agreement, a copy of which is attached hereto as
Exhibit 2.1, is incorporated herein by reference.
Also, pursuant to the Merger Agreement, the Board of Directors of the Registrant
(the "Registrant Board") has been expanded from 10 to 18 members, and Frank
Carlucci, Olof Lund, Bengt Samuelsson, M. Kathryn Eickhoff, Fred Hassan,
Berthold Lindqvist, C. Steven McMillan, William U. Parfet and Ulla Reinius, all
of whom were members of the Board of Directors of Pharmacia & Upjohn prior to
the Merger, have been elected to the Registrant's Board.
The Registrant and Pharmacia & Upjohn mailed a definitive joint proxy
statement/prospectus (the "Joint Proxy Statement/Prospectus") to their
respective stockholders on February 22, 2000, which sets forth certain
information regarding the Merger, the Registrant, Pharmacia & Upjohn and Merger
Sub, including, but not limited to, the manner of the Merger, the nature of any
material relationships between Pharmacia & Upjohn and the Registrant or any
officer or director of the Registrant or any associate of any such officer or
director, the nature of Pharmacia & Upjohn's business and the Registrant's
intended use of the assets acquired in the Merger. Excerpts from the cover page
and pages I-1, I-5, I-8, I-35 to I-45, and III-3 of the Joint Proxy
Statement/Prospectus, copies of which are attached hereto as Exhibit 20.1, are
incorporated herein by reference.
ITEM 3-4. NOT APPLICABLE
ITEM 5. OTHER EVENTS.
In order to complete the Merger, the Registrant's Restated Certificate of
Incorporation was amended to (i) change the Registrant's name from Monsanto
Company to Pharmacia Corporation, (ii) increase the number of authorized shares
of Registrant Common Stock from one billion to three billion shares, (iii)
eliminate the prohibition on preferred stock having more than one vote per
share and (iv) change the par value of authorized preferred stock from no par
value to $0.01 par value per share. On March 31, 2000 the Registrant filed an
amendment to the Restated Certificate of Incorporation with the Delaware
Secretary of State, a copy of the Certificate of Amendment of Pharmacia
Corporation's Restated Certificate of Incorporation is included as Exhibit 4.1
hereto and is incorporated by reference herein.
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ITEM 6. NOT APPLICABLE
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired
The (i) consolidated audited balance sheet of Pharmacia & Upjohn as of December
31, 1999 and 1998 and (ii) the consolidated statement of income and cash flows
of Pharmacia & Upjohn for the fiscal years ended December 31, 1999, 1998 and
1997 are incorporated by reference to the audited Financial Statements of
Pharmacia & Upjohn as of December 31, 1999 and 1998 and for each of the three
years ended December 31, 1999, 1998 and 1997, which are attached hereto as
Exhibit 20.2.
(b) Pro Forma Financial Information
Pursuant to the instructions to Item 7(b)(2) of Form 8-K, pro forma financial
information has not been included in this report, but will be filed by amendment
not later than 60 days after the date that this report was required to be filed.
(c) Exhibits
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Exhibit Description
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2.1 Agreement and Plan of Merger, dated as of December 19, 1999,
among Monsanto Company, MP Sub Incorporated, and Pharmacia &
Upjohn, Inc., as amended as of February 18, 2000.
4.1 Certificate of Amendment of Pharmacia Corporation's Restated
Certificate of Incorporation.
20.1 Excerpts from the cover page and pages I-1, I-5, I-8, I-35 to
I-45, and III-3 of the Joint Proxy Statement/Prospectus,
which was first mailed to Pharmacia & Upjohn, Inc.
stockholders on February 22, 2000.
20.2 Financial Statements of Pharmacia & Upjohn, Inc. as of
December 31, 1999 and 1998 and for each of the three years
ended December 31, 1999, 1998 and 1997.
23.1 Consent of PricewaterhouseCoopers LLP, dated April 13, 2000.
</TABLE>
ITEM 8. NOT APPLICABLE
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SIGNATURES
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 hereunto duly authorized.
Date: April 12, 2000 PHARMACIA CORPORATION
By: /s/ Don W. Schmitz
------------------------------------
Name: Don W. Schmitz
Title: Vice President and Secretary
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EXHIBIT INDEX
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Exhibit Description
- ------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of December 19, 1999,
among Monsanto Company, MP Sub Incorporated, and Pharmacia &
Upjohn, Inc., as amended as of February 18, 2000.
4.1 Certificate of Amendment of Pharmacia Corporation's Restated
Certificate of Incorporation.
20.1 Excerpts from the cover page and pages I-1, I-5, I-8, I-35 to
I-45 and III-3 of the Joint Proxy Statement/Prospectus, which
was first mailed to Pharmacia & Upjohn, Inc. stockholders on
February 22, 2000.
20.2 Financial Statements of Pharmacia & Upjohn, Inc. as of
December 31, 1999 and 1998 and for each of the three years
ended December 31, 1999, 1998 and 1997.
23.1 Consent of PricewaterhouseCoopers LLP, dated April 13, 2000.
</TABLE>
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<PAGE> 1
AGREEMENT AND PLAN OF MERGER
DATED AS OF DECEMBER 19, 1999
AMONG
MONSANTO COMPANY,
MP SUB, INCORPORATED
AND
PHARMACIA & UPJOHN, INC.
AS AMENDED AS OF FEBRUARY 18, 2000
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
THE MERGER
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Section 1.1 The Merger.................................................. A-2
Section 1.2 Closing..................................................... A-2
Section 1.3 Effective Time.............................................. A-2
Section 1.4 Effects of the Merger....................................... A-2
Section 1.5 Certificate of Incorporation................................ A-2
Section 1.6 By-Laws..................................................... A-2
Section 1.7 Officers and Directors of Surviving Corporation............. A-2
Section 1.8 Effect on Capital Stock..................................... A-3
Section 1.9 Stock Options and Other Stock Compensation.................. A-4
Section 1.10 Certain Adjustments......................................... A-5
Section 1.11 Appraisal Rights............................................ A-5
Section 1.12 Transaction Structure....................................... A-5
ARTICLE II
EXCHANGE OF CERTIFICATES
Section 2.1 Exchange Fund............................................... A-6
Section 2.2 Exchange Procedures......................................... A-6
Section 2.3 Distributions with Respect to Unexchanged Certificates...... A-7
Section 2.4 No Further Ownership Rights in PNU Common Stock and PNU
Convertible Preferred Stock................................. A-7
Section 2.5 No Fractional Shares of Monsanto Common Stock............... A-7
Section 2.6 Termination of Exchange Fund................................ A-8
Section 2.7 No Liability................................................ A-8
Section 2.8 Investment of the Exchange Fund............................. A-8
Section 2.9 Lost Certificates........................................... A-8
Section 2.10 Withholding Rights.......................................... A-9
Section 2.11 Further Assurances.......................................... A-9
Section 2.12 Stock Transfer Books........................................ A-9
Section 2.13 Affiliates.................................................. A-9
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations and Warranties of PNU....................... A-10
(a) Organization, Standing and Power; Subsidiaries.......... A-10
(b) Capital Structure....................................... A-10
(c) Authority; No Conflicts................................. A-11
(d) Reports and Financial Statements........................ A-13
(e) Information Supplied.................................... A-13
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(f) Board Approval.......................................... A-14
(g) Vote Required........................................... A-14
(h) Litigation; Compliance with Laws........................ A-14
(i) Absence of Certain Changes or Events.................... A-15
(j) Environmental Matters................................... A-15
(k) Intellectual Property................................... A-16
(l) PNU Rights Agreement.................................... A-16
(m) Brokers or Finders...................................... A-17
(n) Opinions of PNU Financial Advisors...................... A-17
(o) Accounting Matters...................................... A-17
(p) Taxes................................................... A-17
(q) Certain Contracts....................................... A-17
(r) Employee Benefits....................................... A-17
Section 3.2 Representations and Warranties of Monsanto.................. A-18
(a) Organization, Standing and Power; Subsidiaries.......... A-18
(b) Capital Structure....................................... A-19
(c) Authority; No Conflicts................................. A-20
(d) Reports and Financial Statements........................ A-21
(e) Information Supplied.................................... A-22
(f) Board Approval.......................................... A-22
(g) Vote Required........................................... A-23
(h) Litigation; Compliance with Laws........................ A-23
(i) Absence of Certain Changes or Events.................... A-23
(j) Environmental Matters................................... A-23
(k) Intellectual Property................................... A-24
(l) Monsanto Rights Agreement............................... A-24
(m) Brokers or Finders...................................... A-24
(n) Opinions of Monsanto Financial Advisors................. A-24
(o) Accounting Matters...................................... A-25
(p) Taxes................................................... A-25
(q) Certain Contracts....................................... A-25
(r) Employee Benefits....................................... A-25
Section 3.3 Representations and Warranties of Monsanto and Merger Sub... A-26
(a) Organization............................................ A-26
(b) Corporate Authorization................................. A-26
(c) Non-Contravention....................................... A-26
(d) No Business Activities.................................. A-26
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 Covenants of PNU............................................ A-26
(a) Ordinary Course......................................... A-26
(b) Dividends; Changes in Share Capital..................... A-27
</TABLE>
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(c) Issuance of Securities.................................. A-27
(d) Governing Documents..................................... A-27
(e) No Acquisitions......................................... A-28
(f) No Dispositions......................................... A-28
(g) Investments; Indebtedness............................... A-28
(h) Pooling; Tax-Free Qualification......................... A-29
(i) Compensation............................................ A-29
(j) Accounting Methods; Income Tax Elections................ A-29
(k) Certain Agreements...................................... A-29
(l) PNU Rights Agreement.................................... A-29
(m) Funding of Benefits..................................... A-29
Section 4.2 Covenants of Monsanto....................................... A-30
(a) Ordinary Course......................................... A-30
(b) Dividends; Changes in Share Capital..................... A-30
(c) Issuance of Securities.................................. A-30
(d) Governing Documents..................................... A-31
(e) No Acquisitions......................................... A-31
(f) No Dispositions......................................... A-31
(g) Investments; Indebtedness............................... A-32
(h) Pooling; Tax-Free Qualification......................... A-32
(i) Compensation............................................ A-32
(j) Accounting Methods; Income Tax Elections................ A-32
(k) Certain Agreements...................................... A-33
(l) Monsanto Rights Agreement............................... A-33
(m) Funding of Benefits..................................... A-33
Section 4.3 Acquisitions................................................ A-33
Section 4.4 Governmental Filings........................................ A-33
Section 4.5 Control of Other Party's Business........................... A-33
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 Preparation of Proxy Statement; Stockholders Meetings....... A-34
Section 5.2 Newco Board of Directors; Executives; Name; Headquarters;
Monsanto Agribusiness....................................... A-35
Section 5.3 Access to Information....................................... A-36
Section 5.4 Reasonable Best Efforts..................................... A-37
Section 5.5 Acquisition Proposals....................................... A-38
Section 5.6 Employee Benefits Matters................................... A-40
(a) Continuation and Comparability of Benefits.............. A-40
(b) Pre-Existing Limitations; Deductibles; Service Credit... A-40
(c) Grantor Trusts.......................................... A-41
</TABLE>
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(d) Pension Plans........................................... A-41
(e) Assumption of Employment Agreements..................... A-41
Section 5.7 Fees and Expenses........................................... A-41
Section 5.8 Directors' and Officers' Indemnification and Insurance...... A-41
Section 5.9 Public Announcements........................................ A-42
Section 5.10 Accounting Matters.......................................... A-42
Section 5.11 Listing of Shares of Monsanto Common Stock.................. A-43
Section 5.12 Dividends................................................... A-43
Section 5.13 Affiliates.................................................. A-43
Section 5.14 Section 16 Matters.......................................... A-44
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.1 Conditions to Each Party's Obligation to Effect the
Merger...................................................... A-44
(a) Stockholder Approval.................................... A-44
(b) No Injunctions or Restraints, Illegality................ A-44
(c) HSR Act................................................. A-44
(d) EU Antitrust............................................ A-44
(e) Governmental and Regulatory Approvals................... A-44
(f) NYSE Listing............................................ A-45
(g) Effectiveness of the Form S-4........................... A-45
Section 6.2 Additional Conditions to Obligations of PNU................. A-45
(a) Representations and Warranties.......................... A-45
(b) Performance of Obligations of Monsanto.................. A-45
(c) Tax Opinion............................................. A-45
(d) Monsanto Rights Agreement............................... A-45
(e) Governance.............................................. A-46
Section 6.3 Additional Conditions to Obligations of Monsanto and Merger
Sub......................................................... A-46
(a) Representations and Warranties.......................... A-46
(b) Performance of Obligations of PNU....................... A-46
(c) Tax Opinion............................................. A-46
(d) PNU Rights Agreement.................................... A-46
ARTICLE VII
TERMINATION AND AMENDMENT
Section 7.1 Termination................................................. A-46
Section 7.2 Effect of Termination....................................... A-48
Section 7.3 Amendment................................................... A-50
Section 7.4 Extension; Waiver........................................... A-51
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 Non-Survival of Representations, Warranties and
Agreements.................................................. A-51
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Section 8.2 Notices..................................................... A-51
Section 8.3 Interpretation.............................................. A-52
Section 8.4 Counterparts................................................ A-52
Section 8.5 Entire Agreement; No Third Party Beneficiaries.............. A-52
Section 8.6 Governing Law............................................... A-52
Section 8.7 Severability................................................ A-52
Section 8.8 Assignment.................................................. A-53
Section 8.9 Submission to Jurisdiction; Waivers......................... A-53
Section 8.10 Enforcement................................................. A-53
Section 8.11 Definitions................................................. A-53
</TABLE>
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<PAGE> 7
AGREEMENT AND PLAN OF MERGER, dated as of December 19, 1999, as amended by
Amendment No. 1 dated as of February 18, 2000 (this "Agreement"), among Monsanto
Company, a Delaware corporation ("Monsanto"), MP Sub, Incorporated, a Delaware
corporation and a direct wholly-owned subsidiary of Monsanto ("Merger Sub"), and
Pharmacia & Upjohn, Inc., a Delaware corporation ("PNU").
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Monsanto and PNU deem it advisable and
in the best interests of each corporation and its respective stockholders that
Monsanto and PNU engage in a business combination as peer firms in a merger of
equals in order to advance the long-term strategic business interests of
Monsanto and PNU;
WHEREAS, the combination of Monsanto and PNU shall be effected by the terms
of this Agreement through a merger as outlined below (the "Merger");
WHEREAS, in furtherance thereof, the respective Boards of Directors of
Monsanto and PNU have approved the Merger, upon the terms and subject to the
conditions set forth in this Agreement, pursuant to which each share of common
stock, par value $0.01 per share, of PNU ("PNU Common Stock") issued and
outstanding immediately prior to the Effective Time (as defined in Section 1.3),
other than shares owned or held directly or indirectly by Monsanto or directly
or indirectly by PNU, will be converted into 1.19 shares of common stock, par
value $2.00 per share, of Monsanto ("Monsanto Common Stock") as set forth in
Section 1.8 and each share of Series A Convertible Perpetual Preferred Stock,
par value $0.01 per share, of PNU ("PNU Convertible Preferred Stock") issued and
outstanding immediately prior to the Effective Time will be converted into one
share of a new series of convertible preferred stock to be issued by Monsanto at
the Effective Time and to be designated as Series A Convertible Perpetual
Preferred Stock ("Monsanto Convertible Preferred Stock") as set forth in Section
1.8;
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, (i) as a condition and inducement to Monsanto's willingness to enter
into this Agreement and the Monsanto Stock Option Agreement referred to below,
Monsanto and PNU are entering into a Stock Option Agreement dated as of the date
hereof (the "PNU Stock Option Agreement") pursuant to which PNU is granting to
Monsanto an option to purchase shares of PNU Common Stock and (ii) as a
condition and inducement to PNU's willingness to enter into this Agreement and
the PNU Stock Option Agreement, PNU and Monsanto are entering into a Stock
Option Agreement dated as of the date hereof (the "Monsanto Stock Option
Agreement", and together with the PNU Option Agreement, the "Stock Option
Agreements"), pursuant to which Monsanto is granting to PNU an option to
purchase shares of Monsanto Common Stock;
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
promulgated thereunder; and
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a pooling of interests transaction under United States
generally accepted accounting principles ("GAAP"), although such accounting
treatment is not a condition to the consummation of the Merger.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement and in
<PAGE> 8
the Stock Option Agreements, and intending to be legally bound hereby, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Delaware General Corporation
Law (the "DGCL"), Merger Sub shall be merged with and into PNU at the Effective
Time. Following the Merger, the separate corporate existence of Merger Sub shall
cease and PNU shall continue as the surviving corporation (the "Surviving
Corporation").
SECTION 1.2 Closing. The closing of the Merger and the transactions
contemplated by this Agreement (the "Closing") will take place on the second
Business Day after the satisfaction or waiver (subject to applicable law) of the
conditions (other than conditions that, by their nature, cannot be satisfied
until the Closing Date) set forth in Article VI, unless another time or date is
agreed to in writing by the parties hereto (the actual time and date of the
Closing being referred to herein as the "Closing Date"). The Closing shall be
held at the offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New
York, New York, 10019, unless another place is agreed to in writing by the
parties hereto.
SECTION 1.3 Effective Time. As soon as practicable following the
satisfaction of the conditions set forth in Article VI, at the Closing the
parties shall (i) file a certificate of merger (the "Certificate of Merger") in
such form as is required by and executed in accordance with the relevant
provisions of the DGCL and (ii) make all other filings or recordings required
under the DGCL. The Merger shall become effective at such time as the
Certificate of Merger is duly filed with the Delaware Secretary of State or at
such subsequent time as Monsanto and PNU shall agree and as shall be specified
in the Certificate of Merger (the date and time the Merger becomes effective
being the "Effective Time").
SECTION 1.4 Effects of the Merger. At and after the Effective Time, the
Merger will have the effects set forth in the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time all the
property, rights, privileges, powers and franchises of PNU and Merger Sub shall
be vested in the Surviving Corporation, and all debts, liabilities and duties of
PNU and Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
SECTION 1.5 Certificate of Incorporation. (a) The certificate of
incorporation of PNU, as in effect immediately prior to the Effective Time,
shall be the certificate of incorporation of the Surviving Corporation, until
thereafter changed or amended as provided therein or by applicable law.
SECTION 1.6 By-Laws. (a) The by-laws of Merger Sub shall become the
by-laws of the Surviving Corporation until thereafter changed or amended as
provided therein or by applicable law.
SECTION 1.7 Officers and Directors of Surviving Corporation. The officers
of PNU as of the Effective Time shall be the officers of the Surviving
Corporation, until the earlier of their resignation or removal or otherwise
ceasing to be an officer or until their
A-2
<PAGE> 9
respective successors are duly elected and qualified, as the case may be. The
directors of Merger Sub as of the Effective Time shall become the directors of
the Surviving Corporation, which individuals will serve as directors of the
Surviving Corporation until the earlier of their resignation or removal or
otherwise ceasing to be a director or until their respective successors are duly
elected and qualified.
SECTION 1.8 Effect on Capital Stock. (a) At the Effective Time by virtue
of the Merger and without any action on the part of the holder thereof, each
share of PNU Common Stock issued and outstanding immediately prior to the
Effective Time (other than shares of PNU Common Stock owned by Monsanto or
Merger Sub or held by PNU, all of which shall be canceled as provided in Section
1.8(d)) shall be converted into 1.19 shares (the "Exchange Ratio") of Monsanto
Common Stock (together with any cash in lieu of fractional shares of Monsanto
Common Stock to be paid pursuant to Section 2.5, the "Common Merger
Consideration").
(b) At the Effective Time, by virtue of the Merger and without any action
on the part of the holder thereof, each share of PNU Convertible Preferred Stock
issued and outstanding immediately prior to the Effective Time shall, except as
provided in Section 1.11 with respect to shares of PNU Convertible Preferred
Stock as to which appraisal rights have been exercised, be converted into one
share of Monsanto Convertible Preferred Stock (the "Preferred Merger
Consideration" and together with the Common Merger Consideration, the "Merger
Consideration"; references herein to "Merger Consideration", shall exclude,
where appropriate, cash in lieu of fractional shares of Monsanto Common Stock).
Monsanto shall take all corporate action necessary to reserve for issuance a
sufficient number of shares of Monsanto Common Stock for issuance upon
conversion of the Monsanto Convertible Preferred Stock.
(c) As a result of the Merger and without any action on the part of the
holders thereof, at the Effective Time, all shares of PNU Common Stock and PNU
Convertible Preferred Stock shall cease to be outstanding and shall be canceled
and retired and shall cease to exist, and each holder of a certificate or
certificates which immediately prior to the Effective Time represented any such
shares of PNU Common Stock ("Common Certificates") or of PNU Convertible
Preferred Stock ("Preferred Certificates" and together with the Common
Certificates, the "Certificates") shall thereafter cease to have any rights with
respect to such shares of PNU Common Stock or PNU Convertible Preferred Stock,
respectively, except as provided herein or by law.
(d) Each share of PNU Common Stock issued and owned or held by Monsanto or
any of its Subsidiaries or PNU or any of its Subsidiaries at the Effective Time
shall, by virtue of the Merger, cease to be outstanding and shall be canceled
and retired and no stock of Monsanto or other consideration shall be delivered
in exchange therefor.
(e) Each share of common stock of Merger Sub issued and outstanding
immediately prior to the Effective Time shall be converted into one share of
common stock of the Surviving Corporation as of the Effective Time.
(f) At the Effective Time, each Certificate theretofore representing shares
of PNU Common Stock or shares of PNU Convertible Preferred Stock (except as
provided in Section 1.11 with respect to shares of PNU Convertible Preferred
Stock as to which appraisal rights have been exercised), as the case may be,
shall, without any action on the part of PNU, Monsanto or the holder thereof,
represent, and shall be deemed to represent from and after the Effective Time,
the number of shares of the class or series of capital
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<PAGE> 10
stock of Monsanto as determined in accordance with Section 1.8(a) and (b) above
and shall cease to represent any rights in any shares of capital stock of PNU.
At the Effective Time, each holder of a Certificate which, prior to the
Effective Time, represented shares of PNU Common Stock or PNU Convertible
Preferred Stock, as the case may be (except as provided in Section 1.11 with
respect to shares of PNU Convertible Preferred Stock as to which appraisal
rights have been exercised), shall cease to have any rights with respect to any
shares of PNU capital stock. In accordance herewith, former holders of PNU
Common Stock and PNU Convertible Preferred Stock (except as provided in Section
1.11 with respect to shares of PNU Convertible Preferred Stock as to which
appraisal rights have been exercised) shall, from and after the Effective Time,
be deemed from and after the Effective Time to be holders of the shares of
Monsanto Common Stock and shares of Monsanto Convertible Preferred Stock,
respectively, into which such shares of PNU Common Stock and PNU Preferred Stock
have been converted in accordance with Section 1.8 hereof.
SECTION 1.9 Stock Options and Other Stock Compensation. (a) On or prior
to the Effective Time, PNU will take all action necessary such that each PNU
Stock Option, each PNU SAR and each PNU Deferred Share (each as defined in
Section 3.1(b)) that was granted pursuant to the PNU Stock Incentive Plans (as
defined in Section 3.1(b)) prior to the Effective Time and which remains
outstanding immediately prior to the Effective Time shall cease to represent a
right with respect to shares of PNU Common Stock and shall be converted, at the
Effective Time, into a right, on the same terms and conditions as were
applicable under the PNU Stock Option, PNU SAR or PNU Deferred Share, as
applicable (but taking into account any changes thereto, including the
acceleration thereof, provided for in the PNU Stock Incentive Plans or in the
terms of such right by reason of this Agreement or the transactions contemplated
hereby), with respect to that number of shares of Monsanto Common Stock
determined by multiplying the number of shares of PNU Common Stock subject to
such PNU Stock Option, PNU SAR or PNU Deferred Share, as applicable, by the
Exchange Ratio, rounded, if necessary, to the nearest whole share of Monsanto
Common Stock, at (in the case of a PNU Stock Option or PNU SAR) a price per
share (rounded to the nearest one-hundredth of a cent) equal to the per-share
exercise price specified in such PNU Stock Option or PNU SAR, as applicable,
divided by the Exchange Ratio; provided, however, that in the case of any PNU
Stock Option to which Section 421 of the Code applies by reason of its
qualification under Section 422 of the Code, the option price, the number of
shares subject to such option and the terms and conditions of exercise of such
option shall be determined in a manner consistent with the requirements of
Section 424(a) of the Code.
(b) As soon as practicable after the Effective Time, Monsanto shall deliver
to the holders of PNU Stock Options, PNU SARs and PNU Deferred Shares
appropriate notices setting forth such holders' rights pursuant to the PNU Stock
Incentive Plans (including that, by virtue of the Merger and pursuant to the
terms of the PNU Stock Incentive Plans, the PNU Stock Options, PNU SARs and PNU
Deferred Shares have become fully vested and exercisable) and the agreements
evidencing the grants of such PNU Stock Options, PNU SARs and PNU Deferred
Shares shall continue in effect on the same terms and conditions (subject to the
adjustments required by this Section 1.9 after giving effect to the Merger and
the terms of the PNU Stock Incentive Plans). To the extent permitted by law,
Monsanto shall comply with the terms of the PNU Stock Incentive Plans and shall
take such reasonable steps as are necessary or required by, and subject to the
provisions of, such PNU Stock Incentive Plans, to have the PNU Stock Options
which qualified as
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incentive stock options prior to the Effective Time continue to qualify as
incentive stock options of Monsanto after the Effective Time.
(c) Monsanto shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Monsanto Common Stock for delivery
upon exercise of PNU Stock Options, PNU SARs and PNU Deferred Shares in
accordance with this Section 1.9. Promptly after the Effective Time, Monsanto
shall file a registration statement on Form S-3 or Form S-8, as the case may be
(or any successor or other appropriate forms), with respect to the shares of
Monsanto Common Stock subject to such options, stock appreciation rights and
deferred shares and shall use commercially reasonable efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained therein)
for so long as such options, stock appreciation rights and deferred shares
remain outstanding. With respect to those individuals who subsequent to the
Merger will be subject to the reporting requirements under Section 16(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), where
applicable, Monsanto shall administer the PNU Stock Option Plans in a manner
consistent with the exemptions provided by Rule 16b-3 promulgated under the
Exchange Act.
SECTION 1.10 Certain Adjustments. If, between the date of this Agreement
and the Effective Time, the outstanding PNU Common Stock or Monsanto Common
Stock shall have been changed into a different number of shares or different
class by reason of any reclassification, recapitalization, stock split, reverse
stock split, combination or exchange of shares, or a stock dividend or dividend
payable in any other securities shall be declared with a record date within such
period, or any similar event shall have occurred, the Exchange Ratio shall be
appropriately adjusted to provide to the holders of PNU Common Stock the same
economic effect as contemplated by this Agreement prior to such event.
SECTION 1.11 Appraisal Rights. Notwithstanding Section 1.8, shares of PNU
Convertible Preferred Stock outstanding immediately prior to the Effective Time
and held by a holder who has not voted in favor of the Merger or consented
thereto in writing and who has demanded appraisal for such shares of PNU
Convertible Preferred Stock in accordance with the DGCL shall not be converted
into the Preferred Merger Consideration, unless such holder fails to perfect or
withdraws or otherwise loses his right to appraisal. If after the Effective Time
such holder fails to perfect or withdraws or loses his right to appraisal, such
shares of PNU Convertible Preferred Stock shall be treated as if they had been
converted as of the Effective Time into the Preferred Merger Consideration. PNU
shall give Monsanto prompt notice of any demands received by PNU for appraisal
of shares of PNU Convertible Preferred Stock, and Monsanto shall have the right
to participate in all negotiations and proceedings with respect to such demands.
PNU shall not, except with the prior written consent of Monsanto, make any
payment with respect to, or settle or offer to settle, any such demands.
SECTION 1.12 Transaction Structure. The parties may, with the approval of
their respective Boards of Directors, at any time prior to the mailing of the
Joint Proxy Statement/Prospectus (as defined in Section 5.1) change the method
of effecting the combination between Monsanto and PNU (including, without
limitation, the provisions of this Article I) if and to the extent the parties
agree in writing that such change is necessary, appropriate or desirable.
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ARTICLE II
EXCHANGE OF CERTIFICATES
SECTION 2.1 Exchange Fund. Prior to the Effective Time, Monsanto shall
appoint a commercial bank or trust company reasonably acceptable to PNU having
net capital of not less than $100,000,000, or a subsidiary thereof, to act as
exchange agent hereunder for the purpose of exchanging Certificates representing
the Merger Consideration (the "Exchange Agent"). At or prior to the Effective
Time, Monsanto shall deposit with the Exchange Agent, in trust for the benefit
of holders of certificates which immediately prior to the Effective Time
represented outstanding shares of PNU Common Stock and PNU Convertible Preferred
Stock whose shares will be converted into shares of capital stock of Monsanto at
the Effective Time, certificates representing the Monsanto Common Stock issued
pursuant to Section 1.8 upon conversion of outstanding shares of PNU Common
Stock and certificates representing the Monsanto Convertible Preferred Stock
issued pursuant to Section 1.8 upon conversion of outstanding shares of PNU
Convertible Preferred Stock. Monsanto agrees to make available to the Exchange
Agent from time to time as needed, cash sufficient to pay cash in lieu of
fractional shares pursuant to Section 2.5 and any dividends and other
distributions pursuant to Section 2.3. Any cash, and certificates representing
Monsanto Common Stock and Monsanto Convertible Preferred Stock, deposited with
the Exchange Agent shall hereinafter be referred to as the "Exchange Fund."
SECTION 2.2 Exchange Procedures. As soon as reasonably practicable after
the Effective Time, Monsanto shall cause the Exchange Agent to mail to each
holder of a Certificate (i) a letter of transmittal which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent, and which
letter shall be in customary form and have such other provisions as Monsanto may
reasonably specify and (ii) instructions for effecting the surrender of such
Certificates in exchange for the certificates representing the applicable Merger
Consideration. Upon surrender of a Certificate to the Exchange Agent together
with such letter of transmittal, duly executed and completed in accordance with
the instructions thereto, and such other documents as may reasonably be required
by the Exchange Agent, the holder of such Certificate shall be entitled to
receive in exchange therefor (i) in the case of holders of Common Certificates
(A) certificates representing one or more shares of Monsanto Common Stock (which
shall be in uncertificated book-entry form unless a physical certificate is
requested) representing, in the aggregate, the whole number of shares into which
such holder's shares of PNU Common Stock have been converted pursuant to Section
1.8 (after taking into account all shares of PNU Common Stock then held by such
holder), and (B) a check in the amount equal to the cash that such holder has
the right to receive pursuant to the provisions of this Article II, including
cash in lieu of any fractional shares of Monsanto Common Stock pursuant to
Section 2.5 and dividends and other distributions pursuant to Section 2.3 and
(ii) in the case of holders of Preferred Certificates (A) certificates
representing one or more shares of Monsanto Convertible Preferred Stock (which
shall be in uncertificated book-entry form unless a physical certificate is
requested) representing, in the aggregate, the number of shares into which such
holder's shares of PNU Convertible Preferred Stock have been converted pursuant
to Section 1.8 and (B) a check in the amount equal to the cash that such holder
has the right to receive pursuant to the provisions of this Article II,
including dividends and other distributions pursuant to Section 2.3. No interest
will be paid or will accrue on any cash payable pursuant to Section 2.3 or
Section 2.5. In the event of a transfer of ownership of PNU Common Stock or PNU
Convertible Preferred Stock which
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is not registered in the transfer records of PNU, one or more shares of Monsanto
Common Stock or Monsanto Convertible Preferred Stock, as the case may be,
evidencing, in the aggregate, the proper number of shares of Monsanto Common
Stock or Monsanto Convertible Preferred Stock, as the case may be, a check in
the proper amount of cash in lieu of any fractional shares of Monsanto Common
Stock pursuant to Section 2.5 and any dividends or other distributions to which
such holder is entitled pursuant to Section 2.3, may be issued with respect to
such PNU Common Stock or PNU Convertible Preferred Stock, as the case may be, to
such a transferee if the Certificate which formerly represented such shares is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
SECTION 2.3 Distributions with Respect to Unexchanged Certificates. No
dividends or other distributions declared or made with respect to shares of
Monsanto Common Stock or Monsanto Convertible Preferred Stock with a record date
after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the certificate representing shares of Monsanto
Common Stock or Monsanto Convertible Preferred Stock, as the case may be, that
such holder would be entitled to receive upon surrender of such Certificate and
no cash payment in lieu of fractional shares of Monsanto Common Stock shall be
paid to any such holder pursuant to Section 2.5 until such holder shall
surrender such Certificate in accordance with Section 2.2. Subject to the effect
of applicable laws, following surrender of any such Certificate, there shall be
paid to such holder of shares of Monsanto Common Stock or Monsanto Convertible
Preferred Stock, as the case may be, issuable in exchange therefor, without
interest, (a) promptly after the time of such surrender, the amount of any cash
payable in lieu of fractional shares of Monsanto Common Stock to which such
holder is entitled pursuant to Section 2.5 and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of Monsanto Common Stock or such shares of Monsanto
Convertible Preferred Stock, as the case may be, and (b) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to such surrender and a payment date
subsequent to such surrender payable with respect to such shares of Monsanto
Common Stock or Monsanto Convertible Preferred Stock, as the case may be.
SECTION 2.4 No Further Ownership Rights in PNU Common Stock and PNU
Convertible Preferred Stock. All shares of Monsanto Common Stock and Monsanto
Convertible Preferred Stock issued and cash paid upon conversion of shares of
PNU Common Stock and PNU Convertible Preferred Stock in accordance with the
terms of Article I and this Article II (including any cash paid pursuant to
Section 2.3 or 2.5) shall be deemed to have been issued or paid in full
satisfaction of all rights pertaining to the shares of PNU Common Stock and PNU
Convertible Preferred Stock.
SECTION 2.5 No Fractional Shares of Monsanto Common Stock. (a) No
certificates or scrip or shares of Monsanto Common Stock representing fractional
shares of Monsanto Common Stock or book-entry credit of the same shall be issued
in the Merger or upon the surrender for exchange of Certificates and such
fractional share interests will not entitle the owner thereof to vote or to have
any rights of a shareholder of Monsanto or a holder of shares of Monsanto Common
Stock.
(b) Notwithstanding any other provision of this Agreement, each holder of
shares of PNU Common Stock converted pursuant to the Merger who would otherwise
have been entitled to receive a fraction of a share of Monsanto Common Stock
(after taking into
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account all Certificates delivered by such holder) shall receive, in lieu
thereof, cash (without interest) in an amount equal to the product of (i) such
fractional part of a share of Monsanto Common Stock multiplied by (ii) the
closing price for a share of Monsanto Common Stock on the New York Stock
Exchange, Inc. ("NYSE") Composite Transactions Tape (regular session) on the
date of the Effective Time, or if such date is not a Business Day, the Business
Day immediately following the date on which the Effective Time occurs. As
promptly as practicable after the determination of the amount of cash, if any,
to be paid to holders of fractional interests, the Exchange Agent shall so
notify Monsanto, and Monsanto shall deposit or cause the Surviving Corporation
to deposit such amount with the Exchange Agent and shall cause the Exchange
Agent to forward payments to such holders of fractional interests subject to and
in accordance with the terms hereof.
SECTION 2.6 Termination of Exchange Fund. Any portion of the Exchange
Fund which remains undistributed to the holders of Certificates for six months
after the Effective Time shall be delivered to Monsanto or otherwise on the
instruction of Monsanto, and any holders of the Certificates who have not
theretofore complied with this Article II shall thereafter look only to Monsanto
for the certificates representing the applicable Merger Consideration with
respect to the shares of PNU Common Stock or PNU Convertible Preferred Stock, as
the case may be, formerly represented thereby to which such holders are entitled
pursuant to Section 1.8 and Section 2.2, any cash in lieu of fractional shares
of Monsanto Common Stock to which such holders are entitled pursuant to Section
2.5 and any dividends or distributions with respect to shares of Monsanto Common
Stock or Monsanto Convertible Preferred Stock to which such holders are entitled
pursuant to Section 2.3. Any such portion of the Exchange Fund remaining
unclaimed by holders of Certificates which, prior to the Effective Time,
represented shares of PNU Common Stock and PNU Convertible Preferred Stock five
years after the Effective Time (or such earlier date immediately prior to such
time as such amounts would otherwise escheat to or become property of any
Governmental Entity (as defined in Section 3.1(c)(iii)) shall, to the extent
permitted by law, become the property of Monsanto free and clear of any claims
or interest of any Person previously entitled thereto.
SECTION 2.7 No Liability. None of Monsanto, the Surviving Corporation or
the Exchange Agent shall be liable to any Person in respect of any Merger
Consideration from the Exchange Fund delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law.
SECTION 2.8 Investment of the Exchange Fund. The Exchange Agent shall
invest any cash included in the Exchange Fund as directed by Monsanto on a daily
basis. Any interest and other income resulting from such investments shall
promptly be paid to Monsanto.
SECTION 2.9 Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and, if required by
Monsanto, the posting by such Person of a bond in such reasonable amount as
Monsanto may direct as indemnity against any claim that may be made against it
with respect to such Certificate, the Exchange Agent will deliver in exchange
for such lost, stolen or destroyed Certificate a certificate representing the
applicable Merger Consideration with respect to the shares of PNU Common Stock
or PNU Convertible Preferred Stock, as the case may be, any cash in lieu of
fractional shares of Monsanto Common Stock, and unpaid dividends and
distributions
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on shares of Monsanto Common Stock or Monsanto Convertible Preferred Stock, as
the case may be, issued in respect thereof, pursuant to this Agreement.
SECTION 2.10 Withholding Rights. Each of the Surviving Corporation and
Monsanto shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of Certificates
which, prior to the Effective Time, represented shares of PNU Common Stock or
PNU Convertible Preferred Stock such amounts as it is required to deduct and
withhold with respect to the making of such payment under the Code and the rules
and regulations promulgated thereunder, or any provision of state, local or
foreign tax law. To the extent that amounts are so withheld by the Surviving
Corporation or Monsanto, as the case may be, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the holder of
the shares of PNU Common Stock or PNU Convertible Preferred Stock, as the case
may be, in respect of which such deduction and withholding was made by the
Surviving Corporation or Monsanto, as the case may be.
SECTION 2.11 Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of PNU or Merger Sub, any deeds,
bills of sale, assignments or assurances and to take and do, in the name and on
behalf of PNU or Merger Sub, any other actions and things to vest, perfect or
confirm of record or otherwise in the Surviving Corporation any and all right,
title and interest in, to and under any of the rights, properties or assets
acquired or to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger.
SECTION 2.12 Stock Transfer Books. The stock transfer books of PNU shall
be closed immediately upon the Effective Time and there shall be no further
registration of transfers of shares of PNU Common Stock or PNU Convertible
Preferred Stock thereafter on the records of PNU. On or after the Effective
Time, any Certificates presented to the Exchange Agent or Monsanto for any
reason shall be exchanged for certificates representing the Merger Consideration
with respect to the shares of PNU Common Stock or PNU Convertible Preferred
Stock, as the case may be, formerly represented thereby, any cash in lieu of
fractional shares of Monsanto Common Stock to which the holders thereof are
entitled pursuant to Section 2.5 and any dividends or other distributions to
which the holders thereof are entitled pursuant to Section 2.3.
SECTION 2.13 Affiliates. Notwithstanding anything to the contrary herein,
to the fullest extent permitted by law and pooling of interests accounting
treatment, no certificates representing shares of Monsanto Common Stock or cash
shall be delivered to a Person who may be deemed an "affiliate" of PNU in
accordance with Section 5.13 hereof for purposes of Rule 145 under the
Securities Act of 1933, as amended (the "Securities Act") or, if the Merger
qualifies for pooling of interests accounting treatment under Opinion 16 of the
Accounting Principles Board and applicable rules and regulations of the
Securities and Exchange Commission (the "SEC"), for purposes of qualifying the
Merger for pooling of interests accounting treatment until such Person has
executed and delivered a PNU Affiliate Agreement (as defined in Section 5.13(b))
pursuant to Section 5.13.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of PNU. Except as set forth in
the PNU Disclosure Schedule delivered by PNU to Monsanto prior to the execution
of this Agreement (the "PNU Disclosure Schedule") (each section of which
qualifies the correspondingly numbered representation and warranty or covenant
to the extent specified therein) PNU represents and warrants to Monsanto as
follows:
(a) Organization, Standing and Power; Subsidiaries.
(i) Each of PNU and each of its Subsidiaries (as defined in Section
8.11) is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or
organization, has the requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted,
except where the failure to be so organized, existing and in good standing
or to have such power and authority would not reasonably be expected to
have a Material Adverse Effect on PNU, and is duly qualified and in good
standing to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such
qualification necessary other than in such jurisdictions where the failure
so to qualify or to be in good standing would not reasonably be expected to
have a Material Adverse Effect on PNU. The copies of the certificate of
incorporation and by-laws of PNU which were previously furnished or made
available to Monsanto are true, complete and correct copies of such
documents as in effect on the date of this Agreement.
(ii) Exhibit 21 to PNU's Annual Report on Form 10-K for the year ended
December 31, 1998 includes all the Subsidiaries of PNU which as of the date
of this Agreement are Significant Subsidiaries (as defined in Rule 1-02 of
Regulation S-X of the SEC). All the outstanding shares of capital stock of,
or other equity interests in, each such Significant Subsidiary have been
validly issued and are fully paid and nonassessable and are owned directly
or indirectly by PNU, free and clear of all pledges, claims, liens,
charges, encumbrances and security interests of any kind or nature
whatsoever (collectively "Liens") and free of any other restriction
(including any restriction on the right to vote, sell or otherwise dispose
of such capital stock or other ownership interests). Except as set forth in
the PNU SEC Reports (as defined in Section 3.1(d)), neither PNU nor any of
its Subsidiaries directly or indirectly owns any equity or similar interest
in, or any interest convertible into or exchangeable or exercisable for,
any corporation, partnership, joint venture or other business association
or entity (other than Subsidiaries), that is or would reasonably be
expected to be material to PNU and its Subsidiaries taken as a whole.
(b) Capital Structure.
(i) As of December 16, 1999, the authorized capital stock of PNU
consisted of (A) 1,500,000,000 shares of PNU Common Stock of which
519,388,807 shares were outstanding and 8,353 shares were held in the
treasury of PNU and (B) 100,000,000 shares of Preferred Stock, par value
$0.01 per share, of which (1) 7,500 shares have been designated as Series A
Convertible Perpetual Preferred Stock, par value $0.01 per share (the "PNU
Convertible Preferred Stock"), of which 6,697.920285 (as of December 15,
1999) shares of PNU Convertible Preferred Stock were outstanding, and (2)
5,193,888 shares have been authorized as Participating Preferred Stock and
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reserved for issuance upon exercise of the rights (the "PNU Rights")
distributed to the holders of PNU Common Stock pursuant to the Rights
Agreement dated as of March 4, 1997 between PNU and Harris Trust & Savings
Bank, as Rights Agent (the "PNU Rights Agreement"). As of December 16,
1999, PNU had reserved or has available 9,711,984 shares of PNU Common
Stock for issuance upon conversion of the PNU Convertible Preferred Stock.
Since December 16, 1999 to the date of this Agreement, there have been no
issuances of shares of the capital stock of PNU or any other securities of
PNU other than issuances of shares (and accompanying PNU Rights) upon
conversion of the PNU Convertible Preferred Stock or pursuant to options or
rights outstanding as of December 16, 1999 under the PNU Stock Incentive
Plans. All issued and outstanding shares of the capital stock of PNU are
duly authorized, validly issued, fully paid and nonassessable, and no class
of capital stock is entitled to preemptive rights. There were outstanding
as of December 16, 1999 no options, warrants or other rights to acquire
capital stock from PNU other than (x) the PNU Rights, (y) the PNU
Convertible Preferred Stock and (z) options and other rights representing
in the aggregate the right to purchase no more than 26, 770, 608 shares of
PNU Common Stock (collectively, the "PNU Stock Options") (including stock
appreciation rights (the "PNU SARs") and deferred shares of PNU Common
Stock (the "PNU Deferred Shares")), in each case granted under the
Pharmacia & Upjohn, Inc. Long-Term Incentive Plan, the Pharmacia & Upjohn,
Inc. Equity Compensation Plan and the Pharmacia & Upjohn, Inc. Directors
Equity Compensation and Deferral Plan (collectively, the "PNU Stock
Incentive Plans"). No options or warrants or other rights to acquire
capital stock from PNU have been issued or granted since December 16, 1999
to the date of this Agreement.
(ii) No bonds, debentures, notes or other indebtedness of PNU having
the right to vote on any matters on which stockholders of PNU may vote
("PNU Voting Debt") are issued or outstanding.
(iii) Except for the 12% Senior Convertible Notes of Sugen, Inc. due
2002 and warrants to acquire $2,656,250 principal amount of such 12% Senior
Convertible Notes or as otherwise set forth in this Section 3.1(b), as of
the date of this Agreement, there are no securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any
kind to which PNU or any of its Subsidiaries is a party or by which any of
them is bound obligating PNU or any of its Subsidiaries to issue, deliver
or sell, or cause to be issued, delivered or sold, additional shares of
capital stock or other voting securities of PNU or any of its Subsidiaries
or obligating PNU or any of its Subsidiaries to issue, grant, extend or
enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking. As of the date of this Agreement,
there are no outstanding obligations of PNU or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock of PNU
or any of its Subsidiaries.
(c) Authority; No Conflicts.
(i) PNU has all requisite corporate power and authority to enter into
this Agreement and the Stock Option Agreements and to consummate the
transactions contemplated hereby and thereby, subject in the case of the
consummation of the Merger to the adoption of this Agreement by the
Required PNU Vote (as defined in Section 3.1(g)). The execution and
delivery of this Agreement and the Stock Option Agreements and the
consummation of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action on the part of
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PNU, subject in the case of the consummation of the Merger to the adoption
of this Agreement by the Required PNU Vote. This Agreement and the Stock
Option Agreements have been duly executed and delivered by PNU and
constitute valid and binding agreements of PNU, enforceable against it in
accordance with their respective terms, except as such enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium and
similar laws relating to or affecting creditors generally or by general
equity principles (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
(ii) The execution and delivery of this Agreement and the Stock Option
Agreements by PNU does not or will not, as the case may be, and the
consummation by PNU of the Merger and the other transactions contemplated
hereby and thereby will not, conflict with, or result in any violation of,
or constitute a default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, amendment, cancellation or
acceleration of any obligation or the loss of a material benefit under, or
the creation of a lien, pledge, security interest, charge or other
encumbrance on any assets (any such conflict, violation, default, right of
termination, amendment, cancellation or acceleration, loss or creation, a
"Violation") pursuant to: (A) any provision of the certificate of
incorporation or by-laws of PNU, any Significant Subsidiary of PNU or (B)
except as would not reasonably be expected to have a Material Adverse
Effect on PNU or, to the Knowledge of PNU, Newco following the Merger,
subject to obtaining or making the Necessary Consents (as defined in
paragraph (iii) below), any loan or credit agreement, note, mortgage, bond,
indenture, lease, benefit plan or similar arrangement or other agreement,
obligation, instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
PNU, any Subsidiary of PNU or their respective properties or assets.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, any supranational, national,
state, municipal, local or foreign government, any instrumentality,
subdivision, court, administrative agency or commission or other authority
thereof, or any quasi-governmental or private body exercising any
regulatory, taxing, importing or other governmental or quasi-governmental
authority (a "Governmental Entity"), is required by or with respect to PNU
or any Subsidiary of PNU in connection with the execution and delivery of
this Agreement and the Stock Option Agreements by PNU or the consummation
of the Merger and the other transactions contemplated hereby and thereby,
except for those required under or in relation to (A) the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (B) state
securities or "blue sky" laws (the "Blue Sky Laws"), (C) the Securities
Act, (D) the Exchange Act, (E) the DGCL with respect to the filing of the
Certificate of Merger, (F) rules and regulations of the NYSE or the
Stockholm Stock Exchange, (G) antitrust or other competition laws of other
jurisdictions, and (H) such consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to make or
obtain would not reasonably be expected to have a Material Adverse Effect
on PNU. Consents, approvals, orders, authorizations, registrations,
declarations and filings required under or in relation to any of the
foregoing clauses (A) through (G) are hereinafter referred to as "Necessary
Consents".
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(d) Reports and Financial Statements.
(i) PNU has filed all required registration statements, prospectuses,
reports, schedules, forms, statements and other documents required to be
filed by it with the SEC since January 1, 1998 (collectively, including all
exhibits thereto, the "PNU SEC Reports"). No Subsidiary of PNU is required
to file any form, report, registration statement, prospectus or other
document with the SEC. As of their respective dates, none of the PNU SEC
Reports (and, if amended or superseded by a filing prior to the date of
this Agreement or the Closing Date, then on the date of such filing),
contained, and none of the PNU SEC Reports filed subsequent to the date
hereof will contain, any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Each of the financial statements (including the
related notes) included in the PNU SEC Reports presents fairly, in all
material respects, the consolidated financial position and consolidated
results of operations and cash flows of PNU and its Subsidiaries as of the
respective dates or for the respective periods set forth therein, all in
conformity with GAAP consistently applied during the periods involved
except as otherwise noted therein, and subject, in the case of the
unaudited interim financial statements, to normal and recurring year-end
adjustments that have not been and are not expected to be material in
amount. All of such PNU SEC Reports, as of their respective dates (and as
of the date of any amendment to the respective PNU SEC Report), complied as
to form in all material respects with the applicable requirements of the
Securities Act and the Exchange Act and the rules and regulations
promulgated thereunder.
(ii) Except as disclosed in the PNU SEC Reports filed prior to the
date hereof, since December 31, 1998, PNU and its Subsidiaries have not
incurred any liabilities that are of a nature that would be required to be
disclosed on a balance sheet of PNU and its Subsidiaries or the footnotes
thereto prepared in conformity with GAAP, other than (A) liabilities
incurred in the ordinary course of business or (B) liabilities that would
not, either individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on PNU.
(e) Information Supplied.
(i) None of the information supplied or to be supplied by PNU for
inclusion or incorporation by reference in (A) the Form S-4 (as defined in
Section 5.1) will, at the time the Form S-4 becomes effective under the
Securities Act or at the time of any post-effective amendment thereto,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading and (B) the Joint Proxy
Statement/Prospectus will, on the date it is first mailed to Monsanto
stockholders or PNU stockholders or at the time of the Monsanto
Stockholders Meeting or the PNU Stockholders Meeting (each as defined in
Section 5.1), contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading. The Form S-4 and the Joint Proxy
Statement/Prospectus will comply as to form in all material respects with
the requirements of the Exchange Act and the Securities Act and the rules
and regulations of the SEC thereunder.
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(ii) Notwithstanding the foregoing provisions of this Section 3.1(e),
no representation or warranty is made by PNU with respect to statements
made or incorporated by reference in the Form S-4 or the Joint Proxy
Statement/Prospectus based on information supplied by Monsanto or Merger
Sub for inclusion or incorporation by reference therein.
(f) Board Approval. The Board of Directors of PNU, by resolutions
duly adopted by unanimous vote at a meeting duly called and held and not
subsequently rescinded or modified in any way (the "PNU Board Approval"),
has duly (i) determined that this Agreement and the Merger are advisable
and fair to and in the best interests of PNU and its stockholders, (ii)
approved this Agreement, the Stock Option Agreements and the Merger and
(iii) recommended that the stockholders of PNU adopt this Agreement and
approve the Merger and directed that this Agreement and the transactions
contemplated hereby be submitted for consideration by PNU's stockholders at
the PNU Stockholders Meeting. The PNU Board Approval constitutes approval
of this Agreement, the PNU Stock Option Agreement and the Merger for
purposes of Section 203 of the DGCL. To the Knowledge of PNU, except for
Section 203 of the DGCL (which has been rendered inapplicable), no state
takeover statute is applicable to the Merger or the other transactions
contemplated hereby.
(g) Vote Required. The affirmative vote of the holders of shares of
PNU Common Stock and shares of PNU Convertible Preferred Stock, voting
together as a single class, representing a majority of the total votes
entitled to be cast by the holders of all outstanding shares of PNU Common
Stock and all outstanding shares of PNU Convertible Preferred Stock (the
"Required PNU Vote"), is the only vote of the holders of any class or
series of PNU capital stock necessary to adopt this Agreement and approve
the Merger and the other transactions contemplated by the Merger Agreement.
(h) Litigation; Compliance with Laws.
(i) Except as disclosed in the PNU SEC Reports filed prior to the date
of this Agreement, there is no suit, action or proceeding pending or, to
the Knowledge of PNU, threatened, against or affecting PNU or any
Subsidiary of PNU having, or which would reasonably be expected to have a
Material Adverse Effect on PNU, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator
outstanding against PNU or any Subsidiary of PNU having, or which
reasonably would be expected to have a Material Adverse Effect on PNU.
(ii) Except as disclosed in the PNU SEC Reports filed prior to the
date of this Agreement and except as would not reasonably be expected to
have a Material Adverse Effect on PNU, PNU and its Subsidiaries hold all
permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities which are necessary for the operation of the
businesses of PNU and its Subsidiaries, taken as a whole (the "PNU
Permits"). PNU and its Subsidiaries are in compliance with the terms of the
PNU Permits, except where the failure so to comply would not reasonably be
expected to have a Material Adverse Effect on PNU. Except as disclosed in
the PNU SEC Reports filed prior to the date of this Agreement, the
businesses of PNU and its Subsidiaries are not being conducted in violation
of, and PNU has not received any notices of violations with respect to, any
law, ordinance or
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regulation of any Governmental Entity, except for possible violations which
would not reasonably be expected to have a Material Adverse Effect on PNU.
(i) Absence of Certain Changes or Events. Except for liabilities
incurred in connection with this Agreement or the transactions contemplated
hereby, except as disclosed in the PNU SEC Reports filed prior to the date
of this Agreement, and except as permitted by Section 4.1, since December
31, 1998, PNU and its Subsidiaries have conducted their business only in
the ordinary course in all material respects and there has not been (i) any
change, circumstance or event which has had, or would reasonably be
expected to have, a Material Adverse Effect on PNU, (ii) any declaration,
setting aside or payment of any dividend or other distribution with respect
to its capital stock, other than regular quarterly cash dividends not
exceeding $0.27 with respect to each share of PNU Common Stock and $629.69
with respect to each share of PNU Convertible Preferred Stock, (iii) any
split, combination or reclassification of PNU's capital stock or any
issuance of or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for, shares of its capital stock,
or (iv) any material change in its accounting policies.
(j) Environmental Matters. Except as would not reasonably be expected
to have a Material Adverse Effect on PNU and except as disclosed in the PNU
SEC Reports filed prior to the date of this Agreement (i) the operations of
PNU and its Subsidiaries have been and are in compliance with all
Environmental Laws and with all licenses required by Environmental Laws (as
defined below), (ii) there are no pending or, to the Knowledge of PNU,
threatened, actions, suits, claims, investigations or other proceedings
(collectively, "Actions") under or pursuant to Environmental Laws against
PNU or its Subsidiaries or involving any real property currently or, to the
Knowledge of PNU, formerly owned, operated or leased by PNU or its
Subsidiaries and (iii) PNU and its Subsidiaries are not subject to any
Environmental Liabilities (as defined below), and, to the Knowledge of PNU,
no facts, circumstances or conditions relating to, arising from, associated
with or attributable to any real property currently or, to the Knowledge of
PNU, formerly owned, operated or leased by PNU or its Subsidiaries or
operations thereon would reasonably be expected to result in Environmental
Liabilities.
As used in this Agreement, "Environmental Laws" means any and all
foreign, federal, state, local or municipal laws, rules, orders,
regulations, statutes, ordinances, codes, decisions, injunctions, orders,
decrees, requirements of any Governmental Entity, any and all common law
requirements, rules and bases of liability regulating, relating to or
imposing liability or standards of conduct concerning pollution, Hazardous
Materials or protection of human health, safety or the environment, as in
effect on or prior to the Closing Date and includes the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section
9601 et seq., the Hazardous Materials Transportation Act, 49 U.S.C. Section
1801 et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section
6901 et seq., the Clean Water Act, 33 U.S.C. Section 1251 et seq., the
Clean Air Act, 33 U.S.C. Section 2601 et seq., the Toxic Substances Control
Act, 15 U.S.C. Section 2601 et seq., the Federal Insecticide, Fungicide and
Rodenticide Act, 7 U.S.C., Section 136 et seq., Occupational Safety and
Health Act 29 U.S.C. Section 651 et seq. and the Oil Pollution Act of 1990,
33 U.S.C. Section 2701 et seq., as such laws have been amended or
supplemented, and the regulations promulgated pursuant thereto, and all
analogous state or local statutes. As used in this Agreement,
"Environmental
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Liabilities" with respect to any person means any and all liabilities of or
relating to such person or any of its Subsidiaries (including any entity
which is, in whole or in part, a predecessor of such person or any of such
Subsidiaries), whether vested or unvested, contingent or fixed, actual or
potential, known or unknown, which (i) arise under or relate to matters
covered by Environmental Laws and (ii) relate to actions occurring or
conditions existing on or prior to the Closing Date. As used in this
Agreement, "Hazardous Materials" means any hazardous or toxic substances,
materials or wastes, defined, listed, classified or regulated as such in or
under any Environmental Laws and which includes petroleum, petroleum
products, friable asbestos, urea formaldehyde and polychlorinated
biphenyls.
(k) Intellectual Property. Except as would not reasonably be expected
to have a Material Adverse Effect on PNU and except as disclosed in the PNU
SEC Reports filed prior to the date of the Agreement, to the Knowledge of
PNU: (a) PNU and each of its Subsidiaries owns, or is licensed to use (in
each case, free and clear of any liens), all Intellectual Property (as
defined below) used in or necessary for the conduct of its business as
currently conducted; (b) the use of any Intellectual Property by PNU and
its Subsidiaries does not infringe on or otherwise violate the rights of
any Person and is in accordance with any applicable license pursuant to
which PNU or any Subsidiary acquired the right to use any Intellectual
Property; (c) no Person is challenging, infringing on or otherwise
violating any right of PNU or any of its Subsidiaries with respect to any
Intellectual Property owned by and/or licensed to PNU or its Subsidiaries;
and (d) neither PNU nor any of its Subsidiaries has received any written
notice of any pending claim with respect to any Intellectual Property used
by PNU and its Subsidiaries and no Intellectual Property owned and/or
licensed by PNU or its Subsidiaries is being used or enforced in a manner
that would result in the abandonment, cancellation or unenforceability of
such Intellectual Property. For purposes of this Agreement, "Intellectual
Property" shall mean trademarks, service marks, brand names, certification
marks, trade dress and other indications of origin, the goodwill associated
with the foregoing and registrations in any jurisdiction of, and
applications in any jurisdiction to register, the foregoing, including any
extension, modification or renewal of any such registration or application;
inventions, discoveries and ideas, whether patentable or not, in any
jurisdiction; patents, applications for patents (including, without
limitation, divisions, continuations, continuations in part and renewal
applications), and any renewals, extensions or reissues thereof, in any
jurisdiction; nonpublic information, trade secrets and confidential
information and rights in any jurisdiction to limit the use or disclosure
thereof by any person; writings and other works, whether copyrightable or
not, in any jurisdiction; and registrations or applications for
registration of copyrights in any jurisdiction, and any renewals or
extensions thereof; any similar intellectual property or proprietary
rights.
(l) PNU Rights Agreement. The Board of Directors of PNU has taken the
requisite action such that none of Monsanto, Merger Sub or any of their
respective affiliates shall become an "Acquiring Person", and that no
"Stock Acquisition Date" or "Separation Time" (as such terms are defined in
the PNU Rights Agreement) will occur, by reason of the approval, execution
or delivery of this Agreement, the PNU Stock Option Agreement or the
consummation of the transactions contemplated hereby and thereby.
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(m) Brokers or Finders. No agent, broker, investment banker,
financial advisor or other firm or Person is or will be entitled to any
broker's or finder's fee or any other similar commission or fee in
connection with any of the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of PNU, except Bear, Stearns &
Co. Inc. and J.P. Morgan & Co. Incorporated (the "PNU Financial Advisors"),
whose fees and expenses will be paid by PNU in accordance with PNU's
agreements with such firms, copies of which have been provided to Monsanto.
(n) Opinions of PNU Financial Advisors. PNU has received the opinions
of the PNU Financial Advisors, dated the date of this Agreement, to the
effect that, as of such date, the Exchange Ratio is fair, from a financial
point of view, to PNU's stockholders, copies of which opinions will be made
available to Monsanto.
(o) Accounting Matters. To the Knowledge of PNU as of the date of
this Agreement, neither PNU nor any of its affiliates has taken or has
agreed to take any action on or prior to the date of this Agreement that
would preclude PNU's ability to be a party in a business combination to be
accounted for as a pooling of interests.
(p) Taxes. Each of PNU and its Subsidiaries has filed all Tax Returns
required to have been filed (or extensions have been duly obtained) and has
paid all Taxes required to have been paid by it, except where failure to
file such Tax Returns or pay such Taxes would not, in the aggregate,
reasonably be expected to have a Material Adverse Effect on PNU. For
purposes of this Agreement: (i) "Tax" (and, with correlative meaning,
"Taxes") means any federal, state, local or foreign income, gross receipts,
property, sales, use, license, excise, franchise, employment, payroll,
withholding, alternative or add on minimum, ad valorem, transfer or excise
tax, or any other tax, custom, duty, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or
penalty, imposed by any governmental authority and (ii) "Tax Return" means
any return, report or similar statement required to be filed with respect
to any Tax (including any attached schedules), including, without
limitation, any information return, claim for refund, amended return or
declaration of estimated Tax.
(q) Certain Contracts. As of the date hereof, except as set forth in
the PNU SEC Reports filed prior to the date of this Agreement, neither PNU
nor any of its Subsidiaries is a party to or bound by (i) any "material
contract" (as such term is defined in Item 601(b)(10) of Regulation S-K of
the SEC) or (ii) any non-competition agreement or any other agreement or
arrangement that limits or otherwise restricts PNU or any of its
Subsidiaries or any of their respective affiliates or any successor
thereto, or that would, after the Effective Time, to the Knowledge of PNU,
limit or restrict Newco or any of its affiliates (including the Surviving
Corporation) or any successor thereto, from engaging or competing in any
line of business or in any geographic area, which agreement or arrangement
would reasonably be expected to have a Material Adverse Effect on Newco and
its Subsidiaries (including the Surviving Corporation and its
Subsidiaries), taken together, after giving effect to the Merger.
(r) Employee Benefits. (i) With respect to each PNU Plan, except for
PNU Plans the liabilities under which are reflected in the financial
statements included in the PNU SEC Reports or which, individually or in the
aggregate, would not have a Material Adverse Effect on PNU, PNU has made
available to Monsanto a true,
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correct and complete copy of: (i) all plan documents, trust agreements, and
insurance contracts and other funding vehicles; (ii) the most recent Annual
Report (Form 5500 Series) and accompanying schedule, if any; (iii) the
current summary plan description and any material modifications thereto, if
any (in each case, whether or not required to be furnished under ERISA);
(iv) the most recent annual financial report, if any; (v) the most recent
actuarial report, if any; and (vi) the most recent determination letter
from the IRS, if any.
(ii) With respect to each PNU Employee Benefit Plan, PNU and its
Subsidiaries have complied, and are now in compliance, with all provisions
of ERISA, the Code and all other laws and regulations applicable to such
PNU Employee Benefit Plans and each PNU Employee Benefit Plan has been
administered in accordance with its terms, in each case except as would not
have a Material Adverse Effect on PNU. Each PNU Employee Benefit Plan that
is required by ERISA to be funded is fully funded in accordance with
reasonable actuarial assumptions except as would not have a Material
Adverse Effect on PNU.
(iii) All PNU Employee Benefit Plans subject to the laws of any
jurisdiction outside of the United States (A) have been maintained in
accordance with all applicable requirements, (B) if they are intended to
qualify for special tax treatment meet all requirements for such treatment,
and (C) if they are intended to be funded and/or book-reserved are fully
funded and/or book-reserved, as appropriate, based upon reasonable
actuarial assumptions, in each case except as would not have a Material
Adverse Effect on PNU.
SECTION 3.2 Representations and Warranties of Monsanto. Except as set
forth in the Monsanto Disclosure Schedule delivered by Monsanto to PNU prior to
the execution of this Agreement (the "Monsanto Disclosure Schedule") (each
section of which qualifies the correspondingly numbered representation and
warranty or covenant to the extent specified therein) (and, if Monsanto has
divested any of the Monsanto Nutrition and Consumer Businesses (as defined in
Section 8.11) prior to the Closing, except in respect of or to the extent
relating to (i) the business or assets of the Monsanto Nutrition and Consumer
Businesses which prior to the Closing have been divested or (ii) the liabilities
of the divested Monsanto Nutrition and Consumer Businesses which are not
retained, contingently or otherwise, by Monsanto or any of its Subsidiaries as
of the Closing Date, as to which Monsanto makes no representations or
warranties), Monsanto represents and warrants to PNU as follows:
(a) Organization, Standing and Power; Subsidiaries.
(i) Each of Monsanto and each of its Subsidiaries is a corporation or
a limited liability company duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or
organization, has the requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted,
except where the failure to be so organized, existing and in good standing
or to have such power and authority would not reasonably be expected to
have a Material Adverse Effect on Monsanto and is duly qualified and in
good standing to do business in each jurisdiction in which the nature of
its business or the ownership or leasing of its properties makes such
qualification necessary other than in such jurisdictions where the failure
so to qualify or to be in good standing would not reasonably be expected to
have a Material Adverse Effect on Monsanto. The copies of the certificate
of incorporation and by-laws of Monsanto which were previously
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furnished or made available to PNU are true, complete and correct copies of
such documents as in effect on the date of this Agreement.
(ii) Exhibit 21 to Monsanto's Annual Report on Form 10-K for the year
ended December 31, 1998 includes all the Subsidiaries of Monsanto which as
of the date of this Agreement are Significant Subsidiaries (as defined in
Rule 1-02 of Regulation S-X of the SEC). All the outstanding shares of
capital stock of, or other equity interests in, each such Significant
Subsidiary have been validly issued and are fully paid and nonassessable
and are owned directly or indirectly by Monsanto, free and clear of all
Liens and free of any other restriction (including any restriction on the
right to vote, sell or otherwise dispose of such capital stock or other
ownership interests). Except as set forth in the Monsanto SEC Reports (as
defined in Section 3.2(d)), neither Monsanto nor any of its Subsidiaries
directly or indirectly owns any equity or similar interest in, or any
interest convertible into or exchangeable or exercisable for, any
corporation, partnership, joint venture or other business association or
entity (other than Subsidiaries), that is or would reasonably be expected
to be material to Monsanto and its Subsidiaries taken as a whole.
(b) Capital Structure.
(i) As of December 13, 1999, the authorized capital stock of Monsanto
consisted of (A) 1,000,000,000 shares of Monsanto Common Stock, of which
636,072,551 shares were outstanding and 210,854,669 shares were held in the
treasury of Monsanto (of which 420,880 shares were held in the treasury
pursuant to the Monsanto Employee Stock Purchase Plan) and (B) 10,000,000
shares of Preferred Stock, without par value ("Monsanto Preferred Stock"),
none of which were outstanding and 700,000 shares of which have been
designated Series A Junior Participating Preferred Stock and reserved for
issuance upon exercise of the rights (the "Monsanto Rights") distributed to
the holders of Monsanto Common Stock pursuant to the Rights Agreement dated
as of January 26, 1990, between Monsanto and First Chicago Trust Company as
successor to First National Bank of Boston, as Rights Agent, as amended
(the "Monsanto Rights Agreement"). Since December 13, 1999 to the date of
this Agreement, there have been no issuances of shares of the capital stock
of Monsanto or any other securities of Monsanto other than issuances of
shares (and accompanying Monsanto Rights) pursuant to options or rights
outstanding as of December 13, 1999 under the Monsanto Stock Option Plans.
All issued and outstanding shares of the capital stock of Monsanto are duly
authorized, validly issued, fully paid and nonassessable, and no class of
capital stock is entitled to preemptive rights. There were outstanding as
of December 13, 1999 no options, warrants or other rights to acquire
capital stock from Monsanto other than (x) the Monsanto Rights, (y) the
6.50% Adjustable Conversion-rate Equity Security Units and (z) options
representing in the aggregate the right to purchase no more than 99,134,339
shares of Monsanto Common Stock (collectively, the "Monsanto Stock
Options") under the Monsanto Company Non-Employee Director Equity Incentive
Compensation Plan, the Searle Monsanto Stock Option Plan of 1986, the
Monsanto Management Incentive Plan of 1988/II, the Monsanto Management
Incentive Plan of 1988/I, the NutraSweet/ Monsanto Stock Plan of 1991, the
Monsanto Management Incentive Plan of 1994, the Searle/Monsanto Stock Plan
of 1994, the NutraSweet/Monsanto Stock Plan of 1994, the Monsanto
Management Incentive Plan of 1996 and the Monsanto Shared Success Option
Plan, as each such plan has been amended (collectively, the "Monsanto Stock
Option Plans"). No options or warrants or other rights to acquire capital
stock from
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<PAGE> 26
Monsanto have been issued or granted since December 13, 1999 to the date of
this Agreement. References in this Agreement to the Monsanto Rights shall
be deemed to include the rights issued pursuant to the Rights Agreement,
dated as of December 19, 1999, between Monsanto and EquiServe Trust Company
N.A., as Rights Agent (the "New Monsanto Rights Agreement"), in
substantially the form previously provided to PNU.
(ii) No bonds, debentures, notes or other indebtedness of Monsanto
having the right to vote on any matters on which stockholders may vote
("Monsanto Voting Debt") are issued or outstanding.
(iii) Except as otherwise set forth in this Section 3.2(b) and as
contemplated by Section 1.8 and Section 1.9, as of the date of this
Agreement, there are no securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which
Monsanto or any of its Subsidiaries is a party or by which any of them is
bound obligating Monsanto or any of its Subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of
capital stock or other voting securities of Monsanto or any of its
Subsidiaries or obligating Monsanto or any of its Subsidiaries to issue,
grant, extend or enter into any such security, option, warrant, call,
right, commitment, agreement, arrangement or undertaking. As of the date of
this Agreement, there are no outstanding obligations of Monsanto or any of
its Subsidiaries to repurchase, redeem or otherwise acquire any shares of
capital stock of Monsanto or any of its Subsidiaries.
(c) Authority; No Conflicts.
(i) Monsanto has all requisite corporate power and authority to enter
into this Agreement and the Stock Option Agreements and to consummate the
transactions contemplated hereby and thereby, subject, (A) in the case of
the issuance of the shares of Monsanto Common Stock to be issued in the
Merger (the "Share Issuance"), (1) to the approval by the stockholders of
Monsanto, by the holders of a majority of the outstanding shares of
Monsanto Common Stock, of an amendment to the Restated Certificate of
Incorporation of Monsanto (i) to increase the number of authorized shares
of Monsanto Common Stock to 3 billion, (ii) to change the par value of the
Monsanto Preferred Stock to $0.01 per share, (iii) to remove the voting
limitations per share of Monsanto Preferred Stock and (iv) to change the
name of Monsanto at the Effective Time to a new name to be mutually agreed
by Monsanto and PNU prior to mailing the Joint Proxy Statement/Prospectus
(the "Charter Amendment") and (2) to the approval by the stockholders of
Monsanto, by a majority of the votes cast at the Monsanto Stockholders
Meeting (as defined in Section 5.1(b)), of the Share Issuance
(collectively, the "Required Monsanto Votes") and the filing of a related
Certificate of Amendment with the Secretary of State of the State of
Delaware and (ii) in the case of the issuance of Monsanto Convertible
Preferred Stock to be issued in the Merger (the "Preferred Share
Issuance"), to the filing of a Certificate of Designations of the Monsanto
Convertible Preferred Stock (the "Monsanto Certificate of Designations")
with the Secretary of State of the State of Delaware. The execution and
delivery of this Agreement and the Stock Option Agreements and the
consummation of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action on the part of Monsanto,
subject, in the case of the Share Issuance, to the approval by the
stockholders of Monsanto of the Share Issuance and the Charter Amendment by
the Required Monsanto Votes and in the case of the Preferred Share
Issuance, to the
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filing of the Monsanto Certificate of Designations. This Agreement and the
Stock Option Agreements have been duly executed and delivered by Monsanto
and constitute valid and binding agreements of Monsanto, enforceable
against it in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws relating to or affecting creditors generally or
by general equity principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(ii) The execution and delivery of this Agreement and the Stock Option
Agreements by Monsanto does not or will not, as the case may be, and the
consummation by Monsanto of the Merger and the other transactions
contemplated hereby and thereby will not, conflict with, or result in a
Violation pursuant to: (A) any provision of the certificate of
incorporation or by-laws of Monsanto or any Significant Subsidiary of
Monsanto or (B) except as would not reasonably be expected to have a
Material Adverse Effect on Monsanto or, to the Knowledge of Monsanto, Newco
following the Merger, subject to obtaining or making the Necessary
Consents, any loan or credit agreement, note, mortgage, bond, indenture,
lease, benefit plan or similar arrangement or other agreement, obligation,
instrument, permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Monsanto,
any Subsidiary of Monsanto or their respective properties or assets.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is
required by or with respect to Monsanto or any Subsidiary of Monsanto in
connection with the execution and delivery of this Agreement and the Stock
Option Agreements by Monsanto or the consummation of the Merger and the
other transactions contemplated hereby and thereby, except the Necessary
Consents, the filing of the Charter Amendment and the Monsanto Certificate
of Designations under the DGCL and such consents, approvals, orders,
authorizations, registrations, declarations and filings the failure of
which to make or obtain would not reasonably be expected to have a Material
Adverse Effect on Monsanto.
(d) Reports and Financial Statements.
(i) Monsanto has filed all required registration statements,
prospectuses, reports, schedules, forms, statements and other documents
required to be filed by it with the SEC since January 1, 1998
(collectively, including all exhibits thereto, the "Monsanto SEC Reports").
No Subsidiary of Monsanto is required to file any form, report,
registration statement or prospectus or other document with the SEC. As of
their respective dates, none of the Monsanto SEC Reports (and, if amended
or superseded by a filing prior to the date of this Agreement or the
Closing Date, then on the date of such filing), contained, and none of the
Monsanto SEC Reports filed subsequent to the date hereof will contain, any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
Each of the financial statements (including the related notes) included in
the Monsanto SEC Reports presents fairly, in all material respects, the
consolidated financial position and consolidated results of operations and
cash flows of Monsanto and its Subsidiaries as of the respective dates or
for the respective periods set forth therein, all in conformity with GAAP
consistently applied during the periods involved except as otherwise noted
therein, and subject, in the case of the unaudited interim
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<PAGE> 28
financial statements, to normal and recurring year-end adjustments that
have not been and are not expected to be material in amount. All of such
Monsanto SEC Reports, as of their respective dates (and as of the date of
any amendment to the respective Monsanto SEC Report), complied as to form
in all material respects with the applicable requirements of the Securities
Act and the Exchange Act and the rules and regulations promulgated
thereunder.
(ii) Except as disclosed in the Monsanto SEC Reports filed prior to
the date hereof, since December 31, 1998, Monsanto and its Subsidiaries
have not incurred any liabilities that are of a nature that would be
required to be disclosed on a balance sheet of Monsanto and its
Subsidiaries or the footnotes thereto prepared in conformity with GAAP,
other than (A) liabilities incurred in the ordinary course of business or
(B) liabilities that would not, either individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Monsanto.
(e) Information Supplied.
(i) None of the information supplied or to be supplied by Monsanto for
inclusion or incorporation by reference in (A) the Form S-4 will, at the
time the Form S-4 becomes effective under the Securities Act or at the time
of any post-effective amendment thereto, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and (B)
the Joint Proxy Statement/Prospectus will, on the date it is first mailed
to Monsanto stockholders or PNU stockholders or at the time of the Monsanto
Stockholders Meeting or the PNU Stockholders Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
Form S-4 and the Joint Proxy Statement/Prospectus will comply as to form in
all material respects with the requirements of the Exchange Act and the
Securities Act and the rules and regulations of the SEC thereunder.
(ii) Notwithstanding the foregoing provisions of this Section 3.2(e),
no representation or warranty is made by Monsanto with respect to
statements made or incorporated by reference in the Form S-4 or the Joint
Proxy Statement/Prospectus based on information supplied by PNU for
inclusion or incorporation by reference therein.
(f) Board Approval. The Board of Directors of Monsanto, by
resolutions duly adopted by unanimous vote at a meeting duly called and
held and not subsequently rescinded or modified in any way (the "Monsanto
Board Approval"), has duly (i) determined that this Agreement and the
Merger are advisable and fair to and in the best interests of Monsanto and
its stockholders, (ii) approved this Agreement, the Stock Option
Agreements, the Merger, the Certificate of Designations, the Charter
Amendment and the Share Issuance and (iii) recommended that the
stockholders of Monsanto approve the Share Issuance and the Charter
Amendment and directed that the Share Issuance and the Charter Amendment be
submitted for consideration by Monsanto's stockholders at the Monsanto
Stockholders Meeting. The Monsanto Board Approval constitutes approval of
this Agreement, the Monsanto Stock Option Agreement and the Merger for
purposes of Section 203 of the DGCL. To the Knowledge of Monsanto, except
for Section 203 of the DGCL (which has been
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rendered inapplicable), no state takeover statute is applicable to the
Merger or the other transactions contemplated hereby.
(g) Vote Required. The Required Monsanto Votes are the only votes of
the holders of any class or series of Monsanto capital stock necessary to
adopt this Agreement and approve the transactions contemplated hereby.
(h) Litigation; Compliance with Laws.
(i) Except as disclosed in the Monsanto SEC Reports filed prior to the
date of this Agreement, there is no suit, action or proceeding pending or,
to the Knowledge of Monsanto, threatened, against or affecting Monsanto or
any Subsidiary of Monsanto having, or which would reasonably be expected to
have a Material Adverse Effect on Monsanto, nor is there any judgment,
decree, injunction, rule or order of any Governmental Entity or arbitrator
outstanding against Monsanto or any Subsidiary of Monsanto having, or which
reasonably would be expected to have a Material Adverse Effect on Monsanto.
(ii) Except as disclosed in the Monsanto SEC Reports filed prior to
the date of the Agreement and except as would not reasonably be expected to
have a Material Adverse Effect on Monsanto, Monsanto and its Subsidiaries
hold all permits, licenses, variances, exemptions, orders and approvals of
all Governmental Entities necessary for the operation of the businesses of
Monsanto and its Subsidiaries, taken as a whole (the "Monsanto Permits").
Monsanto and its Subsidiaries are in compliance with the terms of the
Monsanto Permits, except where the failure so to comply would not
reasonably be expected to have a Material Adverse Effect on Monsanto.
Except as disclosed in the Monsanto SEC Reports filed prior to the date of
this Agreement, the businesses of Monsanto and its Subsidiaries are not
being conducted in violation of, and Monsanto has not received any notices
of violations with respect to, any law, ordinance or regulation of any
Governmental Entity, except for possible violations which would not
reasonably be expected to have a Material Adverse Effect on Monsanto.
(i) Absence of Certain Changes or Events. Except for liabilities
incurred in connection with this Agreement or the transactions contemplated
hereby, except as disclosed in the Monsanto SEC Reports filed prior to the
date of this Agreement, and except as permitted by Section 4.2, since
December 31, 1998, Monsanto and its Subsidiaries have conducted their
business only in the ordinary course in all material respects and there has
not been (i) any change, circumstance or event which has had, or would
reasonably be expected to have, a Material Adverse Effect on Monsanto, (ii)
any declaration, setting aside or payment of any dividend or other
distribution with respect to its capital stock, other than regular
quarterly cash dividends not exceeding $0.03 with respect to each share of
Monsanto Common Stock, (iii) any split, combination or reclassification of
Monsanto's capital stock or any issuance of or the authorization of any
issuance of any other securities in respect of, in lieu of or in
substitution for, shares of its capital stock, or (iv) any material change
in its accounting policies.
(j) Environmental Matters. Except as would not reasonably be expected
to have a Material Adverse Effect on Monsanto and except as disclosed in
the Monsanto SEC Reports filed prior to the date of this Agreement, (i) the
operations of Monsanto and its Subsidiaries have been and are in compliance
with all
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Environmental Laws and with all licenses required by Environmental Laws,
(ii) there are no pending or, to the Knowledge of Monsanto, threatened,
Actions under or pursuant to Environmental Laws against Monsanto or its
Subsidiaries or involving any real property currently or, to the Knowledge
of Monsanto, formerly owned, operated or leased by Monsanto or its
Subsidiaries and (iii) Monsanto and its Subsidiaries are not subject to any
Environmental Liabilities and, to the Knowledge of Monsanto, no facts,
circumstances or conditions relating to, arising from, associated with or
attributable to any real property currently or, to the Knowledge of
Monsanto, formerly owned, operated or leased by Monsanto or its
Subsidiaries or operations thereon would reasonably be expected to result
in Environmental Liabilities.
(k) Intellectual Property. Except as would not reasonably be expected
to have a Material Adverse Effect on Monsanto and except as disclosed in
the Monsanto SEC Reports filed prior to the date of this Agreement, to the
Knowledge of Monsanto, (a) Monsanto and each of its Subsidiaries owns, or
is licensed to use (in each case, free and clear of any liens), all
Intellectual Property used in or necessary for the conduct of its business
as currently conducted; (b) the use of any Intellectual Property by
Monsanto and its Subsidiaries does not infringe on or otherwise violate the
rights of any Person and is in accordance with any applicable license
pursuant to which Monsanto or any Subsidiary acquired the right to use any
Intellectual Property; (c) no Person is challenging, infringing on or
otherwise violating any right of Monsanto or any of its Subsidiaries with
respect to any Intellectual Property owned by and/or licensed to Monsanto
or its Subsidiaries; and (d) neither Monsanto nor any of its Subsidiaries
has received any written notice of any pending claim with respect to any
Intellectual Property used by Monsanto and its Subsidiaries and no
Intellectual Property owned and/or licensed by Monsanto or its Subsidiaries
is being used or enforced in a manner that would result in the abandonment,
cancellation or unenforceability of such Intellectual Property.
(l) Monsanto Rights Agreement. The Board of Directors of Monsanto has
approved the New Monsanto Rights Agreement. Pursuant to the terms of the
Rights Agreement and the New Monsanto Rights Agreement, none of PNU, Merger
Sub or any of their respective affiliates shall become an "Acquiring
Person", and no "Share Acquisition Date" or "Distribution Date" (as such
terms are defined in the Monsanto Rights Agreement and the New Monsanto
Rights Agreement) will occur, by reason of the approval, execution or
delivery of this Agreement, the Monsanto Stock Option Agreement or the
consummation of the transactions contemplated hereby and thereby.
(m) Brokers or Finders. No agent, broker, investment banker,
financial advisor or other firm or Person is or will be entitled to any
broker's or finder's fee or any other similar commission or fee in
connection with any of the transactions contemplated by this Agreement,
based upon arrangements made by or on behalf of Monsanto except Goldman,
Sachs & Co. and Morgan Stanley Dean Witter & Co. Incorporated (the
"Monsanto Financial Advisors"), whose fees and expenses will be paid by
Monsanto in accordance with Monsanto's agreements with such firms, copies
of which have been provided to PNU.
(n) Opinions of Monsanto Financial Advisors. Monsanto has received
the opinions of the Monsanto Financial Advisors, dated the date of this
Agreement, to the effect that, as of such date, the Exchange Ratio is fair,
from a financial point of view, to Monsanto, copies of which opinions will
be made available to PNU.
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(o) Accounting Matters. To the Knowledge of Monsanto as of the date
of this Agreement, neither Monsanto nor any or its affiliates has taken or
agreed to take any action on or prior to the date of this Agreement that
would prevent Monsanto from accounting for the Merger as a pooling of
interests.
(p) Taxes. Each of Monsanto and its Subsidiaries has filed all Tax
Returns required to have been filed (or extensions have been duly obtained)
and has paid all Taxes required to have been paid by it, except where
failure to file such Tax Returns or pay such Taxes would not, in the
aggregate, reasonably be expected to have a Material Adverse Effect on
Monsanto.
(q) Certain Contracts. As of the date hereof, except as set forth in
the Monsanto SEC Reports filed prior to the date of this Agreement, neither
Monsanto nor any of its Subsidiaries is a party to or bound by (i) any
"material contract" (as such term is defined in Item 601(b)(10) of
Regulation S-K of the SEC) or (ii) any non-competition agreement or any
other agreement or arrangement that limits or otherwise restricts Monsanto
or any of its Subsidiaries or any of their respective affiliates or any
successor thereto or that would, after the Effective Time, to the Knowledge
of Monsanto, limit or restrict Newco or any of its affiliates (including
the Surviving Corporation) or any successor thereto, from engaging or
competing in any line of business or in any geographic area, which
agreement or arrangement would reasonably be expected to have a Material
Adverse Effect on Newco and its Subsidiaries (including the Surviving
Corporation and its Subsidiaries), taken together, after giving effect to
the Merger.
(r) Employee Benefits. (i) With respect to each Monsanto Plan, except
for Monsanto Plans the liabilities under which are reflected in the
financial statements included in the Monsanto SEC Reports or which,
individually or in the aggregate, would not have a Material Adverse Effect,
Monsanto has made available to PNU a true, correct and complete copy of:
(i) all plan documents, trust agreements, and insurance contracts and other
funding vehicles; (ii) the most recent Annual Report (Form 5500 Series) and
accompanying schedule, if any; (iii) the current summary plan description
and any material modifications thereto, if any (in each case, whether or
not required to be furnished under ERISA); (iv) the most recent annual
financial report, if any; (v) the most recent actuarial report, if any; and
(vi) the most recent determination letter from the IRS, if any.
(ii) With respect to each Monsanto Employee Benefit Plan, Monsanto and
its Subsidiaries have complied, and are now in compliance, with all
provisions of ERISA, the Code and all other laws and regulations applicable
to such Monsanto Employee Benefit Plans and each Monsanto Employee Benefit
Plan has been administered in accordance with its terms, in each case
except as would not have a Material Adverse Effect on Monsanto. Each
Monsanto Employee Benefit Plan that is required by ERISA to be funded is
fully funded in accordance with reasonable actuarial assumptions, except as
would not have a Material Adverse Effect on Monsanto.
(iii) All Monsanto Employee Benefit Plans subject to the laws of any
jurisdiction outside of the United States (A) have been maintained in
accordance with all applicable requirements, (B) if they are intended to
qualify for special tax treatment meet all requirements for such treatment,
and (C) if they are intended to be funded and/or book-reserved are fully
funded and/or book-reserved, as appropriate, based
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upon reasonable actuarial assumptions, in each case except as would not
have a Material Adverse Effect on Monsanto.
SECTION 3.3 Representations and Warranties of Monsanto and Merger Sub.
Monsanto and Merger Sub represent and warrant to Monsanto as follows:
(a) Organization. Merger Sub is a corporation duly incorporated,
validly existing and in good standing under the laws of Delaware. Merger
Sub is a direct wholly-owned subsidiary of Monsanto.
(b) Corporate Authorization. Merger Sub has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance
by Merger Sub of this Agreement and the consummation by Merger Sub of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Merger Sub. This Agreement has been duly
executed and delivered by Merger Sub and constitutes a valid and binding
agreement of Merger Sub, enforceable against it in accordance with its
terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to
or affecting creditors generally, by general equity principles (regardless
of whether such enforceability is considered in a proceeding in equity or
at law).
(c) Non-Contravention. The execution, delivery and performance by
Merger Sub of this Agreement and the consummation by Merger Sub of the
transactions contemplated hereby do not and will not contravene or conflict
with the certificate of incorporation or by-laws of Merger Sub.
(d) No Business Activities. Merger Sub has not conducted any
activities other than in connection with the organization of Merger Sub,
the negotiation and execution of this Agreement and the consummation of the
transactions contemplated hereby. Merger Sub has no Subsidiaries.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1 Covenants of PNU. During the period from the date of this
Agreement and continuing until the Effective Time, PNU agrees as to itself and
its Subsidiaries that (except as expressly contemplated or permitted by this
Agreement, the Stock Option Agreements or the PNU Disclosure Schedule or as
required by a Governmental Entity of competent jurisdiction or to the extent
that Monsanto shall otherwise consent in writing, which consent shall not be
unreasonably withheld or delayed):
(a) Ordinary Course.
(i) PNU and its Subsidiaries shall carry on their respective
businesses in the usual, regular and ordinary course in all material
respects, in substantially the same manner as heretofore conducted, and
shall use all reasonable efforts to preserve intact their present lines of
business, maintain their rights and franchises and preserve their
relationships with customers, suppliers and others having business dealings
with them to the end that their ongoing businesses shall not be impaired in
any material respect at the Effective Time; provided, however, that no
action by PNU or its Subsidiaries
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with respect to matters specifically addressed by any other provision of
this Section 4.1 shall be deemed a breach of this Section 4.1(a)(i) unless
such action would constitute a breach of one or more of such other
provisions.
(ii) Other than in connection with acquisitions permitted by Section
4.1(e), PNU shall not, and shall not permit any of its Subsidiaries to, (A)
enter into any new material line of business or (B) incur or commit to any
capital expenditures or any obligations or liabilities in connection
therewith other than capital expenditures and obligations or liabilities in
connection therewith incurred or committed to in the ordinary course of
business consistent with past practice and which, together with all such
expenditures incurred or committed since December 1, 1999, are not in
excess of the amounts set forth in Section 4.1(a) of the PNU Disclosure
Schedule.
(b) Dividends; Changes in Share Capital. PNU shall not, and shall not
permit any of its Subsidiaries to, and shall not propose to, (i) declare or
pay any dividends on or make other distributions in respect of any of its
capital stock, except (A) the declaration and payment of regular quarterly
cash dividends not in excess of $0.27 per share of PNU Common Stock with
usual record and payment dates for such dividends in accordance with past
dividend practice, (B) the declaration and payment of regular quarterly
cash dividends not in excess of $629.69 per share on the PNU Convertible
Preferred Stock with usual record and payment dates for such dividends in
accordance with past dividend practice and (C) for dividends by wholly
owned Subsidiaries of PNU, (ii) split, combine or reclassify any of its
capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for, shares of its
capital stock, except for any such transaction by a wholly owned Subsidiary
of PNU which remains a wholly owned Subsidiary after consummation of such
transaction or (iii) repurchase, redeem or otherwise acquire any shares of
its capital stock or any securities convertible into or exercisable for any
shares of its capital stock except for the purchase from time to time by
PNU of PNU Common Stock (and the associated PNU Rights) in the ordinary
course of business consistent with past practice in connection with the PNU
Employee Benefit Plans.
(c) Issuance of Securities. PNU shall not, and shall not permit any
of its Subsidiaries to, issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock of any
class, any PNU Voting Debt or any securities convertible into or
exercisable for, or any rights, warrants or options to acquire, any such
shares or PNU Voting Debt, or enter into any agreement with respect to any
of the foregoing, other than (i) the issuance of PNU Common Stock (and the
associated PNU Rights) upon the exercise of PNU Stock Options or in
connection with other stock-based benefit plans outstanding on the date
hereof, in each case in accordance with their present terms, (ii) the
granting of PNU Stock Options and restricted stock awards in the ordinary
course of business consistent with past practice not in excess of the
amounts set forth in Section 4.1(c) of the PNU Disclosure Schedule, (iii)
issuances by a wholly owned Subsidiary of PNU of capital stock to such
Subsidiary's parent or another wholly owned Subsidiary of PNU, (iv)
pursuant to acquisitions set forth on the PNU Disclosure Schedule or the
financings therefor, (v) issuances in accordance with the PNU Rights
Agreement or (vi) issuances pursuant to the PNU Stock Option Agreement.
(d) Governing Documents. Except to the extent required to comply with
its obligations hereunder, required by law or required by the rules and
regulations of the
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NYSE, PNU shall not amend or propose to so amend its certificate of
incorporation, by-laws or other governing documents.
(e) No Acquisitions. Other than (i) pursuant to the Monsanto Stock
Option Agreement, (ii) acquisitions disclosed on the PNU Disclosure
Schedule and (iii) acquisitions for cash in existing or related lines of
business of PNU the fair market value of the total consideration (including
the value of indebtedness acquired or assumed) for which does not exceed
the amount specified in the aggregate for all such acquisitions in Section
4.1(e) of the PNU Disclosure Schedule, PNU shall not, and shall not permit
any of its Subsidiaries to, acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity interest in or a
substantial portion of the assets of, or by any other manner, any business
or any corporation, partnership, association or other business organization
or division thereof or otherwise acquire or agree to acquire or in-license
any assets or rights (other than the acquisition or in-license of assets
used in the operations of the business of PNU and its Subsidiaries in the
ordinary course consistent with past practice); provided, however, that the
foregoing shall not prohibit (x) internal reorganizations or consolidations
involving existing direct or indirect wholly owned Subsidiaries of PNU
which remain direct or indirect wholly owned Subsidiaries of PNU or (y) the
creation of new direct or indirect wholly owned Subsidiaries of PNU
organized to conduct or continue activities otherwise permitted by this
Agreement.
(f) No Dispositions. Other than (i) internal reorganizations or
consolidations involving existing direct or indirect wholly owned
Subsidiaries of PNU which remain direct or indirect wholly owned
Subsidiaries of PNU, (ii) dispositions referred to in PNU SEC Reports filed
prior to the date of this Agreement or (iii) as may be required by or in
conformance with law or regulation in order to permit or facilitate the
consummation of the transactions contemplated hereby or the transactions
disclosed in the PNU Disclosure Schedule, PNU shall not, and shall not
permit any of its Subsidiaries to, sell, lease, out-license, encumber or
otherwise dispose of, or agree to sell, lease, out-license, encumber or
otherwise dispose of, any of its assets (including capital stock of
Subsidiaries of PNU but excluding inventory in the ordinary course of
business consistent with past practice) the fair market value of the total
consideration (including the value of the indebtedness acquired or assumed)
for which exceeds the amount specified in the aggregate for all such
dispositions in Section 4.1(f) of the PNU Disclosure Schedule.
(g) Investments; Indebtedness. PNU shall not, and shall not permit
any of its Subsidiaries to, other than in connection with actions permitted
by Section 4.1(e), (i) make any loans, advances or capital contributions
to, or investments in, any other Person, other than (x) by PNU or a direct
or indirect wholly owned Subsidiary of PNU to or in PNU or any direct or
indirect wholly owned Subsidiary of PNU, (y) pursuant to any contract or
other legal obligation of PNU or any of its Subsidiaries as in effect at
the date of this Agreement or (z) in the ordinary course of business
consistent with past practice in an aggregate amount not in excess of the
aggregate amount specified in Section 4.1(g) of the PNU Disclosure Schedule
or (ii) create, incur, assume or suffer to exist any indebtedness,
issuances of debt securities, guarantees, loans or advances not in
existence as of the date of this Agreement except pursuant to the credit
facilities, indentures (but not in excess of amounts authorized for
issuance thereunder as of the date of this Agreement) and other
arrangements in existence on the date of this Agreement or trade debt and
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commercial finance in the ordinary course of business consistent with past
practice, in each case as such credit facilities, indentures and other
arrangements and other existing indebtedness may be amended, extended,
modified, refunded, renewed or refinanced after the date of this Agreement
which does not increase the aggregate principal amount or amount of the
facility, as the case may be.
(h) Pooling; Tax-Free Qualification. PNU shall use its reasonable
best efforts not to, and shall use its reasonable best efforts not to
permit any of its Subsidiaries to, take any action (including any action
otherwise permitted by this Section 4.1) that would prevent or impede the
Merger from qualifying as a "pooling of interests" for accounting purposes
or as a "reorganization" under Section 368(a) of the Code; provided,
however, that nothing hereunder shall limit the ability of PNU to exercise
its rights and/or fulfill its obligations under the Stock Option
Agreements.
(i) Compensation. Other than as contemplated by Section 4.1(c) or
4.1(i) of the PNU Disclosure Schedule, and except in the ordinary course of
business consistent with past practice or as required by an existing
contract or agreement as in effect on the date hereof, PNU shall not (i)
increase the amount of compensation of any director or executive officer,
(ii) make any material increase in or commitment to increase materially any
employee benefits or (iii) adopt or make any commitment to adopt any
material new employee benefit plan or make any material contribution, other
than regularly scheduled contributions, to any PNU Benefit Plan.
(j) Accounting Methods; Income Tax Elections. Except as disclosed in
PNU SEC Reports filed prior to the date of this Agreement, or as required
by a Governmental Entity, PNU shall not change its methods of accounting in
effect at December 31, 1998, except as required by changes in GAAP as
concurred in by PNU's independent auditors. PNU shall not (i) change its
fiscal year or (ii) make any material Tax election, other than in the
ordinary course of business consistent with past practice.
(k) Certain Agreements. Except as described in Schedule 4.1(f), PNU
shall not, and shall not permit any of its Subsidiaries to, enter into any
agreement or arrangement that limits or otherwise restricts PNU or any of
its Subsidiaries or any of their respective affiliates or any successor
thereto or that could, after the Effective Time, limit or restrict Newco or
any of its affiliates (including the Surviving Corporation) or any
successor thereto, from engaging or competing in any line of business or in
any geographic area which agreement or arrangement would reasonably be
expected to have a Material Adverse Effect on Newco and its Subsidiaries
(including the Surviving Corporation and its Subsidiaries), taken together,
after giving effect to the Merger.
(l) PNU Rights Agreement. PNU shall not amend, modify or waive any
provision of the PNU Rights Agreement, and shall not take any action to
redeem the PNU Rights or render the PNU Rights inapplicable to any
transaction, other than to permit another transaction that the Board of
Directors of PNU has determined is a Superior Proposal (as defined in
Section 8.11) to be consummated after termination of this Agreement.
(m) Funding of Benefits. PNU shall not make any contributions to any
grantor trust or other funding arrangement for any nonqualified deferred
compensation that is considered "unfunded" for purposes of ERISA.
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SECTION 4.2 Covenants of Monsanto. During the period from the date of
this Agreement and continuing until the Effective Time, Monsanto agrees as to
itself and its Subsidiaries that (except as expressly contemplated or permitted
by this Agreement, the Stock Option Agreements or the Monsanto Disclosure
Schedule or as required by a Governmental Entity of competent jurisdiction or to
the extent that PNU shall otherwise consent in writing, which consent shall not
be unreasonably withheld or delayed):
(a) Ordinary Course.
(i) Monsanto and its Subsidiaries shall carry on their respective
businesses in the usual, regular and ordinary course in all material
respects, in substantially the same manner as heretofore conducted, and
shall use all reasonable efforts to preserve intact their present lines of
business, maintain their rights and franchises and preserve their
relationships with customers, suppliers and others having business dealings
with them to the end that their ongoing businesses shall not be impaired in
any material respect at the Effective Time other than in connection with
the divestiture of Monsanto's Nutrition and Consumer Businesses or as
contemplated by the Monsanto Agribusiness's Ag Going Forward Plan (as
provided to PNU on or prior to the date hereof); provided, however, that no
action by Monsanto or its Subsidiaries with respect to matters specifically
addressed by any other provision of this Section 4.2 shall be deemed a
breach of this Section 4.2(a)(i) unless such action would constitute a
breach of one or more of such other provisions.
(ii) Other than in connection with acquisitions permitted by Section
4.2(e), Monsanto shall not, and shall not permit any of its Subsidiaries
to, (A) enter into any new material line of business or (B) incur or commit
to any capital expenditures or any obligations or liabilities in connection
therewith other than capital expenditures and obligations or liabilities in
connection therewith incurred or committed to in the ordinary course of
business consistent with past practice and which, together with all such
expenditures incurred or committed since December 1, 1999, are not in
excess of the amounts set forth in Section 4.2(a) of the Monsanto
Disclosure Schedule.
(b) Dividends; Changes in Share Capital. Monsanto shall not, and
shall not permit any of its Subsidiaries to, and shall not propose to, (i)
declare or pay any dividends on or make other distributions in respect of
any of its capital stock, except (A) the declaration and payment of regular
quarterly cash dividends not in excess of $.03 per share of Monsanto Common
Stock with usual record and payment dates for such dividends in accordance
with past dividend practice and (B) for dividends by wholly owned
Subsidiaries of Monsanto, (ii) split, combine or reclassify any of its
capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for, shares of its
capital stock, except for any such transaction by a wholly owned Subsidiary
of Monsanto which remains a wholly owned Subsidiary after consummation of
such transaction or (iii) repurchase, redeem or otherwise acquire any
shares of its capital stock or any securities convertible into or
exercisable for any shares of its capital stock except for the purchase
from time to time by Monsanto of Monsanto Common Stock (and the associated
Monsanto Rights) in the ordinary course of business consistent with past
practice in connection with the Monsanto Employee Benefit Plans.
(c) Issuance of Securities. Monsanto shall not, and shall not permit
any of its Subsidiaries to, issue, deliver or sell, or authorize or propose
the issuance, delivery or sale of, any shares of its capital stock of any
class, any Monsanto Voting Debt or any
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securities convertible into or exercisable for, or any rights, warrants or
options to acquire, any such shares or Monsanto Voting Debt, or enter into
any agreement with respect to any of the foregoing, other than (i) the
issuance of Monsanto Common Stock (and the associated Monsanto Rights) upon
the exercise of Monsanto Stock Options or in connection with other
stock-based benefit plans outstanding on the date hereof, in each case in
accordance with their present terms, (ii) issuances by a wholly owned
Subsidiary of Monsanto of capital stock to such Subsidiary's parent or
another wholly owned subsidiary of Monsanto, (iii) the granting of Monsanto
Stock Options and restricted stock awards in the ordinary course of
business consistent with past practice not in excess of the amounts set
forth in Section 4.2(c) of the Monsanto Disclosure Schedule, (iv) pursuant
to acquisitions set forth on the Monsanto Disclosure Schedule or the
financings therefor, (v) issuances in accordance with the Monsanto Rights
Agreement or the New Monsanto Rights Agreement or (vi) issuances pursuant
to the Monsanto Stock Option Agreement.
(d) Governing Documents. Except to the extent required to comply with
its obligations hereunder, required by law or required by the rules and
regulations of the NYSE, Monsanto shall not amend or propose to so amend
its certificate of incorporation, by-laws or other governing documents.
(e) No Acquisitions. Other than (i) pursuant to the PNU Stock Option
Agreement, (ii) acquisitions disclosed on the Monsanto Disclosure Schedule
and (iii) acquisitions for cash in existing or related lines of business of
Monsanto the fair market value of the total consideration (including the
value of indebtedness acquired or assumed) for which does not exceed the
amount specified in the aggregate for all such acquisitions in Section
4.2(e) of the Monsanto Disclosure Schedule, Monsanto shall not, and shall
not permit any of its Subsidiaries to, acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial equity
interest in or a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof or otherwise acquire or agree to
acquire any assets or in-license any assets or rights (other than the
acquisition or in-licenses of assets used in the operations of the business
of Monsanto and its Subsidiaries in the ordinary course consistent with
past practice); provided, however, that the foregoing shall not prohibit
(x) internal reorganizations or consolidations involving existing direct or
indirect wholly owned Subsidiaries of Monsanto which remain direct or
indirect wholly owned Subsidiaries of Monsanto or (y) the creation of new
direct or indirect wholly owned Subsidiaries of Monsanto organized to
conduct or continue activities otherwise permitted by this Agreement.
(f) No Dispositions. Other than (i) internal reorganizations or
consolidations involving existing direct or indirect wholly owned
Subsidiaries of Monsanto which remain direct or indirect wholly owned
Subsidiaries of Monsanto, (ii) dispositions referred to in Monsanto SEC
Reports filed prior to the date of this Agreement, (iii) as may be required
by or in conformance with law or regulation in order to permit or
facilitate the consummation of the transactions contemplated hereby or the
transactions disclosed in the Monsanto Disclosure Schedule or (iv)
disposition of Monsanto's Nutrition and Consumer Businesses on commercially
reasonable terms as determined by the Board of Directors of Monsanto in the
exercise of its good faith business judgment, Monsanto shall not, and shall
not permit any of its Subsidiaries to, sell, lease, out-license, encumber
or otherwise dispose of, or agree to sell, lease, out-
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license, encumber or otherwise dispose of, any of its assets (including
capital stock of Subsidiaries of Monsanto but excluding inventory in the
ordinary course of business consistent with past practice) the fair market
value of the total consideration (including the value of the indebtedness
acquired or assumed) for which exceeds the amount specified in the
aggregate for all such dispositions in Section 4.2(f) of the Monsanto
Disclosure Schedule.
(g) Investments; Indebtedness. Monsanto shall not, and shall not
permit any of its Subsidiaries to, other than in connection with actions
permitted by Section 4.2(e), (i) make any loans, advances or capital
contributions to, or investments in, any other Person, other than (x) by
Monsanto or a direct or indirect wholly owned Subsidiary of Monsanto to or
in Monsanto or any direct or indirect wholly owned Subsidiary of Monsanto,
(y) pursuant to any contract or other legal obligation of Monsanto or any
of its Subsidiaries as in effect at the date of this Agreement or (z) in
the ordinary course of business consistent with past practice in an
aggregate amount not in excess of the aggregate amount specified in Section
4.2(g) of the Monsanto Disclosure Schedule or (ii) create, incur, assume or
suffer to exist any indebtedness, issuances of debt securities, guarantees,
loans or advances not in existence as of the date of this Agreement except
pursuant to the credit facilities, indentures (but not in excess of amounts
authorized for issuance thereunder as of the date of this Agreement) and
other arrangements in existence on the date of this Agreement or trade debt
and commercial finance in the ordinary course of business consistent with
past practice, in each case as such credit facilities, indentures and other
arrangements and other existing indebtedness may be amended, extended,
modified, refunded, renewed or refinanced after the date of this Agreement
which does not increase the aggregate principal amount or amount of the
facility, as the case may be.
(h) Pooling; Tax-Free Qualification. Monsanto shall use its
reasonable best efforts not to, and shall use its reasonable best efforts
not to permit any of its Subsidiaries to, take any action (including any
action otherwise permitted by this Section 4.2) that would prevent or
impede the Merger from qualifying as a "pooling of interests" for
accounting purposes or as a "reorganization" under Section 368(a) of the
Code; provided, however, that nothing hereunder shall limit the ability of
Monsanto to exercise its rights and/or fulfill its obligations under the
Stock Option Agreements.
(i) Compensation. Other than as contemplated by Sections 4.2(c) or
4.2(i) of the Monsanto Disclosure Schedule, and except in the ordinary
course of business consistent with past practice or as required by an
existing contract or agreement as in effect on the date hereof, Monsanto
shall not (i) increase the amount of compensation of any director or
executive officer, (ii) make any material increase in or commitment to
increase materially any employee benefits or (iii) adopt or make any
commitment to adopt any material new employee benefit plan or make any
material contribution, other than regularly scheduled contributions, to any
Monsanto Benefit Plan.
(j) Accounting Methods; Income Tax Elections. Except as disclosed in
Monsanto SEC Reports filed prior to the date of this Agreement, or as
required by a Governmental Entity, Monsanto shall not change its methods of
accounting in effect at December 31, 1998, except as required by changes in
GAAP as concurred in by Monsanto's independent auditors. Monsanto shall not
(i) change its fiscal year or
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(ii) make any material Tax election, other than in the ordinary course of
business consistent with past practice.
(k) Certain Agreements. Except as described in Schedule 4.2(f),
Monsanto shall not, and shall not permit any of its Subsidiaries to, enter
into any agreement or arrangement that limits or otherwise restricts
Monsanto or any of its Subsidiaries or any of their respective affiliates
or any successor thereto, or that could, after the Effective Time, limit or
restrict Newco or any of its affiliates (including the Surviving
Corporation) or any successor thereto, from engaging or competing in any
line of business or in any geographic area which agreement or arrangement
would reasonably be expected to have a Material Adverse Effect on Newco and
its Subsidiaries (including the Surviving Corporation and its
Subsidiaries), taken together, after giving effect to the Merger.
(l) Monsanto Rights Agreement. Monsanto shall not amend, modify or
waive any provision of the Monsanto Rights Agreement or the New Monsanto
Rights Agreement, and shall not take any action to redeem the Monsanto
Rights or render the Monsanto Rights inapplicable to any transaction, other
than to permit another transaction that the Board of Directors of Monsanto
has determined is a Superior Proposal to be consummated after termination
of this Agreement.
(m) Funding of Benefits. Monsanto shall not make any contributions to
any grantor trust or other funding arrangement for any nonqualified
deferred compensation that is considered "unfunded" for purposes of ERISA.
SECTION 4.3 Acquisitions. If (i) a party makes a bona fide request for
consent of the other party for an acquisition that would otherwise by precluded
by Section 4.1(e) or Section 4.2(e), (ii) the other party does not give such
consent and (iii) this Agreement is terminated pursuant to Section 7.1, such
other party shall not acquire or offer to acquire, directly or indirectly, the
business that was the subject of such request for a period of one year following
such termination. In no event shall the restrictions contained in the preceding
sentence apply with respect to more than four acquisitions requested by any
party. No party may request consent for an acquisition of a business that has
been the subject of a request for consent by the other party.
SECTION 4.4 Governmental Filings. Each party shall (a) confer on a
regular and frequent basis with the other and (b) report (to the extent
permitted by law or regulation or any applicable confidentiality agreement) on
operational matters. Monsanto and PNU shall file all reports required to be
filed by each of them with the SEC (and all other Governmental Entities) between
the date of this Agreement and the Effective Time and shall (to the extent
permitted by law or regulation or any applicable confidentiality agreement)
deliver to the other party copies of all such reports, announcements and
publications promptly after the same are filed.
SECTION 4.5 Control of Other Party's Business. Nothing contained in this
Agreement shall give Monsanto, directly or indirectly, the right to control or
direct PNU's operations prior to the Effective Time. Nothing contained in this
Agreement shall give PNU, directly or indirectly, the right to control or direct
Monsanto's operations prior to the Effective Time. Prior to the Effective Time,
each of Monsanto and PNU shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision over its
respective operations.
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ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 Preparation of Proxy Statement; Stockholders Meetings. (a) As
promptly as reasonably practicable following the date hereof, PNU and Monsanto
shall prepare and file with the SEC proxy materials which shall constitute the
Joint Proxy Statement/Prospectus (such proxy statement/prospectus, and any
amendments or supplements thereto, the "Joint Proxy Statement/Prospectus") and
Monsanto shall prepare and file a registration statement on Form S-4 with
respect to the issuance of Monsanto Common Stock and Monsanto Convertible
Preferred Stock in the Merger (the "Form S-4"). The Joint Proxy
Statement/Prospectus will be included in and will constitute a part of the Form
S-4 as Monsanto's prospectus. Each of PNU and Monsanto shall use reasonable best
efforts to have the Form S-4 declared effective by the SEC as promptly as
reasonably practicable after filing with the SEC and to keep the Form S-4
effective as long as is necessary to consummate the Merger and the transactions
contemplated thereby. PNU and Monsanto shall, as promptly as practicable after
receipt thereof, provide the other party copies of any written comments and
advise the other party of any oral comments, with respect to the Joint Proxy
Statement/Prospectus received from the SEC. Monsanto shall provide PNU with a
reasonable opportunity to review and comment on any amendment or supplement to
the Form S-4 prior to filing such with the SEC, and with a copy of all such
filings made with the SEC. Notwithstanding any other provision herein to the
contrary, no amendment or supplement (including by incorporation by reference)
to the Joint Proxy Statement/Prospectus or the Form S-4 shall be made without
the approval of both parties, which approval shall not be unreasonably withheld
or delayed; provided, that with respect to documents filed by a party which are
incorporated by reference in the Form S-4 or Joint Proxy Statement/Prospectus,
this right of approval shall apply only with respect to information relating to
the other party or its business, financial condition or results of operations.
PNU will use reasonable best efforts to cause the Joint Proxy
Statement/Prospectus to be mailed to PNU stockholders, and Monsanto will use
reasonable best efforts to cause the Joint Proxy Statement/Prospectus to be
mailed to Monsanto's stockholders, in each case as promptly as practicable after
the Form S-4 is declared effective under the Securities Act. Monsanto shall also
take any action (other than qualifying to do business in any jurisdiction in
which it is not now so qualified or to file a general consent to service of
process) required to be taken under any applicable state securities laws in
connection with the Share Issuance and PNU shall furnish all information
concerning PNU and the holders of PNU Common Stock and PNU Convertible Preferred
Stock as may be reasonably requested in connection with any such action. Each
party will advise the other party, promptly after it receives notice thereof, of
the time when the Form S-4 has become effective, the issuance of any stop order,
the suspension of the qualification of the Monsanto Common Stock or the Monsanto
Convertible Preferred Stock issuable in connection with the Merger for offering
or sale in any jurisdiction, or any request by the SEC for amendment of the
Joint Proxy Statement/Prospectus or the Form S-4. If at any time prior to the
Effective Time any information relating to PNU or Monsanto, or any of their
respective affiliates, officers or directors, should be discovered by PNU or
Monsanto which should be set forth in an amendment or supplement to any of the
Form S-4 or the Joint Proxy Statement/Prospectus so that any of such documents
would not include any misstatement of a material fact or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which the y were made, not misleading, the party which
discovers such information shall promptly notify the other party hereto and, to
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the extent required by law, rules or regulations, an appropriate amendment or
supplement describing such information shall be promptly filed with the SEC and
disseminated to the stockholders of PNU and Monsanto.
(b) Subject to Section 5.5, Monsanto shall, as promptly as reasonably
practicable following the execution of this Agreement, duly take all lawful
action to call, give notice of, convene and hold a meeting of its stockholders
(the "Monsanto Stockholders Meeting") (which meeting the parties intend to be
held no later than May 15, 2000 or as soon as practicable thereafter) for the
purpose of obtaining the Required Monsanto Votes with respect to the Share
Issuance and the Charter Amendment, and shall take all lawful action to solicit
the approval of the Share Issuance and the Charter Amendment by the Required
Monsanto Votes; and the Board of Directors of Monsanto shall, subject to its
fiduciary duties under applicable law, recommend approval of the Share Issuance
and the Charter Amendment by the stockholders of Monsanto to the effect as set
forth in Section 3.2(f), and shall not, subject to its fiduciary duties under
applicable law, withdraw, modify or materially qualify in any manner adverse to
PNU such recommendation or take any action or make any statement in connection
with the Monsanto Stockholders Meeting materially inconsistent with such
recommendation (any such withdrawal, modification, qualification or statement
(whether or not required), an "Adverse Change in the Monsanto Recommendation").
(c) Subject to Section 5.5, PNU shall, as promptly as reasonably
practicable following the execution of this Agreement, duly take all lawful
action to call, give notice of, convene and hold a meeting of its stockholders
(the "PNU Stockholders Meeting") (which meeting the parties intend to be held no
later than May 15, 2000 or as soon as practicable thereafter) for the purpose of
obtaining the Required PNU Vote with respect to the transactions contemplated by
this Agreement, and shall take all lawful action to solicit the adoption of this
Agreement by the Required PNU Vote; and the Board of Directors of PNU shall,
subject to its fiduciary duties under applicable law, recommend adoption of this
Agreement by the stockholders of PNU to the effect as set forth in Section
3.1(f), and shall not, subject to its fiduciary duties under applicable law,
withdraw, modify or materially qualify in any manner adverse to Monsanto such
recommendation or take any action or make any statement in connection with the
PNU Stockholders Meeting materially inconsistent with such recommendation (any
such withdrawal, modification, qualification or statement (whether of not
required), an "Adverse Change in the PNU Recommendation").
SECTION 5.2 Newco Board of Directors; Executives; Name; Headquarters;
Monsanto Agribusiness. (a) At or prior to the Effective Time, the parties will
take all action necessary such that (i) the Board of Directors of Newco as of
the Effective Time consists of 18 members to be determined prior to the mailing
of the Joint Proxy Statement/Prospectus, nine of whom will be designated by
Monsanto and nine of whom will be designated by PNU, such designees to be
current directors of PNU and Monsanto or such other persons as are reasonably
acceptable to the other party, (ii) each of the executive committee, the audit
committee, the compensation committee, the nominating committee and any other
committees of the Board of Directors of Newco as of the Effective Time will
consist of an equal number of members who are directors designated by PNU and
directors designated by Monsanto, (iii) Robert B. Shapiro shall be appointed
non-executive Chairman of the Board of Directors of Newco and Fred Hassan shall
be appointed Chief Executive Officer of Newco, each as of the Effective Time,
and (iv) at and effective as of 18 months after the Effective Time, if Mr.
Hassan is the Chief
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Executive Officer of Newco, Mr. Hassan shall be become Chairman of the Board and
Chief Executive Officer of Newco unless otherwise determined at such time by the
affirmative vote of 80% of the members of Newco's Board of Directors. If Mr.
Shapiro is not the Chief Executive Officer of Monsanto and/or Fred Hassan is not
the Chief Executive Officer of PNU, in each case immediately prior to the
Effective Time, PNU and Monsanto will use their reasonable best efforts to agree
upon an individual or individuals to replace Mr. Shapiro and/or Mr. Hassan as
non-executive Chairman and/or Chief Executive Officer, as the case may be.
Without limiting the foregoing, the parties intend that the twenty most senior
executive positions of Newco (on a combined basis with its Subsidiaries),
excluding the Chairman and the Chief Executive Officer, shall be held by a
combination of ten executives from Monsanto and ten executives from PNU.
(b) Monsanto shall change its name to the "Pharmacia Corporation" as of the
Effective Time. Newco shall use the "Monsanto" name for the Monsanto
Agribusiness (as defined in Section 8.11).
(c) Following the Effective Time, the parties intend that (i) Newco shall
maintain its principal corporate offices and the headquarters of its
pharmaceutical segment in Peapack, New Jersey and (ii) Newco shall maintain the
headquarters of the Monsanto Agribusiness in St. Louis, Missouri.
(d) The parties intend, as promptly as practicable following the Closing,
that Newco would reorganize the Monsanto Agribusiness as a direct or indirect
subsidiary of Newco and sell up to 19.9% of such subsidiary by means of an
initial public offering on the New York Stock Exchange. The parties contemplate
that at the time of any such public offering, such subsidiary would have a sound
capital structure, after giving effect to the repayment of indebtedness with the
proceeds of such initial public offering. The parties intend that such
subsidiary would have a board of directors at the time of such public offering
consisting of 3 members designated by directors of Newco who are former members
of the Board of Directors of Monsanto, 3 members designated by directors of
Newco who are former members of the Board of Directors of PNU and two members
who are independent directors and designated by the entire Board of Directors of
Newco.
(e) Subject to the Required Monsanto Votes, Monsanto shall take all
necessary action to cause the Charter Amendment (Monsanto's Restated Certificate
of Incorporation, as so amended, the "Newco Charter") and the By-laws (the
"Newco By-laws"), in substantially the forms attached hereto as Exhibits
5.2(e)(1) and 5.2(e)(2), respectively, to be effective at and as of the
Effective Time.
SECTION 5.3 Access to Information. (a) Upon reasonable notice, each party
shall (and shall cause its Subsidiaries to) afford to the officers, employees,
accountants, counsel, financial advisors and other representatives of the other
party reasonable access during normal business hours, during the period prior to
the Effective Time, to all its properties, books, contracts, commitments,
records, officers and employees and, during such period, such party shall (and
shall cause its Subsidiaries to) furnish promptly to the other party (a) a copy
of each report, schedule, registration statement and other document filed,
published, announced or received by it during such period pursuant to the
requirements of Federal or state securities laws, as applicable (other than
documents which such party is not permitted to disclose under applicable law),
and (b) consistent with its legal obligations, all other information concerning
it and its business, properties and personnel as such other party may reasonably
request; provided, however, that either party may restrict the foregoing access
to the extent that any law, treaty, rule or regulation
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of any Governmental Entity applicable to such party requires such party or its
Subsidiaries to restrict access to any properties or information. The parties
will hold any such information which is non-public in confidence to the extent
required by, and in accordance with, the provisions of the letter dated October
13, 1999 between Monsanto and PNU (as it may be amended or supplemented, the
"Confidentiality Agreement"). Any investigation by PNU or Monsanto shall not
affect the representations and warranties of Monsanto or PNU, as the case may
be.
(b) Between the date hereof and the Effective Time, Monsanto and PNU shall
provide each other with such documentation and information regarding the
Monsanto Employee Benefit Plans and the PNU Employee Benefit Plans,
respectively, as the other party shall reasonably request, as promptly as is
reasonably practicable.
SECTION 5.4 Reasonable Best Efforts. (a) Subject to the terms and
conditions of this Agreement, each party will use its reasonable best efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate the Merger and the other transactions contemplated by this Agreement
as soon as practicable after the date hereof, including (i) preparing and filing
as promptly as practicable all documentation to effect all necessary
applications, notices, petitions, filings, tax ruling requests and other
documents and to obtain as promptly as practicable all consents, waivers,
licenses, orders, registrations, approvals, permits, Tax rulings and
authorizations necessary or advisable to be obtained from any third party and/or
any Governmental Entity in order to consummate the Merger or any of the other
transactions contemplated by this Agreement and (ii) taking all reasonable steps
as may be necessary to obtain all such material consents, waivers, licenses,
registrations, permits, authorizations, Tax rulings, orders and approvals. In
furtherance and not in limitation of the foregoing, each party hereto agrees to
make an appropriate filing of a Notification and Report Form pursuant to the HSR
Act and any other Regulatory Law (as defined in Section 5.4(b)) with respect to
the transactions contemplated hereby as promptly as practicable after the date
hereof and to supply as promptly as practicable any additional information and
documentary material that may be requested pursuant to the HSR Act and any other
Regulatory Law and to take all other actions necessary to cause the expiration
or termination of the applicable waiting periods under the HSR Act as soon as
practicable. Nothing in this Section 5.4 shall require any of PNU and its
Subsidiaries or Monsanto and its Subsidiaries to sell, hold separate or
otherwise dispose of or conduct their business in a specified manner, or agree
to sell, hold separate or otherwise dispose of or conduct their business in a
specified manner, or permit the sale, holding separate or other disposition of,
any assets of PNU, Monsanto or their respective Subsidiaries or the conduct of
their business in a specified manner, whether as a condition to obtaining any
approval from a Governmental Entity or any other Person or for any other reason,
if such sale, holding separate or other disposition or the conduct of their
business in a specified manner is not conditioned on the Closing or would
reasonably be expected to have a Material Adverse Effect on Newco and its
Subsidiaries (including the Surviving Corporation and its Subsidiaries), taken
together, after giving effect to the Merger.
(b) Each of PNU and Monsanto shall, in connection with the efforts
referenced in Section 5.4(a) to obtain all requisite material approvals and
authorizations for the transactions contemplated by this Agreement under the HSR
Act or any other Regulatory Law, use its reasonable best efforts to (i)
cooperate in all respects with each other in connection with any filing or
submission and in connection with any investigation or other inquiry, including
any proceeding initiated by a private party, (ii) promptly inform the
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other party of any communication received by such party from, or given by such
party to, the Antitrust Division of the Department of Justice (the "DOJ"), the
Federal Trade Commission (the "FTC") or any other Governmental Entity and of any
material communication received or given in connection with any proceeding by a
private party, in each case regarding any of the transactions contemplated
hereby, and (iii) permit the other party to review any communication given by it
to, and consult with each other in advance of any meeting or conference with,
the DOJ, the FTC or any such other Governmental Entity or, in connection with
any proceeding by a private party, with any other Person, and to the extent
appropriate or permitted by the DOJ, the FTC or such other applicable
Governmental Entity or other Person, give the other party the opportunity to
attend and participate in such meetings and conferences. For purposes of this
Agreement, "Regulatory Law" means the Sherman Act, as amended, Council
Regulation No. 4064/89 of the European Community, as amended (the "EC Merger
Regulation"), the Clayton Act, as amended, the HSR Act, the Federal Trade
Commission Act, as amended, and all other federal, state and foreign, if any,
statutes, rules, regulations, orders, decrees, administrative and judicial
doctrines and other laws that are designed or intended to prohibit, restrict or
regulate (i) foreign investment or (ii) actions having the purpose or effect of
monopolization or restraint of trade or lessening of competition.
(c) Subject to the last sentence of Section 5.4(a), if any administrative
or judicial action or proceeding, including any proceeding by a private party,
is instituted (or threatened to be instituted) challenging any transaction
contemplated by this Agreement as violative of any Regulatory Law, each of PNU
and Monsanto shall cooperate in all respects with each other and use its
respective reasonable best efforts, including without limitation, selling,
holding separate or otherwise disposing of or conducting their business in a
specified manner, or agreeing to sell, hold separate or otherwise dispose of or
conduct their business in a specified manner or permitting the sale, holding
separate or other disposition of, any assets of PNU, Monsanto or their
respective Subsidiaries or the conducting of their business in a specified
manner, in order to contest and resist any such action or proceeding (or the
threat thereof) and to have vacated, lifted, reversed or overturned any decree,
judgment, injunction or other order, whether temporary, preliminary or
permanent, that is in effect and that prohibits, prevents or restricts
consummation of the transactions contemplated by this Agreement.
(d) Each of PNU and Monsanto shall cooperate with each other in obtaining
opinions of Davis Polk & Wardwell, counsel to PNU, and Arnold & Porter, special
tax counsel to Monsanto, to satisfy the conditions set forth in Section 6.2(c)
and Section 6.3(c). In connection therewith, each of PNU and Monsanto shall
deliver to such counsel customary representation letters substantially in the
forms attached hereto as Exhibit 6.2(c)(2) and Exhibit 6.2(c)(3) or otherwise in
form and substance reasonably satisfactory to such counsel.
SECTION 5.5 Acquisition Proposals. Without limitation on any of such
party's other obligations under this Agreement (including under Article IV
hereof), but except to the extent specifically permitted to such party pursuant
to its Disclosure Schedules under subsections (e) and (f) of Sections 4.1 or
4.2, as the case may be, each of PNU and Monsanto agrees that neither it nor any
of its Subsidiaries nor any of the officers and directors of it or its
Subsidiaries shall, and that it shall use its reasonable best efforts to cause
its and its Subsidiaries' employees, agents and representatives (including any
investment banker, attorney or accountant retained by it or any of its
Subsidiaries) not to, directly or indirectly, initiate, solicit, encourage or
knowingly facilitate (including by way of
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furnishing information) any inquiries or the making of any proposal or offer
with respect to a merger, reorganization, share exchange, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving it, or any purchase or sale of the consolidated assets
(including without limitation stock of Subsidiaries) of such party and its
Subsidiaries, taken as a whole, having an aggregate value equal to 10% or more
of the market capitalization of such party, or any purchase or sale of, or
tender or exchange offer for, 10% or more of the equity securities of such party
(any such proposal or offer (other than a proposal or offer made by the other
party or an affiliate thereof) being hereinafter referred to as an "Acquisition
Proposal"). Each party agrees that it will promptly inform the other party of
its receipt of any inquiries, offers or proposals received by any of its
directors or executive officers relating to an Acquisition Proposal. Each of PNU
and Monsanto further agrees that neither it nor any of its Subsidiaries nor any
of the officers and directors of it or its Subsidiaries shall, and that it shall
use its reasonable best efforts to cause its and its Subsidiaries' employees,
agents and representatives (including any investment banker, attorney or
accountant retained by it or any of its Subsidiaries) not to, directly or
indirectly, have any discussion with or provide any confidential information or
data to any Person relating to an Acquisition Proposal, or engage in any
negotiations concerning an Acquisition Proposal, or knowingly facilitate any
effort or attempt to make or implement an Acquisition Proposal or accept an
Acquisition Proposal. Notwithstanding anything in this Agreement to the
contrary, each of PNU and Monsanto or its respective Board of Directors shall be
permitted to (A) to the extent applicable, comply with Rule 14d-9 and Rule 14e-2
promulgated under the Exchange Act with regard to an Acquisition Proposal, (B)
in response to an unsolicited bona fide written Acquisition Proposal by any
Person, recommend approval of such an unsolicited bona fide written Acquisition
Proposal to its stockholders or effect an Adverse Change in the PNU
Recommendation or an Adverse Change in the Monsanto Recommendation, as the case
may be, or (C) engage in any discussions or negotiations with, or provide any
information to, any Person in response to an unsolicited bona fide written
Acquisition Proposal by any such Person, if and only to the extent that, in any
such case as is referred to in clause (B) or (C), (i) its Stockholders Meeting
shall not have occurred, (ii) its Board of Directors (x) in the case of clause
(B) above, concludes in good faith that such Acquisition Proposal constitutes a
Superior Proposal and provides written notice of termination of this Agreement
pursuant to Section 7.1(f) or (y) in the case of clause (C) above concludes in
good faith that such Acquisition Proposal could reasonably be expected to result
in a Superior Proposal, (iii) prior to providing any information or data to any
Person in connection with an Acquisition Proposal by any such Person, its Board
of Directors receives from such Person an executed confidentiality agreement
containing confidentiality terms at least as stringent as those contained in the
Confidentiality Agreement, and (iv) prior to providing any information or data
to any Person or entering into discussions or negotiations with any Person, such
party notifies the other party promptly of such inquiries, proposals or offers
received by, any such information requested from, or any such discussions or
negotiations sought to be initiated or continued with, it, its Subsidiaries, its
or its Subsidiaries' officers or directors, or any of its agents or
representatives indicating, in connection with such notice, the name of such
Person and the material terms and conditions of any inquiries, proposals or
offers. Each of PNU and Monsanto agrees that it will promptly keep the other
party informed of the status and terms of any such proposals or offers and the
status and terms of any such discussions or negotiations. Each of PNU and
Monsanto agrees that it will, and will cause its and its Subsidiaries' officers,
directors, agents and representatives to, immediately cease and cause to be
terminated any activities, discussions or negotiations existing as of the date
of this
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Agreement with any parties conducted heretofore with respect to any Acquisition
Proposal, and request the return or destruction of all non-public information
furnished in connection therewith. Each of PNU and Monsanto agrees that it will
use reasonable best efforts to promptly inform its directors, officers, key
employees, agents and representatives of the obligations undertaken in this
Section 5.5. Nothing in this Section 5.5 shall (x) permit PNU or Monsanto to
terminate this Agreement (except as specifically provided in Article VII hereof)
or (y) affect any other obligation of PNU or Monsanto under this Agreement.
SECTION 5.6 Employee Benefits Matters. (a) Continuation and Comparability
of Benefits. Following the Effective Time, Newco shall honor, and cause the
Surviving Corporation to honor, all Monsanto Employee Benefit Plans and PNU
Employee Benefit Plans and the related funding arrangements of each in
accordance with their respective terms and shall interpret such Monsanto
Employee Benefit Plans and PNU Employee Benefit Plans in accordance with the
past practice of Monsanto or PNU, as the case may be. From the Effective Time
until December 31, 2001, Newco and the Surviving Corporation do not intend to
reduce base salary, annual bonus opportunities or long-term incentive
opportunities for employees of PNU, Monsanto and their respective Subsidiaries,
except as otherwise determined by the Board of Directors or Compensation
Committee of Newco. From the Effective Time until December 31, 2001, Newco and
the Surviving Corporation shall provide employee benefits under employee benefit
plans to the employees and former employees of PNU and Monsanto and their
respective Subsidiaries (the "Newco Employees") that are in the aggregate no
less favorable than those provided to such persons pursuant to the employee
benefit plans of each of Monsanto and PNU in effect on the date hereof
(excluding equity and equity-based compensation). Without limiting the
generality of the foregoing, Newco shall provide severance pay and benefits to
Newco Employees whose employment terminates on or before December 31, 2001 in
accordance with the following: (i) with respect to such Newco Employees who are
employed by Monsanto or any of its Subsidiaries immediately before the Effective
Time, not less favorable than those provided under the applicable Monsanto
Employee Benefit Plans; and (ii) with respect to such Newco Employees who are
employed by PNU or any of its Subsidiaries immediately before the Effective
Time, not less favorable than those provided under the applicable PNU Employee
Benefit Plans, in each case as interpreted in accordance with past practice of
Monsanto and PNU, respectively. Nothing herein shall prohibit any changes to the
Monsanto Employee Benefit Plans and PNU Employee Benefit Plans that may be (i)
required by law (including, without limitation, any applicable qualification
requirements of Section 401(a) of the Code), (ii) necessary as a technical
matter to reflect the transactions contemplated hereby or (iii) required for
Newco to provide for or permit investment in its securities. Furthermore,
nothing herein shall require Newco to continue any particular Monsanto Employee
Benefit Plan or PNU Employee Benefit Plan or prevent the amendment or
termination thereof (subject to the maintenance, in the aggregate, of the
benefits as provided in this Section 5.6(a) and to the obligation to provide
severance pay and benefits as provided above).
(b) Pre-Existing Limitations; Deductibles; Service Credit. With respect to
any employee benefit plans in which any Newco Employees first become eligible to
participate, on or after the Effective Time, and in which the Newco Employees
did not participate prior to the Effective Time (the "New Newco Plans"), Newco
shall: (A) waive all pre-existing conditions, exclusions and waiting periods
with respect to participation and coverage requirements applicable to the Newco
Employees under any New Newco Plans in which such employees may be eligible to
participate after the Effective Time, except to
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the extent such pre-existing conditions, exclusions or waiting periods would
apply under the analogous Monsanto Employee Benefit Plan or PNU Employee Benefit
Plan, as the case may be; (B) provide each Newco Employee with credit for any
co-payments and deductibles paid prior to the Effective Time (to the same extent
such credit was given under the analogous employee benefit plan prior to the
Effective Time) in satisfying any applicable deductible or out-of-pocket
requirements under any New Newco Plans in which such employees may be eligible
to participate after the Effective Time, and (C) recognize all service of the
Newco Employees with PNU and Monsanto, respectively, for all purposes
(including, without limitation, purposes of eligibility to participate, vesting
credit, entitlement to benefits, and, except with respect to defined benefit
pension plans, benefit accrual) in any New Newco Plan in which such employees
may be eligible to participate after the Effective Time, to the extent such
service is taken into account under the applicable New Newco Plan; provided,
that the foregoing shall not apply to the extent it would result in duplication
of benefits.
(c) Grantor Trusts. Monsanto and PNU shall each take all steps (if any)
that are necessary or appropriate to amend any grantor trusts to which Monsanto
or any of its Subsidiaries, or PNU or any of its Subsidiaries, as applicable, is
a party so that no contributions to such trusts are required to be made as a
result of or in connection with the consummation of the transactions
contemplated hereby.
(d) Pension Plans. (i) PNU shall take all steps necessary or appropriate
to declare void the provisions of the PNU Retirement Plan that, absent such
action, would otherwise become effective upon a change of control.
(ii) Monsanto shall take all steps necessary or appropriate to ensure that
its defined benefit pension plans do not contain provisions that would become
effective upon a change of control.
(e) Assumption of Employment Agreements. Monsanto and PNU shall take all
action necessary or appropriate to effect the assumption by Monsanto, effective
immediately following the Effective Time, of all rights and obligations of PNU
under the employment agreements listed on Schedule 5.6(e).
SECTION 5.7 Fees and Expenses. Whether or not the Merger is consummated,
all Expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such Expenses, except
(a) if the Merger is consummated, the Surviving Corporation shall pay, or cause
to be paid, any and all property or transfer taxes imposed on PNU or its
Subsidiaries and (b) Expenses incurred in connection with the filing, printing
and mailing of the Form S-4 and the Joint Proxy Statement/Prospectus, which
shall be shared equally by PNU and Monsanto. As used in this Agreement,
"Expenses" includes all out-of-pocket expenses (including, without limitation,
all fees and expenses of counsel, accountants, investment bankers, experts and
consultants to a party hereto and its affiliates) incurred by a party or on its
behalf in connection with or related to the authorization, preparation,
negotiation, execution and performance of this Agreement and the transactions
contemplated hereby, including the preparation, printing, filing and mailing of
the Joint Proxy Statement/ Prospectus and the solicitation of stockholder
approvals and all other matters related to the transactions contemplated hereby.
SECTION 5.8 Directors' and Officers' Indemnification and Insurance. The
Surviving Corporation shall, and Newco shall cause the Surviving Corporation to,
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(i) indemnify and hold harmless, and provide advancement of expenses to, all
past and present directors, officers and employees of PNU and its Subsidiaries
(in all of their capacities), to the same extent such persons are indemnified or
have the right to advancement of expenses as of the date of this Agreement by
PNU pursuant to PNU's certificate of incorporation, by-laws and indemnification
agreements, if any, in existence on the date hereof with any directors, officers
and employees of PNU and its Subsidiaries for acts or omissions occurring at or
prior to the Effective Time (including for acts or omissions occurring in
connection with the approval of this Agreement and the consummation of the
transactions contemplated hereby), (ii) include and cause to be maintained in
effect in the Surviving Corporation's (or any successor's) certificate of
incorporation and by-laws for a period of six years after the Effective Time,
the current provisions regarding elimination of liability of directors,
indemnification of officers, directors and employees and advancement of expenses
contained in the certificate of incorporation and by-laws of PNU, as the case
may be, and (iii) cause to be maintained for a period of six years after the
Effective Time the current policies of directors' and officers' liability
insurance and fiduciary liability insurance maintained by PNU (provided that the
Surviving Corporation (or any successor) may substitute therefor policies of at
least the same coverage and amounts containing terms and conditions which are,
in the aggregate, no less advantageous to the insured) with respect to claims
arising from facts or events that occurred on or before the Effective Time;
provided, however, that in no event shall the Surviving Corporation be required
to expend in any one year an amount in excess of 200% of the annual premiums
currently paid by PNU for such insurance; and, provided, further, that if the
annual premiums of such insurance coverage exceed such amount, the Surviving
Corporation shall be obligated to obtain a policy with the greatest coverage
available for a cost not exceeding such amount.
SECTION 5.9 Public Announcements. PNU and Monsanto shall use reasonable
best efforts to develop a joint communications plan and each party shall use
reasonable best efforts (i) to ensure that all press releases and other public
statements with respect to the transactions contemplated hereby shall be
consistent with such joint communications plan, and (ii) unless otherwise
required by applicable law or by obligations pursuant to any listing agreement
with or rules of any securities exchange, to consult with each other before
issuing any press release or, to the extent practical, otherwise making any
public statement with respect to this Agreement or the transactions contemplated
hereby.
SECTION 5.10 Accounting Matters. (a) PNU shall use reasonable best
efforts to cause to be delivered to Monsanto two letters from PNU's independent
public accountants, one dated approximately the date on which the Form S-4 shall
become effective and one dated the Closing Date, each addressed to PNU and
Monsanto, in form and substance reasonably satisfactory to Monsanto and
customary in scope and substance for comfort letters delivered by independent
public accountants in connection with registration statements similar to the
Form S-4.
(b) Monsanto shall use reasonable best efforts to cause to be delivered to
PNU two letters from Monsanto's independent public accountants, one dated
approximately the date on which the Form S-4 shall become effective and one
dated the Closing Date, each addressed to Monsanto and PNU, in form and
substance reasonably satisfactory to PNU and customary in scope and substance
for comfort letters delivered by independent public accountants in connection
with registration statements similar to the Form S-4.
(c) Each of PNU and Monsanto shall use reasonable best efforts to cause the
transactions contemplated by this Agreement, including the Merger, to be
accounted for as
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a pooling of interests under Opinion 16 of the Accounting Principles Board and
applicable SEC rules and regulations, and such accounting treatment to be
accepted by the SEC; provided, however, that notwithstanding anything in this
Agreement to the contrary, the qualification of the Merger for pooling of
interests accounting treatment shall not be a condition to the Closing.
SECTION 5.11 Listing of Shares of Monsanto Common Stock. Monsanto shall
use its reasonable best efforts to cause the shares of Monsanto Common Stock to
be issued in the Merger and the shares of Monsanto Common Stock to be reserved
for issuance upon exercise of the PNU Stock Options (i) to be approved for
listing on the NYSE, subject to official notice of issuance, prior to the
Closing Date and (ii) to be approved for listing on the Stockholm Stock
Exchange, subject to official notice of issuance, prior to the Closing Date.
SECTION 5.12 Dividends. After the date of this Agreement, each of PNU and
Monsanto shall coordinate with the other the payment of dividends with respect
to the PNU Common Stock and Monsanto Common Stock and the record dates and
payment dates relating thereto, it being the intention of the parties hereto
that holders of PNU Common Stock and Monsanto Common Stock shall not receive two
dividends, or fail to receive one dividend, for any single calendar quarter with
respect to their shares of PNU Common Stock and/or Monsanto Common Stock and any
shares of Monsanto Common Stock that any such holder receives in exchange for
such shares of PNU Common Stock in the Merger.
SECTION 5.13 Affiliates. (a) Not less than 45 days prior to the Effective
Time, PNU shall deliver to Monsanto a letter identifying all persons who, in the
judgment of PNU, may be deemed at the time this Agreement is submitted for
adoption by the stockholders of PNU, "affiliates" of PNU for purposes of Rule
145 under the Securities Act or for purposes of qualifying the Merger for
pooling of interests accounting treatment under Opinion 16 of the Accounting
Principles Board and applicable SEC rules and regulations, and such list shall
be updated as necessary to reflect changes from the date hereof. PNU shall use
reasonable best efforts to cause each person identified on such list to deliver
to Monsanto not less than 30 days prior to the Effective Time, a written
agreement substantially in the form attached as Exhibit 5.13 hereto (an
"Affiliate Agreement").
(b) Not less than 45 days prior to the Effective Time, Monsanto shall
deliver to PNU a letter identifying all persons who, in the judgment of
Monsanto, may be deemed at the time this Agreement is submitted for adoption by
the stockholders of Monsanto, "affiliates" of Monsanto for purposes of
qualifying the Merger for pooling of interests accounting treatment under
Opinion 16 of the Accounting Principles Board and applicable SEC rules and
regulations, and such list shall be updated as necessary to reflect changes from
the date thereof. Monsanto shall use reasonable best efforts to cause each
person identified on such list to deliver to PNU not less than 30 days prior to
the Effective Time, a written agreement including the substance of paragraphs
(C), (D) and (E) of Exhibit 5.13 hereto.
(c) If the Merger qualifies for pooling of interests accounting treatment,
Newco shall use its reasonable best efforts to publish no later than 90 days
after the end of the first month after the Effective Time in which there are at
least 30 days of post-Merger combined operations (which month may be the month
in which the Effective Time
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occurs), combined sales and net income figures as contemplated by and in
accordance with the terms of SEC Accounting Series Release No. 135.
SECTION 5.14 Section 16 Matters. Prior to the Effective Time, PNU and
Monsanto shall take all such steps as may be required to cause any dispositions
of PNU Common Stock (including derivative securities with respect to PNU Common
Stock) or acquisitions of Monsanto Common Stock (including derivative securities
with respect to Monsanto Common Stock) resulting from the transactions
contemplated by Article I or Article II of this Agreement by each individual who
is subject to the reporting requirements of Section 16(a) of the Exchange Act
with respect to PNU or Monsanto, to be exempt under Rule 16b-3 promulgated under
the Exchange Act.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger are
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) Stockholder Approval. (i) Monsanto shall have obtained the
Required Monsanto Votes in connection with the approval of the Share
Issuance and the Charter Amendment by the stockholders of Monsanto and (ii)
PNU shall have obtained the Required PNU Vote in connection with the
adoption of this Agreement by the stockholders of PNU.
(b) No Injunctions or Restraints, Illegality. No Laws shall have been
adopted or promulgated, and no temporary restraining order, preliminary or
permanent injunction or other order issued by a court or other Governmental
Entity of competent jurisdiction shall be in effect, (i) having the effect
of making the Merger illegal or otherwise prohibiting consummation of the
Merger or (ii) which otherwise would reasonably be expected to have a
Material Adverse Effect on Newco and its Subsidiaries (including the
Surviving Corporation and its Subsidiaries), taken together after giving
effect to the Merger; provided, however, that the provisions of this
Section 6.1(b) shall not be available to any party whose failure to fulfill
its obligations pursuant to Section 5.4 shall have been the cause of, or
shall have resulted in, such order or injunction.
(c) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or
shall have expired.
(d) EU Antitrust. PNU and Monsanto shall have received in respect of
the Merger and any matters arising therefrom confirmation by way of a
decision from the Commission on the European Communities under Regulation
4064/89 (with or without the initiation of proceedings under Article
6(1)(c) thereof) that the Merger and any matters arising therefrom are
compatible with the common market.
(e) Governmental and Regulatory Approvals. Other than the filings
provided for under Section 1.5 and filings pursuant to the HSR Act and the
EC Merger Regulation (which are addressed in Section 6.1(c) and Section
6.1(d)), all consents, approvals and actions of, filings with and notices
to any Governmental Entity required of PNU, Monsanto or any of their
Subsidiaries to consummate the Merger, the Share
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Issuance and the other transactions contemplated hereby, the failure of
which to be obtained or taken would reasonably be expected to have a
Material Adverse Effect on Newco and its Subsidiaries (including the
Surviving Corporation and its Subsidiaries), taken together after giving
effect to the Merger, shall have been obtained; provided however, that the
provisions of this Section 6.1(e) shall not be available to any party whose
failure to fulfill its obligations pursuant to Section 5.4 shall have been
the cause of, or shall have resulted in, the failure to obtain such consent
or approval.
(f) NYSE Listing. The shares of Monsanto Common Stock to be issued in
the Merger and such other shares to be reserved for issuance in connection
with the Merger shall have been approved for listing on the NYSE, subject
to official notice of issuance.
(g) Effectiveness of the Form S-4. The Form S-4 shall have been
declared effective by the SEC under the Securities Act. No stop order
suspending the effectiveness of the Form S-4 shall have been issued by the
SEC and no proceedings for that purpose shall have been initiated or
threatened by the SEC.
SECTION 6.2 Additional Conditions to Obligations of PNU. The obligation
of PNU to effect the Merger is subject to the satisfaction of, or waiver by PNU,
on or prior to the Closing Date of the following additional conditions:
(a) Representations and Warranties. Each of the representations and
warranties of Monsanto set forth in this Agreement that is qualified as to
Material Adverse Effect shall be true and correct, and each of the
representations and warranties of Monsanto set forth in this Agreement that
is not so qualified shall be true and correct in all material respects, in
each case as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date (except to the extent in either
case that such representations and warranties speak as of another date),
and PNU shall have received a certificate of Monsanto executed by the chief
executive officer and the chief financial officer of Monsanto to such
effect.
(b) Performance of Obligations of Monsanto. Monsanto shall have
performed or complied with all agreements and covenants required to be
performed by it under this Agreement at or prior to the Closing Date that
are qualified as to Material Adverse Effect and shall have performed or
complied in all material respects with all other agreements and covenants
required to be performed by it under this Agreement at or prior to the
Closing Date that are not so qualified, and PNU shall have received a
certificate of Monsanto executed by the chief executive officer and the
chief financial officer of Monsanto to such effect.
(c) Tax Opinion. PNU shall have received from Davis Polk & Wardwell,
counsel to PNU, on or before the date the Form S-4 shall become effective
and, subsequently, on the Closing Date, a written opinion dated as of such
dates substantially in the form of Exhibit 6.2(c)(1). In rendering such
opinion, counsel to PNU shall be entitled to rely upon information,
representations and assumptions provided by PNU and Monsanto substantially
in the form of Exhibits 6.2(c)(2) and 6.2(c)(3) (allowing for such
amendments to the representations as counsel to PNU deems reasonably
necessary).
(d) Monsanto Rights Agreement. No Shares Acquisition Date or
Distribution Date shall have occurred pursuant to the Monsanto Rights
Agreement or the New Monsanto Rights Agreement.
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(e) Governance. Nine designees of PNU shall have been elected as
directors of Monsanto, a person reasonably acceptable to Monsanto and PNU
shall have been appointed non-executive Chairman of Monsanto (it being
understood and agreed that Robert B. Shapiro is such a person), a person
reasonably acceptable to Monsanto and PNU shall have been appointed Chief
Executive Officer of Monsanto (it being understood and agreed that Fred
Hassan is such a person), and the Newco Charter and the Newco By-laws shall
have become and remain effective.
SECTION 6.3 Additional Conditions to Obligations of Monsanto and Merger
Sub. The obligations of Monsanto and Merger Sub to effect the Merger are subject
to the satisfaction of, or waiver by Monsanto, on or prior to the Closing Date
of the following additional conditions:
(a) Representations and Warranties. Each of the representations and
warranties of PNU set forth in this Agreement that is qualified as to
Material Adverse Effect shall be true and correct, and each of the
representations and warranties of PNU set forth in this Agreement that is
not so qualified shall be true and correct in all material respects, in
each case as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date (except to the extent in either
case that such representations and warranties speak as of another date),
and Monsanto shall have received a certificate of PNU executed by the chief
executive officer and the chief financial officer of PNU to such effect.
(b) Performance of Obligations of PNU. PNU shall have performed or
complied with all agreements and covenants required to be performed by it
under this Agreement at or prior to the Closing Date that are qualified as
to Material Adverse Effect and shall have performed or complied in all
material respects with all other agreements and covenants required to be
performed by it under this Agreement at or prior to the Closing Date that
are not so qualified, and Monsanto shall have received a certificate of PNU
executed by the chief executive officer and the chief financial officer of
PNU to such effect.
(c) Tax Opinion. Monsanto shall have received from Arnold & Porter,
special tax counsel to Monsanto, on or before the date the Form S-4 shall
become effective and, subsequently, on the Closing Date, a written opinion
dated as of such dates substantially in the form of Exhibit 6.3(c)(1). In
rendering such opinion, counsel to Monsanto shall be entitled to rely upon
information, representations and assumptions provided by PNU and Monsanto
substantially in the form of Exhibits 6.2(c)(2) and 6.2(c)(3) (allowing for
such amendments to the representations as counsel to Monsanto deems
reasonably necessary).
(d) PNU Rights Agreement. No Stock Acquisition Date or Separation
Time shall have occurred pursuant to the PNU Rights Agreement.
ARTICLE VII
TERMINATION AND AMENDMENT
SECTION 7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, by action taken or authorized by the Board of
Directors of the terminating party or parties, and except as provided below,
whether before or after
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approval of the matters presented in connection with the Merger by the
stockholders of Monsanto or PNU:
(a) by mutual written consent of PNU and Monsanto (which consent shall
not be unreasonably withheld (i) in the case of PNU, if the conditions set
forth in Sections 6.3(a) or 6.3(b) would not reasonably be expected to be
satisfied prior to the Termination Date (as defined in Section 7.1(b))
through the exercise of PNU's reasonable best efforts or (ii) in the case
of Monsanto, if the conditions set forth in Section 6.2(a) or 6.2(b) would
not reasonably be expected to be satisfied prior to the Termination Date
through the exercise of Monsanto's reasonable best efforts);
(b) by either Monsanto or PNU if the Effective Time shall not have
occurred on or before December 31, 2000 (the "Termination Date"); provided,
however, that the right to terminate this Agreement under this Section
7.1(b) shall not be available to any party whose failure to fulfill any
obligation under this Agreement (including without limitation such party's
obligations set forth in Section 5.4) has been the cause of, or resulted
in, the failure of the Effective Time to occur on or before the Termination
Date;
(c) by either Monsanto or PNU if any Governmental Entity (i) shall
have issued an order, decree or ruling or taken any other action (which
such party shall have used its reasonable best efforts to resist, resolve
or lift, as applicable, in accordance with Section 5.4) permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement, and such order, decree, ruling or other
action shall have become final and nonappealable or (ii) shall have failed
to issue an order, decree or ruling or to take any other action (which
order, decree, ruling or other action such party shall have used its
reasonable best efforts to obtain, in accordance with Section 5.4), in the
case of each of (i) and (ii) which is necessary to fulfill the conditions
set forth in subsections 6.1(c), (d) and (e), as applicable, and such
denial of a request to issue such order, decree, ruling or take such other
action shall have become final and nonappealable; provided, however, that
the right to terminate this Agreement under this Section 7.1(c) shall not
be available to any party whose failure to comply with Section 5.4 has been
the cause of such action or inaction;
(d) by either Monsanto or PNU if (i) the approval by the stockholders
of Monsanto required for the Share Issuance and the Charter Amendment shall
not have been obtained by reason of the failure to obtain the Required
Monsanto Votes or (ii) the approval by the stockholders of PNU required for
the consummation of the Merger shall not have been obtained by reason of
the failure to obtain the Required PNU Vote, in each case upon the taking
of such vote at a duly held meeting of stockholders of Monsanto or PNU, as
the case may be, or at any adjournment thereof;
(e) by PNU or Monsanto, as the case may be, if the Board of Directors
of the other party, prior to the other party's required stockholders
approval, shall approve or recommend a Superior Proposal pursuant to
Section 5.5 or shall resolve to take any of such actions;
(f) by PNU or Monsanto, as the case may be, at any time prior to its
required stockholders approval, upon three Business Days' prior notice to
the other party, if its Board of Directors shall have determined as of the
date of such notice that an
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Acquisition Proposal is a Superior Proposal; provided, however, that (i)
the terminating party shall have complied with Section 5.5, (ii) prior to
any such termination, the terminating party shall, if requested by the
other party in connection with a revised proposal by it, negotiate in good
faith for such three Business Day period with the other party and (iii) the
Board of Directors of the terminating party shall have concluded in good
faith, as of the effective date of such termination, after taking into
account any revised proposal by the other party during such three Business
Day period, that an Acquisition Proposal is a Superior Proposal and;
provided, further, that it shall be a condition to termination by the
terminating party pursuant to this Section 7.l(f) that the terminating
party shall have made the payment of the fee to the other party required by
Section 7.2(b)(i)(A) or Section 7.2(c)(i)(A), as the case may be;
(g) by either party, if (A) the Board of Directors of PNU shall have
effected an Adverse Change in the PNU Recommendation (or resolved to take
such action) or (B) the Board of Directors of Monsanto shall have effected
an Adverse Change in the Monsanto Recommendation (or resolved to take such
action);
(h) by Monsanto, if a Stock Acquisition Date shall have occurred
pursuant to the PNU Rights Agreement; or
(i) by PNU, if a Share Acquisition Date shall have occurred pursuant
to the Monsanto Rights Agreement or the New Monsanto Rights Agreement.
SECTION 7.2 Effect of Termination. (a) In the event of termination of
this Agreement by either Monsanto or PNU as provided in Section 7.1, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of PNU or Monsanto or their respective officers or
directors except with respect to Section 3.1(m), Section 3.2(m), Section 4.3,
the second sentence of Section 5.3, Section 5.7, this Section 7.2 and Article
VIII, which provisions shall survive such termination, and except that,
notwithstanding anything to the contrary contained in this Agreement, neither
PNU nor Monsanto shall be relieved or released from any liabilities or damages
arising out of its willful material breach of this Agreement.
(b) (i) PNU shall pay Monsanto the sum of $575 million (the "PNU
Alternative Transaction Fee") if this Agreement is terminated solely as follows:
(A) if PNU shall terminate this Agreement pursuant to Section 7.1(f), (B) if (I)
either party shall terminate this Agreement pursuant to Section 7.1(d)(ii) due
to the failure of PNU's stockholders to adopt this Agreement and approve the
transactions contemplated hereby, (II) at any time after the date of this
Agreement and at or before the date of the PNU Stockholders Meeting a Business
Combination (as defined in Section 7.2(d)) proposal with respect to PNU shall
have been publicly announced or otherwise communicated to the Board of Directors
of PNU, and (III) within twelve months of the termination of this Agreement, PNU
enters into a definitive agreement with any third party with respect to a
Business Combination or a Business Combination with respect to PNU is
consummated, (C) if Monsanto shall terminate this Agreement pursuant to Section
7.1(e) or 7.1(h), (D) if (I) either party shall terminate this Agreement
pursuant to Section 7.1(b), (II) at any time after the date of this Agreement
and at or before the Termination Date there shall exist a Business Combination
proposal with respect to PNU, (III) following the existence of such Business
Combination proposal and prior to any such termination, PNU shall have
intentionally breached (and not cured after notice thereof) any of its covenants
or agreements set forth in this Agreement in any material respect, which breach
shall have
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materially contributed to the failure of the Effective Time to occur on or
before the Termination Date and (IV) within twelve months of any such
termination of this Agreement, PNU shall enter into a definitive agreement with
any third party with respect to a Business Combination or a Business Combination
with respect to PNU is consummated, or (E) if (I) either party shall terminate
this Agreement pursuant to 7.1(g)(A), (II) at any time after the date of this
Agreement and at or before the Adverse Change in the PNU Recommendation a
Business Combination proposal with respect to PNU shall have been publicly
announced or otherwise communicated to the Board of Directors of PNU, and (III)
within twelve months of any such termination of this Agreement, PNU shall enter
into a definitive agreement with any third party with respect to a Business
Combination or a Business Combination with respect to PNU is consummated,
provided that, in the case of this subclause (E) of Section 7.2(b)(i), if the
PNU Termination Fee (as defined in Section 7.2(b)(ii)) has previously been paid
in connection with the termination of this Agreement pursuant to Section
7.1(g)(A), then the amount of such fee shall be credited to the PNU Alternative
Transaction Fee.
(ii) PNU shall pay Monsanto the amount of $250 million (the "PNU
Termination Fee") if this Agreement is terminated by either party pursuant to
Section 7.1(g)(A) in circumstances in which the PNU Alternative Transaction Fee
is not then payable unless at the time the Board of Directors of PNU effected an
Adverse Change in the PNU Recommendation (or resolved to take such action)
Monsanto shall be in material breach of its representations, warranties or
covenants contained in this Agreement.
(c) (i) Monsanto shall pay PNU the sum of $575 million (the "Monsanto
Alternative Transaction Fee") if this Agreement is terminated solely as follows:
(A) if Monsanto shall terminate this Agreement pursuant to Section 7.1(f), (B)
if (I) either party shall terminate this Agreement pursuant to Section 7.1(d)(i)
due to the failure of Monsanto's stockholders to approve the Share Issuance or
the Charter Amendment, (II) at any time after the date of this Agreement and at
or before the date of the Monsanto Stockholders Meeting a Business Combination
proposal with respect to Monsanto shall have been publicly announced or
otherwise communicated to the Board of Directors of Monsanto and (III) within
twelve months of the termination of this Agreement, Monsanto enters into a
definitive agreement with any third party with respect to a Business Combination
proposal or a Business Combination with respect to Monsanto is consummated, (C)
if PNU shall terminate this Agreement pursuant to Section 7.1(e) or 7.1(i), (D)
if (I) either party shall terminate this Agreement pursuant to Section 7.1(b),
(II) at any time after the date of this Agreement and at or before the
Termination Date there shall exist a Business Combination proposal with respect
to Monsanto, (III) following the existence of such a Business Combination
proposal and prior to any such termination, Monsanto shall have intentionally
breached (and not cured after notice thereof) any of its covenants or agreements
set forth in this Agreement in any material respect which breach shall have
materially contributed to the failure of the Effective Time to occur on or
before the Termination Date and (IV) within twelve months of any such
termination of this Agreement, Monsanto shall enter into a definitive agreement
with any third party with respect to a Business Combination proposal or a
Business Combination with respect to Monsanto is consummated, or (E)(I) if
either party shall terminate this Agreement pursuant to 7.1(g)(B), (II) at any
time after the date of this Agreement and at or before the termination of this
Agreement relating to the Adverse Change in the Monsanto Recommendation a
Business Combination proposal with respect to Monsanto, shall have been publicly
announced or otherwise communicated to the Board of Directors of Monsanto and
(III) within twelve months of any such termination of this
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Agreement, Monsanto shall enter into a definitive agreement with any third party
with respect to a Business Combination or a Business Combination with respect to
Monsanto is consummated, provided that, in the case of this subclause (E) of
Section 7.2(c)(i), if the Monsanto Termination Fee (as defined in section
7.2(c)(ii)) has previously been paid in connection with the termination of this
Agreement pursuant to Section 7.1(g)(B), then the amount of such fee shall be
credited to the Monsanto Alternative Transaction Fee.
(ii) Monsanto shall pay PNU the amount of $250 million (the "Monsanto
Termination Fee") if this Agreement is terminated by either party pursuant to
Section 7.1(g)(B) in circumstances in which the Monsanto Alternative Transaction
Fee is not then payable unless at the time the Board of Directors of Monsanto
effected an Adverse Change in the Monsanto Recommendation (or resolved to take
such action) PNU shall be in material breach of its representations, warranties
or covenants contained in this Agreement.
(d) For the purposes of this Section 7.2, "Business Combination" means with
respect to PNU or Monsanto, as the case may be, (i) a merger, reorganization,
consolidation, share exchange, business combination, recapitalization,
liquidation, dissolution or similar transaction involving such party as a result
of which either (A) such party's stockholders prior to such transaction (by
virtue of their ownership of such party's shares) in the aggregate cease to own
at least 60% of the voting securities of the entity surviving or resulting from
such transaction (or the ultimate parent entity thereof) or, regardless of the
percentage of voting securities held by such stockholders, if any Person shall
beneficially own, directly or indirectly, at least 30% of the voting securities
of such ultimate parent entity, or (B) the individuals comprising the board of
directors of such party prior to such transaction do not constitute a majority
of the board of directors of such ultimate parent entity, (ii) a sale, lease,
exchange, transfer or other disposition of at least 50% of the assets of such
party and its Subsidiaries, taken as whole, in a single transaction or a series
of related transactions, or (iii) the acquisition, directly or indirectly, by a
Person of beneficial ownership of 30% or more of the common stock of such party
whether by merger, consolidation, share exchange, business combination, tender
or exchange offer or otherwise (other than a merger, reorganization,
consolidation, share exchange, business combination, recapitalization,
liquidation, dissolution or similar transaction upon the consummation of which
such party's stockholders would in the aggregate beneficially own greater than
60% of the voting securities of such Person).
(e) The PNU Alternative Transaction Fee and the Monsanto Alternative
Transaction Fee required to be paid pursuant to Section 7.2(b)(i) or 7.2(c)(i),
as the case may be, shall be paid prior to, and shall be a pre-condition to the
effectiveness of, termination of this Agreement pursuant to Section 7.1(f). Any
other payment required to be made pursuant to Section 7.2(b) or 7.2(c) shall be
made not later than two Business Days after the entering into of a definitive
agreement with respect to, or the consummation of, a Business Combination, as
applicable, or a termination pursuant to Section 7.1(e), Section 7.1(g), Section
7.1(h) or Section 7.1(i). In no event shall more than one PNU Alternative
Transaction Fee or Monsanto Alternative Transaction Fee be made.
SECTION 7.3 Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval of the matters presented in connection with
the Merger by the stockholders of Monsanto and PNU, but, after any such
approval, no amendment shall be made which by law or in accordance with the
rules of any relevant stock exchange requires further approval by such
stockholders without such further approval. This Agreement may
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not be amended except by an instrument in writing signed on behalf of each of
the parties hereto.
SECTION 7.4 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party. The failure of
any party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of those rights.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 Non-Survival of Representations, Warranties and Agreements.
None of the representations, warranties, covenants and other agreements in this
Agreement or in any instrument delivered pursuant to this Agreement, including
any rights arising out of any breach of such representations, warranties,
covenants and other agreements, shall survive the Effective Time, except for
those covenants and agreements contained herein and therein that by their terms
apply or are to be performed in whole or in part after the Effective Time and
this Article VIII.
SECTION 8.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed duly given (a) on the date of delivery if
delivered personally, or by telecopy or telefacsimile, upon confirmation of
receipt, (b) on the first Business Day following the date of dispatch if
delivered by a recognized next-day courier service, or (c) on the tenth Business
Day following the date of mailing if delivered by registered or certified mail,
return receipt requested, postage prepaid. All notices hereunder shall be
delivered as set forth below, or pursuant to such other instructions as may be
designated in writing by the party to receive such notice:
(a) if to PNU to
Pharmacia & Upjohn, Inc.
100 Route 206 North
Peapack, New Jersey 07977
Fax: (908) 901-1862
Attention: Don Schmitz, Esq.
with a copy to
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Fax: (212) 450-4800
Attention: Peter R. Douglas, Esq.
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(b) if to Monsanto to
Monsanto Company
800 North Lindbergh Boulevard
St. Louis, Missouri 63167
Fax: (314) 694-6399
Attention: R. William Ide, III, Esq.
with a copy to
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Fax: (212) 403-2000
Attention: Richard D. Katcher, Esq.
Eric S. Robinson, Esq.
SECTION 8.3 Interpretation. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation".
SECTION 8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that both
parties need not sign the same counterpart.
SECTION 8.5 Entire Agreement; No Third Party Beneficiaries. (a) This
Agreement, the Stock Option Agreements and the Confidentiality Agreement
constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof.
(b) This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other Person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement, other than
Section 5.8 (which is intended to be for the benefit of the Persons covered
thereby and may be enforced by such Persons).
SECTION 8.6 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware (without giving effect to
choice of law principles thereof).
SECTION 8.7 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transactions
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contemplated hereby are consummated as originally contemplated to the greatest
extent possible.
SECTION 8.8 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto, in whole or in part (whether by operation of law or otherwise), without
the prior written consent of the other party, and any attempt to make any such
assignment without such consent shall be null and void. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns.
SECTION 8.9 Submission to Jurisdiction; Waivers. Each of PNU and Monsanto
irrevocably agrees that any legal action or proceeding with respect to this
Agreement or for recognition and enforcement of any judgment in respect hereof
brought by the other party hereto or its successors or assigns may be brought
and determined in the Chancery or other Courts of the State of Delaware, and
each of PNU and Monsanto hereby irrevocably submits with regard to any such
action or proceeding for itself and in respect to its property, generally and
unconditionally, to the nonexclusive jurisdiction of the aforesaid courts. Each
of PNU and Monsanto hereby irrevocably waives, and agrees not to assert, by way
of motion, as a defense, counterclaim or otherwise, in any action or proceeding
with respect to this Agreement, (a) any claim that it is not personally subject
to the jurisdiction of the above-named courts for any reason other than the
failure to lawfully serve process, (b) that it or its property is exempt or
immune from jurisdiction of any such court or from any legal process commenced
in such courts (whether through service of notice, attachment prior to judgment,
attachment in aid of execution of judgment, execution of judgment or otherwise),
and (c) to the fullest extent permitted by applicable law, that (i) the suit,
action or proceeding in any such court is brought in an inconvenient forum, (ii)
the venue of such suit, action or proceeding is improper and (iii) this
Agreement, or the subject matter hereof, may not be enforced in or by such
courts.
SECTION 8.10 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms. It is accordingly agreed that
the parties shall be entitled to specific performance of the terms hereof, this
being in addition to any other remedy to which they are entitled at law or in
equity.
SECTION 8.11 Definitions. As used in this Agreement:
(a) "affiliate" means (except as specifically otherwise defined), as
to any person, any other person which, directly or indirectly, controls, or
is controlled by, or is under common control with, such person. As used in
this definition, "control" (including, with its correlative meanings,
"controlled by" and "under common control with") means the possession,
directly or indirectly, of the power to direct or cause the direction of
management or policies of a person, whether through the ownership of
securities or partnership or other ownership interests, by contract or
otherwise.
(b) "beneficial ownership" or "beneficially own" shall have the
meaning under Section 13(d) of the Exchange Act and the rules and
regulations thereunder.
(c) "Board of Directors" means the Board of Directors of any specified
Person and any committees thereof.
(d) "Business Day" means any day on which banks are not required or
authorized to close in the City of New York.
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(e) "Known" or "Knowledge" means, with respect to any party, the
knowledge of such party's executive officers after reasonable inquiry.
(f) "Material Adverse Effect" means, with respect to any entity, any
event, change, circumstance or effect that is or is reasonably likely to be
materially adverse to (i) the business, financial condition or results of
operations of such entity and its Subsidiaries taken as a whole, other than
any event, change, circumstance or effect relating (x) to the economy or
financial markets in general or (y) in general to the industries in which
PNU or Monsanto operate and not specifically relating to PNU or Monsanto or
(ii) the ability of such party to consummate the transactions contemplated
by this Agreement.
(g) "Monsanto Agribusiness" means the Agricultural Products business
of Monsanto, all as more fully described in Monsanto's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998 and its Quarterly
Reports on Form 10-Q for the fiscal quarters ended March 31, 1999, June 30,
1999 and September 30, 1999.
(h) A "Monsanto Employee Benefit Plan" means any employee benefit
plan, program, policy, practices, or other arrangement providing benefits
to any current or former employee, officer or director of Monsanto or any
of its Subsidiaries or any beneficiary or dependent thereof that is
sponsored or maintained by Monsanto or any of its Subsidiaries or to which
Monsanto or any of its Subsidiaries contributes or is obligated to
contribute, whether or not written, including without limitation any
employee welfare benefit plan within the meaning of Section 3(1) of ERISA,
any employee pension benefit plan within the meaning of Section 3(2) of
ERISA (whether or not such plan is subject to ERISA) and any bonus,
incentive, deferred compensation, vacation, stock purchase, stock option,
severance, employment, change of control or fringe benefit plan, program or
agreement.
(i) "Monsanto Nutrition and Consumer Businesses" means the alginates,
artificial sweetner and biogum businesses that have been reclassified as
discontinued operations in the financial statements of Monsanto.
(j) A "Monsanto Plan" means any Monsanto Employee Benefit Plan other
than a Multiemployer Plan.
(k) A "Multiemployer Plan" means any "multiemployer plan" within the
meaning of Section 4001(a)(3) of ERISA.
(l) "Newco" is sometimes used in the Agreement to refer to Monsanto
following the Merger.
(m) "Person" means an individual, corporation, limited liability
company, partnership, association, trust, unincorporated organization,
other entity or group (as defined in the Exchange Act).
(n) A "PNU Employee Benefit Plan" means any employee benefit plan,
program, policy, practices, or other arrangement providing benefits to any
current or former employee, officer or director of PNU or any of its
Subsidiaries or any beneficiary or dependent thereof that is sponsored or
maintained by PNU or any of its Subsidiaries or to which PNU or any of its
Subsidiaries contributes or is obligated to contribute, whether or not
written, including without limitation any employee welfare benefit plan
within the meaning of Section 3(1) of ERISA, any employee pension benefit
plan within the meaning of Section 3(2) of ERISA (whether or not such plan
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is subject to ERISA) and any bonus, incentive, deferred compensation,
vacation, stock purchase, stock option, severance, employment, change of
control or fringe benefit plan, program or agreement.
(o) A "PNU Plan" means any PNU Employee Benefit Plan other than a
Multiemployer Plan.
(p) "Subsidiary" when used with respect to any party means any
corporation or other organization, whether incorporated or unincorporated,
(i) of which such party or any other Subsidiary of such party is a general
partner (excluding partnerships, the general partnership interests of which
held by such party or any Subsidiary of such party do not have a majority
of the voting interests in such partnership) or (ii) at least a majority of
the securities or other interests of which having by their terms ordinary
voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such party or
by any one or more of its Subsidiaries, or by such party and one or more of
its Subsidiaries.
(q) "Superior Proposal" means with respect to PNU or Monsanto, as the
case may be, a written proposal made by a Person other than either such
party which is for (I)(i) a merger, reorganization, consolidation, share
exchange, business combination, recapitalization, liquidation, dissolution
or similar transaction involving such party as a result of which either (A)
such party's stockholders prior to such transaction (by virtue of their
ownership of such party's shares) in the aggregate cease to own at least
50% of the voting securities of the entity surviving or resulting from such
transaction (or the ultimate parent entity thereof) or (B) the individuals
comprising the board of directors of such party prior to such transaction
do not constitute a majority of the board of directors of such ultimate
parent entity, (ii) a sale, lease, exchange, transfer or other disposition
of at least 50% of the assets of such party and its Subsidiaries, taken as
a whole, in a single transaction or a series of related transactions, or
(iii) the acquisition, directly or indirectly, by a Person of beneficial
ownership of 50% or more of the common stock of such party whether by
merger, consolidation, share exchange, business combination, tender or
exchange offer or otherwise (other than a merger, consolidation, share
exchange, business combination, tender or exchange offer or other
transaction upon the consummation of which such party's stockholders would
in the aggregate beneficially own greater than 60% of the voting securities
of such Person), and which is (II) otherwise on terms which the Board of
Directors of such party in good faith concludes (after consultation with
its financial advisors and outside counsel), taking into account, among
other things, all legal, financial, regulatory and other aspects of the
proposal and the Person making the proposal, (i) would, if consummated,
result in a transaction that is more favorable to its stockholders (in
their capacities as stockholders), from a financial point of view, than the
transactions contemplated by this Agreement (after giving effect, for
purposes of clause (iii) of Section 7.1(f), to any revised proposal made by
the other party prior to the end of the three business-day period referred
to in clause (ii) of Section 7.1(f)) and (ii) is reasonably capable of
being completed.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
MONSANTO COMPANY
By: /s/ ROBERT B. SHAPIRO
-----------------------------------
Name: Robert B. Shapiro
Title: Chairman and
Chief Executive Officer
MP SUB, INCORPORATED
By: /s/ GARY L. CRITTENDEN
-----------------------------------
Name: Gary L. Crittenden
Title: President
PHARMACIA & UPJOHN, INC.
By: /s/ FRED HASSAN
-----------------------------------
Name: Fred Hassan
Title: Chief Executive Officer
By: /s/ J. SOREN GYLL
-----------------------------------
Name: J. Soren Gyll
Title: Chairman of the Board
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<PAGE> 1
EXHIBIT 4.1
CERTIFICATE OF AMENDMENT
OF
MONSANTO COMPANY
RESTATED CERTIFICATE OF INCORPORATION
1. Article I thereof is amended and restated to read as follows:
ARTICLE I: NAME
The name of the Corporation shall be Pharmacia Corporation.
2. The first sentence of Article IV thereof is amended to read as
follows:
The total number of shares of all classes of stock which the Corporation shall
have authority to issue is 3,010,000,000 shares, to be divided into two classes
consisting of (a) ten million (10,000,000) shares of preferred stock, par value
$.01 per share (hereinafter designated "Preferred Stock"), and (b) three
billion (3,000,000,000) shares of common stock of a par value of $2 per share
(hereinafter designated "Common Stock").
3. The last sentence of the first paragraph of Article IV, Section I
thereof is deleted.
4. Article IV, Section I(b) is amended and restated to read as follows:
(b) Whether the shares of such series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the terms of
such voting rights;
IV. These amendments were duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
V. These amendments shall become effective as of 4:00 p.m. on March 31, 2000.
<PAGE> 1
[MONSANTO LOGO] [Pharmacia & Upjohn LOGO]
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The boards of directors of Monsanto Company and Pharmacia & Upjohn, Inc.
have approved a "merger of equals" of the two companies. We believe the combined
company will be able to create substantially more stockholder value than could
be achieved by the companies individually.
Our combined company will be named Pharmacia Corporation. Its corporate
headquarters, and the headquarters of its pharmaceutical business, will be
located in Peapack, New Jersey. Our agricultural business will retain the
Monsanto name and will be headquartered in St. Louis, Missouri.
Upon completion of the merger, holders of Pharmacia & Upjohn common stock
will receive 1.19 shares of common stock of the combined company for each share
of Pharmacia & Upjohn common stock they own,
and each share of Pharmacia & Upjohn Series A Convertible Perpetual Preferred
Stock will be converted into an equivalent share of a newly created series of
convertible perpetual preferred stock of the combined company. Monsanto
stockholders will continue to hold their existing shares after the merger. We
have filed an application with the New York Stock Exchange to have the combined
company's stock listed on the New York Stock Exchange under the symbol "PHA".
Approximately 619 million shares of common stock of the combined company
will be issued to Pharmacia & Upjohn stockholders in the merger, based on the
number of shares of Pharmacia & Upjohn common stock outstanding on February 17,
2000. These shares will represent approximately 49% of the outstanding common
stock of the combined company after the merger. Monsanto shares held by Monsanto
stockholders before the merger will represent approximately 51% of the
outstanding common stock of the combined company after the merger.
Joint proxy statement/prospectus dated February 22, 2000 and first mailed to
stockholders on February 22, 2000.
<PAGE> 2
CHAPTER ONE
THE MERGER
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT WILL HAPPEN IN THE MERGER?
A: We are proposing to combine our companies in a "merger of equals"
transaction. In most mergers of equals, one company becomes a subsidiary of
the other company. In our merger, Pharmacia & Upjohn will become a wholly
owned subsidiary of Monsanto. Monsanto will then change its name to Pharmacia
Corporation. Pharmacia & Upjohn stockholders will have their shares of common
stock and preferred stock converted into newly-issued shares of common stock
and preferred stock of the combined company and Monsanto stockholders will
retain their existing shares. We expect that upon completion of the merger,
about 51% of the outstanding common stock of the combined company will be
held by former Monsanto stockholders and about 49% of the outstanding common
stock of the combined company will be held by former Pharmacia & Upjohn
stockholders.
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<PAGE> 3
OWNERSHIP OF THE COMBINED COMPANY AFTER THE MERGER
The combined company will issue approximately 619 million shares of its
common stock to Pharmacia & Upjohn stockholders in the merger. These shares will
represent approximately 49% of the outstanding common stock of the combined
company. This information is based on the number of shares of Monsanto common
stock and Pharmacia & Upjohn common stock outstanding on February 17, 2000 and
does not take into account the Monsanto or Pharmacia & Upjohn convertible
perpetual preferred stock, stock options or other equity-based awards or other
transactions involving the issuance of common stock, including acquisitions.
BOARD AND BOARD COMMITTEES AFTER THE MERGER (SEE PAGE I-35 AND PAGE I-44)
After the merger, the board of directors of the combined company will have
18 members, consisting of nine persons designated by Monsanto and nine persons
designated by Pharmacia & Upjohn. All committees of the board of directors of
the combined company will initially consist of an equal number of Monsanto and
Pharmacia & Upjohn designees.
EXECUTIVE OFFICERS (SEE PAGE I-44)
After the merger, we intend that Mr. Robert B. Shapiro of Monsanto will be
the non-executive chairman of the combined company's board of directors and Mr.
Fred Hassan of Pharmacia & Upjohn will be the chief executive officer of the
combined company. Eighteen months after the merger occurs, we intend that Mr.
Hassan will become both the chairman and chief executive officer of the combined
company unless otherwise determined at that time by the affirmative vote of 80%
of the directors of the combined company. Our plan is that after the merger, the
twenty most senior positions in the combined company, other than that of the
chairman and the chief executive officer, will be comprised of ten executives
from Monsanto and ten executives from Pharmacia & Upjohn.
INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER (SEE PAGE I-35)
When you consider our boards of directors' recommendations that you vote in
favor of the relevant proposals, you should be aware that a number of our
officers and directors will be entitled to receive certain significant benefits
if the merger occurs that they will not be entitled to receive if the merger
does not occur.
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<PAGE> 4
THE AGRIBUSINESS IPO
We intend to reorganize Monsanto's agribusiness as a separate business
under the Monsanto name and sell up to 19.9% of it in an initial public offering
soon after the merger. We contemplate that the agribusiness subsidiary will have
a sound capital structure.
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<PAGE> 5
INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER
In considering the recommendations of Monsanto's board of directors and
Pharmacia & Upjohn's board of directors with respect to the merger, stockholders
of Monsanto and Pharmacia & Upjohn should be aware that the officers and
directors of Monsanto and Pharmacia & Upjohn have interests in the merger that
are different from, or in addition to, their interests as stockholders of
Monsanto and Pharmacia & Upjohn generally. Monsanto's board of directors and
Pharmacia & Upjohn's board of directors were aware of these interests and
considered them, among other matters, in approving the merger agreement and the
transactions contemplated by the merger agreement. One executive officer of
Pharmacia & Upjohn, Mr. Fred Hassan, was also a member of Pharmacia & Upjohn's
12-person board of directors when that board approved the merger and he will
become chief executive officer of the combined company. Three executive officers
of Monsanto, Mr. Robert B. Shapiro, Mr. Hendrik A. Verfaillie, and Mr. Richard
U. De Schutter were also members of Monsanto's ten-person board of directors
when the Monsanto board approved the merger. The three Monsanto executives will
serve as directors and/or executives of the combined company, with Mr. Shapiro
serving as non-executive chairman and Mr. De Schutter serving as senior
executive vice president. Mr. Verfaillie will be chief executive officer of the
agricultural business.
BOARD OF DIRECTORS AND MANAGEMENT OF THE COMBINED COMPANY
We have agreed in the merger agreement that, as of the effective time of
the merger, the board of directors of the combined company will have 18 members,
consisting of nine persons designated by Monsanto and nine persons designated by
Pharmacia & Upjohn. More information concerning the designees is provided under
the heading "Additional Information Concerning the Designees to the Board of
Directors" beginning on page I-40. All committees of the combined company's
board of directors will initially be composed of an equal number of members
designated by each of Monsanto and Pharmacia & Upjohn. The bylaws of the
combined company will provide that only persons nominated by the nominating
committee of the board of directors or by a stockholder will be eligible to be
elected as directors.
We have also agreed that Mr. Robert B. Shapiro, the chief executive officer
and chairman of Monsanto, will become the chairman of the board of directors and
Mr. Fred Hassan, chief executive officer of Pharmacia & Upjohn, will become the
chief executive officer of the combined company. The bylaws of the combined
company will provide that 18 months after the completion of the merger, Mr.
Hassan, if he is then the chief executive officer of the combined company, will
become the chairman of the board of directors of the combined company, unless
otherwise determined at that time by the affirmative vote of 80% of the members
of the board of directors. The parties intend that at the time of the completion
of the merger, the twenty most senior executive positions in the combined
company, excluding the chairman and the chief executive officer, will be held by
ten executives of Monsanto and ten executives of Pharmacia & Upjohn.
Pursuant to the merger agreement, the combined company will assume
Pharmacia & Upjohn's employment agreement with Mr. Hassan. This agreement
provides, among other things, that Mr. Hassan will serve as chief executive
officer through November 30, 2004, and thereafter the agreement is subject to
cancellation upon six months' prior notice by either party. Pursuant to his
agreement, Mr. Hassan's annual compensation will consist, at a minimum, of a
base salary of $1,200,000 per year. For the year 2000, Mr. Hassan is also
eligible to receive an annual target bonus of up to 100% of his base salary
depending on achievement of performance-based goals. Mr. Hassan's agreement also
provides for welfare benefits, participation in company retirement and incentive
plans, and his use of company-provided transportation for security reasons. Mr.
Shapiro entered into an agreement with Monsanto in connection with the merger
and will serve as chairman of the board of
I-35
<PAGE> 6
directors of the combined company for 18 months following the effective time of
the merger and as a senior advisor for a term commencing at the effective time
of the merger and concluding December 31, 2003. Mr. Shapiro's agreement includes
annual compensation of $50,000 per year for his service as chairman, in addition
to regular fees to serve as a member of the board, and $480,000 per year for his
services as a senior advisor. Mr. Shapiro's agreement also provides that during
the term of the agreement, Mr. Shapiro will receive health care benefits,
secretarial services and security services, including company-provided
transportation.
OTHER AGREEMENTS AND PLANS WITH RESPECT TO EXECUTIVE OFFICERS
PHARMACIA & UPJOHN
EMPLOYMENT AGREEMENTS
In addition to the salary and bonus described above, the terms of Pharmacia
& Upjohn's employment agreement with Mr. Hassan provide that all stock options
granted to Mr. Hassan under the agreement (including Mr. Hassan's year 2000
annual stock option grant to purchase 350,000 shares under the Pharmacia &
Upjohn, Inc. Long-Term Incentive Plan and an additional option grant to purchase
150,000 shares based on the performance of Pharmacia & Upjohn stock) vest and
become fully exercisable as a result of the merger. Under the terms of the
employment agreement, Mr. Hassan also received a grant of 200,000 restricted
shares of Pharmacia & Upjohn stock, which will not vest as a result of the
merger.
STOCK OPTIONS AND INCENTIVE PLANS
As a result of the merger, all outstanding options, stock appreciation
rights, deferred shares and restricted stock grants awarded under the Pharmacia
& Upjohn, Inc. Long-Term Incentive Plan, the Pharmacia & Upjohn, Inc. Equity
Compensation Plan and the Pharmacia & Upjohn Directors Equity Compensation and
Deferral Plan prior to the consummation of the proposed merger, whether or not
fully vested, will, with regard to options, stock appreciation rights and
deferred shares, accelerate, vest and become fully exercisable, and, will, with
respect to restricted stock (except for restricted stock awarded to Mr. Hassan
under his employment agreement), become unrestricted and freely transferable
(including options and restricted stock awarded to Pharmacia & Upjohn
directors), except as set forth in the affiliate agreements. Any option, stock
appreciation right or deferred share that is not exercised before the date the
merger becomes effective will be converted into an immediately exercisable right
with respect to common stock of Monsanto following the merger, in a manner
intended to maintain the aggregate intrinsic value of the converted options,
stock appreciation rights or deferred shares. The number of shares of Monsanto
stock to which any such converted award will pertain will equal the number of
Pharmacia & Upjohn shares subject to such award multiplied by 1.19, and with
respect to options and stock appreciation rights, the exercise price of such
awards will be the current exercise price of such award divided by 1.19.
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<PAGE> 7
The following table shows the number of unvested options and the estimated
value of unvested options that will become exercisable and the number of shares
of restricted stock which become unrestricted for executive officers of
Pharmacia & Upjohn, assuming the merger is completed on June 30, 2000.
<TABLE>
<CAPTION>
NUMBER OF UNVESTED
PHARMACIA & UPJOHN AGGREGATE VALUE OF NUMBER OF
NAME OPTIONS(1) UNVESTED OPTIONS(2) RESTRICTED SHARES
- ---- ------------------ ------------------- -----------------
<S> <C> <C> <C>
F. Hassan(3)..................... $866,665 $7,730,652 0
G.A. Ando........................ 349,999 3,121,991 0
T.G. Rothwell.................... 247,297 2,205,889 7,300
C.J. Coughlin.................... 223,332 1,992,121 25,000
C. Smith Cox..................... 192,631 1,718,269 0
All other Pharmacia & Upjohn
executive officers as a
group.......................... 413,658 3,689,829 0
</TABLE>
- -------------------------
(1) Includes all options granted (including options to be granted in February
2000) that will be unvested and outstanding on June 30, 2000 provided the
merger has not occurred by that date.
(2) Grants valued using Black-Scholes value of $8.92/option. This is the value
used in the 1999 proxy statement.
(3) Includes Performance Stock Option Award of 150,000 options.
In anticipation of the merger, the board of directors of Pharmacia & Upjohn
adopted a resolution that, for purposes of the Pharmacia & Upjohn Pension Plan,
the merger would not be deemed to be a "change in control" (as defined in the
pension plan).
MONSANTO
Change of Control Employment Agreements. Monsanto has entered into change
of control employment agreements with each of its executive officers and certain
other key executives. Each change of control agreement provides for the
continuing employment of the executive after a "change of control" (including as
a result of the consummation of the merger) on terms and conditions no less
favorable than those in effect before the change of control. If the executive's
employment is terminated by the company without "cause" or if the executive
terminates his or her own employment for "good reason" (as each term is defined
in the change of control employment agreement), the executive is entitled to
severance benefits equal to a "multiple" of his or her annual compensation
(including bonus and, in the case of Mr. Gary L. Crittenden and one other
executive, long-term incentives) and continuation of certain benefits for a
number of years equal to the multiple. The multiple is three for 24 executives
and two for 7 other executives (or, in either case, the shorter number of years
until the executive's normal retirement date). In addition, each of the
executives entitled to a severance multiple of three is entitled to receive the
severance benefits if he or she voluntarily terminates his or her own employment
during the 30-day period beginning on the first anniversary of certain changes
of control, including the merger. Moreover, the executives are entitled to an
additional payment, if necessary, to make them whole as a result of any excise
tax imposed by the Internal Revenue Code on certain change of control payments.
Monsanto believes that no such additional payments will be necessary as a result
of the merger. Finally, in the event that Mr. De Schutter's employment
terminates other than for cause, he may become entitled to an additional
severance amount of up to one half of the annual bonus payable to him by reason
of outstanding performance and two times his annual compensation, pursuant to
his termination retention agreement with Monsanto.
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<PAGE> 8
As a result of ceasing to be the chief executive officer of Monsanto
immediately following the merger, Mr. Shapiro will become entitled to receive
the severance benefits provided for in his change of control employment
agreement, including cash severance of approximately $7,020,000. If the
employment of the other four most highly compensated executive officers of
Monsanto were terminated immediately following the merger under circumstances
entitling them to benefits under the change of control employment agreements,
the approximate total cash severance benefit that would be paid under such
agreements would be as follows: Mr. De Schutter $4,950,000; Mr. Gary L.
Crittenden $8,400,000; Mr. Philip Needleman $5,100,000; and Mr. Verfaillie
$4,800,000. The approximate maximum aggregate total cash amount that could be
paid under such agreements to the other 11 executive officers of Monsanto who
have change of control employment agreements under such circumstances would be
approximately $32,206,000 (15 individuals who are not executive officers also
have change of control employment agreements). Monsanto would also be
responsible for continuing certain benefits and the additional excise
tax-related payments described above, if applicable. Monsanto, however,
currently believes that the aggregate amounts indicated above significantly
exceed amounts that will actually be paid under such agreements.
STOCK OPTIONS. In accordance with the terms of the applicable stock option
agreements and except as described below, all Monsanto stock options will become
exercisable at the effective time of the merger. In addition, for certain
Monsanto stock options which were issued with exercise prices above the fair
market value of Monsanto common stock on the date such options were issued, at
the effective time of the merger, in accordance with their terms, the exercise
price of such premium options will be reduced to equal the fair market value on
the date of issuance. Purchased options and Year 2000 options granted in 1999
will be vested and exercisable on the later of the effective time of the merger
or the date the employee-option holder pays the required purchase price through
reduction of salary or by a direct payment. Employees who might otherwise
forfeit the options they have not paid for if they terminate employment can
complete payment within 30 days after termination and have their unvested
purchased options and Year 2000 options vest. The following table indicates the
number of Monsanto stock options for which exercisability will accelerate as a
result of the merger, the value of such options, and the amount by which the
exercise price of premium options will be reduced. The value of the Monsanto
stock options for which exercisability will accelerate was calculated based on
the difference between the per share exercise price and the closing price of
Monsanto common stock on the NYSE Composite Transactions Tape on February 17,
2000 ($39.75) and assumes the effective time of the merger is no later than June
30, 2000.
<TABLE>
<CAPTION>
VALUE OF OPTIONS
NUMBER OF FOR WHICH
OPTIONS FOR WHICH EXERCISABILITY INCREASE IN
EXERCISABILITY WILL WILL BE VALUE OF
BE ACCELERATED ACCELERATED(1) PREMIUM OPTIONS
------------------- ---------------- ---------------
<S> <C> <C> <C>
R. B. Shapiro......................... 425,988 $194,736 $21,623,500(2)
G. L. Crittenden...................... 397,041 0 0
R. U. De Schutter..................... 174,305 85,193 2,441,825
P. Needleman.......................... 185,479 76,677 1,832,500
H. A. Verfaillie...................... 236,081 85,193 5,864,000
All other Monsanto executive officers
as a group (11 persons)............. 1,197,024 277,135 11,803,948
</TABLE>
- -------------------------
(1) These values exclude options having an exercise price above $39.75.
(2) Mr. Shapiro has indicated that he intends to donate a substantial portion of
the increase in value of his premium options, when realized, to a charitable
foundation for the benefit of communities in which Monsanto has major
facilities.
I-38
<PAGE> 9
EXECUTIVE STOCK PURCHASE INCENTIVE PLAN. Thirty-four of Monsanto's senior
management group participate in the Monsanto Executive Stock Purchase Incentive
Plan ("ESPIP"), which permits executives to purchase Monsanto common stock with
the proceeds of a full-recourse loan from Monsanto. The purchase loans are
generally payable in three equal installments beginning on December 31, 2001, or
over a three-year period following a change of control, including the merger.
Executives who purchase stock through the ESPIP receive a deferred cash
incentive award in the maximum amount of the full-recourse loan plus accrued
interest. The participant receives up to two-thirds of the maximum award based
on Monsanto's stock performance relative to that of a specified comparative
stock index over a performance period which will end December 31, 2000 (the
"Shareowner Return Incentive Award"), and up to one-third is based on continued
employment with Monsanto over the performance period (the "Service Award"). In
order to receive any Shareowner Return Incentive Award, Monsanto's shareowner
return through the performance period must be above the 50th percentile of the
index. In order for an executive to earn the maximum Shareowner Return Incentive
Award, Monsanto's shareowner return through the performance period must be at or
above the 75th percentile of the index.
Under the ESPIP, following the merger, participating executives will be
entitled to receive the full Service Award, of which 87.5% would have been
vested as of May 31, 2000, even in the absence of the merger. Additionally,
participating executives may be eligible to receive a Shareowner Return
Incentive Award, calculated based upon performance through the tenth business
day prior to the effective time of the merger. The following table shows the
incremental cash payment under the ESPIP that will result from a change of
control and that would not have been vested as of May 31, 2000 in the absence of
a change of control and assumes, based upon the relative stock price performance
of Monsanto and the relevant index through December 31, 1999, that no Shareowner
Return Incentive Award will be payable.
<TABLE>
<CAPTION>
INCREMENTAL CASH PAYMENT
------------------------
<S> <C>
R. B. Shapiro............................................... $226,410
G. L. Crittenden............................................ $ 0
R. U. De Schutter........................................... $ 62,379
P. Needleman................................................ $ 25,157
H. A. Verfaillie............................................ $ 81,759
All other Monsanto executive officers as a group (11
persons).................................................. $262,858
</TABLE>
RESTRICTED STOCK. Restricted Monsanto common stock is occasionally granted
to Monsanto employees, usually in connection with job offers or to recognize
significant accomplishments. At the effective time of the merger, the
restrictions on all such shares previously awarded will lapse and the shares
will become fully vested and no longer subject to forfeiture. As of February 17,
2000, executive officers of Monsanto owned a total of 47,410 restricted shares
of Monsanto common stock, together with 2,400 shares of Solutia Inc. common
stock issued with respect to such restricted shares when Monsanto spun off its
chemical businesses in September 1997. The Solutia Inc. restricted shares are
subject to the same restrictions as the restricted shares of Monsanto common
stock. The restricted shares of Monsanto common stock (and the related
restricted shares of Solutia Inc. common stock) will vest at the effective time
of the merger. The aggregate value of such restricted shares on February 17,
2000 was $1,913,347, calculated based on the closing price of Monsanto common
stock of $39.75 and Solutia Inc. common stock of $12.00, each as reported on the
NYSE composite transactions tape on that date.
I-39
<PAGE> 10
OWNERSHIP OF COMMON STOCK; STOCK OPTIONS
As of February 17, 2000, directors and executive officers of Pharmacia &
Upjohn beneficially owned an aggregate of 5,231,220 shares of Pharmacia & Upjohn
common stock and no shares of Pharmacia & Upjohn convertible perpetual preferred
stock, including options to purchase 1,733,844 shares of Pharmacia & Upjohn
common stock exercisable within 60 days. Such shares of common stock
collectively constitute approximately 1% of the outstanding shares of Pharmacia
& Upjohn common stock.
As of February 17, 2000, directors and executive officers of Monsanto
beneficially owned an aggregate of approximately 11,256,001 shares of Monsanto
common stock, including options to purchase 9,048,549 shares of Monsanto common
stock exercisable within 60 days. Such shares of common stock collectively
constitute fewer than 2% of the outstanding shares of Monsanto common stock.
ADDITIONAL INFORMATION CONCERNING THE DESIGNEES TO THE BOARD OF DIRECTORS
Following the merger, the combined company's board of directors will have
18 members, consisting of nine individuals designated by Monsanto and nine
individuals designated by Pharmacia & Upjohn. All committees of the combined
company's board of directors will consist of an equal number of Monsanto and
Pharmacia & Upjohn designees.
PHARMACIA & UPJOHN DESIGNEES. The following current directors of Pharmacia
& Upjohn are Pharmacia & Upjohn's designees for the combined company's board of
directors. Certain of these directors were directors either of The Upjohn
Company or Pharmacia Aktiebolag prior to the 1995 combination of Upjohn and
Pharmacia.
FRANK C. CARLUCCI, AGE 69, CHAIRMAN, THE CARLYLE GROUP, A MERCHANT
BANK. Mr. Carlucci served as U.S. Secretary of Defense from 1987 to 1989. Mr.
Carlucci is currently on the board of directors of Ashland, Inc., Kaman
Corporation, Neurogen Corporation, Northern Telecom Limited, The Quaker Oats
Company, SunResorts, Ltd., N.V. and Texas Biotechnology Corporation. He also
serves on the board of trustees for the nonprofit Rand Corporation. He had
served as a director of Upjohn before the combination with Pharmacia.
M. KATHRYN EICKHOFF, AGE 60, PRESIDENT, EICKHOFF ECONOMICS INCORPORATED,
ECONOMIC CONSULTANTS. Ms. Eickhoff is the former associate director for Economic
Policy, United States Office of Management and Budget. She also serves as a
director of AT&T Corp., Tenneco Inc. and Fleet Bank, NA. Ms. Eickhoff is a
member of several business organizations including the Conference of Business
Economists, the Economic Club of New York and the National Association of
Business Economists. She had served as a director of Upjohn before the
combination with Pharmacia.
FRED HASSAN, AGE 54, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF PHARMACIA &
UPJOHN. Mr. Hassan had been Executive Vice President and a member of the board
of directors of American Home Products Corporation immediately prior to joining
Pharmacia & Upjohn in May 1997, and he had been senior vice president of
American Home Products Corporation before that. He joined Pharmacia & Upjohn's
board of directors in 1997.
BERTHOLD LINDQVIST, AGE 61, FORMER PRESIDENT AND CHIEF EXECUTIVE OFFICER OF
GAMBRO AB, A GLOBAL MEDICAL TECHNOLOGY COMPANY. Mr. Lindqvist is also a member
of the board of directors of Gambro AB, Trelleborg AB, PLM AB, Munters AB and
Securitas AB. Mr. Lindqvist is also a member of the Royal Swedish Academy of
Sciences. He had served as a director of Pharmacia before the combination with
Upjohn.
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<PAGE> 11
OLOF LUND, AGE 69, FORMER PRESIDENT AND CHIEF EXECUTIVE OFFICER OF CELSIUS
INDUSTRIER AB, A DEFENSE MANUFACTURING COMPANY. Mr. Lund is the chairman of
Tieto-Enator Corp., SIAR Foundation and the Swedish Financial Accounting
Standards Council, and is a member of the board of directors of FPG/AMFK, LKAB
and the Federation of Swedish Industries. Mr. Lund is also a member of the Royal
Academy of War Sciences. He had served as a director of Pharmacia before the
combination with Upjohn.
C. STEVEN MCMILLAN, AGE 54, PRESIDENT AND CHIEF OPERATING OFFICER OF SARA
LEE CORPORATION, A CONSUMER GOODS COMPANY. Mr. McMillan previously held other
management positions at Sara Lee before assuming his current position. Mr.
McMillan is a member of the board of directors of Sara Lee Corporation and
Illinova Corporation. He also serves on the boards of several not-for-profit and
civic organizations. He joined Pharmacia & Upjohn's board of directors in 1998.
WILLIAM U. PARFET, AGE 53, CO-CHAIRMAN OF MPI RESEARCH, LLC, A PRECLINICAL
TOXICOLOGY AND CLINICAL PHARMACEUTICAL TESTING LABORATORY. Mr. Parfet assumed
his current position in November 1995 and had previously served from October
1993 to January 1996 as president and chief executive officer of Richard Allan
Medical Industries, a medical device manufacturer. Prior to that, he had served
as vice chairman of the board of directors of Upjohn. Mr. Parfet serves as a
member of the board of directors of CMS Energy Corporation, the Financial
Accounting Foundation, Stryker Corporation and Sybron International. He had
served as a director of Upjohn before the combination with Upjohn. From time to
time, Pharmacia & Upjohn has retained MPI Research, LLC to conduct pre-clinical
and clinical testing work for Pharmacia & Upjohn. In addition, MPI Research
conducts pre-clinical and clinical testing work for independent entities with
whom Pharmacia & Upjohn has contractual and business relationships. Mr. Parfet
is the brother of Donald R. Parfet, senior vice president of Pharmacia & Upjohn.
ULLA REINIUS, AGE 62, PRESIDENT OF U. REINIUS FINANSFAKTA AB, PUBLISHER AND
FINANCIAL INFORMATION CONSULTANT. Ms. Reinius is also a member of the board of
directors of the Swedish Association for Share Promotion and a member of the
Ethical Advisory Board of the Swedish County Pension Funds and of the Swedish
Royal Opera. She is a former member of the Swedish Government Ethical Committee.
She had served as a director of Pharmacia before the combination with Upjohn.
BENGT SAMUELSSON, M.D., AGE 65, PROFESSOR OF MEDICAL AND PHYSIOLOGICAL
CHEMISTRY, AND, FORMERLY, PRESIDENT, KAROLINSKA INSTITUTE. Dr. Samuelsson was
the Nobel Laureate in Physiology or Medicine in 1982 and is currently chairman
of the Nobel Foundation. He is also a member of the board of directors of
Svenska Handelsbanken, the Liposome Company and Nicox, S.A., Valboune, France.
Dr. Samuelsson is a member of the Royal Swedish Academy of Sciences, the
American Academy of Arts and Sciences, the Association of American Physicians,
Adacemie des Sciences, Paris, the U.S. National Academy of Sciences, and the
Royal Society, London. He had served as a director of Pharmacia before the
combination with Upjohn. Pharmacia & Upjohn provides research grants and other
business-related funding to the Karolinska institute.
MONSANTO DESIGNEES. The following current directors of Monsanto are
Monsanto's designees for the combined company's board of directors.
RICHARD U. DE SCHUTTER, AGE 59, VICE CHAIRMAN AND CHIEF OPERATING OFFICER,
MONSANTO. Chief administrative officer, Monsanto, since 1999; vice chairman,
Monsanto, since 1997; president and chief executive officer, G.D. Searle & Co.,
since 1994; chief operating officer, G.D. Searle & Co., 1993-94; president, G.D.
Searle & Co., 1991-93; chairman of international operations, G.D. Searle & Co.,
1989-91; president of international operations, G.D. Searle & Co., 1986-89;
corporate executive vice president, G.D. Searle & Co., 1985-86. Director:
Evanston Northwestern
I-41
<PAGE> 12
Healthcare board of directors; Northwestern University board of trustees;
Pharmaceutical Research and Manufacturers of America.
MICHAEL KANTOR, AGE 60, PARTNER, MAYER, BROWN & PLATT. Partner, Mayer,
Brown & Platt, since 1997; U.S. Secretary of Commerce, 1996-97; U.S. Trade
Representative, 1993-96; national chairman for the Clinton/Gore Campaign, 1992;
partner, Manatt, Phelps, Phillips and Kantor, 1975-92.
GWENDOLYN S. KING, AGE 59, RETIRED SENIOR VICE PRESIDENT, CORPORATE AND
PUBLIC AFFAIRS, PECO ENERGY COMPANY. Senior vice president, Corporate and
Public Affairs, PECO Energy Company (formerly Philadelphia Electric Company),
1992-98; commissioner, Social Security Administration, 1989-92. Director: Eric
Indemnity Co.; Lockheed Martin Corp.; Marsh & McLennan Companies, Inc.
PHILIP LEDER, AGE 65, CHAIRMAN, DEPARTMENT OF GENETICS, HARVARD MEDICAL
SCHOOL, AND SENIOR INVESTIGATOR, HOWARD HUGHES MEDICAL INSTITUTE. Chairman,
Department of Genetics, Harvard Medical School, since 1980; John Emory Andrus
Professor of Genetics since 1980; senior investigator, Howard Hughes Medical
Institute, since 1986. Director: Genome Therapeutics Corporation. Trustee: The
General Hospital Corporation; The Hadassah Medical Organization; Massachusetts
General Hospital; The Charles A. Revson Foundation.
JACOBUS F.M. PETERS, AGE 68, RETIRED CHAIRMAN OF THE EXECUTIVE BOARD AND
CHIEF EXECUTIVE OFFICER, AEGON N.V. Chairman of the Executive Board and chief
executive officer, AEGON N.V., 1984-93. Director: Kleinwort Endowment Policy
Trust Plc. Chairman of Supervisory Board: Bank Dutch Municipalities. Member of
Supervisory Board: AEGON N.V.; Amsterdam Company for Town Restoration Ltd.;
Gilde Investment Funds; KEMA; Randstad Holding N.V.; SAMAS Group N.V.; United
Flower Auctions Aalsmeer.
JOHN S. REED, AGE 60, CHAIRMAN AND CO-CHIEF EXECUTIVE OFFICER, CITIGROUP
INC. Chairman and co-chief executive officer, Citigroup Inc., since 1998.
Chairman and chief executive officer Citicorp and Citibank, N.A., 1984-98.
Director: Citigroup Inc.; Philip Morris Companies, Inc. Member: The Business
Council.
JOHN E. ROBSON, AGE 69, SENIOR ADVISOR, ROBERTSON STEPHENS INC. Senior
advisor, Robertson Stephens Inc., since 1993; distinguished faculty fellow, Yale
University School of Management and Visiting Fellow, The Heritage Foundation,
1993; deputy secretary of the U.S. Department of the Treasury, 1989-92; dean,
Emory University Business School, 1986-89; president and chief executive
officer, G.D. Searle & Co., 1985-86; executive vice president and chief
operating officer, G.D. Searle & Co., 1978-85. Director: Northrop Grumman Corp.;
ProLogis Trust (formerly Security Capital Industrial Trust (REIT)); Horizon
Pharmaceutical Company.
WILLIAM D. RUCKELSHAUS, AGE 67, PRINCIPAL, MADRONA INVESTMENT GROUP
L.L.C. Principal, Madrona Investment Group L.L.C., since 1996; chairman,
Browning-Ferris Industries, Inc., 1995-99; chairman and chief executive officer,
Browning-Ferris Industries, Inc., 1988-95; of counsel, Perkins Coie, 1985-88;
administrator, Environmental Protection Agency, 1983-85. Director: Coinstar,
Inc.; Cummins Engine Co., Inc.; Nordstrom, Inc.; Solutia Inc.; Weyerhaeuser
Company.
ROBERT B. SHAPIRO, AGE 61, CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
MONSANTO. Chairman and chief executive officer, Monsanto, since 1997; chairman,
president and chief executive officer, Monsanto, 1995-97; president and chief
operating officer, Monsanto, 1993-95; executive vice president and advisory
director, Monsanto, and president, The Agricultural Group of Monsanto, 1990-93.
Director: Citigroup Inc.; NorthWestern Memorial Hospital; Silicon Graphics,
Inc.; Rockwell International Corporation. Trustee: Washington University.
Member: The Business Council; American Society of Corporate Executives; The
Business Roundtable.
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<PAGE> 13
THE MERGER AGREEMENT
The following summary of the merger agreement is qualified by reference to
the complete text of the merger agreement dated as of December 19, 1999, as
amended by Amendment No. 1 dated as of February 18, 2000, which is incorporated
by reference and attached as Annex A.
STRUCTURE OF THE MERGER
Under the merger agreement, a newly formed Monsanto subsidiary will merge
into Pharmacia & Upjohn so that Pharmacia & Upjohn becomes a wholly owned
subsidiary of the combined company.
TIMING OF CLOSING
The closing of the merger will take place on the second business day after
all closing conditions set forth in the merger agreement have been satisfied or
waived, unless Monsanto and Pharmacia & Upjohn agree to a different date. We
expect that immediately upon the closing of the merger, we will file a
certificate of merger with the Secretary of State of the State of Delaware. The
effective time of the merger will either be the time the certificate of merger
is filed, or at such later time as may be specified in the certificate of
merger.
MERGER CONSIDERATION
The merger agreement provides that each share of Pharmacia & Upjohn common
stock outstanding immediately prior to the effective time of the merger will at
the effective time be converted into 1.19 shares of common stock of the combined
company. However, any shares of Pharmacia & Upjohn common stock issued and owned
or held by Pharmacia & Upjohn or Monsanto or any of their subsidiaries will be
canceled without any payment for those shares.
In addition, each outstanding share of Pharmacia & Upjohn convertible
perpetual preferred stock (other than shares as to which appraisal rights have
been exercised) will, at the effective time, be converted into one share of
convertible perpetual preferred stock of the combined company having, to the
extent possible, terms identical to those of the Pharmacia & Upjohn convertible
perpetual preferred stock.
The combined company will not issue any fractional shares in the merger.
Holders of Pharmacia & Upjohn common stock who would otherwise receive
fractional shares will instead receive a cash payment based upon the value of
such fractional shares of the common stock of the combined company.
As a result of the merger, all shares of Pharmacia & Upjohn common stock
and convertible perpetual preferred stock will no longer be outstanding and
shall be canceled.
TREATMENT OF PHARMACIA & UPJOHN STOCK OPTIONS
At the effective time, each outstanding option granted by Pharmacia &
Upjohn to purchase shares of Pharmacia & Upjohn common stock will be converted
into an immediately exercisable option with respect to common stock of the
combined company following the merger, in a manner intended to maintain the
aggregate intrinsic value of the converted options. The number of shares of
common stock of the combined company which any such converted award will pertain
to will equal the number of Pharmacia & Upjohn shares subject to such award
multiplied by 1.19, and the exercise price of such award will be the current
exercise price of such award divided by 1.19.
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<PAGE> 14
Any other stock-based award already granted by Pharmacia & Upjohn under its
employee or directors plans or arrangements prior to the effective time will be
converted, as of the effective time, into similar stock-based awards of the
combined company, adjusted as appropriate to preserve the award's intrinsic
value. Pursuant to their terms, all Pharmacia & Upjohn stock-based awards
outstanding at the effective time will vest and become immediately exercisable
or, in the case of restricted stock grants other than 200,000 restricted shares
of common stock granted to Mr. Hassan, become freely transferrable upon the
occurrence of the merger. For additional information on the Pharmacia & Upjohn
stock-based awards, see "Interests of Officers and Directors in the Merger" on
page I-35.
EXCHANGE OF CERTIFICATES
Monsanto will appoint an exchange agent to handle the exchange of Pharmacia
& Upjohn stock certificates for stock certificates of the combined company in
the merger and the payment of cash for fractional shares that would otherwise
have been issued pursuant to the merger. Soon after the effective time of the
merger, the exchange agent will send to each former Pharmacia & Upjohn
stockholder a letter of transmittal to be used to exchange Pharmacia & Upjohn
stock certificates for shares of the combined company (which will be in
uncertificated book-entry form unless a physical certificate is requested) and
to receive cash instead of any fractional shares. The letter of transmittal will
contain instructions explaining the procedure for surrendering Pharmacia &
Upjohn stock certificates. YOU SHOULD NOT RETURN ANY STOCK CERTIFICATES WITH THE
ENCLOSED PROXY CARD.
Holders of Pharmacia & Upjohn stock who surrender their stock certificates
to the exchange agent, together with a properly completed letter of transmittal,
will receive the appropriate merger consideration. Holders of unexchanged shares
of Pharmacia & Upjohn stock will not be entitled to receive any dividends or
other distributions payable by the combined company after the effective time of
the merger until they surrender their stock certificates in accordance with the
exchange agent's instructions.
Stockholders of Monsanto will not be required to exchange their Monsanto
certificates as a result of the merger. At the effective time, these
certificates will automatically represent an equal number of shares in the
combined company.
THE BOARD OF THE COMBINED COMPANY AND RELATED MATTERS
BOARD OF DIRECTORS OF THE COMBINED COMPANY. Monsanto and Pharmacia &
Upjohn have agreed to take the necessary action so that, as of the effective
time of the merger, the board of directors of the combined company will consist
of 18 members, nine of whom will be designated by Monsanto and nine of whom will
be designated by Pharmacia & Upjohn. In addition, each board committee will
initially have an equal number of members designated by each of Monsanto and
Pharmacia & Upjohn.
CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD OF DIRECTORS OF THE
COMBINED COMPANY. The merger agreement provides that, as of the effective time
of the merger, Mr. Robert B. Shapiro, chairman and chief executive officer of
Monsanto, will serve as the chairman of the board of directors of the combined
company and that Mr. Fred Hassan, president and chief executive officer of
Pharmacia & Upjohn, will serve as chief executive officer of the combined
company. If Mr. Hassan is still chief executive officer of the combined company
18 months after the merger, he will then become chairman of the board, unless
otherwise determined at that time by the affirmative vote of 80% of the members
of the board of directors of the combined company. If Mr. Shapiro is not the
chief executive officer of Monsanto and/or Mr. Hassan is not the chief executive
officer of Pharmacia & Upjohn, in each case immediately prior to the merger, we
have agreed to use our
I-44
<PAGE> 15
reasonable best efforts to agree upon an individual or individuals to replace
Mr. Shapiro and/or Mr. Hassan as chairman and/or chief executive officer, as the
case may be.
EXECUTIVE OFFICERS OF THE COMBINED COMPANY. We agreed in the merger
agreement that it is our intention that the twenty most senior positions of the
combined company, excluding the chairman and the chief executive officer, will
be held by ten executives from each of Monsanto and Pharmacia & Upjohn.
HEADQUARTERS OF THE COMBINED COMPANY. We agreed in the merger agreement
that it is our intention that following the effective time of the merger the
principal corporate offices of the combined company and the headquarters of its
pharmaceuticals business will be located in Peapack, New Jersey and that the
headquarters of its agribusiness will be in St. Louis, Missouri.
NAME OF THE COMBINED COMPANY. We agreed in the merger agreement that the
name of the combined company will be Pharmacia Corporation.
INTENDED AGRIBUSINESS IPO
The merger agreement includes a description of our plans with respect to
Monsanto's agribusiness unit. It states that our intention is that as promptly
as practicable following the merger, the combined company will reorganize the
agribusiness unit under the Monsanto name as a direct or indirect subsidiary and
sell up to 19.9% of that subsidiary by means of an initial public offering of
its common stock to be listed on the New York Stock Exchange. At the time of the
agribusiness initial public offering, we intend that the agribusiness subsidiary
will have a sound capital structure.
I-45
<PAGE> 16
SHARES BENEFICIALLY OWNED BY MONSANTO AND PHARMACIA & UPJOHN DIRECTORS AND
EXECUTIVE OFFICERS AS OF FEBRUARY 17, 2000
<TABLE>
<CAPTION>
MONSANTO MEETING PHARMACIA & UPJOHN MEETING
---------------- --------------------------
<S> <C>
Monsanto directors and executive officers Pharmacia & Upjohn directors and executive
beneficially own 11,256,001 shares of officers beneficially own 5,231,220 shares
Monsanto common stock, including of Pharmacia & Upjohn common stock,
exercisable options. These shares represent including exercisable options and no shares
in total less than 2% of the shares of of Pharmacia & Upjohn convertible perpetual
Monsanto common stock outstanding as of preferred stock. These shares represent
February 17, 2000. approximately 1% of the votes entitled to
be cast as of February 17, 2000.
These individuals have indicated that they
intend to vote in favor of the Monsanto These individuals have indicated that they
proposals. intend to vote in favor of the Pharmacia &
Upjohn proposal.
</TABLE>
III-3
<PAGE> 1
EXHIBIT 20.2
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -------------------------------------------
Report of Independent Accountants
to the Shareholders and Board of Directors,
Pharmacia & Upjohn, Inc.
In our opinion, the consolidated balance sheets and the related consolidated
statements of earnings, shareholders' equity, and cash flows present fairly, in
all material respects, the financial position of Pharmacia & Upjohn, Inc. and
its subsidiaries at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. These financial statements are the responsibility of
Pharmacia & Upjohn, Inc.'s management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards in the United States, which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Florham Park, New Jersey
February 7, 2000
CONSOLIDATED STATEMENTS OF EARNINGS
PHARMACIA & UPJOHN, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31 1999 1998 1997
- ------------------------------- ---- ---- ----
<S> <C> <C> <C>
Dollar amounts in millions, except per-share data
Net sales $ 7,253 $ 6,758 $ 6,586
Cost of products sold 1,893 2,031 2,047
Research and development 1,434 1,234 1,246
Selling, general and administrative 2,800 2,552 2,642
Merger and restructuring charges 70 92 316
Interest income (80) (92) (113)
Interest expense 63 26 33
All other, net (74) (62) (20)
------- ------- -------
Earnings before income taxes 1,147 977 435
Provision for income taxes 344 346 177
------- ------- -------
NET EARNINGS $ 803 $ 631 $ 258
======= ======= =======
EARNINGS PER COMMON SHARE:
Basic $ 1.53 $ 1.20 $ .48
Diluted $ 1.49 $ 1.17 $ .48
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-30-
<PAGE> 2
CONSOLIDATED BALANCE SHEETS
PHARMACIA & UPJOHN, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
DECEMBER 31 1999 1998
- ----------- ---- ----
<S> <C> <C>
Dollar amounts in millions
CURRENT ASSETS:
Cash and cash equivalents $ 1,316 $ 881
Short-term investments 98 375
Trade accounts receivable, less allowance of $104(1998: $103) 1,513 1,417
Inventories 1,177 1,032
Deferred income taxes 436 378
Other 393 469
------- -------
TOTAL CURRENT ASSETS 4,933 4,552
Long-term investments 420 454
Properties, net 3,284 3,234
Goodwill and other intangible assets, net 1,127 1,238
Other noncurrent assets 934 865
------- -------
TOTAL ASSETS $10,698 $10,343
======= =======
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
CURRENT LIABILITIES:
<S> <C> <C>
Short-term debt $ 1,212 $ 332
Accounts payable 398 511
Compensation and compensated absences 284 268
Dividends payable 146 141
Income taxes payable 324 389
Other 1,076 1,234
------- -------
TOTAL CURRENT LIABILITIES 3,440 2,875
------- -------
Long-term debt 142 295
Guarantee of ESOP debt 190 218
Postretirement benefit cost 320 344
Deferred income taxes 246 238
Other noncurrent liabilities 775 777
------- -------
TOTAL LIABILITIES 5,113 4,747
======= =======
SHAREHOLDERS' EQUITY:
Preferred stock, one cent par value; authorized 100,000,000 shares, issued
Series A convertible 6,692 shares at stated
value (1998: 6,863 shares) 270 277
Common stock, one cent par value; authorized 1,500,000,000
shares, issued 519,708,701 shares(1998: 518,797,031 shares) 5 5
Capital in excess of par value 1,519 1,531
Retained earnings 5,569 5,334
ESOP-related accounts (248) (254)
Treasury stock (2) (35)
Accumulated other comprehensive income:
Currency translation adjustments (1,513) (1,246)
Unrealized investment gains, net 21 5
Minimum pension liability adjustment (36) (21)
------- -------
TOTAL SHAREHOLDERS' EQUITY 5,585 5,596
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $10,698 $10,343
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
PHARMACIA & UPJOHN, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31 1999 1998 1997
- ------------------------------- ---- ---- ----
<S> <C> <C> <C>
Dollar amounts in millions
PREFERRED STOCK:
Balance at beginning of year $ 277 $ 282 $ 287
Redemptions and conversions (7) (5) (5)
------ ------ ------
Balance at end of year 270 277 282
------ ------ ------
COMMON STOCK:
Balance at end of year 5 5 5
------ ------ ------
CAPITAL IN EXCESS OF PAR VALUE:
Balance at beginning of year 1,531 1,579 1,563
Stock option, incentive and dividend
reinvestment plan (13) (56) (20)
Offering to the public, net of issuance
costs of $2 -- -- 30
Retirements, conversions and other 1 8 6
------ ------ ------
Balance at end of year 1,519 1,531 1,579
------ ------ ------
RETAINED EARNINGS:
Balance at beginning of year 5,334 5,265 5,569
</TABLE>
-31-
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
Net earnings 803 631 258
Dividends declared (555) (549) (549)
Dividends on preferred stock (net of tax) (13) (13) (13)
------ ------ ------
Balance at end of year 5,569 5,334 5,265
------ ------ ------
ESOP-RELATED ACCOUNTS:
Balance at beginning of year (254) (260) (266)
Third-party debt repayment 22 16 11
ESOP expense exceeding cash contributed (6) (2) 5
Additional loan (6) (5) (7)
Rollover of interest on ESOP note receivable (4) (3) (3)
------ ------ ------
Balance at end of year (248) (254) (260)
------ ------ ------
TREASURY STOCK:
Balance at beginning of year (35) (48) (8)
Stock options and incentive plans 156 130 54
Purchases of treasury stock (170) (117) (94)
Sales of treasury stock 47 -- --
------ ------ ------
Balance at end of year (2) (35) (48)
------ ------ ------
ACCUMULATED OTHER COMPREHENSIVE INCOME:
Balance at beginning of year (1,262) (1,245) (837)
Other comprehensive loss (266) (17) (408)
------ ------ ------
Balance at end of year (1,528) (1,262) (1,245)
------ ------ ------
TOTAL SHAREHOLDERS' EQUITY $5,585 $5,596 $5,578
====== ====== ======
COMPREHENSIVE INCOME (NET OF TAX):
Currency translation adjustments $ (267) $ 52 $ (443)
Unrealized investment gains (losses) 16 (48) 35
Minimum pension liability adjustments (15) (21) --
------- ------ ------
Other comprehensive loss (266) (17) (408)
Net earnings 803 631 258
------ ------ ------
TOTAL COMPREHENSIVE INCOME (LOSS) $ 537 $ 614 $ (150)
====== ====== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
PHARMACIA & UPJOHN, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1999 1998 1997
- -------------------------------- ---- ---- ----
<S> <C> <C> <C>
Dollar amounts in millions
CASH FLOWS FROM OPERATIONS:
Net earnings $ 803 $ 631 $ 258
Adjustments to net earnings:
Depreciation 316 321 327
Amortization of intangibles 105 112 116
Loss on sale of nutrition -- 52 --
Net (gains) losses on sales
of noncurrent assets (8) 20 (35)
Write-downs of investments, properties
and intangibles 9 9 43
Deferred income taxes (102) (153) (254)
Net (earnings) loss from equity investments (23) (57) 68
Other (3) (37) 201
Changes in:
Accounts receivable (net) (158) (65) 196
Inventories (185) (91) (127)
</TABLE>
-32-
<PAGE> 5
<TABLE>
<S> <C> <C> <C>
Accounts payable (89) 69 33
Income taxes payable (54) (16) 107
Other current and noncurrent assets
and liabilities 31 108 262
------ ------ ------
NET CASH PROVIDED BY OPERATIONS 642 903 1,195
------ ------ ------
CASH FLOWS (REQUIRED) PROVIDED BY INVESTMENT
ACTIVITIES:
Additions of properties (589) (650) (580)
Proceeds from sales of properties 31 37 70
Proceeds from sale of nutrition 125 332 --
Purchases of investments (182) (691) (1,034)
Proceeds from sales of investments 510 983 1,155
Other (145) (3) (48)
------ ------ ------
NET CASH (REQUIRED) PROVIDED BY
INVESTMENT ACTIVITIES (250) 8 (437)
------ ------ ------
CASH FLOWS PROVIDED (REQUIRED) BY FINANCING
ACTIVITIES:
Proceeds from issuance of debt 111 60 58
Repayment of debt and ESOP guaranteed loan (146) (243) (72)
Net increase (decrease) in debt with
initial maturity of 90 days or less 723 (3) 26
Dividend payments (564) (566) (567)
Purchases of treasury stock (170) (117) (94)
Proceeds from stock options exercises 77 80 18
Proceeds from issuance of common stock, net -- 4 31
Proceeds from issuance of treasury stock 47 -- --
Other 9 3 1
------ ------ ------
NET CASH PROVIDED (REQUIRED) BY
FINANCING ACTIVITIES 87 (782) (599)
------ ------ ------
Effect of exchange rate changes on cash (44) (47) (26)
------ ------ ------
Net change in cash and cash equivalents 435 82 133
Cash and cash equivalents, beginning of year 881 799 666
------ ------ ------
Cash and cash equivalents, end of year $1,316 $ 881 $ 799
====== ====== ======
Cash paid during the year for:
Interest (net of amounts capitalized) 58 $ 22 $ 30
Income taxes 410 $ 398 $ 281
Noncash investing activity:
Assets disposed of in exchange
for equity securities $ -- $ 54 $ --
------ ------ ------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE DATA.)
1 POLICIES AND OTHER
BASIS OF PRESENTATION
The consolidated financial statements are presented on the basis of accounting
principles that are generally accepted in the United States (U.S.). All
professional accounting standards that are effective as of December 31, 1999
have been taken into consideration in preparing the financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported earnings, financial position and various
disclosures. Actual results could differ from those estimates.
-33-
<PAGE> 6
On August 31, 1999, Pharmacia & Upjohn, Inc. (P&U or the company) completed a
merger with SUGEN, Inc. (Sugen). The merger was accounted for as a pooling of
interests. Accordingly, all prior-period consolidated financial statements
presented have been restated to include the combined results of operations,
financial position, and cash flows of both companies as if Sugen had always been
a part of P&U.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the company and
all majority-owned subsidiaries. All material intercompany transactions and
balances have been eliminated in consolidation. Investments in affiliates which
are not majority owned are reported using the equity method and are recorded in
other noncurrent assets. Gains and losses resulting from the issuance of
subsidiaries' stock are recognized in consolidated earnings.
CURRENCY TRANSLATION
The results of operations for non-U.S. subsidiaries, other than those located in
highly inflationary countries, are translated into U.S. dollars using the
average exchange rates during the year, while assets and liabilities are
translated using period-end rates. Resulting translation adjustments are
recorded as currency translation adjustments in shareholders' equity. For
subsidiaries in highly inflationary countries, currency gains and losses
resulting from translation and transactions are determined using a combination
of current and historical rates and are reported directly in the consolidated
statements of earnings.
REVENUE RECOGNITION
Revenues are recognized when title to products is transferred and goods are
shipped to customers. Where right of return exists, revenues are reduced at the
time of sale to reflect expected returns that are estimated based on historical
experience.
CASH EQUIVALENTS
The company considers all highly liquid debt instruments with an original
maturity of 91 days or less to be cash equivalents.
INVESTMENTS
The company has investments in debt securities that are classified in the
consolidated balance sheet as short-term (restricted bank deposits and
securities that mature in more than 91 days but not more than one year and
securities with maturities beyond one year which management intends to sell
within one year) or long-term (maturities beyond one year). The company also has
investments in equity securities, all of which are classified as long-term
investments.
Investments are further categorized as being available-for-sale or expected to
be held-to-maturity. Investments categorized as available-for-sale are marked to
market based on quoted market values of the securities, with the resulting
adjustments, net of deferred taxes, reported as a component of other
comprehensive income in shareholder's equity until realized (see Note 2).
Investments categorized as held-to-maturity are carried at amortized cost,
without recognition of gains or losses that are deemed to be temporary, because
the company has both the intent and the ability to hold these investments until
they mature.
INVENTORIES
-34-
<PAGE> 7
Inventories are valued at the lower of cost or market. Cost is determined by the
last-in, first-out (LIFO) method for substantially all U.S. inventories and the
first-in, first-out (FIFO) method for substantially all non-U.S. inventories.
PROPERTIES
Property, plant and equipment are recorded at acquisition cost. Depreciation is
computed principally on the straight-line method for financial reporting
purposes, while accelerated methods are used for income tax purposes where
permitted. Maintenance and repair costs are charged to earnings as incurred
including repair costs associated with the year 2000 date recognition problem.
Costs of renewals and improvements are capitalized. Upon retirement or other
disposition of property, any gain or loss is included in earnings.
Purchased computer software is capitalized and amortized over the software's
useful life. Effective in 1998, internally-developed software is also
capitalized and amortized over its useful life with the adoption of the American
Institute of Certified Public Accountants' (AICPA) Statement of Position (SOP)
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." Prior to adoption, the company expensed these costs as incurred.
The effect of initially applying the provisions of SOP 98-1 was not material to
the consolidated financial statements.
GOODWILL AND OTHER INTANGIBLES
Goodwill represents the excess of the purchase cost over the fair value of net
assets acquired in a business or product acquisition and is presented net of
accumulated amortization. Amortization of goodwill is recorded on a
straight-line basis over periods ranging primarily from 5 to 20 years. The
company assesses the recoverability of goodwill when events or changes in
circumstances indicate that the carrying amount may be impaired. If an
impairment indicator exists, an estimate of future cash flows is developed and
compared to the carrying amount of the goodwill. If the expected undiscounted
cash flows are less than the carrying amount of the goodwill, an impairment loss
is recognized for the difference between the carrying amount of the goodwill and
discounted cash flows.
Rights acquired under patent are reported at acquisition cost. Amortization is
calculated on a straight-line basis over the remaining legal lives of the
patents. Other intangible assets are amortized over the useful lives of those
assets.
PRODUCT LIABILITY
The company is self-insured for product liability exposures up to reasonable
risk retention levels where excess coverages have been obtained. Liability
calculations take into account such factors as specific claim amounts, past
experience with such claims, number of claims reported and estimates of claims
incurred but not yet reported. In addition to this base level of reserves,
individually significant contingent losses are accrued for in compliance with
applicable guidance. Product liability accruals are not reduced for expected
insurance recoveries.
INCOME TAXES
The company applies an asset and liability approach to accounting for income
taxes. Deferred tax liabilities and assets are recognized for the expected
future tax consequences of temporary differences between the financial statement
and tax bases of assets and liabilities using enacted tax rates in effect for
the years in which the differences are expected to reverse. The company records
deferred income taxes on subsidiaries' earnings that are not considered to be
permanently invested in those subsidiaries.
-35-
<PAGE> 8
CURRENCY EXCHANGE CONTRACTS
Forward currency exchange contracts, cross-currency interest-rate swaps, and
currency options (hereafter referred to as contracts) are held for purposes
other than trading. Contracts held to hedge anticipated transactions are marked
to market at each balance sheet date with resulting gains and losses recognized
in earnings. Contracts that hedge recorded assets and liabilities are valued at
the month-end exchange rate with resulting exchange gains and losses recognized
in earnings, offsetting the respective losses and gains recognized on the
underlying recorded exposure. Any premium or discount is amortized over the life
of the contract. The carrying values of all contracts are generally reported
with other current assets or other current liabilities. Gains or losses from
currency transactions that are designated as hedges of currency net investments
are classified as currency translation adjustments in shareholders' equity.
In 1998, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities." This statement requires companies to record derivatives on
the balance sheet as assets and liabilities measured at fair value. The
accounting treatment of gains and losses resulting from changes in the value of
derivatives depends on the use of the derivative and whether it qualifies for
hedge accounting. The company will adopt SFAS No. 133 as required, no later than
January 1, 2001, and is currently assessing the impact of adoption on its
consolidated financial statements.
ENVIRONMENTAL REMEDIATION LIABILITIES
The company accrues for environmental remediation liabilities when they are
probable and reasonably estimable based on current law and existing
technologies. The estimated liability is reduced to reflect the anticipated
participation of other potentially responsible parties where such parties are
considered solvent and it is probable that they will pay their respective share
of relevant costs. The accruals are adjusted as further information develops or
circumstances change. Costs of future expenditures do not reflect any claims for
recoveries and are not discounted to their present value. Accruals for
environmental liabilities are classified in the consolidated balance sheets
primarily as other noncurrent liabilities.
STOCK BASED COMPENSATION
Employee stock options are accounted for pursuant to Accounting Principles Board
Opinion (APB) No. 25, "Accounting for Stock Issued to Employees" (see Note 19
for SFAS No. 123 disclosures).
RECLASSIFICATIONS
Certain reclassifications have been made to conform prior periods' data to the
current presentation.
MONSANTO MERGER AGREEMENT
On December 19, 1999, the company and Monsanto Company (Monsanto) announced they
had entered into a definitive agreement to merge. The merger, subject to the
approval of both companies' shareholders, is intended to be a tax-free
reorganization accounted for as a pooling-of-interests. The expected completion
of the merger in early 2000 will result in a restatement of financial statements
to reflect the combined entities under pooling-of-interests accounting.
2 OTHER COMPREHENSIVE INCOME
-36-
<PAGE> 9
Effective January 1, 1998, the company adopted SFAS No. 130, "Reporting
Comprehensive Income." The statement establishes standards for reporting
comprehensive income and its components. Comprehensive income is defined as all
nonowner changes in equity and is equal to net earnings plus other comprehensive
income (OCI). OCI for the company includes three components: changes in currency
translation adjustments, unrealized gains and losses on available-for-sale
securities, and minimum pension liability adjustments. The following table shows
the changes in each OCI component. Reclassification adjustments represent items
that are included in net earnings in the current period but previously were
reported in OCI. To avoid double counting these items in comprehensive income,
gains are subtracted from OCI, while losses are added.
<TABLE>
<CAPTION>
TAX
FOR THE YEAR ENDED BEFORE EXPENSE NET OF
DECEMBER 31, 1999 TAX OR (BENEFIT) TAX
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Currency translation adjustments $(267) $ -- $(267)
----- ----- -----
Unrealized investment gains 36 6 30
Less: reclassification adjustments
for gains realized in net earnings 21 7 14
----- ----- -----
Net unrealized investment gains 15 (1) 16
----- ----- -----
Minimum pension
liability adjustments (32) (17) (15)
----- ----- -----
Other comprehensive (loss) $(284) $ (18) $(266)
===== ===== =====
FOR THE YEAR ENDED
DECEMBER 31, 1998
- -----------------
Currency translation adjustments $ 51 $ (1) $ 52
----- ----- -----
Unrealized investment (losses) (52) (20) (32)
Less: reclassification adjustments
for gains realized in net earnings 24 8 16
----- ----- -----
Net unrealized investment (losses) (76) (28) (48)
----- ----- -----
Minimum pension
liability adjustments (33) (12) (21)
----- ----- -----
Other comprehensive (loss) $ (58) $ (41) $ (17)
===== ===== =====
</TABLE>
-37-
<PAGE> 10
<TABLE>
<CAPTION>
TAX
FOR THE YEAR ENDED BEFORE EXPENSE NET OF
DECEMBER 31, 1997 TAX OR (BENEFIT) TAX
- ----------------- --- ------------ ---
<S> <C> <C> <C>
Currency translation adjustments $(446) $ -- $(446)
Less: reclassification adjustments
for (losses) realized in net earnings
from the sales of subsidiaries (3) -- (3)
----- ----- -----
Net currency translation
Adjustments (443) -- (443)
----- ----- -----
Unrealized investment gains 85 40 45
Less: reclassification adjustments
for gains realized in net earnings 23 13 10
----- ----- -----
Net unrealized investment gains 62 27 35
----- ----- -----
Other comprehensive
(loss) income $(381) $ 27 $(408)
===== ===== =====
</TABLE>
3 RESTRUCTURING
During 1999, the company recorded $70 in merger and restructuring expenses which
is comprised of $73 of merger and restructuring charges net of a $3 adjustment
to the 1998 turnaround restructuring. The charge consisted of $16 in merger
transaction costs such as fees for investment bankers, attorneys, accountants,
and other costs to effect the merger with Sugen, all of which were paid during
1999. The charge also included costs pertaining to reorganizations that will
result in the elimination of certain research and development (R&D) projects as
well as the elimination of 375 employee positions, mainly impacting the
prescription pharmaceutical segment and corporate and administrative functions.
The objective of the restructuring is to eliminate duplicate functions and
investments in R&D as well as reorganize the sales force based on anticipated
future requirements of the company. The adjustment to the prior restructuring
liabilities was attributable to lower than anticipated employee separation
costs.
Employee separation benefits included in the 1999 charge are for elimination of
positions in research and development of $26, corporate and administration of
$18 and sales of $6. Project termination costs totaled $4 and asset write-downs
totaled $3. During 1999, $3 was paid and charged against the liability. These
amounts related to a portion of separation benefits for the approximately 50
employees severed prior to the end of the year. The company anticipates all
activities associated with this restructuring to be substantially complete at
the end of 2000. The remaining cash expenditures are expected during 2000 with
some separation annuity payments being completed in 2001.
In 1997, the company announced a comprehensive turnaround program that resulted
in restructuring charges during 1997 and 1998. The company structured the
turnaround program in two phases reflecting management development and approval
of plans. The turnaround program was initiated in the third quarter 1997 and was
materially complete by December 31, 1999. The objectives of the turnaround
program were to significantly rationalize infrastructure, establish a global
headquarters in New Jersey, and eliminate duplicate resources in manufacturing,
administration, and R&D. The turnaround program mainly affected the company's
core pharmaceutical segments and corporate administration groups, with minor
restructuring of businesses included in the "all other" grouping. In the third
and fourth quarters of 1997, the company recorded phase one charges totaling
$316. The
-38-
<PAGE> 11
second phase of the turnaround program was finalized in the fourth quarter of
1998, resulting in an additional restructuring charge of $92.
The charge of $92 recorded in 1998 was comprised of employee separation costs of
$68; write-downs of fixed assets and abandoned manufacturing projects of $8; and
other costs of $16.
The 1997 restructuring charge of $316, for the first phase of the turnaround
program, primarily related to employee separation costs of $134; write-downs of
fixed assets and abandoned manufacturing projects of $162; and other costs of
$20.
The total restructuring charges for 1998 and 1997 included involuntary employee
separation costs for 580 and 1,320 employees worldwide, respectively. The 1998
charge included elimination of positions in marketing and administration of $55,
R&D of $9, and manufacturing of $4. These amounts included an adjustment of $16
of the phase one accruals, mainly attributable to lower employee separation
costs and, to a lesser extent, changes in plan estimates. The 1997 charge
included elimination of positions in marketing and administration of $81, R&D of
$22, and manufacturing of $31. As of December 31, 1999, the company had paid
$155 in severance costs in connection with the 1998 and 1997 charges. The
remaining balance for employee separation costs related to the turnaround
program was $44 at December 31, 1999 comprised mainly of charges related to the
phase two charge and remaining annuity separation payments. The company expects
some annuity payments to continue into 2001.
The 1998 and 1997 restructuring charges included asset write-downs for excess
manufacturing, administration, and R&D facilities totaling $8 and $162,
respectively. The 1998 amount included an adjustment of $15 of the phase one
accruals, mainly attributable to changes in plan estimates, favorable outcomes
on sales of facilities, and actual facility closure costs below the original
estimates. At December 31, 1999, facilities presently being marketed had a net
book value of $47. Fixed asset write-downs were based on appraisals less costs
to sell.
Other costs included in the 1998 and 1997 restructuring charges of $16 and $20,
respectively, were primarily comprised of canceled contractual lease obligations
and other costs. Offsetting 1998 charges in this grouping was an adjustment of
$6 related to all restructuring charges prior to 1997.
The following table displays a roll-forward of the liabilities for business
restructurings from December 31, 1996 to December 31, 1999:
<TABLE>
<CAPTION>
EMPLOYEE
SEPARATION
COSTS OTHER TOTAL
----- ----- -----
<S> <C> <C> <C>
Balance December 31, 1996 $ 201 $ 25 $ 226
Additions 134 20 154
Deductions (182) (25) (207)
----- ----- -----
Balance December 31, 1997 153 20 173
Additions 68 16 84
Deductions (113) (12) (125)
----- ----- -----
Balance December 31, 1998 108 24 132
----- ----- -----
Additions 50 4 54
Deductions (67) (17) (84)
----- ----- -----
</TABLE>
-39-
<PAGE> 12
<TABLE>
<S> <C> <C> <C>
Balance December 31, 1999 $ 91 $ 11 $ 102
===== ===== =====
</TABLE>
4 INCOME TAXES
The provision for income taxes included in the consolidated statements of
earnings consisted of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1999 1998 1997
- ----------------------- ---- ---- ----
<S> <C> <C> <C>
CURRENTLY PAYABLE:
U.S. $ 93 $ 68 $ 34
Non-U.S 348 432 429
----- ----- -----
Total currently payable 441 500 463
----- ----- -----
DEFERRED:
U.S. (62) (46) (14)
Non-U.S (35) (108) (272)
----- ----- -----
Total deferred (97) (154) (286)
----- ----- -----
PROVISION FOR INCOME TAXES $ 344 $ 346 $ 177
===== ===== =====
</TABLE>
Differences between the company's effective tax rate and the U.S. statutory tax
rate were as follows:
<TABLE>
<CAPTION>
PERCENT OF PRETAX INCOME 1999 1998 1997
- ------------------------ ---- ---- ----
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 35.0%
Lower rates in other
jurisdictions, net (3.4) (4.6) (11.7)
Goodwill amortization and other
non-deductible expenses 2.4 3.1 7.2
Valuation allowances associated
with Sugen merger 0.0 3.1 10.6
All other, net (4.0) (1.2) (0.4)
---- ---- ----
EFFECTIVE TAX RATE 30.0% 35.4% 40.7%
==== ==== ====
</TABLE>
The lower rates in other jurisdictions are principally attributable to
manufacturing operations in jurisdictions subject to more favorable tax rates.
Deferred income taxes are in the consolidated balance sheets as follows:
<TABLE>
<CAPTION>
1999 1999 1998 1998
DECEMBER 31 ASSETS LIABILITIES ASSETS LIABILITIES
- ----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Current $ 436 $ 23 $ 378 $ 49
Noncurrent $ 439 $ 246 $ 408 $ 238
------- ------- ------- -------
Components of deferred taxes were:
Property, plant and
Equipment $ -- $ 253 $ -- $ 210
Inventory 263 -- 172 --
Compensation and
benefit plans 187 45 194 60
</TABLE>
-40-
<PAGE> 13
<TABLE>
<S> <C> <C> <C> <C>
Swedish tax deferrals -- 49 -- 31
Tax loss and tax credit
Carryforwards 386 -- 307 --
Environmental and product
Liabilities 46 -- 59 --
Restructuring 99 -- 111 --
Tax on unremitted earnings -- 106 -- 108
All other 263 63 277 95
------- ------- ------- -------
Subtotal 1,244 516 1,120 504
Valuation allowances (122) -- (117) --
------- ------- ------- -------
Total deferred taxes $ 1,122 $ 516 $ 1,003 $ 504
------- ------- ------- -------
Net deferred tax assets $ 606 $ 499
======= ======= ======= =======
</TABLE>
Valuation allowances have been provided for certain deferred tax assets that are
not likely to be realized. The changes in the valuation allowances were
increases of $5, $34 and $13 for the years ended December 31, 1999, 1998 and
1997, respectively. The increases in the allowance during 1997 and 1998 were
primarily due to certain tax credit carryforwards that were not likely to be
realized as a result of the Sugen merger. The increase in the valuation
allowance during 1999 was primarily attributable to certain tax credit
carryforwards that were not likely to be realized.
Tax loss carryforwards of $203 have various expiration dates through 2018. At
December 31, 1999, undistributed earnings of subsidiaries considered permanently
invested, for which deferred income taxes have not been provided, were
approximately $3,500.
5 SUGEN MERGER
On August 31, 1999, the company completed its merger with Sugen by exchanging
approximately 10 million shares of its common stock for all of the common stock
of Sugen. Each share of Sugen common stock was exchanged for .6091 of one share
of Pharmacia & Upjohn common stock. In addition, terms on outstanding Sugen
stock options, stock warrants, convertible debt, and warrants on convertible
debt were changed to convert Sugen shares to P&U shares using the same exchange
ratio.
The merger, a tax-free reorganization, was accounted for as a pooling of
interests under APB Opinion No. 16. As a result, all prior period consolidated
financial statements presented have been restated to include the combined
results of operations, financial position, and cash flows of both companies as
if Sugen had always been a part of P&U. There were no transactions between P&U
and Sugen prior to the combination. Immaterial reclassifications were recorded
to conform Sugen's financial statements to P&U's presentation.
The results of operations for the separate companies and the combined amounts
presented in the consolidated financial statements for the period prior to the
merger follow. The adjustment represents the tax benefit of Sugen's net
operating loss that had been fully reserved for by Sugen.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1999
-------------
<S> <C>
Net Sales:
Pharmacia & Upjohn $3,534
Sugen --
------
</TABLE>
-41-
<PAGE> 14
<TABLE>
<S> <C>
Combined $3,534
------
Net income:
Pharmacia & Upjohn $ 437
Sugen (47)
Adjustment 14
------
Combined $ 404
======
</TABLE>
6 BIOTECH AND NUTRITION DIVESTITURES
In December 1998, the company sold substantially all of its nutrition business
to Fresenius AG for a loss of $52. To comply with antitrust regulations in
Germany, operations there were not sold to Fresenuis. In the third quarter of
1999, the company completed the sale of the nutrition business in Germany to
Baxter Deutschland GmbH for a gain. As of December 31, 1999, the closing of the
sale of the operations in China was still pending regulatory approval.
In August 1997, the company merged its biotechnology supply business, Pharmacia
Biotech, with Amersham Life Science, a division of Amersham International plc,
in a noncash transaction that did not result in the recognition of a gain or
loss. The merger created a new company, Amersham Pharmacia Biotech Ltd., of
which Pharmacia & Upjohn owns 45 percent which is accounted for using the equity
method. In 1999 and 1998, P&U recorded credits of $38 and $52 respectively,
primarily representing the company's share of Amersham Pharmacia Biotech's
pretax earnings. In 1997, the company recorded $79 in charges related to the
Biotech merger and subsequent restructuring of the new company. Of this total,
$36 consisted of transaction costs to effect the merger and a write-off of
certain acquired research and development costs. The earnings statement effects
of these events and activities are reported in "All other, net."
7 EARNINGS PER COMMON SHARE
Basic earnings per share is computed by dividing net earnings available to
holders of common stock by the weighted average number of shares of common stock
outstanding. Diluted earnings per share is computed assuming the exercise of
stock options and warrants, conversion of preferred stock and debt, and the
issuance of stock as incentive compensation to certain employees. Under these
assumptions, the weighted-average number of common shares outstanding is
increased accordingly, and net earnings is adjusted by the after-tax interest
effects of convertible debt and reduced by an incremental contribution to the
Employee Stock Ownership Plan (ESOP). This contribution is the after-tax
difference between (1) the income the ESOP would have received in preferred
stock dividends and (2) the dividend on the common shares assumed to have been
outstanding.
The following table reconciles the numerators and denominators of the basic and
diluted earnings per share computations:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1999 1999 1998 1998 1997 1997
BASIC DILUTED BASIC DILUTED BASIC DILUTED
<S> <C> <C> <C> <C> <C> <C>
EPS numerator:
Net earnings $ 803 $ 803 $ 631 $ 631 $ 258 $ 258
Less: Preferred stock dividends, net of tax (13) -- (13) -- (13) --
</TABLE>
-42-
<PAGE> 15
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Less: Interest effects on convertible
instruments net of tax -- -- -- 1 -- --
Less: ESOP contribution, net of tax -- (5) -- (5) -- (5)
----- ----- ----- ----- ----- -----
Income available to common shareholders $ 790 $ 798 $ 618 $ 627 $ 245 $ 253
----- ----- ----- ----- ----- -----
EPS denominator:
Average common shares outstanding 518 518 518 518 516 516
Effect of dilutive securities:
Stock options and stock warrants -- 6 -- 5 -- 3
Convertible instruments and
incentive compensation -- 10 -- 11 -- 11
----- ----- ----- ----- ----- -----
Total shares 518 534 518 534 516 530
----- ----- ----- ----- ----- -----
EARNINGS PER SHARE $1.53 $1.49 $1.20 $1.17 $ .48 $ .48
===== ===== ===== ===== ===== =====
</TABLE>
8 ACCOUNTS RECEIVABLE AND INVENTORIES
The following table displays a roll-forward of allowances for doubtful trade
accounts receivable for the three years ended December 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
Balance December 31, 1996 $ 95
Additions - charged to expense 11
Deductions (17)
-----
Balance December 31, 1997 89
Additions - charged to expense 43
Deductions (29)
-----
Balance December 31, 1998 103
Additions - charged to expense 14
Deductions (13)
-----
Balance December 31, 1999 $ 104
=====
</TABLE>
Inventories valued on the LIFO method had an estimated replacement cost (FIFO
basis) of $660 at December 31, 1999, and $521 at December 31, 1998.
<TABLE>
<CAPTION>
DECEMBER 31 1999 1998
- ----------- ---- ----
<S> <C> <C>
Estimated replacement cost (FIFO basis):
Pharmaceutical and other finished products $ 474 $ 558
Raw materials, supplies and work in process 850 628
------- -------
Inventories (FIFO basis) 1,324 1,186
Less reduction to LIFO cost (147) (154)
------- -------
Inventories $ 1,177 $ 1,032
======= =======
</TABLE>
9 INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31 1999 1998
- ----------- ---- ----
<S> <C> <C>
SHORT-TERM INVESTMENTS:
Available-for-sale:
</TABLE>
-43-
<PAGE> 16
<TABLE>
<S> <C> <C>
Certificates of deposit $ 38 $ 5
Kingdom of Sweden debt instruments 23 242
Corporate notes 15 15
U.S. Treasury securities and
other U.S. Government obligations 14 6
Corporate commercial paper -- 17
Other 2 9
---- ----
Total available-for-sale 92 294
Held-to-maturity 6 81
---- ----
TOTAL SHORT-TERM INVESTMENTS $ 98 $375
==== ====
</TABLE>
Amortized cost of short-term investments classified as available-for-sale
approximates fair market value. Short-term investments classified as
held-to-maturity consist primarily of bank certificates of deposit with
amortized cost approximating fair market value.
<TABLE>
<CAPTION>
UNREALIZED
----------------- CARRYING
LONG-TERM INVESTMENTS COST GAINS (LOSSES) VALUE
----- ----- -------- --------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999 Available-for-sale:
Equity securities $184 $ 27 $ (6) $205
Mortgage-backed securities--
guaranteed by the U.S. Government 114 -- (1) 113
Other 16 -- -- 16
---- ---- ---- ----
Total available-for-sale 314 27 (7) 334
Held-to-maturity 86
---- ---- ---- ----
TOTAL LONG-TERM INVESTMENTS $420
---- ---- ---- ----
DECEMBER 31, 1998
Available-for-sale:
Equity securities $164 $ 29 $(23) $170
Mortgage-backed securities--
guaranteed by the U.S. Government 144 4 -- 148
---- ---- ---- ----
Total available-for-sale 308 33 (23) 318
Held-to-maturity 136
---- ---- ---- ----
TOTAL LONG-TERM INVESTMENTS $454
==== ==== ==== ====
</TABLE>
The total of unrealized gains (net of deferred taxes) included in shareholders'
equity amounted to $21 at December 31, 1999, compared to $5 and $53 at December
31, 1998 and 1997, respectively.
The proceeds realized from the sale of available-for-sale debt securities were
$349, $254 and $942 for 1999, 1998 and 1997, respectively. Profits realized on
these sales are recorded as interest income. During 1999, 1998 and 1997, the
proceeds realized from the sale of available-for-sale equity securities amounted
to $33, $53 and $4. Profits realized on these sales are recorded in "All other,
net." Based on original cost, gains of $25, $24 and $23 were realized on all
sales of available-for-sale securities in 1999, 1998 and 1997, respectively.
Long-term investments held-to-maturity are summarized as follows:
-44-
<PAGE> 17
<TABLE>
<CAPTION>
1999 1999 1998 1998
FAIR AMORTIZED FAIR AMORTIZED
DECEMBER 31 VALUE COST VALUE COST
- ----------- ----- ---- ----- ----
<S> <C> <C> <C> <C>
Guaranteed by the
U.S. Government $ 51 $ 51 $ 71 $ 71
Corporate notes 30 30 -- --
Commonwealth of
Puerto Rico debt
Instruments 5 5 35 35
Bank obligations:
Certificates of Deposit -- -- 10 10
Other 20 20
---- ---- ---- ----
Long-term investments held
to maturity $ 86 $ 86 $136 $136
==== ==== ==== ====
</TABLE>
At December 31, 1999, long-term mortgage-backed securities available for sale
had scheduled maturities ranging from 2001 to 2024. Scheduled maturities of
long-term securities to be held to maturity were from 2000 to 2022.
10 PROPERTIES, NET
<TABLE>
<CAPTION>
DECEMBER 31 1999 1998
- ----------- ---- ----
<S> <C> <C>
Land $ 73 $ 100
Buildings and improvements 1,819 1,872
Equipment 3,142 3,078
Construction in process 682 730
Less allowance for depreciation (2,432) (2,546)
------- -------
Properties, net $ 3,284 $ 3,234
======= =======
</TABLE>
11 LINES OF CREDIT AND LONG-TERM DEBT
The company has committed borrowing facilities amounting to $1,000 that were
unused as of December 31, 1999. The facilities are in amounts of $500 each and
expire in 2000 and 2004, respectively. The facilities exist largely to support
commercial paper borrowings in the U.S. and Europe. While there are no related
compensating balances, the facilities are subject to various fees. The company
also has uncommitted lines of credit amounting to $422 available with various
international banks, of which $62 were used at December 31, 1999.
Long term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31 1999 1998
- ----------- ---- ----
<S> <C> <C>
5.875% Notes due 2000 $ 200 $ 200
12.0% Senior Convertible Notes due 2002 58 --
7.5% Industrial Revenue Bonds due 2023 33 40
0.818-11.85% Italian Government Loans
</TABLE>
-45-
<PAGE> 18
<TABLE>
<S> <C> <C>
due 1999-2004 32 46
6.182-6.843% Medium-Term Notes due 1999 -- 80
Other 35 28
Current maturities (216) (99)
----- -----
TOTAL LONG-TERM DEBT $ 142 $ 295
===== =====
</TABLE>
Current maturities of long-term debt are included with short-term debt in the
consolidated balance sheets. Annual aggregate maturities of long-term debt
during the next five years are: 2001--$19; 2002--$66; 2003--$13; 2004--$5; and,
2005--$39. The company has guaranteed $275 original principal amount of ESOP
9.79% notes due in 2004. At December 31, 1999, the balance of the guarantee was
$218 of which $28 was classified as current. Principal payments that began in
1995 cause the recognition of compensation expense (see Note 18). Annual
aggregate maturities of guaranteed debt through expiration are: 2001--$35;
2002--$44; 2003--$53; 2004--$58.
In March, the company, through its subsidiary, Sugen, facilitated a private
placement of $28 in 12% Senior convertible notes. The notes are convertible into
common stock and have a conversion price of $33.66 per share. In connection with
the issuance of the debt, warrants were issued simultaneously which entitle the
holder to an additional amount of notes with provisions similar to the master
debt. At December 31, 1999, $3 of warrant notes remained unexercised.
Information regarding interest expense and weighted average interest rates
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1999 1998 1997
- ----------------------- ---- ---- ----
<S> <C> <C> <C>
Interest cost incurred $ 81 $ 62 $ 64
Less: Capitalized on construction (18) (36) (31)
---- ---- ----
Interest expense $ 63 $ 26 $ 33
---- ---- ----
Weighted average interest rate on
short-term borrowings at end
of period 7.04% 6.36% 7.27%
---- ---- ----
</TABLE>
12 COMMITMENTS AND OTHER CONTINGENT LIABILITIES
Future minimum payments under noncancellable operating leases at December 31,
1999, approximately 85 percent real estate and 15 percent equipment, are as
follows: 2000--$78; 2001--$56; 2002--$43; 2003--$39; 2004--$36 and later
years--$156. Capital asset spending committed for construction and equipment but
unexpended at December 31, 1999, was approximately $260.
The consolidated balance sheets include accruals for estimated product
litigation and environmental liabilities. The latter includes exposures related
to discontinued operations, including the industrial chemical facility and
several sites which, under the Comprehensive Environmental Response,
Compensation, and Liability Act, are commonly known as Superfund sites (see Note
13). The company's ultimate liability in connection with Superfund sites depends
on many factors, including the number of other potentially responsible parties,
the financial viability of those parties, and the remediation methods and
technology to be used. Actual costs incurred may vary from the estimates given
the inherent uncertainties in evaluating environmental exposures.
-46-
<PAGE> 19
With regard to its discontinued industrial chemical facility in North Haven,
Connecticut, the company soon may be required to submit a corrective measures
study report to the U.S. Environmental Protection Agency (EPA). As the
corrective action process progresses, it may become appropriate to reevaluate
the existing reserves designated for remediation in light of changing
circumstances. It is reasonably possible that a material increase in accrued
liabilities will be required. It is not possible, however, to estimate a range
of potential losses. Accordingly, it is not possible to determine what, if any,
exposure exists at this time.
13 LITIGATION
The company is involved in a number of legal and environmental proceedings.
These include a substantial number of product liability suits claiming damages
as a result of the use of the company's products and administrative and judicial
proceedings at several "Superfund" sites. The company has successfully settled
or otherwise resolved most of the Superfund sites where it has had some alleged
connection.
While it is not possible to predict or determine the outcome of legal actions
brought against the company, or the ultimate cost of environmental matters, the
company continues to believe that any potentially unaccrued costs and
liabilities associated with such matters will not have a material adverse effect
on the company's consolidated financial position. Unless there is a significant
deviation from the historical pattern of resolution of these issues, there
should not be a material adverse effect on the company's consolidated financial
position, its results of operations or liquidity.
The company has been a party along with a number of other defendants (both
manufacturers and wholesalers) in several federal civil antitrust lawsuits,
which were consolidated and transferred to the Federal District Court for the
Northern District of Illinois. These suits, brought by independent pharmacies
and chains, generally allege unlawful conspiracy, price discrimination and price
fixing and, in some cases, unfair competition. These suits specifically allege
that the company and the other named defendants violated the following: (1) the
Robinson-Patman Act by giving substantial discounts to hospitals, nursing homes,
mail-order pharmacies and health maintenance organizations ("HMOs") without
offering the same discounts to retail drugstores, and (2) Section I of the
Sherman Antitrust Act by entering into illegal vertical combination with other
manufacturers and wholesalers to restrict certain discounts and rebates so they
benefited only favored customers.
The Federal District Court for the Northern District of Illinois certified a
national class of retail pharmacies in November 1994. The company announced in
1998 that it reached a settlement with the plaintiffs in the federal class
action case for $103 that was paid during the first quarter of 1999. Similar
actions by proposed retailer classes have been filed in the state courts of
Alabama, California, Minnesota, Mississippi, and Wisconsin. Twenty-three class
action lawsuits seeking damages based on the same alleged conduct have been
filed in 18 states and the District of Columbia. The plaintiffs claim to
represent consumers who purchased prescription drugs in those jurisdictions and
one other state. Two of the lawsuits have been dismissed. Fifteen have been
settled. The company believes that any potential remaining liability above
amounts accrued will not have a material adverse effect on the company's
consolidated financial position, its results of operations, or liquidity.
-47-
<PAGE> 20
14 CURRENCY RISK MANAGEMENT
The company is exposed to currency exchange rate fluctuations related to certain
intercompany and third party transactions, primarily intercompany sales from
Sweden and Italy to other European countries, the U.S. and Japan. The exposures
and related hedging programs are managed centrally using forward currency
contracts, cross-currency swaps and currency options to hedge a portion of both
net recorded currency transaction exposures on the balance sheet as well as net
anticipated currency transactions. The company also has hedged part of its net
investment in Japan. Financial instruments for trading purposes are neither held
nor issued by the company.
The company's program to hedge net anticipated currency transaction exposures is
designed to protect cash flows from potentially adverse effects of exchange rate
fluctuations. At December 31, 1999, the contract amount of the company's
outstanding contracts used to hedge net transaction exposure was $658. The
aggregate net transaction gains and losses included in net income for the years
ended December 31, 1999, 1998 and 1997 related to foreign currency transaction
hedges was $3, $15, and $18, respectively. During 1999, several European
countries began using the euro. This reduces the number of currencies in which
contracts are denominated. Of the total amount of contracts held by the company,
euro-denominated against the U.S. dollar and Swedish krona were 17 percent and
10 percent. U.S. dollar denominated contracts were 19 percent, 6 percent were
denominated in Japanese yen, and 5 percent were denominated in various other
currencies all against the Swedish krona. Of the remaining contracts held by the
company, 36 percent were in U.S. dollars and 7 percent were in euro against
various other currencies in non-significant concentrations.
Gains and losses on hedges of intercompany loans and deposits offset the
currency exchange gains and losses of the underlying loans and deposits. At
December 31, 1999, the contract amount of forward exchange and currency swap
contracts held for balance sheet financial exposure hedging program was $620. Of
these contracts, 75 percent were denominated in U.S. dollars and against
Japanese yen (47 percent), European currencies (11 percent), and various other
currencies (17 percent). Euro denominated contracts amounted to 16 percent of
the total and were against various non-concentrated currencies. The remaining
contracts denominated in other currencies amounted to 9 percent and were against
the Swedish krona and the Japanese yen.
Because the contract amounts are stated as notional amounts, the amount of
contracts disclosed above is not a direct measure of the exposure of the company
through its use of derivatives. These contracts generally have maturities that
do not exceed twelve months and require the company to exchange currencies at
agreed-upon rates at maturity. The counterparties to the contracts consist of a
limited number of major international financial institutions. The company does
not expect any losses from credit exposure.
15 FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of the company's financial
instruments were as follows:
<TABLE>
<CAPTION>
1999 1999 1998 1998
CARRYING FAIR CARRYING FAIR
<S> <C> <C> <C> <C>
</TABLE>
-48-
<PAGE> 21
<TABLE>
<CAPTION>
DECEMBER 31 AMOUNT VALUE AMOUNT VALUE
- ----------- ------ ----- ------ -----
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Short-term investments $ 98 $ 98 $ 375 $ 375
Long-term investments 420 420 454 454
Forward currency
exchange contracts
Hedges of loans and deposits (27) (27) (7) (7)
Hedges of anticipated
Transactions (2) (2) (13) (13)
Currency/Interest Swaps
Hedges of loans and deposits (3) (3) -- --
FINANCIAL LIABILITIES:
Short-term debt 1,212 1,212 332 332
Long-term debt 142 155 295 305
Guaranteed ESOP debt $ 190 $ 200 $ 218 $ 241
======= ======= ======= =======
</TABLE>
Because maturities are short-term, fair value approximates carrying amount for
cash and cash equivalents, short-term investments, accounts receivable,
short-term debt, and accounts payable. Fair values of forward exchange and
currency swap contracts, long-term investments, long-term debt, and guaranteed
ESOP debt were estimated based on quoted market prices for the same or similar
instruments or on discounted cash flows.
16 CONCENTRATIONS OF CREDIT RISK
The company invests excess cash in deposits with major banks throughout the
world and in high quality short-term liquid debt instruments. Such investments
are made only in instruments issued or enhanced by high quality institutions. At
December 31, 1999, the company had no financial instruments that represented a
significant concentration of credit risk. The amounts invested in a single
institution are limited to minimize risk. The company has not incurred credit
risk losses related to these investments.
The company sells a broad range of pharmaceutical products to a diverse group of
customers operating throughout the world. In the U.S. and Japan, the company
makes substantial sales to relatively few large wholesale customers. Credit
limits, ongoing credit evaluation, and account monitoring procedures are
utilized to minimize the risk of loss. Collateral is generally not required.
17 SHAREHOLDERS' EQUITY
PREFERRED STOCK
The Series A Convertible Perpetual Preferred Stock is held by the Employee Stock
Ownership Trust (ESOP Trust). The per-share stated value is $40,300.00 and the
preferred stock ranks senior to the company's common stock as to dividends and
liquidation rights. Each share is convertible, at the holder's option, into
1,450 shares of the company's common stock and has voting rights equal to 1,450
shares of common stock. The company may redeem the preferred stock at any time
after July 20, 1999, or upon termination of the ESOP at a minimum price of
$40,300.00 per share. Dividends, at the rate of 6.25 percent, are cumulative,
paid quarterly, and charged against retained earnings.
COMMON STOCK
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<PAGE> 22
The number of common shares outstanding at December 31, 1999, 1998, and 1997 was
519,667,495; 518,119,813; and 516,558,279, respectively. On a per-share basis,
dividends were declared on common stock at a rate of $1.08 in 1999, 1998 and
1997. Common stock dividends payable were $141 and $137 at December 31, 1999 and
1998, respectively.
CAPITAL IN EXCESS OF PAR VALUE
Amounts of paid-in capital that exceed the par value ($.01 per share) of the
company's common stock are recorded in this account. The tax benefit related to
the exercise of certain stock options reduces income taxes payable and is
reflected as capital in excess of par. Offsetting this is the difference between
the cost of treasury shares and cash received for them, if any, when used to
satisfy stock option exercises and other employee stock awards.
ESOP-RELATED ACCOUNTS
The company holds a note receivable from the ESOP Trust that matures on February
1, 2005; bears interest at 6.25 percent; and may be added to or repaid, in whole
or in part, at any time. Accrued interest at the end of any calendar year is
added to the note principal. At December 31, 1999, the note principal balance
was $66. Also, upon recognition of the company's guarantee of the debt of the
ESOP Trust, an offsetting amount was recorded in shareholders' equity. As
guaranteed debt is repaid, this amount diminishes correspondingly (see Notes 11
and 18). Also, to the extent the company recognizes expense more rapidly than
the corresponding cash contributions are made to the Trust, this account is
reduced. The balance in this account at December 31, 1999, was $182.
TREASURY STOCK
The balance at December 31, 1999 and 1998 was $2 and $35, respectively, carried
at cost.
ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income reflects the cumulative balance of the
following: (1) currency translation adjustments, the adjustments of translating
the financial statements of non-U.S. subsidiaries from local currencies into
U.S. dollars (see Note 1); (2) unrealized gains and losses on investments
categorized as available-for-sale, net of deferred taxes and reclassifications
(see Note 2); and (3) minimum pension liability adjustments, net of deferred tax
(see Notes 2 and 20).
WARRANTS
Certain warrants to purchase shares of common stock were issued in connection
with the Senior Custom Convertible notes, certain collaboration agreements, and
various license, facility and equipment lease financing arrangements. Warrants
to purchase 209,987 shares were outstanding at December 31, 1999 with exercise
prices and expirations ranging between $25.35 and $35.81 and September 2000 and
April 2004, respectively.
SHAREHOLDER PROTECTION RIGHTS PLAN
In February 1997, the Board of Directors approved a shareholder protection
rights plan, declaring a dividend of one right for each share of the company's
common stock outstanding on or after March 7, 1997. Exercisable 10 days after
any person or group acquires 15 percent or more or commences a tender offer for
15 percent or more of the company's common stock, the rights entitle holders to
effectively purchase a specified amount of the company's common stock at an
exercise price equal to half of its market value. The rights are redeemable for
$.01 per right and have a life of 10 years, unless redeemed earlier by the
company. In lieu of cash payment, the company has the option to
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<PAGE> 23
exchange stock for rights unless the acquiring person acquires more than 50
percent of the company's common stock.
18 EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
The ESOP, created in 1989, is a funding vehicle for the Employee Savings Plan
covering essentially all active U.S. employees. As the ESOP Trust makes debt
principal and interest payments, a proportionate amount of preferred stock is
released for allocation to plan participants. The preferred shares are allocated
to participants' accounts based upon their respective savings plan contributions
and the dividends earned on their previously allocated preferred shares. As of
December 31, 1999, 2,097 preferred shares had been released and allocated; 383
shares were released but unallocated; and 4,212 shares remained unreleased, of
which 61 shares are committed to be released. Shares released during 1999, 1998
and 1997 were 421, 391 and 346, respectively.
Under the agreement whereby the company guaranteed third-party debt of the ESOP
Trust, the company is obligated to provide sufficient cash annually to the Trust
to enable it to make required principal and interest payments. The company
satisfies this annual cash flow requirement through payment of dividends on all
preferred shares outstanding, loans and cash contributions. The company has
fully and unconditionally guaranteed the ESOP Trust's payment obligations
whether at maturity, upon redemption, upon declaration of acceleration, or
otherwise. The holders of the debt securities have no recourse against the
assets of the ESOP Trust except in the event that the Trust defaults on payments
due and the company also fails to make such payments. In that event, the holders
may have recourse against unallocated funds held by the Trust. At December 31,
1999, assets of the ESOP trust consisted primarily of $270 of Pharmacia &
Upjohn, Inc., Series A Convertible Perpetual Preferred Stock.
ESOP expense is determined by a formula that apportions debt service to each
year of the plan based on shares allocated to participants and deducts dividends
paid on all preferred stock held by the trust. ESOP expense represents a fringe
benefit and, as such, it attaches to payroll costs that comprise a portion of
all functional expense captions in the earnings statement.
Key measures of the ESOP are presented in the table that follows.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
DOLLARS IN MILLIONS 1999 1998 1997
- ------------------- ---- ---- ----
<S> <C> <C> <C>
Interest expense of ESOP Trust $25 $27 $28
Dividend income of ESOP Trust 17 17 18
Company contribution to
ESOP Trust 22 18 12
Company ESOP expense (net) $14 $13 $14
=== === ===
</TABLE>
19 STOCK COMPENSATION
Incentive and nonqualified stock options are granted to certain employees.
Options granted in 1999 have a ten-year term and vest at the end of three years
or vest pro rata over three years. All options
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<PAGE> 24
have an exercise price equal to the market value of the underlying stock at date
of grant. Since the company has elected the disclosure-only alternative under
SFAS No. 123 and continues to account for stock options per the terms of APB No.
25, no compensation expense is recognized in earnings.
Upon a stock-for-stock exercise of an option, an active employee will receive a
new, nonqualified "reloaded" option at the then-current market price for the
number of shares surrendered to exercise the option. The "reloaded" option will
have an exercise term equal to the remaining term of the original exercised
option.
Information concerning option activity and balances follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE NUMBER
EXERCISE PRICE OF SHARES
PER SHARE (000)
--------- -----
<S> <C> <C>
Balance outstanding, December 31, 1996 $27.22 13,089
Granted 35.66 4,879
Exercised 22.63 (1,681)
Canceled 33.45 (236)
------ ------
Balance outstanding, December 31, 1997 30.18 16,051
Granted 39.51 10,285
Exercised 28.44 (4,313)
Canceled 38.02 (683)
------ ------
Balance outstanding, December 31, 1998 34.78 21,340
Granted 54.63 9,188
Exercised 27.27 (3,992)
Canceled 45.10 (731)
------ ------
BALANCE OUTSTANDING, DECEMBER 31, 1999 $42.72 25,805
====== ======
</TABLE>
<TABLE>
<CAPTION>
COMPOSITION OF THE WEIGHTED WEIGHTED
DECEMBER 31, 1999 BALANCE: AVERAGE AVERAGE NUMBER
OPTIONS HAVING A REMAINING EXERCISE PRICE OF SHARES
PER-SHARE EXERCISE PRICE OF: LIFE PER SHARE (000)
- ---------------------------- ---- --------- -----
<S> <C> <C> <C>
$ .62--19.49 3.11 years $ 15.89 622
$19.50--29.99 3.62 years 23.77 2,903
$30.00--39.99 6.44 years 37.09 6,371
$40.00--49.99 7.65 years 41.59 6,889
$50.00--59.99 8.66 years 55.39 8,871
$60.00--65.38 6.46 years 62.64 149
---------- ----- -----
</TABLE>
As of December 31, 1999, 1998 and 1997, the company had exercisable options of
11,296,000, 11,813,000 and 11,392,000, respectively, with weighted average
exercise prices of $35.00, $36.65 and $28.39, respectively.
Had the company elected to measure stock compensation using the fair value of
the awards at grant date under the provisions of SFAS No. 123, the company's net
income and diluted earnings per share would have been reduced by approximately
$55 or $.11 per share for 1999, $47 or $.09 per share for 1998, and $42 or $.08
per share for 1997. The fair value of each option grant was estimated on the
date of grant using the Black-Scholes option-pricing model with the following
assumptions for 1999,
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<PAGE> 25
1998 and 1997, respectively: dividend yield of 1.98, 2.70, and 2.83 percent;
volatility of 24.8, 24.0, and 21.0 percent; risk-free interest rate of 6.64,
4.72, and 5.45 percent; and an expected life of 5.0, 5.1, and 5.3 years.
20 RETIREMENT BENEFITS
The company has various pension plans covering substantially all employees.
Benefits provided under the defined benefit pension plans are primarily based on
years of service and the employee's compensation. The company also provides
nonpension benefits to eligible retirees and their dependents, primarily in the
form of medical and dental benefits. The following tables summarize the changes
in benefit obligations and plan assets during 1998 and 1999.
<TABLE>
<CAPTION>
OTHER RETIREMENT
PENSION BENEFITS BENEFITS
CHANGE IN BENEFIT OBLIGATION: 1999 1998 1999 1998
- ----------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Benefit obligation at
beginning of year $ 1,455 $ 1,394 $ 406 $ 393
Service cost 59 56 10 10
Interest cost 93 91 28 27
Benefits paid (211) (133) (27) (19)
Actuarial (gain) loss 46 53 10 (10)
Plan amendment and other
Adjustments 3 (14) 1 5
Currency exchange effects 1 8 -- --
------- ------- ------- -------
BENEFIT OBLIGATION AT
END OF YEAR $ 1,446 $ 1,455 $ 428 $ 406
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
CHANGE IN PLAN ASSETS: 1999 1998 1999 1998
- ---------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Fair value of plan assets
at beginning of year $ 1,477 $ 1,387 $ 211 $ 170
Actual return on plan assets 209 184 41 40
Employer contribution 45 38 26 18
Benefits paid (211) (133) (27) (19)
Other adjustments 2 (5) 1 2
Currency exchange effects 5 6 -- --
------- ------- ------- -------
FAIR VALUE OF PLAN ASSETS AT
END OF YEAR $ 1,527 $ 1,477 $ 252 $ 211
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999 1998 1999 1998
- --------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Funded status $ 81 $ 22 $(176) $(195)
Unrecognized net actuarial
(gains) losses (62) (11) (115) (115)
Unamortized net transition asset (31) (45) --
Unrecognized prior service cost 38 41 (29) (34)
----- ----- ----- -----
PREPAID (ACCRUED) BENEFIT COST $ 26 $ 7 $(320) $(344)
===== ===== ===== =====
</TABLE>
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<PAGE> 26
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the pension plans with accumulated benefit obligations in
excess of plan assets were, $411, $346, and $118 as of December 31, 1999, and
$346, $291, and $90 as of December 31, 1998, respectively. The benefit
obligation and fair value of plan assets for benefit plans with obligations in
excess of plan assets were, $839 and $371 as of December 31, 1999, and $752 and
$301 as of December 31, 1998, respectively.
<TABLE>
<CAPTION>
OTHER RETIREMENT
PENSION BENEFITS BENEFITS
AT DECEMBER 31, 1999 1998 1999 1998
- --------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Total accrual balances $(254) $(221) $(320) $(344)
Total prepaid balances 204 190 -- --
Minimum pension liability
offsets:
Intangible assets 11 5 -- --
Shareholders' equity
(pretax) 65 33 -- --
----- ----- ----- -----
PREPAID (ACCRUED) BENEFIT COST $ 26 $ 7 $(320) $(344)
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE ASSUMPTIONS
AS OF DECEMBER 31, 1999 1998 1997
- ------------------ ---- ---- ----
<S> <C> <C> <C>
Discount rate 6.86% 6.66% 6.95%
Salary growth rate 3.67 3.68 4.20
Return on plan assets 9.53 9.21 9.27
Health care cost rate -- initially 5.62 5.83 6.33
trending down to 5.00 5.00 5.00
==== ==== ====
</TABLE>
The consolidated net expense amounts in the following table are exclusive of
curtailments, settlements, and termination benefit costs associated with
restructurings. Net amounts of $4 and $5 before tax were recorded in 1998 and
1997, respectively, within restructuring charges.
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER RETIREMENT BENEFITS
COMPONENTS OF NET PERIODIC BENEFIT COST: 1999 1998 1997 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 59 $ 56 $ 52 $ 10 $ 10 $ 9
Interest cost 93 91 90 28 27 26
Expected return on plan assets (120) (109) (102) (20) (15) (12)
Amortization of transition amount (8) (9) (9) -- -- --
Amortization of prior service cost 4 5 4 (3) (3) (4)
Recognized actuarial loss (gain) 3 3 4 (4) (2) (1)
----- ----- ----- ----- ----- -----
Net periodic benefit cost 31 37 39 11 17 18
Settlement/curtailment loss (gain) 3 (3) -- -- -- --
----- ----- ----- ----- ----- -----
</TABLE>
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<PAGE> 27
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
NET BENEFIT COST $ 34 $ 34 $ 39 $ 11 $ 17 $ 18
===== ===== ===== ===== ===== =====
</TABLE>
The assumption concerning health care cost trend rate has a significant effect
on the amounts reported. Increasing the rate by one percentage point in each
year would increase the postretirement benefit obligation as of December 31,
1999, by $55 and the total of service and interest cost components of net
postretirement benefit cost for the year by $6. Conversely, decreasing the rate
by one percentage point in each year would decrease the postretirement benefit
obligation as of December 31, 1999, by $49 and the total of service and interest
cost components of net postretirement benefit cost for the year by $5.
The company has recorded an additional minimum liability of $75 for underfunded
plans at December 31, 1999. This liability represents the amount by which the
accumulated benefit obligation exceeds the sum of the fair market value of plan
assets and accrued amounts previously recorded. An intangible asset ($10) to the
extent of previously unrecognized prior service cost offsets the additional
liability. The remaining amount ($65) is recorded, net of tax benefits, as a
reduction to shareholders' equity within accumulated other comprehensive income.
21 SEGMENT INFORMATION
The company's core business is the development, manufacture and sale of
pharmaceutical products. This business is organized in two segments,
prescription pharmaceutical and consumer health care. The prescription
pharmaceutical segment includes general therapeutics, ophthalmology and hospital
products including oncology, and diversified therapeutics. The consumer health
care segment consists of self-medication products that are available to
consumers over the counter without a prescription. This segment includes product
line extensions of key prescription drugs, plus products to treat tobacco
dependency.
The remaining operating units include animal health, diagnostics, nutrition,
plasma, pharmaceutical commercial services and biotechnology. Due to the size of
these operating segments, they have been included in an "all other" grouping.
Animal health produces and markets both pharmaceuticals and feed additives for
livestock and pets. Diagnostics provides services to identify specific allergies
in people. Nutrition sells food replacement products, primarily to hospitals.
Plasma is a therapeutic area that prepares and markets products derived from
blood plasma. Pharmaceutical commercial services develops, manufactures and
markets certain bulk pharmaceutical chemicals and selected high-technology and
specialty chemicals. Biotechnology primarily represents minority equity
positions in biotechnology joint ventures that manufacture and market reagents,
chemicals, and systems for biotechnology companies and academic research
laboratories.
The following tables show revenues and expenses for the company's operating
segments and reconciling items necessary to total to the amounts reported in the
consolidated financial statements. Information about segment assets, interest
income and expense, and income taxes is not provided on a segment level as the
segments are reviewed based on operating income. Corporate support functions and
restructuring charges also are not allocated to segments. There are no
inter-segment revenues. Depreciation is not available on a segmental basis.
-55-
<PAGE> 28
During the fourth quarter of 1999, the company realigned the internal management
organization of the company's operating segments and have appropriately
reflected this change in the reportable segments presented.
SEGMENTS FOR YEAR ENDED DECEMBER 31, 1999:
<TABLE>
<CAPTION>
PRESCRIPTION CONSUMER
PHARMA- HEALTH ALL RECONCILING
CEUTICAL CARE OTHER ITEMS TOTALS
-------- ---- ----- ----- ------
<S> <C> <C> <C> <C> <C>
Net sales $ 5,499 $ 683 $ 1,071 $ -- $ 7,253
------- ------- ------- ------- -------
Earnings from equity
affiliates $ -- $ -- $ 35 $ -- $ 35
------- ------- ------- ------- -------
Amortization expense $ 17 $ 3 $ 6 $ 79 $ 105
------- ------- ------- ------- -------
Operating income (loss)
before corporate $ 1,073 $ 139 $ 311 $ (90) $ 1,433
Corporate and all other (286)
------- ------- ------- ------- -------
Earnings before taxes $ 1,147
</TABLE>
SEGMENTS FOR YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRESCRIPTION CONSUMER
PHARMA- HEALTH ALL RECONCILING
CEUTICAL CARE OTHER ITEMS TOTALS
-------- ---- ----- ----- ------
<S> <C> <C> <C> <C> <C>
Net sales $ 4,752 $ 683 $ 1,323 $ -- $ 6,758
------- ------- ------- ------- -------
Earnings from equity
affiliates $ 1 $ -- $ 56 $ -- $ 57
------- ------- ------- ------- -------
Amortization expense $ 15 $ 6 $ 11 $ 80 $ 112
------- ------- ------- ------- -------
Operating income (loss)
before corporate $ 984 $ 111 $ 324 $ (171) $ 1,248
Corporate and all other (271)
------- ------- ------- ------- -------
Earnings before taxes $ 977
</TABLE>
SEGMENTS FOR YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRESCRIPTION CONSUMER
PHARMA- HEALTH ALL RECONCILING
CEUTICAL CARE OTHER ITEMS TOTALS
<S> <C> <C> <C> <C> <C>
Net sales $ 4,370 $ 642 $ 1,574 $ -- $ 6,586
------- ------- ------- ------- -------
Earnings (loss) from equity
investments 5 -- (73) -- (68)
------- ------- ------- ------- -------
Amortization expense 13 5 11 87 116
------- ------- ------- ------- -------
Operating income (loss)
before corporate $ 765 $ 119 $ 192 $ (125) 951
Corporate and all other (516)
------- ------- ------- ------- -------
Earnings Before Taxes $ 435
</TABLE>
-56-
<PAGE> 29
The reconciling item for amortization expense represents goodwill amortization
resulting from acquisitions by Pharmacia AB prior to the 1995 merger with The
Upjohn Company. In addition to amortization, unallocated noncorporate general
and administrative expenses are included in the reconciling item for operating
income (loss) before corporate. Corporate and all other amounts represent
general and administrative expenses of corporate support functions, corporate
items such as restructuring charges and litigation accruals, and nonoperating
income and expenses.
The company's products are sold throughout the world to a wide range of
customers including pharmacies, hospitals, chain warehouses, governments,
physicians, wholesalers, and other distributors. No single customer accounts for
10 percent or more of the company's consolidated sales.
The top selling 20 products in 1999 represent approximately 59 percent of total
sales with no one product constituting more than 7 percent of total sales. The
following table shows the company's sales geographically. U.S. exports to
third-party customers are less than 10 percent of U.S. sales.
<TABLE>
<CAPTION>
GEOGRAPHIC SALES FOR YEARS ENDED DECEMBER 31 1999 1998
- -------------------------------------------- ---- ----
<S> <C> <C>
Sales to customers in:
United States $2,915 $2,498
Japan 738 565
Italy 430 461
Germany 389 412
United Kingdom 329 352
Sweden 257 284
France 274 275
Spain 172 168
Rest of the world 1,749 1,743
------ ------
TOTAL SALES $7,253 $6,758
====== ======
</TABLE>
Long-lived assets include property, plant and equipment, goodwill and other
intangibles, all net of depreciation or amortization.
<TABLE>
<CAPTION>
LONG-LIVED ASSETS, DECEMBER 31 1999 1998
- ------------------------------ ---- ----
<S> <C> <C>
United States $2,104 $1,840
Sweden 971 995
Italy 386 443
Japan 90 186
United Kingdom 103 133
Ireland 122 123
Rest of the world 635 752
------ ------
TOTAL LONG-LIVED ASSETS $4,411 $4,472
====== ======
</TABLE>
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<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 2-36636, 2-76696, 2-90152, 33-13197, 33-21030,
33-39704, 33-39705, 33-39706, 33-39707, 33-49717, 33-53363, 33-53365, 33-53367,
333-02783, 333-02961, 333-02963, 333-33531, 333-38599, 333-34112, 333-34344,
333-45341 and 333-76653) and the Registration Statement on Form S-4 (No.
333-66175) of Pharmacia Corporation of our report dated February 7, 2000
relating to the financial statements of Pharmacia & Upjohn, Inc., which appears
in this Current Report on Form 8-K.
/S/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Florham Park, New Jersey
April 13, 2000
