<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 15, 1995
REGISTRATION NO. 33-61969
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PHARMACIA & UPJOHN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 2834 98-0155411
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
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FLEMING WAY CORPORATION TRUST COMPANY
CRAWLEY, SUSSEX RH10 2LZ 1209 ORANGE STREET
ENGLAND WILMINGTON, DELAWARE 19801
(44-129) 353-1133 (302) 658-7581
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE (NAME, ADDRESS, INCLUDING ZIP CODE, AND
NUMBER, TELEPHONE
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL NUMBER, INCLUDING AREA CODE, OF AGENT FOR
EXECUTIVE OFFICES) SERVICE)
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------------------------
COPIES TO:
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NEIL T. ANDERSON JOHN A. MARZULLI, JR.
SULLIVAN & CROMWELL SHEARMAN & STERLING
125 BROAD STREET 199 BISHOPSGATE
NEW YORK, NEW YORK 10004 LONDON EC2M 3TY
(212) 558-4000 ENGLAND
(44-171) 920-9000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and the
conditions to consummation of the Merger and the Offer described herein have
been satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
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FORM S-4 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS/
---------------------------------------------- PROXY STATEMENT/
U.S. OFFER TO PURCHASE
-----------------------------------------
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A. INFORMATION ABOUT THE COMBINATION
1. Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus............................. Facing Page of Registration Statement;
Cross-Reference Sheet; Outside Front
Cover Pages of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus.......................... Available Information; Incorporation of
Certain Documents by Reference; Table of
Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information.......... Summary; Risk Factors; Market Price and
Dividend Data
4. Terms of the Combination................. Summary; The Companies and the
Combination; The Combination; The
Combination Agreement; The Co-Promotion
Agreement; Tax Consequences of the Merger
and the Offer; Description of Capital
Stock and Charter Documents of the
Company; Certain Changes in Rights of
Stockholders Resulting from the
Combination
5. Pro Forma Financial Information.......... Summary; Unaudited Condensed Pro Forma
Combined Financial Statements
6. Material Contacts with the Company Being
Acquired............................... *
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters.............. *
8. Interests of Named Experts and Counsel... *
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................ *
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B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-2 or S-3
Registrants............................ *
11. Incorporation of Certain Information by
Reference.............................. *
12. Information with Respect to Registrants
Other Than S-2 or S-3 Registrants...... *
13. Incorporation of Certain Information by
Reference.............................. *
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---------------
* Omitted because not required, inapplicable or answer is in the negative.
i
<PAGE> 3
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LOCATION IN PROSPECTUS/
FORM S-4 ITEM NUMBER AND HEADING PROXY STATEMENT/
---------------------------------------------- U.S. OFFER TO PURCHASE
-----------------------------------------
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14. Incorporation with Respect to Registrants
Other Than S-2 or S-3 Registrants...... Summary; Risk Factors; The Companies and
the Combination; Description of the
Company; Unaudited Pro Forma Combined
Financial Statements; Description of
Capital Stock and Charter Documents of
the Company; Certain Changes in Rights of
Stockholders Resulting from the
Combination
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3
Companies.............................. Incorporation of Certain Documents by
Reference; Summary; Risk Factors;
Description of Upjohn; Upjohn Summary
Selected Financial Data; Upjohn
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Description of Pharmacia;
Pharmacia Selected Financial Data;
Pharmacia Management's Discussion and
Analysis of Financial Condition and
Results of Operations
16. Information with Respect to S-2 or S-3
Companies.............................. *
17. Information with Respect to Companies
Other Than S-2 or S-3 Companies........ *
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited..... Summary; Risk Factors; The Upjohn Special
Meeting; The Combination; The Combination
Agreement; Description of the Company;
Description of Upjohn; Description of
Capital Stock and Charter Documents of
the Company
19. Information if Proxies, Consents or
Authorizations are not to be Solicited
or in an Exchange Offer................ Summary; Risk Factors; The U.S. Offer to
Purchase; The Combination; The
Combination Agreement; Description of the
Company; Description of Pharmacia;
Description of Capital Stock and Charter
Documents of the Company
</TABLE>
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* Omitted because not required, inapplicable or answer is in the negative.
ii
<PAGE> 4
EXPLANATORY NOTE
The form of prospectus filed as part of this Registration Statement
contains two sets of cover pages. The first set, with page numbers preceded by
the letter "A", relates to the terms of the merger of Pharmacia & Upjohn
Subsidiary, Inc. ("Merger Sub"), a Delaware corporation wholly owned by
Pharmacia & Upjohn, Inc., a Delaware corporation (the "Company"), with and into
The Upjohn Company, a Delaware corporation ("Upjohn"), as a result of which all
of the outstanding shares of Common Stock, par value $1 per share, of Upjohn
will be exchanged for shares of Common Stock, par value $.01 per share, of the
Company (the "New Common Stock"), and each outstanding share of Series B
Convertible Perpetual Preferred Stock of Upjohn will be exchanged for one share
of Series A Convertible Perpetual Preferred Stock of the Company. The second set
of cover pages, with page numbers preceded by the letter "B", relates to the
terms of an offer by the Company to exchange for (i) each outstanding Class A
Common Share, nominal value SEK 25 per share, of Pharmacia Aktiebolag, a
corporation organized under the laws of the Kingdom of Sweden ("Pharmacia"),
held by U.S. Persons (as defined herein), (ii) each outstanding Class B Common
Share, nominal value SEK 25 per share, of Pharmacia held by U.S. Persons, and
(iii) each outstanding American Depositary Share representing one Pharmacia
Class A Common Share, one share of New Common Stock. The Prospectus/Proxy
Statement distributed to holders of Upjohn shares will contain the first set of
cover pages. The Prospectus/U.S. Offer to Purchase distributed to holders of
Pharmacia securities will contain the second set of cover pages.
The securities registered hereby are not being registered for the purpose
of distribution outside the United States.
iii
<PAGE> 5
THE UPJOHN COMPANY
7000 PORTAGE ROAD
KALAMAZOO, MICHIGAN 49001
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 17, 1995
To Our Stockholders:
Notice is hereby given that a Special Meeting of Stockholders of The Upjohn
Company, a Delaware corporation ("Upjohn"), will be held at 10:00 a.m., local
time, on Tuesday, October 17, 1995 at the Radisson Plaza Hotel, 100 West
Michigan Avenue, Kalamazoo Michigan (the "Upjohn Special Meeting"), and at any
adjournments or postponements thereof, for the following purposes:
1. To adopt the Combination Agreement, dated as of August 20, 1995 (the
"Combination Agreement"), among Upjohn, Pharmacia Aktiebolag, a Swedish
corporation ("Pharmacia"), Pharmacia & Upjohn, Inc., a Delaware corporation 50%
owned by each of Pharmacia and Upjohn (the "Company"), and Pharmacia & Upjohn
Subsidiary, Inc., a Delaware corporation wholly owned by the Company ("Merger
Sub"), pursuant to which Merger Sub will be merged with and into Upjohn (the
"Merger"), as described in the attached Prospectus/Proxy Statement (the
"Prospectus"). Pursuant to the Combination Agreement, upon the consummation of
the Merger, (i) each outstanding share of Common Stock, par value $1 per share,
of Upjohn will be converted into the right to receive 1.45 shares of Common
Stock, par value $.01 per share, of the Company ("New Common Stock") and (ii)
each outstanding share of Series B Convertible Perpetual Preferred Stock of
Upjohn will be converted into the right to receive one share of Series A
Convertible Perpetual Preferred Stock of the Company. As a result of the Merger,
Upjohn will become a wholly owned subsidiary of the Company and the separate
existence of Merger Sub will cease. The Combination Agreement also contemplates
that the Company will commence an offer (the "Offer") to exchange for each
outstanding Class A Common Share of Pharmacia, each outstanding Class B Common
Share of Pharmacia and each outstanding American Depositary Share representing
one Class A Common Share of Pharmacia, one share of New Common Stock or a
Swedish Depository Share representing one share of New Common Stock. The Merger
and the Offer are more fully described in the accompanying Prospectus. The Board
of Directors of Upjohn unanimously recommends a vote FOR adoption of the
Combination Agreement.
2. To transact such other business as may properly be brought before the
meeting or any adjournments or postponements thereof.
Stockholders of record at the close of business on September 18, 1995 will
be entitled to vote at the Upjohn Special Meeting and any adjournments or
postponements thereof. Whether or not you plan to attend, please sign, date and
return the enclosed proxy in the postage-paid envelope provided. The prompt
return of your proxy will assist us in preparing for the Upjohn Special Meeting.
BY ORDER OF THE
BOARD OF DIRECTORS
Kenneth M. Cyrus
Secretary
Kalamazoo, Michigan
September 18, 1995
YOUR VOTE IS IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND THE UPJOHN SPECIAL MEETING, PLEASE SIGN,
DATE AND RETURN THE ENCLOSED PROXY IN THE
POSTAGE-PAID ENVELOPE PROVIDED.
A-i
<PAGE> 6
PROSPECTUS/PROXY STATEMENT
PROSPECTUS
PHARMACIA & UPJOHN, INC.
SHARES OF COMMON STOCK
AND
PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS
OF
THE UPJOHN COMPANY
TO BE HELD ON OCTOBER 17, 1995
------------------------
This Prospectus/Proxy Statement (the "Prospectus") is being furnished to
stockholders of The Upjohn Company, a Delaware corporation ("Upjohn"), in
connection with the solicitation of proxies by the Board of Directors of Upjohn
for a Special Meeting of Stockholders of Upjohn to be held at 10:00 a.m., local
time, on Tuesday, October 17, 1995 at the Radisson Plaza Hotel, 100 West
Michigan Avenue, Kalamazoo, Michigan (the "Upjohn Special Meeting"), and at any
adjournments or postponements thereof.
At the Upjohn Special Meeting, the holders of the issued and outstanding
shares of Common Stock, par value $1 per share, of Upjohn (the "Upjohn Common
Stock") and the holders of the issued and outstanding shares of Series B
Convertible Perpetual Preferred Stock, par value $1 per share, of Upjohn (the
"Upjohn Preferred Stock"), voting together as one class, will be asked to adopt
the Combination Agreement, dated as of August 20, 1995 (the "Combination
Agreement"), among Upjohn, Pharmacia Aktiebolag, a corporation organized under
the laws of the Kingdom of Sweden ("Pharmacia"), Pharmacia & Upjohn, Inc., a
Delaware corporation 50% owned by each of Pharmacia and Upjohn (the "Company"),
and Pharmacia & Upjohn Subsidiary, Inc., a Delaware corporation wholly owned by
the Company ("Merger Sub"). Under the terms of the Combination Agreement, Merger
Sub will be merged with and into Upjohn (the "Merger"). Pursuant to the Merger,
(i) each outstanding share of Upjohn Common Stock will be converted into the
right to receive 1.45 shares (the "Exchange Ratio") of Common Stock, par value
$.01 per share, of the Company (the "New Common Stock"), with the result that
all of the outstanding shares of Upjohn Common Stock will be converted
collectively into approximately 248,920,548 shares of New Common Stock, and (ii)
each outstanding share of Upjohn Preferred Stock will be converted into the
right to receive one share of Series A Convertible Perpetual Preferred Stock,
par value $.01 per share, of the Company (the "New Preferred Stock"), with the
result that all of the outstanding shares of Upjohn Preferred Stock will be
converted collectively into approximately 7,263 shares of New Preferred Stock.
See "The Merger." At the Upjohn Special Meeting, the stockholders of Upjohn will
also be asked to consider and vote upon such other business as may properly be
brought before the Upjohn Special Meeting or any adjournments or postponements
thereof.
THE BOARD OF DIRECTORS OF UPJOHN BELIEVES THAT THE TERMS OF THE COMBINATION
AGREEMENT ARE FAIR TO, AND IN THE BEST INTERESTS OF, UPJOHN AND ITS STOCKHOLDERS
AND UNANIMOUSLY RECOMMENDS THAT UPJOHN STOCKHOLDERS VOTE FOR ADOPTION OF THE
COMBINATION AGREEMENT.
------------------------
Upon consummation of the Merger, all shares of Upjohn Common Stock and
Upjohn Preferred Stock will no longer be outstanding and will automatically be
cancelled and retired and will cease to exist, and each holder of a certificate
representing any shares of Upjohn Common Stock or Upjohn Preferred Stock will
cease to have any rights with respect thereto, except the right to receive the
shares of New Common Stock or New Preferred Stock, as the case may be, to be
issued in consideration therefor upon the surrender of such certificate, without
interest. Fractional shares of New Common Stock will not be issuable in
connection with the Merger. Holders of Upjohn Common Stock otherwise entitled to
a fractional share will be paid the value of such fraction in cash, as described
under "The Merger -- Fractional Shares."
The Combination Agreement also contemplates that the Company will commence
an offer (the "Offer") to exchange for each outstanding Class A Common Share of
Pharmacia, each outstanding Class B Common Share of Pharmacia and each
outstanding American Depositary Share representing one Class A Common Share of
Pharmacia (collectively, the "Pharmacia Securities"), one share of New Common
Stock or a Swedish Depositary Share representing one share of New Common Stock.
See "The Combination Agreement -- The Offer." The consummation of each of the
Offer and the Merger is conditioned upon the consummation of the other. As soon
as practicable after the consummation of the Offer (assuming that the Company
has acquired Pharmacia Securities representing more than 90 percent of the share
capital of Pharmacia and voting rights exercisable at a general meeting of
Pharmacia stockholders), the Company will commence a compulsory acquisition
proceeding under Swedish law to acquire all of the outstanding Pharmacia
Securities not acquired by the Company pursuant to the Offer (such compulsory
acquisition, collectively with the Merger and the Offer, the "Transactions").
Upon consummation of the Transactions, Upjohn and Pharmacia will become wholly
owned subsidiaries of the Company and the stockholders of Upjohn and Pharmacia
will each hold approximately 50 percent of the equity of the Company, assuming
full acceptance of the Offer by Pharmacia stockholders.
------------------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY INVESTORS
IN EVALUATING AN INVESTMENT IN THE SECURITIES OFFERED HEREBY, SEE "RISK FACTORS"
FOLLOWING THE SUMMARY HEREIN.
------------------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROSPECTUS HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
This Prospectus and the accompanying form of proxy are first
being mailed to stockholders on or about September 18, 1995.
------------------------
THIS PROSPECTUS IS DATED SEPTEMBER 15, 1995.
A-1
<PAGE> 7
PROSPECTUS/U.S. OFFER TO PURCHASE
U.S. OFFER TO EXCHANGE FOR EACH
CLASS A COMMON SHARE, NOMINAL VALUE SEK 25 PER SHARE, AND EACH
CLASS B COMMON SHARE, NOMINAL VALUE SEK 25 PER SHARE
BENEFICIALLY OWNED BY A U.S. PERSON
AND EACH AMERICAN DEPOSITARY SHARE REPRESENTING ONE CLASS A COMMON SHARE
OF
PHARMACIA AKTIEBOLAG,
ONE SHARE OF COMMON STOCK, PAR VALUE $.01 PER SHARE
OF
PHARMACIA & UPJOHN, INC.
THE INITIAL EXPIRATION DATE FOR THE U.S. OFFER IS 12:00 NOON, NEW YORK CITY
TIME, ON OCTOBER 20, 1995, AND WITHDRAWAL RIGHTS FOR THE U.S. OFFER WILL EXPIRE
AT SUCH TIME, UNLESS THE U.S. OFFER IS EXTENDED. ANNOUNCEMENT OF THE RESULTS OF
THE U.S. OFFER WILL BE MADE APPROXIMATELY TEN BUSINESS DAYS AFTER THE PRIOR
EXPIRATION DATE. ALTHOUGH PHARMACIA SECURITIES MAY BE TENDERED DURING THE PERIOD
OF CALCULATION OF THE RESULTS OF THE U.S. OFFER, WITHDRAWAL RIGHTS WILL NOT BE
AVAILABLE DURING SUCH PERIOD OR DURING THE PERIOD, IF ANY, BY WHICH THE U.S.
OFFER IS EXTENDED FOLLOWING THE ANNOUNCEMENT OF THE SATISFACTION OF ALL
CONDITIONS TO THE U.S. OFFER NOT PREVIOUSLY ANNOUNCED TO HAVE BEEN SATISFIED OR
WAIVED.
THE OFFER IS CONDITIONED UPON (I) THERE BEING VALIDLY TENDERED AND NOT
WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF PHARMACIA SECURITIES
REPRESENTING MORE THAN 90 PERCENT OF THE SHARE CAPITAL OF PHARMACIA AND VOTING
RIGHTS EXERCISABLE AT A GENERAL MEETING OF PHARMACIA STOCKHOLDERS, (II) THE
ADOPTION OF THE COMBINATION AGREEMENT BY THE REQUISITE AFFIRMATIVE VOTE OF THE
STOCKHOLDERS OF THE UPJOHN COMPANY IN ACCORDANCE WITH THE DELAWARE GENERAL
CORPORATION LAW AND THE RESTATED CERTIFICATE OF INCORPORATION OF THE UPJOHN
COMPANY AND (III) THE SATISFACTION OF THE OTHER CONDITIONS TO THE COMBINATION
CONTAINED IN ARTICLE IX OF THE COMBINATION AGREEMENT. SEE "THE U.S. OFFER TO
PURCHASE -- INTRODUCTION" AND "-- SECTION 9" AND "THE COMBINATION
AGREEMENT -- CONDITIONS TO THE COMBINATION."
THE BOARD OF DIRECTORS OF PHARMACIA HAS UNANIMOUSLY DETERMINED THAT THE
OFFER IS FAIR TO, AND IN THE BEST INTERESTS OF, PHARMACIA AND ITS STOCKHOLDERS,
AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER.
------------------------
Concurrent with the U.S. Offer, Pharmacia & Upjohn, Inc. will commence an
offer outside the United States and Canada (the "Swedish Offer" and, together
with the U.S. Offer, the "Offer"), for all Pharmacia shares held by persons that
are not U.S. Persons on substantially the same terms and subject to the same
conditions as the U.S. Offer, except that pursuant to the Swedish Offer, holders
of Pharmacia Shares will receive, at their option, for each Pharmacia Share,
either one Swedish Depositary Share, representing one share of Common Stock, par
value $.01 per share (the "New Common Stock"), of Pharmacia & Upjohn, Inc., or
one share of New Common Stock.
------------------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY INVESTORS
IN EVALUATING AN INVESTMENT IN THE SECURITIES OFFERED HEREBY, SEE "RISK FACTORS"
FOLLOWING THE SUMMARY HEREIN.
------------------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROSPECTUS HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DEALER MANAGERS FOR THE U.S. OFFER ARE:
MORGAN STANLEY & CO. GOLDMAN, SACHS & CO.
INCORPORATED
September 18, 1995
B-1
<PAGE> 8
(Cover page, continued)
The Offer is being made pursuant to the Combination Agreement, dated as of
August 20, 1995 (the "Combination Agreement"), among Pharmacia Aktiebolag, a
corporation organized under the laws of the Kingdom of Sweden ("Pharmacia"), The
Upjohn Company, a Delaware corporation ("Upjohn"), Pharmacia & Upjohn, Inc., a
Delaware corporation 50% owned by each of Pharmacia and Upjohn (the "Company"),
and Pharmacia & Upjohn Subsidiary, Inc., a Delaware corporation and a wholly
owned subsidiary of the Company ("Merger Sub"). In addition to the Offer,
pursuant to the Combination Agreement, assuming the satisfaction or waiver of
the Combination Conditions, Merger Sub will be merged with and into Upjohn (the
"Merger"), with Upjohn as the surviving corporation, and the separate corporate
existence of Merger Sub will thereupon cease. As soon as practicable after the
consummation of the Offer (assuming that the Company has acquired Pharmacia
Securities representing more than 90 percent of the share capital of Pharmacia
and voting rights exercisable at a general meeting of Pharmacia stockholders),
the Company will commence a compulsory acquisition proceeding under Swedish law
to acquire all of the issued and outstanding Pharmacia Securities not acquired
by the Company pursuant to the Offer (such compulsory acquisition, collectively
with the Offer and the Merger, the "Transactions"). Upon the consummation of the
Transactions, Pharmacia and Upjohn will become wholly owned subsidiaries of the
Company and the stockholders of Pharmacia and Upjohn will each hold
approximately 50% of the equity of the Company, assuming full acceptance of the
Offer by Pharmacia stockholders.
IMPORTANT
Any U.S. Person (as defined herein) desiring to tender all or any portion
of such person's (i) Class A Common Shares, nominal value SEK 25 per share, of
Pharmacia (the "Pharmacia Class A Common Shares") or (ii) Class B Common Shares,
nominal value SEK 25 per share, of Pharmacia (the "Pharmacia Class B Common
Shares" and, together with the Pharmacia Class A Common Shares, the "Pharmacia
Shares"), or any holder desiring to tender all or any portion of such holder's
American Depositary Shares ("ADSs," and together with the Pharmacia Shares, the
"Pharmacia Securities"), each representing one Pharmacia Class A Common Share,
should either (1) complete and sign the Offer Letter of Transmittal described
herein (or a facsimile thereof) in accordance with the instructions thereto and
mail or deliver it, together with any other required documents to the Depositary
specified therein and, in the case of holders of ADSs only, certificate(s)
evidencing tendered ADSs, or (2) request that a broker, dealer, commercial bank,
trust or other nominee effect a transaction on such stockholder's behalf, or (3)
in the case of ADSs only, tender such ADSs pursuant to the procedure for
book-entry transfer set forth herein, together with an Agent's Message (as
defined herein). ANY STOCKHOLDER WHOSE PHARMACIA SECURITIES ARE REGISTERED IN
THE NAME OF A BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE
MUST CONTACT SUCH PERSON IF SUCH STOCKHOLDER DESIRES TO TENDER SUCH PHARMACIA
SECURITIES. See "The U.S. Offer To Purchase -- Section 2."
Any stockholder who desires to tender ADSs and whose certificates
evidencing such ADSs are not immediately available or who cannot comply with the
procedure for book-entry transfer on a timely basis, may tender such ADSs by
following the procedure for guaranteed delivery set forth herein. See "The U.S.
Offer To Purchase -- Section 2."
Questions or requests for assistance may be directed to the Information
Agent or to the Dealer Managers at their respective addresses and telephone
numbers set forth on the back cover of this Prospectus/U.S. Offer to Purchase
(the "Prospectus"). Additional copies of this Prospectus, the Offer Letter of
Transmittal and the Notice of Guaranteed Delivery enclosed herewith may also be
obtained from the Information Agent or from brokers, dealers and commercial
banks or trust companies.
B-2
<PAGE> 9
(cover page, continued)
The information set forth herein concerning the Company and Merger Sub has
been furnished by the Company, which is (and until the consummation of the
Combination described herein will be) 50% owned by each of Upjohn and Pharmacia.
The information set forth or incorporated by reference herein concerning
Pharmacia has been furnished by Pharmacia. The information set forth or
incorporated by reference herein concerning Upjohn has been furnished by Upjohn.
Pharmacia does not have independent knowledge of the matters set forth or
incorporated by reference herein concerning Upjohn and its subsidiaries. Upjohn
does not have independent knowledge of the matters set forth or incorporated by
reference herein concerning Pharmacia and its subsidiaries.
No person has been authorized to give any information or make any
representation other than those set forth or incorporated by reference herein
and, if given or made, such information or representation must not be relied
upon as having been authorized by Upjohn, Pharmacia, the Company or Merger Sub.
This Prospectus does not constitute an offer to or a solicitation of any person
in any jurisdiction in which such offer or solicitation is unlawful. Neither the
delivery of this Prospectus nor any exchange or sale hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of Upjohn, Pharmacia, the Company or Merger Sub since the date as of
which information is furnished or the date hereof.
3
<PAGE> 10
TABLE OF CONTENTS
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Available Information............................ 8
Incorporation of Certain Documents by
Reference...................................... 9
Exchange Rates................................... 10
Summary.......................................... 11
Risk Factors..................................... 28
Nonrealization of Synergies.................... 28
Regulatory Approvals........................... 28
Non-Tendering Stockholders..................... 28
Interests of Management........................ 28
Certain Litigation............................. 29
Anti-takeover Provisions....................... 29
Exchange Rates................................. 29
Governmental Regulation........................ 30
Product Liability.............................. 30
Market Price and Dividend Data................... 31
Market Prices.................................. 31
Dividends...................................... 32
The Companies and the Combination................ 34
The Companies.................................. 34
The Combination and the Company................ 34
Industry Background............................ 34
Business....................................... 35
Operations..................................... 35
The Upjohn Special Meeting....................... 37
General........................................ 37
Matters to Be Considered at the Upjohn Special
Meeting and Board of Directors'
Recommendation............................... 37
Voting at the Upjohn Special Meeting........... 37
Proxies........................................ 38
The Merger....................................... 39
Reasons for the Merger and Upjohn Board
Recommendation............................... 39
Effect of the Merger........................... 39
Conversion of Stock............................ 39
Fractional Shares.............................. 40
Exchange Procedures............................ 40
Effective Time; Conditions..................... 41
Interests of Certain Persons in the
Combination.................................. 41
Appraisal Rights............................... 42
Certain U.S. Income Tax Consequences........... 43
The U.S. Offer to Purchase....................... 44
Introduction................................... 44
Section 1. Terms of the U.S. Offer; Number of
Shares; Expiration Date............ 46
Section 2. Procedures for Tendering Pharmacia
Securities......................... 48
Section 3. Withdrawal Rights.................. 50
Section 4. Acceptance for Exchange; Delivery
of New Common Stock................ 51
Section 5. Certain U.S. Income Tax
Consequences....................... 52
Section 6. Certain Information Concerning the
Company............................ 52
Section 7. Purpose of the Combination; Plans
for Pharmacia...................... 53
Section 8. Dividends and Distributions........ 53
Section 9. Certain Conditions of the U.S.
Offer.............................. 53
Section 10. Fees and Expenses.................. 54
<CAPTION>
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----
<S> <C>
Section 11. Miscellaneous...................... 54
The Combination.................................. 55
Background of the Combination.................. 55
Reasons for the Combination; Boards'
Recommendations.............................. 56
Fairness Opinions.............................. 59
Stock Exchange Listings........................ 65
Federal Securities Law Restrictions............ 66
Accounting Treatment........................... 66
The Combination Agreement........................ 67
The Merger..................................... 67
The Offer...................................... 68
Conditions to the Combination.................. 69
Representations and Warranties................. 71
Certain Covenants; Conduct of Business Prior to
Consummation of the Transactions............. 71
Competing Transactions......................... 73
The Company Board of Directors and the Global
Corporate Management Center.................. 74
Swedish Depositary Facility.................... 74
Employee Benefit Matters....................... 74
Upjohn Rights Agreement........................ 75
Termination or Amendment of the Combination
Agreement.................................... 75
Director and Officer Liability................. 79
The Co-Promotion Agreement....................... 80
Registration Rights Agreement.................... 80
Tax Consequences of the Merger and the Offer..... 81
United States Federal Income Tax
Consequences................................. 81
Swedish Tax Consequences....................... 82
Regulatory Matters............................... 83
Antitrust...................................... 83
European Union................................. 83
State Takeover Laws............................ 84
Federal Food, Drug, and Cosmetic Act, etc. .... 84
Other Laws..................................... 85
Description of the Company....................... 86
Business....................................... 86
Dividend Policy................................ 87
Directors and Executive Officers............... 88
Compensation of Directors and Executive
Officers
of the Company............................... 89
Unaudited Condensed Pro Forma Combined Financial
Statements..................................... 90
Description of Upjohn............................ 98
General........................................ 98
Business Areas................................. 98
Prescription Pharmaceuticals................... 99
Consumer Products.............................. 100
Chemicals...................................... 100
Animal Health.................................. 100
Sales by Principal Countries................... 100
Production..................................... 101
Marketing and Distribution..................... 101
Competition.................................... 102
Regulation..................................... 103
Patents and Trademarks......................... 104
</TABLE>
4
<PAGE> 11
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Research and Development....................... 104
Geographic Area Information.................... 111
Properties..................................... 111
Employees...................................... 112
Environmental Matters.......................... 112
Product Liability Insurance.................... 112
Litigation..................................... 113
Directors and Executive Officers............... 114
Beneficial Ownership of Upjohn Common Stock.... 117
Certain Relationships and Related
Transactions................................. 118
Upjohn Summary Selected Financial Data........... 119
Upjohn Management's Discussion and Analysis of
Financial Condition and Results of
Operations..................................... 120
General........................................ 120
Six Months Ended June 30, 1995
Compared to Six Months Ended June 30, 1994... 120
1994 Compared to 1993.......................... 124
1993 Compared to 1992.......................... 130
Description of Pharmacia......................... 135
Overview....................................... 135
Development.................................... 135
Acquisition of FICE............................ 136
BCP Demerger................................... 136
Major Shareholders............................. 136
Restructuring.................................. 136
Sales and Marketing............................ 136
Business Areas................................. 137
Business Development Project -- Pharmacia
Biosensor.................................... 146
Research and Development....................... 146
Manufacturing and Production................... 151
Competition.................................... 151
Industry Regulation and Other Legal Matters.... 151
Employees and Labor............................ 155
Property....................................... 155
Legal Proceedings.............................. 155
Directors and Executive Officers............... 156
Beneficial Ownership of Pharmacia Common
Shares....................................... 159
Pharmacia Selected Financial Data................ 161
Pharmacia Management's Discussion and Analysis of
Financial Condition and Results of
Operations..................................... 164
General........................................ 164
Results of Continuing Operations............... 164
<CAPTION>
PAGE
----
<S> <C>
Six Months Ended June 30, 1995 Compared to Six
Months Ended June 30, 1994................... 165
1994 Compared to 1993.......................... 167
1993 Compared to 1992.......................... 170
Liquidity, Capital Resources and Investments... 173
Reconciliation to U.S. GAAP.................... 174
Impact of Currency Fluctuations and
Inflation.................................... 174
Description of Capital Stock and Charter
Documents of the Company....................... 176
Authorized Capital Stock....................... 176
Common Stock................................... 176
New Preferred Stock............................ 177
Other Series of Preferred Stock................ 179
Preemptive Rights.............................. 179
Transfer Agent and Registrar................... 179
Certain Changes in Rights of Stockholders
Resulting from the Combination................. 180
Changes in Rights of Upjohn Stockholders....... 180
Size and Classification of Board of
Directors.................................... 180
Meetings of Stockholders....................... 180
Amendment of Charter Documents................. 181
New Preferred Stock............................ 181
Changes in Rights of Pharmacia Stockholders.... 181
Size and Classification of the Board of
Directors.................................... 183
Removal of Directors........................... 183
Meetings of Stockholders....................... 183
Stockholder Vote Required for Mergers or
Consolidations............................... 184
Business Combinations with Interested
Stockholders................................. 184
Dissenters' Rights............................. 185
Dividends...................................... 185
Preemptive Rights.............................. 186
Amendment of Charter Documents................. 186
Validity of Shares............................... 187
Experts.......................................... 187
Index to Financial Statements.................... F-1
Annex A -- Combination Agreement................. A-1
Annex B -- Opinion of Goldman, Sachs & Co........ B-1
Annex C -- Opinion of Morgan Stanley & Co.
Limited........................................ C-1
Annex D -- Excerpt from the Delaware General
Corporation Law................................ D-1
</TABLE>
5
<PAGE> 12
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
Actions.............................. 29
ADS Bank............................. 45
ADSs................................. B-2, 17
AFC.................................. 128
Affiliates........................... 20
Agent's Message...................... 48
AMP.................................. 103
ANDAs................................ 103
Antitrust Division................... 83
APB 16............................... 20
BCP.................................. 132
Biosensor............................ 142
Book-Entry Confirmation.............. 48
Book-Entry Transfer Facilities....... 48
Book-Entry Transfer Facility......... 48
business day......................... 47
Canadian Person...................... 44
Change of Control.................... 78
CNS.................................. 99
Co-Promotion Agreement............... 20
Combination.......................... 12
Combination Agreement................ F-75, A-1, B-2
Combination Conditions............... 16
Commission........................... 8
Commission Order..................... 44
Companies Act........................ 17
Company.............................. A-1, B-2, 12
Company Board........................ 21
Company By-laws...................... 21
Company Certificate.................. 29
Compensation Committee............... 42
Competing Transaction................ 73
Compulsory Acquisition............... 17
Conversion Price..................... 171
Dealer Managers...................... 45
Delaware Court....................... 43
Depositary........................... 45
DGCL................................. 16
Directors............................ 21
Director Supermajority Vote.......... 21
EBIT................................. 60
EBITDA............................... 60
ECU.................................. 157
Effective Time....................... 15
Eligible Institution................. 49
Engagement Letter.................... 63
EPA.................................. 108
EPS.................................. 61
Exchange Act......................... 8
Exchange Ratio....................... A-1, 39
Expenses............................. 77
Expiration Date...................... 18
FDA.................................. 103
FFDCA................................ 84
FICE................................. 26
Final Expiration Date................ 18
Final Offer Period................... 18
forvaltare........................... 177
FTC.................................. 83
Genentech............................ 134
Goldman Sachs........................ 12
Group................................ F-35
Guaranteed Delivery Procedures....... 49
HRPI................................. 122
HSR Act.............................. 19
IND.................................. 104
IRB.................................. 105
Information Agent.................... 45
Initial Expiration Date.............. 18
Initial Offer Period................. 18
Interim Offer Period................. 18
IOLs................................. 136
IV................................... 139
Kabi Pharmacia....................... 131
KabiVitrum........................... 131
Liquidation.......................... 171
LMWH................................. 136
LSE.................................. 22
LTM.................................. 60
MAC.................................. 138
Medicinal Products Agency............ 146
Merger............................... A-1, B-2
Merger Letter of Transmittal......... 16
Merger Sub........................... F-75, A-1, B-2
MSEK................................. 10
Minimum Condition.................... 16
Montedison........................... 132
Morgan Stanley....................... 13
NASD................................. 14
NASDAQ NMS........................... 8
NCE.................................. 142
NDA.................................. 103
New Common Stock..................... A-1, B-1
New Preferred Stock.................. A-1, 15
Noon Buying Rate..................... 10
NYSE................................. 8
Offer................................ A-1, B-1, 17
Offer Exchange Ratio................. 45
Offer Letter of Transmittal.......... 48
Offer Period......................... 46
Old Pharmacia........................ 131
Pharmacia............................ A-1, B-2
Pharmacia Articles................... 175
Pharmacia Biosystems................. 131
Pharmacia Board...................... 12
Pharmacia Class A Common Shares...... B-2, 17
Pharmacia Class B Common Shares...... B-2, 17
Pharmacia Securities................. A-1, B-2, 17
Pharmacia Shares..................... B-2, 17
PHS.................................. 103
Plan................................. 13
Procordia............................ 131
Prospectus........................... A-1, B-2
Provendor............................ 131
PRP.................................. 108
Recommendation....................... 17
Record Date.......................... 13
Redemption Price..................... 170
Registration Rights Agreement........ 20
Registration Statement............... 8
Rights............................... 17
Rights Agreement..................... 17
Schedule 14D-1....................... 8
Schedule 14D-9....................... 8
SDSs................................. 17
SEAQ International................... 8
Securities Act....................... 8
SEK.................................. 10
Selected Combinations................ 61
Selected Companies................... 60
Severance Agreements................. 16
Severance Arrangements............... 16
SFAS 87.............................. F-49
SFAS 106............................. F-36
SFAS 121............................. 167
SNDA................................. 105
SSE.................................. 8
State................................ F-35
Stattum.............................. 18
Stock Options........................ 16
Stockholders......................... 21
Stockholder Supermajority Vote....... 21
Swedish Offer........................ B-1, 17
Swedish Sub.......................... 17
TPN.................................. 139
Transactions......................... A-1, B-2, 12
Trustee.............................. 13
United States........................ 44
Upjohn............................... A-1, B-2
Upjohn Board......................... 12
Upjohn Certificates.................. 40
Upjohn Common Stock.................. A-1, 15
</TABLE>
6
<PAGE> 13
INDEX OF DEFINED TERMS -- (CONTINUED)
<TABLE>
<S> <C>
Upjohn Excess Shares................. 40
Upjohn Preferred Stock............... A-1, 15
Upjohn Share Equivalent.............. 61
Upjohn Special Meeting............... A-1, 35
Upjohn Stockholder Approval
Condition ......................... 16
U.S.$ or $........................... 10
USDA................................. 103
U.S. GAAP............................ 8
U.S. Holders......................... 81
U.S. Offer........................... 17
U.S. Person.......................... 44
Volvo................................ 17
Voting Stock......................... 21
</TABLE>
7
<PAGE> 14
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-4 (together with
all amendments, documents incorporated by reference and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with the Securities and Exchange Commission (the
"Commission") covering the New Common Stock. In addition, the Company, Upjohn
and Pharmacia will file a Tender Offer Statement on Schedule 14D-1 (the
"Schedule 14D-1") with the Commission in connection with the U.S. Offer pursuant
to Rule 14d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Pursuant to Rules 14d-9 and 14e-2 under the Exchange Act,
Pharmacia will file with the Commission a Solicitation/Recommendation Statement
on Schedule 14D-9 (the "Schedule 14D-9") furnishing certain information with
respect to its position concerning the U.S. Offer.
This Prospectus does not contain all the information set forth in the
Registration Statement, the Schedule 14D-1 or the Schedule 14D-9, certain
portions of which are omitted in accordance with the Rules and Regulations of
the Commission. For further information pertaining to Upjohn, Pharmacia, the
Company and Merger Sub, reference is made to the Registration Statement, the
Schedule 14D-1 and the Schedule 14D-9 and the exhibits thereto, which may be
inspected without charge at the office of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and copies of which may be obtained from the
Commission at prescribed rates. Statements contained in this Prospectus or in
any document incorporated by reference in this Prospectus to the contents of any
contract or other document referred to herein or therein are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, the Schedule
14D-1, the Schedule 14D-9 or such other document, each such statement being
qualified in all respects by such reference.
Upjohn and Pharmacia are subject to the informational reporting
requirements of the Exchange Act and, in accordance therewith, file reports and
other information (and, in the case of Upjohn, proxy statements) with the
Commission. Such reports, proxy statements and other information can be
inspected and copies made at the public reference facilities of the Commission,
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's regional offices at Suite 1400, Citicorp Center, 500 West Madison
Street, Chicago, Illinois 60661 and Seven World Trade Center, New York, New York
10048 (except that the Schedule 14D-1 and the Schedule 14D-9 will not be
available at the regional offices of the Commission), and copies of such
materials can be obtained from the public reference section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Upjohn Common Stock is listed on the New York Stock Exchange (the
"NYSE"), and such reports, proxy statements and other information concerning
Upjohn are available for inspection at the offices of the NYSE at 20 Broad
Street, New York, New York 10005. The Pharmacia Class A Common Shares and
Pharmacia Class B Common Shares are listed on the Stockholm Stock Exchange (the
"SSE") and quoted on Stock Exchange Automatic Quotation International ("SEAQ
International"). The ADSs are quoted on the National Association of Securities
Dealers Automated Quotations National Market System ("NASDAQ NMS"), and such
reports and other information concerning Pharmacia are available for inspection
at the offices of the NASDAQ NMS at 1735 K Street, Washington, D.C. 20006.
Application will be made to list the shares of New Common Stock on the NYSE, and
thereafter, information concerning the Company will be available for inspection
at the offices of the NYSE.
Following the consummation of the Combination, the Company will prepare
annual reports which will be distributed to its stockholders. The Company's
annual reports will contain financial information examined and reported upon,
with opinions expressed, by the Company's auditors. The consolidated financial
statements of the Company included in such annual reports will be presented in
United States dollars and will be prepared in conformity with United States
generally accepted accounting principles ("U.S. GAAP"). In addition, the
consolidated financial statements of the Company will be translated into the
Swedish language and into Swedish kronor.
8
<PAGE> 15
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Upjohn (File No.
1-4147) and Pharmacia (File No. 0-24322) pursuant to the Exchange Act are
incorporated by reference in this Prospectus:
1. Upjohn's Annual Report on Form 10-K for the year ended December 31,
1994;
2. The description of the Upjohn Rights contained in Upjohn's
Registration Statement on Form 8-A filed with the Commission
pursuant to Section 12(b) of the Exchange Act on June 26, 1986, as
amended by an Amendment on Form 8 dated March 27, 1989 and an
Amendment on Form 8-A/A dated August 21, 1995;
3. Upjohn's Proxy Statement for the Annual Meeting of Stockholders held on
April 18, 1995;
4. Upjohn's Quarterly Report on Form 10-Q for the period ended March 31,
1995;
5. Upjohn's Quarterly Report on Form 10-Q for the period ended June 30,
1995;
6. Upjohn's Current Report on Form 8-K dated August 21, 1995;
7. Pharmacia's Annual Report on Form 20-F for the year ended December 31,
1994; and
8. Pharmacia's Reports on Form 6-K for the months of April 1995, May 1995
and August 1995.
All documents and reports filed by Upjohn, Pharmacia or the Company
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date
of this Prospectus and prior to the date of the consummation of the Merger and
the Offer described herein shall be deemed to be incorporated by reference in
this Prospectus and thereby deemed to be part of this Prospectus from the date
of filing of such documents or reports. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
THIS PROSPECTUS INCORPORATES OTHER DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN EXHIBITS TO
SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE)
ARE AVAILABLE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER OF UPJOHN OR
PHARMACIA SECURITIES TO WHOM THIS PROSPECTUS IS DELIVERED, ON WRITTEN OR ORAL
REQUEST, WITHOUT CHARGE, DIRECTED, IN THE CASE OF DOCUMENTS RELATING TO UPJOHN,
TO THE UPJOHN COMPANY, 7000 PORTAGE ROAD, KALAMAZOO, MICHIGAN 49001, TELEPHONE:
(616) 323-4000, ATTENTION: SECRETARY OR, IN THE CASE OF DOCUMENTS RELATING TO
PHARMACIA TO PHARMACIA AKTIEBOLAG, FROSUNDAVIKS ALLE 15, 171 97 STOCKHOLM,
SWEDEN, TELEPHONE: (011-46-8) 624-5000, ATTENTION: SECRETARY. IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUESTS BY BENEFICIAL OWNERS OF UPJOHN
SECURITIES SHOULD BE MADE BY OCTOBER 11, 1995 AND ANY REQUESTS BY BENEFICIAL
OWNERS OF PHARMACIA SECURITIES SHOULD BE MADE BY OCTOBER 13, 1995.
9
<PAGE> 16
EXCHANGE RATES
All currency amounts in this Prospectus are, unless otherwise indicated,
expressed in U.S. dollars ("U.S. $" or "$"). This Prospectus contains
translations of certain amounts in Swedish kronor ("SEK") into U.S. dollars. For
convenience purposes only, unless otherwise indicated, translations of Swedish
kronor into U.S. dollars have been calculated at the rate of $1.00 to SEK 7.290,
which represents the noon buying rate in New York City for cable transfers in
Swedish kronor as certified for customs purposes by the Federal Reserve Bank of
New York as of June 30, 1995. These should not be construed as representations
that the Swedish krona amounts actually represent such U.S. dollar amounts or
that Swedish kronor could be converted into U.S. dollars at the rate indicated
or at any other rate. The noon buying rate in New York City for cable transfers
in Swedish kronor as certified for customs purposes by the Federal Reserve Bank
of New York (the "Noon Buying Rate") at the end of the five years ended December
31, 1994 and the six months ended June 30, 1995 and the average, the high and
the low exchange rates for each of such five-year and six-month periods were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -----------------------------------------------
1995 1994 1993 1992 1991 1990
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
At end of period........................ 7.2900 7.4295 8.3400 7.0790 5.5550 5.6335
Average for period*..................... 7.3561 7.6654 7.8778 5.8787 6.0456 5.9106
High for period......................... 7.5510 8.3840 8.4835 7.1150 6.6280 6.2850
Low for period.......................... 7.1385 7.0640 7.1740 5.0885 5.4420 5.5345
</TABLE>
---------------
* Represents the average of the Noon Buying Rates on the last business day of
each full month during the relevant period.
During the period from July 1, 1995 to September 14, 1995, the high and low
Noon Buying Rates, respectively, were SEK 7.3600 and SEK 7.0480. On September
14, 1995, the Noon Buying Rate was U.S. $1.00 = SEK 7.1495. The closing spot
rate for the Swedish krona in the United States on September 14, 1995, as
reported by the Federal Reserve Bank of New York, was U.S. $1.00 = SEK 7.1450.
The term "MSEK," as used herein, refers to one million Swedish kronor.
10
<PAGE> 17
SUMMARY
The following is a summary only and is qualified by the detailed
information appearing elsewhere in this Prospectus. Capitalized terms used
herein are defined in this Summary or elsewhere in this Prospectus. See "Index
of Defined Terms." This Summary is qualified in its entirety by reference to the
full text of this Prospectus and the Annexes hereto and the documents
incorporated herein by reference. Stockholders are urged to read this Prospectus
in its entirety.
THE COMPANIES
All references to Upjohn, Pharmacia and the Company in this Prospectus
shall, unless expressly indicated otherwise, be deemed to mean and include their
respective predecessors and subsidiaries, including, in the case of the Company,
Merger Sub.
The Upjohn Company................. Upjohn is a Delaware corporation engaged
in the research, development, manufacture
and marketing of a broad line of
pharmaceutical and allied healthcare
products. The principal executive offices
of Upjohn are located at 7000 Portage
Road, Kalamazoo, Michigan 49001, and its
main telephone number is (616) 323-4000.
Pharmacia Aktiebolag............... Pharmacia is a corporation organized
under the laws of the Kingdom of Sweden
and is engaged in the research,
development, manufacture and marketing of
a broad line of pharmaceutical and allied
healthcare products. The principal
executive offices of Pharmacia are
located at Frosundaviks Alle 15, 171 97
Stockholm, Sweden, and its main telephone
number is (011-46-8) 624-5000.
Pharmacia & Upjohn, Inc............ The Company is a newly organized Delaware
corporation and has not heretofore
conducted any business other than in
connection with the Combination. Upon
consummation of the Transactions, Upjohn,
as a result of the Merger described
herein, and Pharmacia, as a result of the
consummation of the Offer and the
Compulsory Acquisition described herein,
each will become wholly owned
subsidiaries of the Company and the
stockholders of Upjohn and Pharmacia will
each hold approximately 50 percent of the
equity of the Company, assuming full
acceptance of the Offer by Pharmacia
stockholders. The Company's principal
executive offices are currently located
at Fleming Way, Crawley, Sussex RH10 2LZ,
England, and its main telephone number is
(011-44-129) 353-1133.
Pharmacia & Upjohn Subsidiary,
Inc................................ Merger Sub is a Delaware corporation
wholly owned by the Company and has not
heretofore conducted any business other
than in connection with the Combination.
Upon consummation of the Merger, Merger
Sub will be merged with and into Upjohn
and its separate corporate existence will
thereupon cease. Merger Sub's executive
offices are located at 7000 Portage Road,
Kalamazoo, Michigan 49001, and its main
telephone number is (616) 323-4000.
11
<PAGE> 18
THE COMBINATION
GENERAL
The Boards of Directors of each of Upjohn and Pharmacia (the "Upjohn Board"
and the "Pharmacia Board," respectively) have unanimously approved the
combination (the "Combination") of their respective pharmaceutical,
over-the-counter, generics, animal health and other businesses under the
ownership of Pharmacia & Upjohn, Inc., a newly organized Delaware corporation 50
percent owned by each of Upjohn and Pharmacia (the "Company"). The Combination
will be accomplished through the Merger, whereby Upjohn will become a wholly
owned subsidiary of the Company, and the consummation of the Offer and the
Compulsory Acquisition (the Merger, the Offer and the Compulsory Acquisition,
collectively, the "Transactions"), whereby Pharmacia will also become a wholly
owned subsidiary of the Company. See "The Merger," "The U.S. Offer to Purchase,"
"The Combination Agreement" and the summary set forth below. Stockholders of
Upjohn and Pharmacia will each hold approximately 50 percent of the equity of
the Company after completion of the Transactions, assuming full acceptance of
the Offer by Pharmacia stockholders. One half of the members of the Board of
Directors of the Company will be nominated by Upjohn and the other half will be
nominated by Pharmacia. The Company will be led by an integrated global
corporate management group drawn from both companies and based in London. See
"Description of the Company -- Directors and Executive Officers" and "The
Combination Agreement -- the Company Board of Directors and Global Corporate
Management Center."
The Company would have had 1994 sales of nearly $7 billion (based on the
combined sales of Upjohn and Pharmacia), with prescription pharmaceutical sales
placing it among the top ten in the worldwide pharmaceutical industry. The
Company will have a broad product portfolio with sales expected to exceed $500
million in six key therapeutic areas. Sales growth is expected to be led by 28
introductions from 1995 through 1998, consisting of 17 new products, eight
existing products for new indications, and three existing products that will be
introduced in the United States. The Company's research and development
expenditures are expected initially to exceed $1 billion annually, which would
make it one of the largest investors in new product research in the
pharmaceutical industry. For additional information concerning the Company, see
"Description of the Company" and the Financial Statements of the Company
contained elsewhere herein. For additional information concerning Upjohn, see
"Description of Upjohn" and the Upjohn Consolidated Financial Statements
contained elsewhere herein. For additional information concerning Pharmacia, see
"Description of Pharmacia" and the Pharmacia Consolidated Financial Statements
contained elsewhere herein.
REASONS FOR THE COMBINATION; BOARDS' RECOMMENDATIONS
Upjohn. The Upjohn Board believes that the terms of the Combination
Agreement are fair to, and in the best interest of, Upjohn and its stockholders
and unanimously recommends that the stockholders of Upjohn vote FOR adoption of
the Combination Agreement.
The Upjohn Board believes that the Combination offers the unique
opportunity to combine two successful and financially sound companies to form
the Company, which will have the financial strength, product base, critical mass
in research and worldwide market reach to excel in the rapidly changing and
increasingly competitive global pharmaceutical industry. The Upjohn Board
considered the significant benefits associated with combining Upjohn's and
Pharmacia's pharmaceutical businesses in light of the Upjohn Board's belief that
the Combination represents an excellent fit of the two companies' respective
strategic advantages in pharmaceutical research, crucial therapeutic areas and
key geographic markets in North America, Europe and Japan. See "The
Merger -- Reasons for the Merger and Upjohn Board Recommendation."
In arriving at its determination, the Upjohn Board considered a number of
factors, including the opinion of Goldman, Sachs & Co. ("Goldman Sachs"),
financial advisor to Upjohn, described herein. For a discussion of the factors
considered by the Upjohn Board in reaching its decision, see "The
Combination -- Reasons for the Combination; Boards' Recommendations" and
"-- Fairness Opinions."
12
<PAGE> 19
Pharmacia. The Pharmacia Board has determined that the terms of the Offer
are fair to, and in the best interests of, Pharmacia and its stockholders.
Accordingly, the Pharmacia Board unanimously recommends that the Pharmacia
stockholders ACCEPT the Offer.
The Pharmacia Board believes that the Combination is founded on sound
industrial logic and will inure to the benefit of the Pharmacia stockholders. In
addition, the Pharmacia Board believes that the Combination offers the
opportunity to create a combined company with greater financial resources and
flexibility, competitive strengths and business opportunities than would be
possible for Pharmacia alone. In this regard, the Pharmacia Board concluded that
the combination of Upjohn and Pharmacia would increase significantly the two
companies' diversity of product lines and technologies and their market
franchises and geographic markets.
In reaching its determination, the Pharmacia Board consulted with
Pharmacia's management, as well as its legal counsel and its financial advisors,
and considered a number of factors including the opinion of Morgan Stanley & Co.
Limited ("Morgan Stanley"), financial advisors to Pharmacia, described herein.
See "The Combination -- Reasons for the Combination; Boards' Recommendations"
and "-- Fairness Opinions."
FAIRNESS OPINIONS
Upjohn Financial Advisors. Goldman Sachs has delivered its written
opinion, dated as of September 15, 1995, to the Upjohn Board that, as of
September 15, 1995, the Exchange Ratio was fair to the Upjohn stockholders.
Pharmacia Financial Advisors. Morgan Stanley has delivered its written
opinion, dated August 20, 1995, to the Pharmacia Board to the effect that, as of
the date of its opinion, the Offer Exchange Ratio was fair from a financial
point of view to the holders of the Pharmacia Shares.
THE FULL TEXT OF THE WRITTEN OPINIONS OF GOLDMAN SACHS AND MORGAN STANLEY,
WHICH SET FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN IN CONNECTION WITH SUCH OPINIONS, ARE ATTACHED HERETO AS
ANNEXES B AND C TO THIS PROSPECTUS, RESPECTIVELY, AND SHOULD BE READ IN THEIR
ENTIRETY. SEE "THE COMBINATION -- FAIRNESS OPINIONS."
THE UPJOHN SPECIAL MEETING
The Upjohn Special Meeting will be held on Tuesday, October 17, 1995, at
the Radisson Plaza Hotel, 100 West Michigan Avenue, Kalamazoo, Michigan,
commencing at 10:00 a.m., local time, and at any adjournments or postponements
thereof.
At the Upjohn Special Meeting, the holders of the issued and outstanding
shares of Upjohn Common Stock and the holders of the issued and outstanding
shares of Upjohn Preferred Stock, voting together as one class, will be asked to
adopt the Combination Agreement, pursuant to which Merger Sub will be merged
with and into Upjohn and the holders of Upjohn Common Stock and Upjohn Preferred
Stock will receive capital stock of the Company in accordance with the
Combination Agreement, as described herein. The terms and conditions of the
Merger are set forth in the Combination Agreement, a copy of which is attached
as Annex A to this Prospectus and is incorporated herein by reference. At the
Upjohn Special Meeting, the Upjohn stockholders will also be asked to consider
and vote upon such other business as may properly be brought before the Upjohn
Special Meeting or any adjournments or postponements thereof.
The Upjohn Board has fixed the close of business on September 18, 1995 as
the record date for determining stockholders entitled to vote at the Upjohn
Special Meeting and at any adjournments or postponements thereof (the "Record
Date"). At the close of business on September 14, 1995, there were 171,669,344
shares of Upjohn Common Stock outstanding and entitled to vote at the Upjohn
Special Meeting which were held by approximately 44,919 holders of record, and
7,263 shares of Upjohn Preferred Stock outstanding and entitled to vote at the
Upjohn Special Meeting. All of the outstanding shares of Upjohn Preferred Stock
are held of record by the trustee of the Upjohn Employee Stock Ownership Trust
(the "Trustee") under the Upjohn Employee Savings Plan (the "Plan"). Each holder
of Upjohn Common Stock outstanding on the Record Date is entitled to one vote
for each share so held, and the Trustee is entitled to
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<PAGE> 20
1,000 votes for each share of Upjohn Preferred Stock so held, which votes are
exercisable at the Upjohn Special Meeting either in person or by a properly
executed and delivered proxy. See "The Upjohn Special Meeting -- Voting at the
Upjohn Special Meeting."
The affirmative vote of a majority of the votes representing the
outstanding shares of Upjohn Common Stock and Upjohn Preferred Stock, voting
together as one class, is required to adopt the Combination Agreement. Directors
and executive officers of Upjohn who, as of September 1, 1995 personally held or
shared voting and/or dipositive power over 3,618,631 shares of Upjohn Common
Stock, or approximately two percent of the Upjohn Common Stock then outstanding,
have indicated that they intend to vote or direct the vote of all the
outstanding shares of Upjohn Common Stock over which they have voting control in
favor of the adoption of the Combination Agreement and that they will recommend
a vote in favor of adoption of the Combination Agreement with respect to shares
as to which they are fiduciaries. The Trustee has indicated that it intends to
direct the vote of the shares of Preferred Stock held by the Plan either in
favor of or against the adoption of the Combination Agreement, as directed by
the beneficial owners thereof and, with respect to shares as to which no
directions are given or which have not been allocated to participant accounts,
either in favor of or against adoption of the Combination Agreement in the same
proportion as shares as to which directions are given are voted. See
"Description of Upjohn -- Beneficial Ownership of Upjohn Common Stock" and "The
Upjohn Special Meeting -- Voting at the Upjohn Special Meeting."
The presence in person or by proxy at the Upjohn Special Meeting of a
majority of the number of votes entitled to be cast is necessary to constitute a
quorum for the transaction of business. Abstentions will be counted as present
for purposes of determining whether a quorum is present. With respect to the
proposal to adopt the Combination Agreement, abstentions will have the same
effect as a vote against such proposal. Under the rules of the National
Association of Securities Dealers ("NASD") and the NYSE, brokers who hold shares
in street name for customers will not have the authority to vote on the proposal
to adopt the Combination Agreement unless they receive specific instructions
from beneficial owners. While such a broker non-vote will be counted as present
for purposes of a quorum, it will have the same effect as a vote against
adoption of the Combination Agreement. See "The Upjohn Special Meeting -- Voting
at the Upjohn Special Meeting."
PROXIES
If a stockholder does not attend the Upjohn Special Meeting, such
stockholder may vote by proxy. A form of proxy for voting stock at the Upjohn
Special Meeting is enclosed herewith. All shares of Upjohn stock which are
entitled to vote and are represented at the Upjohn Special Meeting by properly
executed proxies received prior to or at the Upjohn Special Meeting, and not
revoked, will be voted at such Meeting in accordance with the instructions
indicated on such proxies. See "The Upjohn Special Meeting -- Proxies."
IF NO INSTRUCTION IS SPECIFIED WITH RESPECT TO ADOPTION OF THE COMBINATION
AGREEMENT, THE SHARES REPRESENTED BY AN EXECUTED PROXY WILL BE VOTED "FOR" THE
ADOPTION OF THE COMBINATION AGREEMENT. IF ANY OTHER BUSINESS IS PROPERLY
PRESENTED AT THE UPJOHN SPECIAL MEETING, THE PROXY WILL BE VOTED BY THE PROXY
HOLDERS IN THEIR DISCRETION, TAKING INTO ACCOUNT ANY RECOMMENDATIONS OF
MANAGEMENT OF UPJOHN.
Any proxy given pursuant to this solicitation may be revoked by the person
giving such proxy at any time before it is voted. Proxies may be revoked by (i)
filing with the Secretary of Upjohn, at or before the taking of the vote at the
Upjohn Special Meeting, a written notice of revocation bearing a later date than
the proxy, (ii) duly executing a later dated proxy relating to the same shares
and delivering it to the Secretary of Upjohn before the taking of the vote at
the Upjohn Special Meeting or (iii) attending the Upjohn Special Meeting and
voting in person (although attendance at the Upjohn Special Meeting will not in
and of itself constitute a revocation of a proxy). Any written notice of
revocation or subsequent proxy should be sent so as to be delivered to The
Upjohn Company, 7000 Portage Road, Kalamazoo, Michigan 49001, Attention:
Secretary, or hand delivered to the Secretary of Upjohn, at or before the taking
of the vote at the Upjohn Special Meeting. See "The Upjohn Special
Meeting -- Proxies."
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<PAGE> 21
All expenses of this solicitation will be borne by Upjohn, provided that
the costs of preparing and mailing the Prospectus will be borne equally by
Upjohn and Pharmacia. In addition to solicitation by use of the mails, proxies
may be solicited by directors, officers and employees of Upjohn in person or by
telephone or other means of communication. Such directors, officers and
employees will not be separately compensated, but they may be reimbursed for
reasonable out-of-pocket expenses in connection with such solicitation. Upjohn
has retained D.F. King & Co., Inc., at an estimated cost of $20,000 plus
reimbursement of expenses, to assist in its solicitation of proxies from
brokers, nominees, institutions and individuals. Arrangements will also be made
with custodians, nominees and fiduciaries for forwarding of proxy solicitation
materials to beneficial owners of shares held of record by such custodians,
nominees and fiduciaries, and Upjohn will reimburse such custodians, nominees
and fiduciaries for reasonable expenses incurred in connection therewith. See
"The Upjohn Special Meeting -- Proxies."
THE TRANSACTIONS
THE MERGER
Effect of the Merger. Upon consummation of the Merger, Merger Sub will be
merged with and into Upjohn, Upjohn will become a wholly owned subsidiary of the
Company, and the separate corporate existence of Merger Sub will cease. Based
upon the capitalization of Upjohn and Pharmacia as of August 20, 1995 and the
number of shares of New Common Stock to be received by Upjohn and Pharmacia
stockholders in connection with the Transactions, the stockholders of Upjohn
immediately prior to the consummation of the Transactions will own approximately
50% of the outstanding equity of the Company immediately following consummation
of the Transactions, assuming full acceptance of the Offer by Pharmacia
stockholders. See "The Merger -- Effect of the Merger."
Conversion of Stock. Upon consummation of the Merger, (i) each outstanding
share of Common Stock, par value $1 per share, of Upjohn (the "Upjohn Common
Stock") (other than shares owned by Upjohn as treasury stock and shares owned by
Pharmacia or any subsidiary of Upjohn or Pharmacia, all of which will be
cancelled) will be converted into the right to receive shares of New Common
Stock, with the result that all of the outstanding shares of Upjohn Common Stock
will be converted collectively into rights to receive approximately 248,920,548
shares of New Common Stock, (ii) each outstanding share of Series B Convertible
Perpetual Preferred Stock, par value $1 per share, of Upjohn (the "Upjohn
Preferred Stock") (other than shares, with respect to which the Trustee has
exercised appraisal rights and shares owned by Upjohn as treasury stock, all of
which will be cancelled) will be converted into the right to receive one share
of Series A Convertible Perpetual Preferred Stock, par value $.01 per share, of
the Company (the "New Preferred Stock") with the result that all of the
outstanding shares of Upjohn Preferred Stock will be converted collectively into
rights to receive approximately 7,263 shares of New Preferred Stock, and (iii)
each outstanding share of Merger Sub common stock will be converted into the
right to receive one share of common stock of Upjohn, as the surviving
corporation. See "The Merger -- Conversion of Stock" and "The Combination
Agreement -- The Merger." Upon consummation of the Merger, all shares of Upjohn
Common Stock and Upjohn Preferred Stock will no longer be outstanding and will
automatically be cancelled and retired and will cease to exist, and each holder
of a certificate representing any shares of Upjohn Common Stock or Upjohn
Preferred Stock will cease to have any rights with respect thereto, except the
right to receive the shares of New Common Stock or New Preferred Stock, as the
case may be, and, if applicable, the cash in lieu of fractional shares of New
Common Stock, to be issued in consideration therefor upon the surrender of such
certificate, without interest. Fractional shares of New Common Stock will not be
issuable in connection with the Merger. Holders of Upjohn Common Stock otherwise
entitled to a fractional share will be paid the value of such fraction in cash,
as described under "The Merger -- Fractional Shares" and "The Combination
Agreement -- The Merger." The New Preferred Stock is identical to the Upjohn
Preferred Stock in all material respects except for the conversion ratio, which
has been adjusted in light of the Exchange Ratio.
Effective Time. The Merger will become effective when a Certificate of
Merger is filed with the Secretary of State of the State of Delaware in
accordance with the procedures set forth in sec. 103 of the DGCL or at such
later time as is specified in the Certificate of Merger (the "Effective Time").
The Merger is conditioned upon, among other things, the satisfaction or, if
permissible, waiver of (i) the condition that a
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<PAGE> 22
number of Pharmacia Securities representing more than 90% of the share capital
of Pharmacia and voting rights exercisable at a general meeting of stockholders
of Pharmacia shall have been validly tendered and not withdrawn prior to the
expiration of the Offer (the "Minimum Condition"), (ii) the condition that the
Combination Agreement shall have been adopted by the requisite affirmative vote
of the stockholders of Upjohn in accordance with the DGCL and Upjohn's Restated
Certificate of Incorporation and By-laws (the "Upjohn Stockholder Approval
Condition") and (iii) the other conditions set forth in Article IX of the
Combination Agreement (the conditions described in clauses (i), (ii) and (iii),
collectively, the "Combination Conditions"). See "The Combination
Agreement -- Conditions to the Combination." The Effective Time is expected to
occur promptly after the requisite stockholder approval has been obtained at the
Upjohn Special Meeting and all other Combination Conditions have been satisfied
or, if permissible, waived. See "The Merger -- Effective Time; Conditions."
Exchange Procedures. Promptly after consummation of the Merger, the
Exchange Agent will send to each holder of Upjohn Common Stock a form of letter
of transmittal (a "Merger Letter of Transmittal"), and instructions for
surrendering shares of Upjohn Common Stock for shares of New Common Stock. After
surrender to the Company of certificates representing Upjohn Common Stock and
Upjohn Preferred Stock accompanied by a duly executed Merger Letter of
Transmittal, the Company will issue new certificates representing the number of
shares of New Common Stock or New Preferred Stock, as the case may be, and, if
applicable, cash in lieu of fractional shares of New Common Stock issued in the
Merger. See "The Merger -- Exchange Procedures."
Interests of Certain Persons in the Merger. In considering the
recommendations of the Upjohn Board, stockholders of Upjohn should be aware that
certain members of Upjohn's management and the Upjohn Board have certain
interests in the Merger that are in addition to the interests of stockholders of
Upjohn generally. The Merger will result in a change in control of Upjohn for
purposes of certain severance agreements entered into by Upjohn with each of 20
executives of Upjohn (collectively, the "Severance Agreements") and for purposes
of the Upjohn Severance Plan for Highly Paid Employees and the Upjohn Severance
Plan for Other Employees (the "Severance Arrangements"). As a result, if any
employee covered under either the Severance Agreements or the Severance
Arrangements is terminated, or elects to terminate employment under certain
circumstances, during the two-year period after the Effective Time, such
employee will be entitled to certain enhanced severance benefits, which include
the right to receive lump sum cash severance payments. Certain of such
executives will enter into employment agreements with the Company which will
supersede the Severance Agreements. In addition, at the Effective Time, in
accordance with the terms of the Upjohn Stock Option Plan, all outstanding
Upjohn stock options (the "Stock Options") will become fully exercisable
(subject to certain limited exceptions) and will be converted into options to
acquire, on the same terms and conditions as were applicable under such Stock
Options, such number of shares of New Common Stock as the holder of such Stock
Option would have been entitled to receive pursuant to the Merger had such
holder exercised such Stock Option in full immediately prior to the Effective
Time at a price per share of New Common Stock equal to the per share Stock
Option exercise price divided by the Exchange Ratio. The Merger may also result
in the vesting of additional benefits for certain executives. See "Risk
Factors -- Interests of Management," "The Merger -- Interests of Certain Persons
in the Combination" and "The Combination Agreement -- Director and Officer
Liability."
Appraisal Rights. Holders of Upjohn Common Stock who choose to dissent
from the adoption of the Combination Agreement are not entitled to appraisal
rights under the Delaware General Corporation Law (the "DGCL") in connection
with the Merger. Under the DGCL, appraisal rights are available to the Plan in
respect of any shares of Upjohn Preferred Stock not voted in favor of adoption
of the Combination Agreement. See "The Merger -- Appraisal Rights."
Effect of Merger on Rights of Upjohn Stockholders. As a result of the
consummation of the Merger, holders of shares of Upjohn Common Stock will be
entitled to receive shares of New Common Stock and holders of Upjohn Preferred
Stock will be entitled to receive shares of New Preferred Stock. The rights of
stockholders of Upjohn are governed by the laws of the State of Delaware and the
Restated Certificate of Incorporation and By-laws of Upjohn. After the Effective
Time, the rights of the holders of the New Common Stock and New Preferred Stock
will continue to be governed by the laws of the State of Delaware but will be
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<PAGE> 23
governed by the Restated Certificate of Incorporation and By-laws of the
Company. For a summary of certain significant differences between the
certificates of incorporation and By-laws of Upjohn and the Company, see
"Certain Changes in Rights of Stockholders Resulting from the
Combination -- Changes in Rights of Upjohn Stockholders." See also "Description
of Capital Stock and Charter Documents of the Company."
Redemption of Rights. Upjohn will redeem, effective immediately prior to
the Effective Time, all of the outstanding rights to purchase Series A Preferred
Stock, par value $1 per share, of Upjohn (the "Rights") pursuant to the Rights
Agreement, dated as of June 17, 1986, as amended (the "Rights Agreement"),
between Upjohn and The Bank of New York, as Rights Agent, at a redemption price
of $.05 per Right.
THE OFFER AND THE COMPULSORY ACQUISITION
The Combination Agreement contemplates that the Company will commence an
offer to exchange for each outstanding Class A Common Share, nominal value SEK
25 per share, of Pharmacia (collectively, the "Pharmacia Class A Common
Shares"), each outstanding Class B Common Share, nominal value SEK 25 per share,
of Pharmacia (collectively, the "Pharmacia Class B Common Shares" and, together
with the Pharmacia Class A Common Shares, the "Pharmacia Shares"), and each
outstanding American Depositary Share representing one Pharmacia Class A Common
Share (collectively, the "ADSs," and, together with the Pharmacia Shares, the
"Pharmacia Securities"), one share of New Common Stock or a Swedish Depositary
Share representing one share of New Common Stock (collectively the "SDSs"). The
Offer will be conducted in two parts: (i) the offer made hereby to purchase
Pharmacia Shares that are beneficially owned by U.S. Persons and all outstanding
ADSs (the "U.S. Offer"), and (ii) the offer made outside the United States (the
"Swedish Offer" and, together with the U.S. Offer, the "Offer") to purchase all
Pharmacia Shares that are not beneficially owned by U.S. Persons. The U.S. Offer
and the Swedish Offer will be on the same terms and subject to the same
conditions except that holders of Pharmacia Securities will receive shares of
New Common Stock pursuant to the U.S. Offer, and holders of Pharmacia Shares
will receive, at their option, either shares of New Common Stock or SDSs,
pursuant to the Swedish Offer. The Swedish Offer will be made in accordance with
the Recommendation Concerning Public Offers to Purchase Shares promulgated in
1988 by the Joint Committee of the Stockholm Chamber of Commerce and the
Federation of Swedish Industries (the "Recommendation"), which is applicable to
certain takeovers of Swedish companies. Notwithstanding the foregoing,
arrangements have been made so that the U.S. Offer may also be accepted by
Canadian Persons. See "The U.S. Offer to Purchase -- Introduction" and "The
Combination Agreement -- The Offer."
The consummation of the Offer is subject to the satisfaction or, if
permissible, waiver of the Combination Conditions. See "The Combination
Agreement -- Conditions to the Combination." The Combination Conditions may be
waived, to the extent permissible, by the mutual consent of Pharmacia and Upjohn
in whole at any time or in part from time to time.
If, as a result of the Offer or otherwise, the Company acquires Pharmacia
Securities representing more than 90 percent of the share capital of Pharmacia
and voting rights exercisable at a general meeting of stockholders of Pharmacia,
the Company (and each remaining stockholder of Pharmacia) will have the right
under the Swedish Companies Act (the "Companies Act") to commence a process
leading to a compulsory acquisition by a newly formed wholly owned subsidiary of
the Company organized under the law of the Kingdom of Sweden ("Swedish Sub") for
cash of any Pharmacia Securities not theretofore acquired at a price to be
determined in accordance with the Companies Act, which may be higher or lower
than the market value of the New Common Stock at the Effective Time (the
"Compulsory Acquisition"). No assurance can be given that the Compulsory
Acquisition will be consummated or, if consummated, as to the timing or price
thereof, particularly since Pharmacia and Upjohn may cause the Minimum Condition
to be waived. See "The U.S. Offer to Purchase -- Introduction" and "The
Combination Agreement -- The Offer."
Each Pharmacia Class A Common Share carries one vote and each Pharmacia
Class B Common Share carries one tenth of a vote. AB Volvo, a corporation
organized under the laws of the Kingdom of Sweden ("Volvo"), owns Pharmacia
Shares constituting approximately 27.5% of the outstanding Pharmacia Shares and
having approximately 27.8% of the voting power of the outstanding Pharmacia
Shares, and the Ministry of
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<PAGE> 24
Commerce and Industry of the Kingdom of Sweden, through Forvaltningsaktiebolaget
Stattum ("Stattum"), owns Pharmacia Shares constituting approximately 14.1% of
the outstanding Pharmacia Shares and having approximately 11.8% of the voting
power of the outstanding Pharmacia Shares. Volvo and Stattum have each indicated
its intention to support the Transactions by tendering its Pharmacia Shares into
the Offer.
Upon the terms and subject to the conditions of the Offer, the Company will
accept for exchange, and will exchange all Pharmacia Securities validly tendered
during the Offer Period (as herein defined) and not withdrawn prior to the
Expiration Date (as herein defined) in accordance with the procedures set forth
in this Prospectus. The Offer Period will consist of two or three different
periods: (i) the Initial Offer Period, (ii) the Interim Offer Period and (iii)
if so determined by the Company, the Final Offer Period, as described below. The
term "Initial Offer Period" shall mean the period from and including September
18, 1995 to and including the Initial Expiration Date. The term "Initial
Expiration Date" shall mean 12:00 Noon, New York City time, on October 20, 1995,
unless extended, in which event the term "Initial Expiration Date" shall mean
the latest time and date at which the Initial Offer Period, as so extended,
shall expire. The Initial Offer Period will terminate on the Initial Expiration
Date unless it is determined during the 10 business day period immediately
following the Initial Expiration Date that the Minimum Condition has not been
satisfied (such 10 business day period, the "Interim Offer Period"), in which
case the Offer will, subject to the terms and conditions of the Offer and
effective as of the Initial Expiration Date, be extended. Following the
satisfaction or, if permissible, waiver of the Combination Conditions, the
Company may determine to have the Offer remain open during a period of
approximately 15 days immediately following the determination of such
satisfaction or waiver (such period, the "Final Offer Period" and such 15th day,
the "Final Expiration Date"). NO ASSURANCE CAN BE GIVEN, HOWEVER, THAT THE
COMPANY WILL SO DETERMINE AND THAT PHARMACIA STOCKHOLDERS WILL HAVE AN
OPPORTUNITY TO TENDER THEIR PHARMACIA SECURITIES INTO THE OFFER AFTER THE END OF
THE INTERIM OFFER PERIOD. The term "Expiration Date" will mean either (i) the
end of the Interim Offer Period in the event the Company determines not to
extend the Offer to the Final Expiration Date or, (ii) the Final Expiration
Date, if the Company determines to so extend the Offer. HOLDERS OF PHARMACIA
SECURITIES WILL NOT HAVE THE RIGHT TO WITHDRAW SUCH SECURITIES FROM THE OFFER
DURING THE INTERIM OFFER PERIOD OR, IF APPLICABLE, THE FINAL OFFER PERIOD. SEE
"THE U.S. OFFER TO PURCHASE -- SECTION 1."
Subject to the applicable regulations of the Commission and the SSE, the
Company reserves the right, in its sole discretion, at any time or from time to
time, to (i) delay acceptance for exchange of and, regardless of whether any
Pharmacia Securities have theretofore been accepted for exchange, delay delivery
of shares of New Common Stock for any Pharmacia Securities tendered pending
receipt of any governmental or other regulatory approvals or other actions
specified in "Risk Factors -- Regulatory Approvals," (ii) terminate the Offer
and not accept for exchange any Pharmacia Securities upon the occurrence of any
of the events specified in the conditions set forth under "The U.S. Offer to
Purchase -- Section 9" and "The Combination Agreement -- Conditions to the
Combination" and/or (iii) waive, to the extent permissible, any condition, or
otherwise amend the Offer in any respect, by giving oral or written notice of
such delay, termination or amendment to the Depositary and by making a public
announcement thereof. The Combination Agreement provides that the Company will
not waive any of the Combination Conditions without the prior written consent of
both Upjohn and Pharmacia, and will waive any of the Combination Conditions if
so directed by Upjohn and Pharmacia. In addition, the Company expressly reserves
the right, in its sole discretion, at any time or from time to time, to extend
the Offer Period for any reason, including the occurrence of any of the events
specified in the conditions set forth under "The U.S. Offer to
Purchase -- Section 9", by giving oral or written notice of such extension to
the Depositary. It is the current intention of the Company that the U.S. Offer
will be extended if the Swedish Offer is similarly extended.
Holders of Pharmacia Securities do not have appraisal rights as a result of
the U.S. Offer and will not be entitled to payments other than pursuant to the
U.S. Offer and the Compulsory Acquisition.
The Company has retained D.F. King & Co., Inc. to act as the Information
Agent and Citibank, N.A. to act as Depositary in connection with the U.S. Offer.
See "The U.S. Offer to Purchase -- Section 10."
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<PAGE> 25
CONDITIONS TO THE COMBINATION; TERMINATION
The Combination Agreement contemplates that the Merger and the Offer will
be consummated substantially contemporaneously. The parties' obligations to
effect the Merger and consummate the Offer are subject to the satisfaction or,
if permissible, waiver of the Combination Conditions. See "The Combination
Agreement -- Conditions to the Combination." In addition, the Combination
Agreement may be terminated, at any time prior to the Effective Time, by mutual
consent of Upjohn and Pharmacia, or by either Upjohn or Pharmacia if (i) the
Effective Time shall not have occurred on or before February 15, 1996 (or May
31, 1996, in the event such failure results from action by antitrust
authorities); (ii) any order preventing any of the Transactions shall have been
entered and shall have become final and nonappealable; (iii) the Combination
Agreement shall fail to receive the requisite vote for adoption at the Upjohn
Special Meeting or any adjournment or postponement thereof; (iv) the Offer shall
expire without any shares of Pharmacia Securities having been accepted for
payment; (v) the other party's Board of Directors (A) shall withdraw or
adversely modify or change its recommendation of the Transactions or (B) shall
recommend a Competing Transaction (as defined in the Combination Agreement);
(vi) a tender offer or exchange offer for 10% or more of the outstanding shares
of capital stock of the other party shall be commenced and such other party's
Board of Directors shall fail to recommend against acceptance of such offer;
(vii) the other party shall breach any material representation, warranty,
covenant or agreement as set forth in the Combination Agreement, or any of such
other party's representations or warranties shall have become untrue, and in
each case certain conditions of the Combination Agreement would not be
satisfied; or (viii) such party's Board of Directors, following receipt of
advice of independent legal counsel that failure to terminate the Combination
Agreement would cause the Board of Directors to breach its fiduciary duties,
shall have withdrawn, modified or changed its recommendation of its approval of
the Transactions in a manner adverse to the Company or the other party and, on
or prior to such date, any person shall have made a public announcement or
otherwise communicated to such party and its stockholders with respect to a
Competing Transaction. See "The Combination Agreement -- Conditions to the
Combination" and "-- Termination or Amendment of the Combination Agreement."
In certain circumstances, upon termination of the Combination Agreement,
Upjohn or Pharmacia may be required to reimburse the other for certain Expenses
(as defined herein) incurred by such party in connection with the Combination in
an aggregate amount of up to $50 million. See "The Combination
Agreement -- Termination or Amendment of the Combination Agreement."
The Combination Conditions include the condition that the applicable
waiting periods (and any extension thereof) under the Hart-Scott-Rodino
Antitrust Improvement Act of 1976 (the "HSR Act") and any other competition,
merger control or similar law, including European Council Regulation No.
4064/89, shall have expired or been terminated. See "Regulatory
Matters -- Antitrust."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
Upjohn Stockholders. Upjohn's stockholders will not recognize gain or loss
upon the receipt of New Common Stock in exchange for Upjohn Common Stock, except
in respect of cash received in lieu of fractional shares. For a further
discussion of federal income tax consequences of the Merger, see "Tax
Consequences of the Merger and the Offer -- United States Federal Income Tax
Consequences -- Tax Consequences to Upjohn Stockholders."
Pharmacia Stockholders. A U.S. Person that is a holder of Pharmacia
Securities will not recognize gain or loss upon the receipt of New Common Stock
pursuant to the U.S. Offer. For a further discussion of federal income tax
consequences of the U.S. Offer, see "Tax Consequences of the Merger and the
Offer -- United States Federal Income Consequences -- Tax Consequences to
Pharmacia Stockholders."
BECAUSE OF THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, EACH HOLDER IS URGED
TO CONSULT SUCH HOLDER'S TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO
SUCH HOLDER OF THE MERGER, THE U.S. OFFER OR THE COMPULSORY ACQUISITION,
INCLUDING THE EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX RULES AND
THE EFFECT OF POSSIBLE CHANGES IN THE TAX LAWS.
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<PAGE> 26
HOLDERS OF PHARMACIA SHARES WHO ARE CANADIAN PERSONS SHOULD CONSULT THEIR
TAX ADVISOR WITH RESPECT TO THE CONSEQUENCES UNDER CANADIAN LAW IF SUCH HOLDER
ACCEPTS THE U.S. OFFER.
ACCOUNTING TREATMENT
The Combination is intended to qualify as a "pooling of interests" for
accounting and financial reporting purposes. The Combination Conditions include
the condition that Upjohn and Pharmacia receive letters from Coopers & Lybrand
L.L.P., Upjohn's independent accountants, and KPMG Bohlins AB, one of
Pharmacia's independent accountants (or another member of the KPMG group),
stating that the Combination will qualify as a "pooling of interests" under
applicable U.S. and Swedish accounting rules including, without limitation,
applicable published rules and regulations of the SEC. See "The
Combination -- Accounting Treatment" and "The Combination
Agreement -- Conditions to the Combination."
RESALE OF NEW COMMON STOCK ISSUED IN THE COMBINATION; AFFILIATES
Upon consummation of the Combination, the Company will have approximately
504 million shares of New Common Stock outstanding, assuming full acceptance of
the Offer by Pharmacia stockholders, and 7,263 shares of New Preferred Stock
outstanding. These shares will be freely transferable under the Securities Act,
except for New Common Stock issued to any person deemed to be an affiliate of
the Company for purposes of Rule 145 under the Securities Act at the Effective
Time ("Affiliates"), except for New Common Stock issued in the Swedish Offer
(which may not be sold in the United States during a 40 day restricted period
following the Effective Time) and except for the shares of New Preferred Stock,
which will be restricted securities for purposes of the Securities Act.
Affiliates may not sell their shares of New Common Stock acquired in connection
with the Combination except pursuant to an effective registration statement
under the Securities Act covering such shares or in compliance with Rule 145 or
another applicable exemption from the registration requirements of the
Securities Act. Volvo, which owns Pharmacia Shares representing approximately
27.5% of the share capital and 27.8% of the voting rights, and Stattum, which
owns Pharmacia Shares representing approximately 14.1% of the share capital and
11.8% of the voting rights, may be deemed to be Affiliates of the Company for
purposes of Rule 145. Pursuant to the Registration Rights Agreement, dated as of
August 20, 1995, among the Company, Upjohn, Pharmacia and Volvo (the
"Registration Rights Agreement"), Volvo has agreed that it will not sell,
transfer, pledge, hypothecate, or otherwise dispose of any shares of New Common
Stock received by it in the Offer in violation of the Securities Act and until
after such time as consolidated financial statements reflecting at least 30 days
of combined operations have been published by the Company, except as permitted
by Staff Accounting Bulletin No. 76 issued by the Commission.
Pursuant to the Registration Rights Agreement, Volvo will have certain
registration rights with respect to the shares of New Common Stock. The timing
of any sales or other dispositions by Volvo will depend on market and other
conditions, and could occur relatively soon after the Effective Time. Pharmacia,
Upjohn and the Company have indicated their willingness to enter into an
agreement substantially similar to the Registration Rights Agreement with
Stattum.
CERTAIN LITIGATION
Certain litigation in connection with the Transactions has been commenced
by several purported Upjohn stockholders. See "Risk Factors -- Certain
Litigation."
CO-PROMOTION AGREEMENT
Simultaneously with the execution of the Combination Agreement, Upjohn and
Pharmacia entered into a Co-Promotion Agreement, dated as of August 20, 1995
(the "Co-Promotion Agreement"), which will be implemented upon the completion of
initial product promotion plans for the co-promotion of the products covered by
the Co-Promotion Agreement. Under the Co-Promotion Agreement, Upjohn will have
the right to co-promote Pharmacia's Fragmin, Estring and Mycobutin products in
the United States and Canada. Upon a
20
<PAGE> 27
change of control of either Upjohn or Pharmacia, either party may terminate the
Co-Promotion Agreement. See "The Co-Promotion Agreement."
THE COMPANY
GENERAL
Stockholders of Upjohn and Pharmacia will each hold approximately 50
percent of the equity of the Company after consummation of the Transactions,
assuming full acceptance of the Offer by Pharmacia stockholders.
Pursuant to the Combination Agreement, the Board of Directors of the
Company (the "Company Board") at the Effective Time will include 16 persons,
eight of whom will be nominated by Upjohn and eight of whom will be nominated by
Pharmacia. The form of the By-laws of the Company which has been filed as an
Exhibit to the Registration Statement (the "Company By-laws") provide that until
2001 one half of the directors of the Company (the "Directors") shall be
citizens of the United States or Canada and one half shall be nationals of
Sweden or other European Union member states.
The Combination Agreement provides that from and after the Effective Time,
Mr. Jan Ekberg, currently President and Chief Executive Officer of Pharmacia,
will serve as the Chairman of the Company Board and Dr. John L. Zabriskie,
currently Chairman of the Board and Chief Executive Officer of Upjohn, will
serve as President and Chief Executive Officer of the Company. The Company
By-laws provide that until 2001 the Chairman of the Company Board and the
President and Chief Executive Officer of the Company may not both be citizens of
the United States or Canada or nationals of Sweden or other European Union
member states and, unless otherwise approved by 80% of all of the Directors (a
"Director Supermajority Vote") or 66 2/3% of the then outstanding shares of
capital shares of the Company entitled to vote on matters submitted to
Shareholders (the "Voting Stock" and a "Stockholder Supermajority Vote"), may
not be the same person. The Company will be led by an integrated global
corporate management group drawn from both Upjohn and Pharmacia and based in
London, with operational headquarters in Kalamazoo, Michigan, Stockholm/Uppsala,
Sweden and Milan, Italy. See "Description of the Company."
DIVIDENDS AND VOTING RIGHTS OF THE COMPANY'S STOCKHOLDERS
It is expected that immediately following the Effective Time, there will be
outstanding approximately 504 million shares of New Common Stock and
approximately 7,263 shares of New Preferred Stock. See Note 3 to the Unaudited
Condensed Pro Forma Combined Financial Statements of the Company contained
elsewhere herein.
The first quarterly dividend of the Company for the quarter ending December
31, 1995 is expected to be $0.27 per share of New Common Stock, indicating an
annual dividend of $1.08 per share. Thereafter, it is expected to be the policy
of the Company Board that the aggregate dividends declared on the shares of New
Common Stock in each year will range between 40% to 50% of the consolidated net
income of the Company (as calculated under U.S. GAAP) in such year. However, the
declaration and payment of future dividends will depend upon the income,
financial condition and capital and cash requirements of the Company,
restrictions on dividends under applicable laws governing the Company and other
factors. Accordingly, there can be no assurance that dividends will be paid in
the future nor any assurance as to the amount thereof. See "Description of
Capital Stock and Charter Documents of the Company."
Each share of New Common Stock (including shares of New Common Stock
represented by SDSs) will be entitled to one vote per share on all matters
submitted to a vote of the Company's stockholders (the "Stockholders"). Each
share of New Preferred Stock will be entitled to vote on all matters submitted
to a vote of the Stockholders, voting together with the holders of New Common
Stock as one class. Each share of New Preferred Stock will be entitled to a
number of votes equal to the number of shares of New Common Stock into which
such share of New Preferred Stock could be converted on the record date for
determining the Stockholders entitled to vote. See "Description of the
Company -- Dividend Policy."
21
<PAGE> 28
LISTING
Application will be made to list the New Common Stock on the NYSE and the
SDSs on the SSE. The Company expects that the New Common Stock will be quoted on
SEAQ International. In addition, the Company has agreed to use its reasonable
best efforts to secure a listing of the New Common Stock on the London Stock
Exchange (the "LSE") following the Effective Time.
RISK FACTORS
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY INVESTORS
IN EVALUATING AN INVESTMENT IN THE SECURITIES OFFERED HEREBY, SEE "RISK FACTORS"
FOLLOWING THIS SUMMARY.
MARKET PRICE DATA
The last sale price of Upjohn Common Stock as reported on the New York
Stock Exchange Composite Tape on (i) August 18, 1995, the last full trading day
prior to Upjohn and Pharmacia's public announcement of the execution of the
Combination Agreement, was $39.625 per share and (ii) September 14, 1995, the
last full trading day prior to the date of this Prospectus, was $44.375 per
share. The last sale prices of the Pharmacia Shares on the SSE were SEK 181.00
per Pharmacia Class A Common Share and SEK 180.50 per Pharmacia Class B Common
Share at the close of business on August 18, 1995 and SEK 204 per Pharmacia
Class A Common Share and SEK 202 per Pharmacia Class B Common Share at the close
of business on September 14, 1995. The last sale price of the Pharmacia ADSs as
quoted on NASDAQ was $25.38 per ADS on August 18, 1995 and $28.875 per ADS on
September 14, 1995.
HOLDERS OF SHARES OF UPJOHN COMMON STOCK AND PHARMACIA SECURITIES ARE URGED
TO OBTAIN CURRENT MARKET QUOTATIONS FOR SUCH SECURITIES.
22
<PAGE> 29
SUMMARY
UNAUDITED PRO FORMA FINANCIAL DATA OF THE COMPANY
The following selected unaudited pro forma financial data illustrate the
estimated effects of the proposed Combination. The pro forma balance sheet data
are based on the unaudited June 30, 1995 balance sheets of both Upjohn and
Pharmacia and assume the Combination occurred on that date. The pro forma income
statement data are based on the income statements of Upjohn and Pharmacia for
the years ended December 31, 1994, 1993 and 1992 and the six month periods ended
June 30, 1995 and 1994 and assume the Combination occurred at January 1, 1992.
The selected unaudited pro forma financial data should be read in conjunction
with the Unaudited Condensed Pro Forma Combined Financial Statements of the
Company and accompanying Notes, together with the historical financial
statements including notes thereto, and other financial information of Upjohn
and Pharmacia included elsewhere in this Prospectus.
The Unaudited Condensed Pro Forma Combined Financial Statements of the
Company have been prepared in accordance with U.S. GAAP, under which the
Combination has been accounted for using "pooling of interests" accounting
principles. A condition, in order to account for the merger as a "pooling of
interests" under U.S. GAAP is that there must at a minimum be an exchange of at
least 90% of the outstanding common stock of each Upjohn and Pharmacia. U.S.
GAAP differs in certain significant respects from Swedish GAAP.
The Unaudited Condensed Pro Forma Combined Financial Statements of the
Company do not give effect to certain restructuring and rationalization costs
expected to be incurred following the Combination. The Company's management is
considering the nature and extent of the charges to be so incurred. Such costs
presently cannot be reasonably predicted in a manner sufficient to quantify the
amount and timing of such charges under applicable U.S. GAAP. Upon final
determination, a substantial charge or charges will be recorded during 1995
and/or 1996 and reflected in the Company's statement of earnings as a
non-recurring charge or charges to operations in accordance with U.S. GAAP. The
actual payments to implement the restructuring and rationalization are expected
to be made over a two to three year period. In addition, although the Company
expects to realize substantial benefits from the Combination and the
restructuring and rationalization, no effect has been given in the Unaudited
Condensed Pro Forma Combined Financial Statements of the Company to any such
benefits.
THE SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA OF THE COMPANY DOES NOT
PURPORT TO REPRESENT WHAT THE FINANCIAL POSITION OR RESULTS OF OPERATIONS OF THE
COMPANY, UPJOHN OR PHARMACIA WOULD ACTUALLY HAVE BEEN IF THE COMBINATION HAD IN
FACT OCCURRED ON THE DATES INDICATED OR TO PROJECT THE FINANCIAL POSITION OR
RESULTS OF OPERATIONS FOR ANY FUTURE DATE OR PERIOD.
23
<PAGE> 30
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA OF THE COMPANY
(U.S. GAAP)
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER
AS OF AND FOR ENDED ----------------------------
JUNE 30, 1995 JUNE 30, 1994 1994 1993 1992
------------- ------------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Operating revenue..................... $ 3,547 $ 3,397 $6,823 $6,561 $5,938
Earnings from continuing operations... 460 429 833 561 704
Earnings from continuing operations
per share........................... .90 .84 1.62 1.08 1.36
Dividends per common share............ -- -- -- -- --
BALANCE SHEET DATA AT JUNE 30, 1995:
Total assets.......................... 11,137 -- -- -- --
Long-term debt........................ 601 -- -- -- --
Total shareholders' equity............ 5,894 -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
PHARMACIA UPJOHN
PHARMACIA EQUIVALENT UPJOHN EQUIVALENT
HISTORICAL PRO FORMA(1) HISTORICAL PRO FORMA(1)
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
CERTAIN COMPARATIVE PER SHARE DATA
INFORMATION:
Book value per common share at June 30,
1995..................................... $13.53 $11.70 $ 14.63 $16.97
Book value per common share at December 31,
1994..................................... 12.83 -- 13.76 --
Market value per common share and ADS at
August 18, 1995:
Common Share............................. 24.83 -- 39.63 --
ADS...................................... 25.38 -- -- --
Primary earnings from continuing operations
per share for the six months ended June
30, 1995................................. .75 .90 1.51 1.31
Primary earnings from continuing operations
per share for the six months ended June
30, 1994................................. .74 .84 1.36 1.22
Primary earnings from continuing operations
per share for the year ended December 31,
1994..................................... 1.36 1.62 2.75 2.35
Primary earnings from continuing operations
per share for the year ended December 31,
1993..................................... .65 1.08 2.20 1.57
Primary earnings from continuing operations
per share for the year ended December 31,
1992..................................... .70 1.36 2.92 1.97
Dividends per common share for the six
months ended June 30, 1995............... --(2) -- .74 --
Dividends per common share for the six
months ended June 30, 1994............... --(2) -- .74 --
Dividends per common share for the year
ended December 31, 1994.................. .34 -- 1.48 --
Dividends per common share for the year
ended December 31, 1993.................. .28 -- 1.48 --
Dividends per common share for the year
ended December 31, 1992.................. .49 -- 1.42 --
</TABLE>
---------------
(1) Pharmacia's pro forma equivalent per share information assumes an exchange
rate of 1 share of New Common Stock for each Pharmacia Share. Upjohn's pro
forma equivalent per share information assumes an exchange rate of 1.45
shares of New Common Stock for each share of Upjohn Common Stock.
(2) Pharmacia's dividends are paid annually after stockholder approval at the
Annual General Meeting.
24
<PAGE> 31
SUMMARY SELECTED FINANCIAL DATA
UPJOHN SUMMARY SELECTED FINANCIAL DATA
The summary selected financial data for each of the five years ended
December 31, 1994 have been derived from the audited consolidated financial
statements of Upjohn and the Notes thereto. The summary financial data for the
six months ended June 30, 1995 and 1994 are unaudited. The following data should
be read in conjunction with "Upjohn Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Upjohn's Consolidated
Financial Statements and Notes thereto included elsewhere herein and are
qualified in their entirety by reference to the Consolidated Financial
Statements and such Notes.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------- ----------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Operating revenue.......... $1,717.6 $1,643.9 $3,344.5 $3,380.5 $3,284.7 $3,057.9 $2,675.3
Earnings from continuing
operations before
cumulative effect of
accounting changes(a).... 267.5 242.0 489.1 396.4 527.0 521.5 435.9
Earnings per share from
continuing operations
before cumulative effect
of accounting
changes(a)............... 1.51 1.36 2.75 2.20 2.92 2.87 2.36
Dividends declared per
share.................... .74 .74 1.48 1.48 1.42 1.26 1.04
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------
AT JUNE 30, 1995 1994 1993 1992 1991 1990
---------------- -------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets..................... $5,243.6 $5,162.5 $4,811.9 $4,513.1 $4,053.9 $3,578.8
Long-term debt................... 515.0 521.0 526.8 402.9 295.5 274.6
Total shareholders' equity....... 2,502.4 2,382.6 2,085.6 2,015.5 2,005.2 1,779.6
</TABLE>
---------------
(a) Refer to Note D to the Upjohn Consolidated Financial Statements relating to
January 1, 1993 accounting changes resulting in a net charge of $18.9, or
$.11 per share, and to January 1, 1992 accounting changes resulting in a net
charge of $222.9, or $1.26 per share.
25
<PAGE> 32
PHARMACIA SUMMARY SELECTED FINANCIAL DATA
The summary selected financial data for each of the four years ended
December 31, 1994 are derived from the audited consolidated Financial Statements
of Pharmacia and the Notes thereto. The summary selected financial data for the
six months ended June 30, 1995 and 1994 are derived from the unaudited
consolidated financial statements of Pharmacia. The following data should be
read in conjunction with "Pharmacia Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Pharmacia Consolidated
Financial Statements and the Notes thereto contained elsewhere herein and are
qualified in their entirety by reference to the Pharmacia Consolidated Financial
Statements and such Notes. The following summary selected financial data treat
the branded consumer products operations, which were demerged effective July 1,
1993, as discontinued operations for all periods presented. Results of
Farmitalia Carlo Erba S.r.1. ("FICE") are included in the Pharmacia Consolidated
Financial Statements from May 1, 1993, the effective date of its acquisition by
Pharmacia.
Pharmacia prepares its consolidated financial statements in accordance with
Swedish GAAP, which differ in certain significant respects from U.S. GAAP. See
Note 25 to the Pharmacia Consolidated Financial Statements for a description of
the significant differences between Swedish GAAP and U.S. GAAP affecting
Pharmacia's consolidated net income and stockholders' equity.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------
1995 1994 1994 1994 1993(1) 1992 1991
------ ------ ------- ------ ------- ------ ------
(SEK) (SEK) ($)(2) (SEK) (SEK) (SEK) (SEK)
1995
-----
($)(2) (IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
AMOUNTS IN ACCORDANCE WITH SWEDISH GAAP:
Sales.................................... 1,821 13,272 13,679 3,628 26,450 24,708 15,448 13,652
Operating income from continuing
operations............................. 354 2,578 2,760 740 5,398 3,327 2,153 1,680
Financial income and expenses, net....... 16 120 (96) (10) (76) (6 ) 391 7
Income from continuing operations before
income taxes and minority interests.... 370 2,698 2,664 730 5,322 3,321 2,544 1,687
Income taxes on continuing operations.... (133) (970) (1,083) (280) (2,041) (1,148 ) (961) (293)
Minority interests....................... -- -- (1) -- (2) (5 ) 16 (1)
Net income from continuing operations.... 237 1,728 1,580 450 3,279 2,168 1,599 1,393
Net income from continuing operations per
Share/ADS.............................. .93 6.78 6.23 1.77 12.92 8.55 6.31 5.49
AMOUNTS IN ACCORDANCE WITH U.S. GAAP:
Net income from continuing operations.... 194 1,411 1,475 364 2,656 1,281 1,029 492
Net income from continuing operations per
Share/ADS.............................. .76 5.54 5.82 1.44 10.47 5.05 4.06 1.94
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
------------------ --------------------------------------------
1995 1994(2) 1994 1993(1)
------ ------- ------ -------
1995 (SEK) ($)(2) (SEK) (SEK)
-----
($)(2) 1992
------
(SEK)
1991
------
(IN MILLIONS) (SEK)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
AMOUNTS IN ACCORDANCE WITH SWEDISH GAAP:
Liquid assets................................ 700 5,104 549 4,004 3,099 7,934 5,352
Total current assets......................... 2,285 16,656 2,089 15,227 14,492 15,157 10,897
Total fixed assets........................... 2,361 17,214 2,370 17,278 19,083 6,772 5,872
Net assets of discontinued operations(3)..... -- -- -- -- -- 9,533 8,480
Total assets................................. 4,646 33,870 4,459 32,505 33,575 31,462 25,249
Total current liabilities.................... 1,352 9,859 1,227 8,942 13,266 7,301 4,036
Long-term borrowings......................... 85 621 161 1,174 1,235 428 437
Stockholders' equity......................... 2,660 19,394 2,487 18,132 15,697 20,609 18,195
AMOUNTS IN ACCORDANCE WITH U.S. GAAP:
Stockholders' equity......................... 3,448 25,136 3,317 24,181 22,420 31,002 --
</TABLE>
26
<PAGE> 33
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1994(2) 1994 1993(1) 1992 1991
SIX MONTHS ------ ------ ------ ------ ------
ENDED
JUNE 30, 1995 ($)(2) (SEK) (SEK) (SEK) (SEK)
-----------------
($)(2) (SEK)
<S> <C> <C> <C> <C> <C> <C> <C>
(IN MILLIONS, EXCEPT % AND EMPLOYEES)
OTHER DATA
AMOUNTS IN ACCORDANCE WITH SWEDISH GAAP:
Capital expenditures...................... 100 729 218 1,591 2,975 1,089 1,086
Net cash flow from operating activities... -- -- 595 4,340 4,105 3,281 2,250
Research and development expenses(4)...... -- -- 516 3,758 3,131 2,064 1,826
Research and development expenses as a
percent of sales........................ -- -- 14.2% 14.2% 12.7% 13.4% 13.4%
Number of employees (average)(5).......... -- 17,809 -- 18,622 17,843 13,540 13,120
</TABLE>
---------------
(1) The results of FICE are included in the consolidated income statement of
Pharmacia from May 1, 1993, and FICE balance sheet information is included
in Pharmacia's balance sheet as of December 31, 1993. For a discussion of
the FICE acquisition and its impact on Pharmacia, see "Pharmacia
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(2) Solely for the convenience of the reader, the financial information as of
and for the six months ended June 30, 1995 and as of and for the year ended
December 31, 1994 have been translated using the June 30, 1995 Noon Buying
Rate of $1.00 = SEK 7.2900.
(3) Effective July 1, 1993, BCP was demerged, and its operations have been
reflected as discontinued operations for all periods presented. See Note 8
of Notes to Consolidated Financial Statements.
(4) The research and development expenses provided have been calculated
according to the criteria adopted by The Association of the Swedish
Pharmaceutical Industry and The Swedish Central Bureau of Statistics, which
differ from the method of calculation of research and development expenses
for financial statement purposes under Swedish GAAP. See "Description of
Pharmacia -- Research and Development" and Note 3 to Pharmacia Consolidated
Financial Statements.
(5) Calculated as the total number of hours worked divided by the number of
working hours constituting a full-time working year. See Note 28 to the
Pharmacia Consolidated Financial Statements.
27
<PAGE> 34
RISK FACTORS
NONREALIZATION OF SYNERGIES
The Combination involves the integration of two companies that have
previously operated independently. No assurance can be given that the Company
will not encounter difficulties in integrating the respective operations of
Upjohn and Pharmacia or that the benefits expected from such integration will be
realized. Any delays or unexpected costs incurred in connection with such
integration could have a material adverse effect on the Company's business,
operating results or financial condition. There can be no assurance that the
Company will not experience the loss of key Upjohn or Pharmacia personnel. Among
the factors considered by the Upjohn and Pharmacia Boards in connection with
their respective approval of the Combination Agreement were the opportunities
for economies of scale and operating efficiencies that could result from the
Combination. Although the Company expects to achieve significant annual savings
in operating costs as a result of the Combination, no assurance can be given
that these savings will be realized. See "The Companies and the
Combination -- Operations."
In addition, although work has begun on the development of detailed plans
for achieving the Combination and obtaining operating synergies, such plans have
not been finalized.
REGULATORY APPROVALS
Consummation of the Combination is conditioned upon the receipt of all
material governmental authorizations, consents, orders and approvals, including
the expiration or termination of the applicable waiting periods (and any
extension thereof) under the HSR Act and any other competition, merger control
or similar law, including EC Council Regulation 4064/89, subject to the waiver,
if permissible, of such conditions in accordance with the terms of the
Combination Agreement. Upjohn and Pharmacia intend to pursue vigorously all
required regulatory approvals. No assurance can be given, however, that such
approvals will be obtained, or, if they are obtained, that they will be obtained
in a timely manner. See "The Combination Agreement -- Conditions to the
Combination" and "Regulatory Matters."
NON-TENDERING STOCKHOLDERS
No assurance can be given that the Compulsory Acquisition will be
consummated or, if consummated, that it will be consummated in a timely manner.
Pharmacia and Upjohn have reserved the right to cause the Company to waive the
Minimum Condition. If the Minimum Condition is not satisfied but waived, then
upon expiration of the Offer, the Company may not hold sufficient Pharmacia
Securities to enable it to cause the commencement of the Compulsory Acquisition.
In such event, the Company may seek to purchase additional Pharmacia Securities
in the open market or otherwise. Under the Recommendation, during the nine-month
period following the termination of the Offer, such purchases may not be at
prices exceeding the cash value of the Offer. No assurance can be given that if
the Company decides to make such additional purchases of Pharmacia Securities
the Company will acquire sufficient additional Pharmacia Securities to enable it
to cause the Compulsory Acquisition to be commenced. Prior to completion of the
Compulsory Acquisition, all Pharmacia Securities not acquired by the Company
pursuant to the Offer would remain outstanding and, depending on the number
thereof, the liquidity and market value thereof could be adversely affected. See
"Market Price and Dividend Data."
INTERESTS OF MANAGEMENT
Certain members of Upjohn's and Pharmacia's management and their respective
Boards, including individuals who will be Directors and executive officers of
the Company, have certain interests in the Combination that are in addition to
the interests of Upjohn and Pharmacia stockholders generally. The Combination
will give rise to certain entitlements and benefits with respect to certain
Upjohn severance and employment agreements. In addition, all outstanding Upjohn
stock options will, subject to certain limited conditions, become fully
exercisable. See "The Merger -- Interests of Certain Persons in the
Combination." Information concerning certain matters relating to the employment
and compensation of the directors and
28
<PAGE> 35
executive officers of Upjohn is contained in Upjohn's Annual Report on Form 10-K
for the year ended December 31, 1994 and is incorporated herein by reference.
Information concerning certain matters relating to the employment and
compensation of directors and executive officers of Pharmacia is contained in
Pharmacia's Annual Report on Form 20-F for the year ended December 31, 1994 and
is incorporated herein by reference. See "Available Information." For a
discussion of certain provisions of the Combination Agreement relating to the
indemnification of directors and officers of Upjohn and Pharmacia, see "The
Combination Agreement -- Director and Officer Liability."
CERTAIN LITIGATION
Six class action complaints have been filed by purported Upjohn
stockholders in the Court of Chancery of New Castle County, Delaware, against
Upjohn and its Board of Directors (the "Actions"). Generally, the Actions allege
that the Upjohn Board breached its fiduciary duties to Upjohn stockholders by
entering into the Combination Agreement on terms purportedly unfair to Upjohn
stockholders and by not soliciting potential bidders to make offers for the
acquisition of Upjohn at prices higher than the consideration represented by the
Exchange Ratio. The Actions seek, among other things, a court order
preliminarily and permanently enjoining the Combination. The plaintiffs in the
Actions also seek unspecified damages, costs and disbursements (including
reasonable attorneys' and experts' fees). Upjohn believes that each of the
Actions is without merit and intends to contest them vigorously.
ANTI-TAKEOVER PROVISIONS
The form of the Restated Certificate of Incorporation of the Company, which
has been filed as an Exhibit to the Registration Statement (the "Company
Certificate"), and the Company By-laws contain provisions that could prevent or
delay an acquisition of the Company by means of a tender offer, a proxy contest
or otherwise. Such provisions also may adversely affect prevailing market prices
for the New Common Stock. These provisions, among other things: (i) classify the
Company Board into three classes of directors, each of which will serve for
different three-year periods; (ii) provide that any business combination with a
person who holds at least 15% of the stock of the Company requires (y) a
Stockholder Supermajority Vote unless it is approved by a majority of the
Directors who were Directors before such person acquired 15% of the stock of the
Company and (z) that such person must satisfy certain "fair price" provisions as
set forth in the Company Certificate; (iii) provide that the Company Board may
designate the terms of any new series of preferred stock of the Company; (iv)
provide that any Stockholder who wishes to propose any business or to nominate a
person or persons for the election as Director at any annual meeting may only do
so if advance notice is given to the Secretary of the Company; (v) provide that
no Stockholder action may be effected by written consent; (vi) provide that any
newly created directorship (resulting from any increase in the number of the
Directors or otherwise) will be filled by the affirmative vote of the remaining
Directors; (vii) provide that only the Chairman of the Company Board, the
President and Chief Executive Officer of the Company or a majority of the
Directors may call special meetings of the Stockholders; and (viii) limit the
ability of the Stockholders to amend or repeal certain provisions of the Company
Certificate and the Company By-laws, except with a Stockholder Supermajority
Vote and/or with a Director Supermajority Vote. In addition, the Company is
subject to Section 203 of the DGCL, which limits transactions between a publicly
held company and "interested stockholders" (generally, those stockholders who,
together with their affiliates and associates, own 15% or more of the Company's
outstanding capital stock). See "Description of Capital Stock and Charter
Documents of the Company." The Company may in the future adopt a stockholder
rights plan pursuant to which the holders of New Common Stock would be issued
rights to acquire, in certain circumstances, shares of convertible preferred
stock of the Company. Such rights might, if issued, have certain anti-takeover
effects.
EXCHANGE RATES
Fluctuations in the relative value of the Swedish krona and the U.S. dollar
may be significant to the Company and the Stockholders because, among other
things, they affect the translation of the results of the
29
<PAGE> 36
Swedish krona-based operations into U.S. dollars for purposes of the
consolidated financial statements of the Company and the translation of the
results of the U.S. dollar-based operations into Swedish kronor. In addition,
significant portions of both Upjohn's and Pharmacia's revenues and earnings are
subject to the effects of currency fluctuations outside of the United States and
Sweden. The Company may implement currency hedging strategies to help offset the
effects of these fluctuations. See "Upjohn Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Pharmacia Management's
Discussion and Analysis of Financial Condition and Results of Operations."
For information concerning the translation of amounts in Swedish kronor
into U.S. dollars and amounts in U.S. dollars into Swedish kronor, see "Exchange
Rates."
GOVERNMENTAL REGULATION
The Company will be subject to strict controls on the manufacture,
labelling, distribution and marketing of its products. Of particular importance
is the requirement to obtain regulatory approval for a pharmaceutical product
from a country's national regulatory authority before such product may be
marketed in a particular country and to maintain such approval for as long as a
product is marketed. The submission of an application to a regulatory authority
does not guarantee that a license to market the product will be granted.
Furthermore, each regulatory authority may impose its own requirements and may
refuse to grant, or may require additional data before granting, an approval
even though the relevant product has been approved in another country.
Regulatory authorities also have administrative powers that include product
recalls, seizure of products and other sanctions. See "Description of
Upjohn -- Regulation"; "Description of Pharmacia -- Industry Regulation and
Other Legal Matters."
PRODUCT LIABILITY
Product liability is a significant commercial risk for the Company.
Substantial damage awards have been made in certain jurisdictions, such as the
United States, against certain pharmaceutical companies in past years based upon
claims for injuries allegedly caused by the use of their products. A substantial
product liability claim that is not covered by insurance could have a material
adverse effect on the Company's operating results or financial condition. The
Company intends to obtain insurance at levels and on terms generally consistent
with the product liability insurance currently maintained by each of Upjohn and
Pharmacia. No assurances can be given, however, as to the Company's ability to
obtain adequate coverage at acceptable premium levels. See "Description of
Upjohn -- Product Liability Insurance" and "Description of
Pharmacia -- Competition" and, "-- Industry Regulation and Other Legal Matters."
30
<PAGE> 37
MARKET PRICE AND DIVIDEND DATA
As of September 14, 1995, there were 44,919 holders of record of Upjohn
Common Stock. As of August 31, 1995, there were approximately 341,832 holders of
record of Pharmacia Class A Common Shares, 25,707 holders of record of Pharmacia
Class B Common Shares and 37,530 holders that held Pharmacia Shares as nominees
and, as of September 14, 1995, there were approximately 78 holders of record of
Pharmacia ADSs.
The market prices for, and dividends paid on, the Upjohn Common Stock and
the Pharmacia Securities shown below are the market prices and dividends paid
for each security without adjustments to give effect to the Combination. Such
market prices and amounts of dividends paid are not indicative of the market
value of the Company.
MARKET PRICES
The Company
The Company is a newly formed Company with no operating history and no
securities of the Company have previously been publicly traded and, consequently
there has been no trading activity with regard to the New Common Stock or the
SDSs. Application will be made to list the shares of New Common Stock on the
NYSE and the SDSs on the SSE.
Upjohn
The Upjohn Common Stock is listed on the NYSE. Its ticker symbol is UPJ.
The table below sets forth, for the calendar quarters indicated, the high and
low sale prices of the Upjohn Common Stock as reported on the New York Stock
Exchange Composite Tape.
<TABLE>
<CAPTION>
COMMON STOCK
------------------
HIGH LOW
------- -------
($ PER SHARE)
<S> <C> <C>
1993
First Quarter.............................................................. 32.625 26.000
Second Quarter............................................................. 31.250 27.750
Third Quarter.............................................................. 29.625 25.625
Fourth Quarter............................................................. 35.000 28.000
1994
First Quarter.............................................................. 30.500 26.250
Second Quarter............................................................. 33.625 25.750
Third Quarter.............................................................. 37.125 28.625
Fourth Quarter............................................................. 35.250 29.375
1995
First Quarter.............................................................. 38.125 30.125
Second Quarter............................................................. 38.875 34.375
Third Quarter (through September 14, 1995)................................. 45.625 35.875
</TABLE>
The last sale price of Upjohn Common Stock as reported on the New York
Stock Exchange Composite Tape on (i) August 18, 1995, the last full trading day
prior to Upjohn and Pharmacia's public announcement of the execution of the
Combination Agreement, was $39.625 per share and (ii) September 14, 1995, the
last full trading day prior to the date of this Prospectus, was $44.375 per
share. HOLDERS OF SHARES OF UPJOHN COMMON STOCK AND PHARMACIA SECURITIES ARE
URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE UPJOHN COMMON STOCK.
Pharmacia
Pharmacia's share capital consists of the Pharmacia Class A Common Shares
and the Pharmacia Class B Common Shares. The Pharmacia Class A Common Shares and
the Pharmacia Class B Common Shares confer equal rights of participation in
Pharmacia's assets and profits, but each Pharmacia Class A Common
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<PAGE> 38
Share confers one vote per share while each Pharmacia Class B Common Share
confers one-tenth of one vote per share.
The principal market for trading in the Pharmacia Shares is the SSE, on
which the Pharmacia Shares have been traded since 1987. The Pharmacia Shares are
also quoted on SEAQ International. Since June 1994, the ADSs have been quoted on
NASDAQ. The ADSs are also quoted on SEAQ International.
The table below sets forth, for the periods indicated, the high and low
closing sale prices for the Pharmacia Class A Common Shares and the Pharmacia
Class B Common Shares as stated in the Official List of the SSE and the ADSs on
NASDAQ. The Official List reflects price and volume information for trades
completed by members on the SSE during the day as well as for inter-dealer
trades completed off the SSE and certain inter-dealer trades completed during
trading on the previous business day.
Share prices for periods subsequent to November 11, 1993 reflect the
demerger of BCP by Pharmacia's predecessor, by way of a special dividend. Share
prices for earlier periods are therefore not comparable. See "Description of
Pharmacia -- Development."
<TABLE>
<CAPTION>
A SHARES B SHARES ADSS
-------------- -------------- ---------------
HIGH LOW HIGH LOW HIGH LOW
---- --- ---- --- ---- ----
(SEK PER ($ PER ADS)(1)
(SEK PER SHARE)
SHARE)
<S> <C> <C> <C> <C> <C> <C>
1993
First Quarter............................... 204 165 201 163 -- --
Second Quarter.............................. 207 164 210 162 -- --
Third Quarter............................... 225 178 224 177 -- --
----
Fourth Quarter (to November 11)............. 235 210 235 202 -- --
----
Fourth Quarter (from November 12)........... 151 125 151 125 -- --
1994
First Quarter............................... 155 108 155 109 -- --
Second Quarter.............................. 134 109 135 110 15 1/2(2) 14 7/8(2)
Third Quarter............................... 139 113 138 112 18 3/4 14 3/8
Fourth Quarter.............................. 137 1/2 113 135 113 19 1/8 15
1995
First Quarter............................... 140 1/2 119 140 118 1/2 18 7/8 16 1/4
Second Quarter.............................. 165 128 1/2 165 129 22 5/8 17 1/2
Third Quarter (through September 14,
1995)..................................... 210 158 208 157 29 7/8 22
</TABLE>
---------------
(1) Each ADS represents one Pharmacia Class A Common Share.
(2) June 17, 1994 through June 30, 1994.
The last sales prices of the Pharmacia Shares on the SSE at the close of
business on (i) August 18, 1995, the last full trading day prior to Upjohn and
Pharmacia's public announcement of the execution of the Combination Agreement,
were SEK 181.00 per Pharmacia Class A Common Share and SEK 180.50 per Pharmacia
Class B Common Share and (ii) September 14, 1995, the last full trading day
prior to the date of this Prospectus, were SEK 204 per Pharmacia Class A Common
Share and SEK 202 per Pharmacia Class B Common Share. The last sale prices of
the Pharmacia ADSs as quoted on NASDAQ were $25.38 per ADS on August 18, 1995
and $28.875 on September 14, 1995. HOLDERS OF SHARES OF UPJOHN COMMON STOCK AND
PHARMACIA SECURITIES ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE
PHARMACIA SECURITIES.
DIVIDENDS
The Company
The Company has no operating history and, consequently, has paid no
dividends to stockholders. For information with respect to the Company's
expected dividend policy see "Description of the Company -- Dividend Policy."
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<PAGE> 39
Upjohn
Upjohn has paid cash dividends on the Common Stock every year since 1958.
Dividends are declared quarterly. The following table sets forth quarterly
dividends in respect of the Upjohn Common Stock declared and paid in each of the
past five years.
DIVIDENDS PER SHARE OF UPJOHN COMMON STOCK
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
1990............................................ $ .25 $ .25 $ .25 $ .29 $1.04
1991............................................ .29 .29 .34 .34 1.26
1992............................................ .34 .34 .37 .37 1.42
1993............................................ .37 .37 .37 .37 1.48
1994............................................ .37 .37 .37 .37 1.48
1995............................................ .37 .37
</TABLE>
The Upjohn Board declared a $.37 per share dividend on June 20, 1995, which
was paid on August 1, 1995, to stockholders of record on July 11, 1995.
Pharmacia
The following table sets forth dividends in respect of Pharmacia Shares for
the periods indicated. Dividends are declared annually and are subject to the
approval of Pharmacia stockholders.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 SEK U.S.$(1)
---------------------------------------------------------------------------- ---- --------
<S> <C> <C>
1990................................................................... 2.85 .47
1991................................................................... 3.15 .54
1992................................................................... 3.55 .49
SIX MONTHS ENDED
June 30, 1993.......................................................... --(2) --(2)
December 31, 1993...................................................... 2.20(3) .28(3)
YEAR ENDED DECEMBER 31
1994................................................................... 2.60 .34
</TABLE>
---------------
(1) U.S. dollar figures are translated at the Noon Buying Rate at the relevant
dividend payment date.
(2) On November 10, 1993, the stockholders of Pharmacia's predecessor approved a
dividend of one BCP share in respect of each Pharmacia Share.
(3) The amount of this cash dividend reflected the Pharmacia Board's
consideration of several factors including Pharmacia's financial condition
and results of operations over a full twelve-month period and is viewed by
the Pharmacia Board as representing a dividend in respect of a full year.
33
<PAGE> 40
THE COMPANIES AND THE COMBINATION
THE COMPANIES
Upjohn is engaged primarily in the research, development, production and
sale of prescription pharmaceuticals and is among the preeminent drug
manufacturers in the United States. Upjohn manufactures and markets a broad line
of prescription drugs, primarily central nervous system agents, nonsteroidal
anti-inflammatory and analgesic agents, antibiotics, steroids, contraceptives,
oral antidiabetes agents, female and reproductive health products and a hair
growth product. Upjohn also manufactures for distribution to the general public
certain nonprescription drugs and manufactures and sells various animal health
products and pharmaceutical chemicals. In 1994, Upjohn's net sales were $3,275
million and its operating income was $599 million.
Pharmacia is an international health care company which engages in the
research, development, manufacture and sale of pharmaceutical and other related
health care products, and is among the preeminent pharmaceutical companies in
Europe. Pharmacia operates primarily in the therapeutic areas of oncology,
growth deficiencies, cataract surgery, antithrombosis, inflammatory bowel
diseases/rheumatoid arthritis, gynecology, immunology and central nervous system
disorders. Pharmacia is also engaged in the hospital care, consumer
pharmaceuticals, diagnostics and biotech businesses. In 1994, Pharmacia's net
sales were MSEK 26,450 and its operating income was MSEK 4,352 (calculated under
U.S. GAAP).
THE COMBINATION AND THE COMPANY
The Upjohn and Pharmacia Boards have unanimously approved the Combination.
The Combination will be accomplished through the Merger, as a result of which
Upjohn will become a wholly owned subsidiary of the Company, and the
consummation of the Offer and the Compulsory Acquisition, as a result of which
Pharmacia will also become a wholly owned subsidiary of the Company. See "The
Merger," "The U.S. Offer To Purchase" and "The Combination Agreement."
Stockholders of Upjohn and Pharmacia will each hold approximately 50 percent of
the equity of the Company after consummation of the Transactions, assuming full
acceptance of the Offer by Pharmacia stockholders. One half of the initial
members of the Company Board will be nominated by Upjohn and the other half will
be nominated by Pharmacia. The Combination Agreement provides that Mr. Jan
Ekberg, currently President and Chief Executive Officer of Pharmacia, will be
the Chairman of the Board of Directors of the Company and that Dr. John L.
Zabriskie, currently Chairman of the Board of Directors and Chief Executive
Officer of Upjohn, will be President and Chief Executive Officer of the Company.
The Company will be led by an integrated global corporate management group drawn
from both Upjohn and Pharmacia and based in London, with operational
headquarters in Kalamazoo, Michigan, Stockholm/Uppsala, Sweden and Milan, Italy.
See "Description of the Company."
INDUSTRY BACKGROUND
The world market for pharmaceuticals and health care products is
concentrated in the United States, Japan and Western Europe. Global sales of
pharmaceuticals increased steadily during the 1980s due to a combination of
factors, including an ageing population and the introduction of a number of
significant innovative products providing enhanced therapeutic benefits. While
the demand for pharmaceutical products remains strong in the 1990s, regulatory
pressures and pricing constraints have intensified as governmental and private
health care providers strive to control the rapid growth in health care
expenditure. It is becoming increasingly common that physicians, drug stores,
hospitals and insurance companies form professional purchasing organizations.
Consequently, pharmaceuticals are increasingly chosen according to the
therapeutic value in economic terms. Hence pharmaceuticals that shorten hospital
stay and reduce treatment costs are preferred. Therefore it is essential for
pharmaceutical companies to develop new improved and more efficient products
that increase the total value both for buyers and patients. The Company believes
that these developments have also led to more intense competition in the
pharmaceutical industry worldwide. Innovation, high-quality research and
development, rapid product introduction and cost efficiency are likely to be key
factors for the pharmaceutical industry in the future. Management believes that,
as a result of the Combination, the Company will be well-positioned to compete
in this environment.
34
<PAGE> 41
BUSINESS
Based on combined 1994 sales, the Company's prescription pharmaceutical
business would have ranked among the top ten in the worldwide industry.
In addition, based on combined 1994 results, the Company would have had 36%
of its sales in the United States, compared with approximately 34% of the
worldwide pharmaceutical market, ranking among the top 15 pharmaceutical
companies in the United States market, 45% of its sales in Europe, compared with
approximately 28% of the worldwide pharmaceutical market, ranking among the top
five pharmaceutical companies in the European market, and 9% of its sales in
Japan, compared with approximately 21% of the worldwide pharmaceutical market,
ranking among the top 20 pharmaceutical companies in the Japanese market, and
among the top three non-Japanese pharmaceutical companies. The Company will also
actively participate in the developing markets of the Pacific Rim, Eastern
Europe and Latin America. The Company's initial annual research and development
expenditures are expected to exceed $1 billion. The Company's research and
development activities will be focused on medically important therapeutic areas,
including diseases of the central nervous system, oncology, critical care
medicine, infectious diseases, female and reproductive health, nutritional
deficiencies, metabolic diseases, ophthalmology, urology and inflammatory
disorders, and will be conducted principally in the Company's three operational
headquarters in Kalazamoo, Michigan, Stockholm/Uppsala, Sweden and Milan, Italy.
The Company expects to benefit from the complementary research and
development strengths of Upjohn and Pharmacia and from extensions of existing
products into new formulations and indication areas. These synergies are
expected to result in 28 introductions from 1995 through 1998 and deeper
penetrations of existing markets. Of those 28 introductions, 17 will be of new
products, eight will be of existing products for new indications and three will
be of existing products in the United States. The Company expects to have 24
products in early phase clinical testing, including agents in oncology, diseases
of the central nervous system, infectious diseases, asthma, urinary incontinence
and vascular disease that have shown positive results in earlier testing.
The Company is also expected to have one of the world's strongest
biotechnology capabilities with more than 1,000 scientists experienced in the
recombinant and monoclonal technologies of molecular biology. The Company
expects this biotechnology expertise to enhance its strength in other core areas
such as oncology, in which the Company is expected to be a world research
leader. The Company's strengths in molecular biology will also strengthen the
Company's efforts in critical care medicine and inflammatory disorders. For
additional information concerning the Company, see "Description of Upjohn" and
the Financial Statements of Upjohn contained elsewhere herein, and "Description
of Pharmacia" and the Financial Statements of Pharmacia contained elsewhere
herein.
The Company intends to pursue a strategy aimed at prolonging the relatively
short patent life of pharmaceutical products resulting from their long
development time. The Company expects to employ a number of measures including
upgrading certain products to create new patented products (as Pharmacia did
with its Adriamycin/Farmorubicin product), and converting certain suitable
patented products to "over the counter" products (a strategy being pursued by
Upjohn with respect to its hair growth product Rogaine). There can be no
assurances, however, that the Company will be successful in implementing these
or similar strategies.
OPERATIONS
Following consummation of the Combination, the Company intends to combine
and consolidate the respective research and development, manufacturing, sales,
marketing and administrative operations of Upjohn, Pharmacia and their
respective subsidiaries.
Although no assurance can be given, the Company expects to achieve
operating cost synergies in excess of $500 million (pre-tax) annually through
the consolidation of overlapping activities. These expected savings are in
addition to cost savings to be realized pursuant to plans previously announced
by Upjohn and Pharmacia with respect to the rationalization of production
facilities. Although no assurance can be given, management estimates that in
excess of 85% of the synergies will be realized by the end of 1996 with full
year effect in 1997. Cost reductions will come from both companies and will be
spread throughout the geographic regions in which
35
<PAGE> 42
the Company will conduct business. It is currently anticipated that the total
workforce reduction of the Company will involve over 4,000 positions.
Through the combination of the sales and marketing organizations of Upjohn
and Pharmacia, the Company expects to be in a position to maximize sales of
existing and new products in the U.S., Europe and Japan. Although no assurances
can be given, the Company expects to achieve operating margins in excess of 25%
by 1998.
The extent to which cost savings and revenue growth will be achieved is
dependent upon various factors beyond the Company's control, including the
regulatory environment, economic conditions and unanticipated changes in
business conditions. Therefore, no assurance can be given with respect to the
ultimate level of cost savings or revenue growth to be realized, or that such
savings and growth will be realized within the timeframes currently anticipated.
The Company also anticipates that in connection with the Combination it
will incur restructuring charges of approximately $500 million through 2000,
with approximately $200 million incurred in 1995. No assurance can be given,
however, as to the timing of the incurrence of such charges or that additional
unexpected costs will not be incurred.
36
<PAGE> 43
THE UPJOHN SPECIAL MEETING
GENERAL
This Prospectus is being furnished to holders of Upjohn Common Stock and
Upjohn Preferred Stock by the Upjohn Board in connection with the solicitation
of proxies by the Upjohn Board for use at the Upjohn Special Meeting of
Stockholders of Upjohn to be held at 10:00 a.m., local time, on Tuesday, October
17, 1995 at the Radisson Plaza Hotel, 100 West Michigan Avenue, Kalamazoo,
Michigan, and at any adjournments or postponements thereof. This Prospectus and
the accompanying form of proxy are first being mailed to Upjohn stockholders on
or about September 18, 1995.
PHARMACIA STOCKHOLDERS ARE NEITHER BEING ASKED TO VOTE, NOR WILL THEY BE
PERMITTED TO VOTE, AT THE UPJOHN SPECIAL MEETING. HOLDERS OF PHARMACIA
SECURITIES WILL PARTICIPATE IN THE COMBINATION PURSUANT TO THE OFFER. SEE "THE
U.S. OFFER TO PURCHASE."
MATTERS TO BE CONSIDERED AT THE UPJOHN SPECIAL MEETING AND BOARD OF DIRECTORS'
RECOMMENDATION
At the Upjohn Special Meeting, holders of Upjohn Common Stock and Upjohn
Preferred Stock will consider and vote upon (i) a proposal to adopt the
Combination Agreement and (ii) such other business as may properly be brought
before the Upjohn Special Meeting or any adjournments or postponements thereof.
THE UPJOHN BOARD BELIEVES THAT THE TERMS OF THE COMBINATION AGREEMENT ARE FAIR
TO, AND IN THE BEST INTEREST OF, UPJOHN AND ITS STOCKHOLDERS AND UNANIMOUSLY
RECOMMENDS THAT UPJOHN STOCKHOLDERS VOTE FOR ADOPTION OF THE COMBINATION
AGREEMENT.
VOTING AT THE UPJOHN SPECIAL MEETING
The Upjohn Board has fixed the close of business on September 18, 1995 as
the record date for determining stockholders entitled to vote at the Upjohn
Special Meeting (the "Record Date"). At the close of business on September 14,
1995, there were 171,669,344 shares of Upjohn Common Stock outstanding and
entitled to vote at the Upjohn Special Meeting and held by approximately 44,919
holders of record, and 7,263 shares of Upjohn Preferred Stock outstanding and
entitled to vote at the Upjohn Special Meeting. All of the outstanding shares of
Upjohn Preferred Stock are held of record by the Plan, the Trustee of which has
indicated that it intends to vote such shares either in favor of or against the
adoption of the Combination Agreement as directed by the underlying beneficial
owners and, with respect to shares as to which no directions are given or which
have not been allocated to participant accounts either in favor of or against
adoption of the Combination Agreement in the same proportions as shares as to
which directions are given are voted. Each holder of Upjohn Common Stock
outstanding on the Record Date is entitled to one vote for each share so held,
and the Trustee is entitled to 1,000 votes for each share of Upjohn Preferred
Stock so held, which votes are exercisable in person or by properly executed and
delivered proxy at the Upjohn Special Meeting. A quorum will be deemed present
at the Upjohn Special Meeting if the holders of at least a majority of the
aggregate number of shares of Upjohn Common Stock and Upjohn Preferred Stock
outstanding on the Record Date and entitled to vote at the Upjohn Special
Meeting are represented at the Upjohn Special Meeting in person or by a properly
executed and delivered proxy.
The affirmative vote of a majority of the votes representing the
outstanding shares of Upjohn Common Stock and Upjohn Preferred Stock (voting
together as one class) is required to adopt the Combination Agreement. Directors
and executive officers of Upjohn who, as of September 1, 1995, personally held
or shared voting and/or dispositive power over 3,618,631 shares of Upjohn Common
Stock, or approximately two percent of the Common Stock then outstanding, have
indicated that they intend to vote or direct the vote of all the outstanding
shares of Upjohn Common Stock over which they have voting control in favor of
the adoption of the Combination Agreement and that they will recommend a vote
for adoption with respect to shares as to which they are fiduciaries.
37
<PAGE> 44
The presence in person or by proxy at the Upjohn Special Meeting of a
majority of the number of votes entitled to be cast is necessary to constitute a
quorum for the transaction of business. Abstentions will be counted as present
for purposes of determining whether a quorum is present. With respect to the
proposal to adopt the Combination Agreement, abstentions will have the same
effect as a vote against such proposal. Under the rules of the NASD and the
NYSE, brokers who hold shares in street name for customers will not have the
authority to vote on the proposal to adopt the Combination Agreement unless they
receive specific instructions from beneficial owners. As a broker non-vote will
be counted as present for purposes of determining the existence of a quorum, it
will have the same effect as a vote against adoption of the Combination
Agreement.
PROXIES
If a stockholder does not attend the Upjohn Special Meeting, such
stockholder may vote by proxy. A form of proxy for voting stock at the Upjohn
Special Meeting is enclosed. All shares of Upjohn stock which are entitled to
vote and are represented at the Upjohn Special Meeting by properly executed
proxies received prior to or at the Upjohn Special Meeting, and not revoked,
will be voted at the Upjohn Special Meeting in accordance with the instructions
indicated on such proxies.
IF NO INSTRUCTION IS SPECIFIED WITH RESPECT TO ADOPTION OF THE COMBINATION
AGREEMENT, THE SHARES REPRESENTED BY AN EXECUTED PROXY WILL BE VOTED "FOR" THE
ADOPTION OF THE COMBINATION AGREEMENT. IF ANY OTHER BUSINESS IS PROPERLY
PRESENTED AT THE UPJOHN SPECIAL MEETING, THE PROXY WILL BE VOTED BY THE PROXY
HOLDERS IN THEIR DISCRETION, TAKING INTO ACCOUNT ANY RECOMMENDATIONS OF
MANAGEMENT OF UPJOHN.
Any proxy given pursuant to this solicitation may be revoked by the person
giving such proxy at any time before it is voted. Proxies may be revoked by (i)
filing with the Secretary of Upjohn, at or before the taking of the vote at the
Upjohn Special Meeting, a written notice of revocation bearing a later date than
the proxy, (ii) duly executing a later dated proxy relating to the same shares
and delivering it to the Secretary of Upjohn before the taking of the vote at
the Upjohn Special Meeting or (iii) attending the Upjohn Special Meeting and
voting in person (although attendance at the Upjohn Special Meeting will not in
and of itself constitute a revocation of a proxy). Any written notice of
revocation or subsequent proxy should be sent so as to be delivered to the
Upjohn Company, 7000 Portage Road, Kalamazoo, Michigan 49001, Attention:
Secretary, or hand delivered to the Secretary of Upjohn, at or before the taking
of the vote at the Upjohn Special Meeting.
All expenses of this solicitation will be borne by Upjohn provided that the
costs of preparing and mailing this Prospectus will be borne equally by Upjohn
and Pharmacia. In addition to solicitation by use of the mails, proxies may be
solicited by directors, officers and employees of Upjohn in person or by
telephone or other means of communication. Such directors, officers and
employees will not be separately compensated, but they may be reimbursed for
reasonable out-of-pocket expenses in connection with such solicitation. The
Company has retained D.F. King & Co., Inc., at an estimated cost of $20,000 plus
reimbursement of expenses, to assist in its solicitation of proxies from
brokers, nominees, institutions and individuals. Arrangements will also be made
with custodians, nominees and fiduciaries for forwarding of proxy solicitation
materials to beneficial owners of shares held of record by such custodians,
nominees and fiduciaries, and the Company will reimburse such custodians,
nominees and fiduciaries for reasonable expenses incurred in connection
therewith.
UPJOHN STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS.
38
<PAGE> 45
THE MERGER
The following is a summary of the terms of the proposed Merger. This
description is qualified in its entirety by reference to the terms of the
Combination Agreement, a copy of which is attached as Annex A hereto and which
is incorporated herein by reference.
REASONS FOR THE MERGER AND UPJOHN BOARD RECOMMENDATION
THE UPJOHN BOARD BELIEVES THAT THE TERMS OF THE COMBINATION AGREEMENT ARE
FAIR TO, AND IN THE BEST INTEREST OF, UPJOHN AND ITS STOCKHOLDERS AND
UNANIMOUSLY RECOMMENDS THAT THE UPJOHN STOCKHOLDERS VOTE FOR ADOPTION OF THE
COMBINATION AGREEMENT.
The Upjohn Board believes that the Merger offers the unique opportunity to
combine two already successful and financially sound companies to form the
Company, which will have the financial strength, product base, critical mass in
research and worldwide market reach to excel in the rapidly changing and
increasingly competitive global pharmaceutical industry. The Upjohn Board
considered the significant benefits associated with combining Upjohn's and
Pharmacia's pharmaceutical businesses in light of the Upjohn Board's belief that
the Combination represents an excellent fit of the two companies' respective
strategic advantages in pharmaceutical research, crucial therapeutic areas and
key geographic markets in North America, Europe and Japan.
In arriving at its determination, the Upjohn Board considered a number of
factors, including the opinion of Goldman Sachs, financial advisor to Upjohn,
described herein. See "The Combination -- Reasons for the Combination; Boards'
Recommendations" and " -- Fairness Opinions."
EFFECT OF THE MERGER
Upon consummation of the Merger, Merger Sub will be merged with and into
Upjohn, Upjohn will become a wholly owned subsidiary of the Company, and the
separate corporate existence of Merger Sub will cease.
CONVERSION OF STOCK
Upon consummation of the Merger, (i) each outstanding share of Upjohn
Common Stock (other than shares owned by Upjohn as treasury stock and shares
owned by Pharmacia or by any subsidiary of Upjohn or Pharmacia, all of which
will be cancelled) will be converted into the right to receive 1.45 shares of
New Common Stock (the "Exchange Ratio") with the result that all of the
outstanding shares of Upjohn Common Stock will be converted collectively into
approximately 248.9 million shares of New Common Stock, (ii) each outstanding
share of Upjohn Preferred Stock (other than dissenting shares and shares owned
by Upjohn as treasury stock, all of which will be cancelled) will be converted
into the right to receive one share of New Preferred Stock, with the result that
all of the outstanding shares of Upjohn Preferred Stock will be converted
collectively into the right to receive approximately 7,263 shares of New
Preferred Stock and (iii) each outstanding share of Merger Sub common stock will
be converted into the right to receive one share of common stock of Upjohn as
the surviving corporation. Upon consummation of the Merger, all shares of Upjohn
Common Stock and Upjohn Preferred Stock will no longer be outstanding and will
automatically be cancelled and retired and will cease to exist, and each holder
of a certificate representing any shares of Upjohn Common Stock or Upjohn
Preferred Stock will cease to have any rights with respect thereto, except the
right to receive the shares of New Common Stock or New Preferred Stock, as the
case may be, and, if applicable, cash in lieu of fractional shares of New Common
Stock to be issued in consideration therefor upon the surrender of such
certificate, without interest. Fractional shares of New Common Stock will not be
issuable in connection with the Merger. Holders of Upjohn Common Stock otherwise
entitled to a fractional share will be paid the value of such fraction in cash,
as described below under "Fractional Shares." All shares of New Common Stock
owned by Pharmacia and Upjohn immediately prior to the Combination will be
cancelled immediately upon consummation of the Combination. The New Preferred
Stock is identical to the Upjohn
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Preferred Stock in all respects except for the conversion ratio, which has been
adjusted in light of the Exchange Ratio.
FRACTIONAL SHARES
No fractional shares will be issued upon the surrender for exchange of the
certificates representing Upjohn Common Stock, and any fractional share interest
held after the Merger will not entitle such owner to vote or to any other rights
of a stockholder of the Company. The holders of such fractional share interests
will be paid an amount in cash representing such holder's proportionate interest
in the net proceeds from the sale by the Exchange Agent on behalf of all such
holders of the aggregate of the fractions of shares of New Common Stock
attributable to such holders' fractional share interests (the "Upjohn Excess
Shares"). Until the net proceeds of the sales of the Upjohn Excess Shares are
distributed to the holders of the fractional share interests, the Exchange Agent
will hold such proceeds in trust on behalf of the holders of such fractional
share interests. Such proceeds (without interest) will be paid in lieu of
fractional shares to the holders of the fractional share interests as soon as
practicable after the Exchange Agent determines the portion of the proceeds to
which each such holder is entitled.
EXCHANGE PROCEDURES
From and after the Effective Time, (i) certificates representing shares of
Upjohn Common Stock (the "Upjohn Certificates") will be deemed to represent
solely the right to receive 1.45 shares of New Common Stock for each share of
Upjohn Common Stock evidenced by such Upjohn Certificates and (ii) certificates
representing shares of Upjohn Preferred Stock will be deemed to represent solely
the right to receive one share of New Preferred Stock for each share of Upjohn
Preferred Stock evidenced by such certificates.
Promptly after the Effective Time, the Company will send or will cause the
Exchange Agent to send a form of Merger Letter of Transmittal to each holder of
record of Upjohn Common Stock at the Effective Time, advising such holder of the
procedures for surrendering to the Exchange Agent any Upjohn Certificate for
exchange. If payment is to be made to a person other than the person in whose
name an Upjohn Certificate is registered, it will be a condition of such
exchange that the Upjohn Certificate so surrendered be properly endorsed or
otherwise be in proper form for transfer and that the person requesting such
payment either pay to the Exchange Agent any transfer or other taxes required as
a result of such payment to a person other than the registered holder or
establish to the satisfaction of the Exchange Agent that such tax either has
been paid or is not payable.
Each holder of Upjohn Common Stock, upon surrender to the Exchange Agent of
one or more Upjohn Certificates for cancellation, together with a properly
executed Merger Letter of Transmittal, will be entitled to receive certificates
evidencing the number of full shares of New Common Stock to be issued in respect
of the number of such shares of Upjohn Common Stock, and cash in lieu of
fractional shares pursuant to the terms of the Combination Agreement, together
with any dividends or other distributions to which such stockholder is entitled.
No dividends or other distributions, if any, payable to holders of New Common
Stock will be paid to the holders of any Upjohn Certificates until such Upjohn
Certificates are surrendered. Upon surrender of such Upjohn Certificates, all
dividends and distributions which shall have become payable with respect to the
New Common Stock in respect of a record date after the Effective Time will be
paid (without interest) to the holder of record of the full shares of New Common
Stock issued in exchange for the shares of Upjohn Common Stock represented by
such Upjohn Certificates.
After the Effective Time, there will be no further transfers of Upjohn
Common Stock on the stock transfer books of Upjohn. If an Upjohn Certificate is
presented for transfer, it will be marked cancelled and a certificate
representing the appropriate number of full shares of New Common Stock will be
exchanged therefor, together with cash in lieu of fractional shares and any
dividends and distributions payable with respect to such shares of New Common
Stock.
The Company will not be liable to any holder of Upjohn Common Stock for any
securities delivered to a public official pursuant to applicable abandoned
property laws. From and after three years following the Effective Time (or such
earlier date immediately prior to such time as the securities would otherwise
escheat
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to become property of any government entity) the Company will no longer have any
obligation to issue shares of New Common Stock in respect of which no Upjohn
Certificate has been surrendered and to the extent permitted by law the Company
will not be liable to any holder of Upjohn Common Stock in respect thereof.
As promptly as practicable after the Effective Time, Upjohn will cause the
Plan to surrender to the Company all certificates representing shares of Upjohn
Preferred Stock in exchange for certificates representing shares of New
Preferred Stock, together with any dividends or other distributions to which the
Plan is entitled.
UPJOHN STOCKHOLDERS SHOULD NOT FORWARD STOCK CERTIFICATES TO THE EXCHANGE
AGENT UNTIL THEY HAVE RECEIVED A FORM OF MERGER TRANSMITTAL LETTER. UPJOHN
STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
EFFECTIVE TIME; CONDITIONS
The Merger will become effective when a Certificate of Merger is filed with
the Secretary of State of the State of Delaware in accordance with the
procedures set forth in sec.103 of the DGCL, or at such later time as is
specified in the Certificate of Merger (the "Effective Time"). The Merger is
conditioned upon, among other things, the satisfaction or, if permissible,
waiver of the Combination Conditions. The Effective Time is expected to occur
promptly after the requisite stockholder approval has been obtained at the
Upjohn Special Meeting and all other Combination Conditions have been satisfied
or, if permissible, waived. See "The Combination Agreement -- Termination or
Amendment of the Combination Agreement."
INTERESTS OF CERTAIN PERSONS IN THE COMBINATION
In considering the recommendations of the Upjohn Board, stockholders should
be aware that certain members of management and of the Upjohn Board have certain
interests in the Merger that are in addition to the interests of stockholders
generally.
Severance Agreements
Upjohn maintains Severance Agreements with 20 officers, including each of
its executive officers. It is expected that for most of such executive officers
the Severance Agreements will be superseded by employment and severance
agreements with the Company, which will be similar to the existing Severance
Agreements. In the event the Severance Agreements are not superseded, the Merger
would result in a change in control under such agreements. Upon a termination of
the executive's employment by Upjohn without cause or a termination by the
executive for "good reason" (including a material adverse change in duties,
responsibilities, status, titles or offices; a reduction in base salary or
failure to continue employee benefit programs; a relocation of employment; or
more burdensome travel requirements) within the two-year period following a
change in control, the executive would receive pursuant to his or her Severance
Agreement (i) a lump sum cash amount equal to 2.5 times (A) the executive's
highest annual rate of base salary during the 12 months prior to employment
termination and (B) the highest amount earned pursuant to any Upjohn annual
bonus plan during the three-year period immediately preceding the year of the
change in control and (ii) continued welfare plan insurance coverage for up to
30 months. If all of the Severance Agreements remained in effect and the
executive officers were terminated following a change in control, the executive
officers would receive aggregate payments equal to approximately $25.4 million,
plus any amounts required to reimburse the executives on an after-tax basis for
applicable excise taxes under Section 4999 of the Code.
Stock Options and Other Awards
The Merger will result in all outstanding Stock Options under the Upjohn
1992 Stock Option Plan becoming fully exercisable (other than Stock Options held
by officers subject to Section 16 of the Exchange Act) and being converted into
options to acquire, under the same terms and conditions as were applicable under
such Stock Options, such number of shares of New Common Stock as the holder of
such Stock Options would have been entitled to receive pursuant to the Merger
had such holder exercised such Stock Options in
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full immediately prior to the Effective Time, at a price per share of New Common
Stock equal to the per share Stock Option exercise price divided by the Exchange
Ratio. Unexercisable Stock Options held by officers of Upjohn subject to Section
16 of the Exchange Act will be converted into options for New Common Stock, but
will not become exercisable as a result of the Merger unless the employment of
such officer terminates other than for cause prior to the Stock Option otherwise
becoming exercisable. The Upjohn 1992 Stock Option Plan has been amended to
eliminate the automatic Stock Option cash-out provision upon the Merger. The
Incentive and Compensation Committee of the Upjohn Board (the "Compensation
Committee") has taken action to provide that each outstanding Stock Option as of
the Merger shall, upon the holder's termination of employment, remain
exercisable until the earlier of the maximum five- or three-year period from
such termination permitted by the Stock Option grant or the expiration of the
Stock Option's original term.
Certain executive officers of Upjohn hold restricted shares of Upjohn
Common Stock, the restrictions upon which will lapse as a result of the Merger.
See "Description of Upjohn -- Beneficial Ownership of Upjohn Common Stock."
Upjohn's Incentive Compensation Plan of 1992 has been amended to eliminate
the automatic payment of deferred awards upon the Merger. The Compensation
Committee has taken action to provide that upon the Merger all outstanding
deferred awards will be vested and nonforfeitable.
In the event the employment of an executive officer is terminated during
the calendar year following the Merger, such executive officer would receive a
pro rata annual bonus for such year. In the event employment is terminated
without cause within two years following the Merger, performance share awards
held by such executive shall remain outstanding.
Employee Benefits
The Upjohn Retirement Plan has been amended to eliminate automatic vesting
of benefits upon the Merger. Participants will vest in their benefits in the
event of a termination of employment (without cause) during the two-year period
following the Merger.
The Upjohn Employee Savings Plan has been amended to eliminate automatic
vesting of account balances upon the Merger. Participants will vest in their
account balances in the event of a termination of employment (without cause)
during the two-year period following the Merger.
APPRAISAL RIGHTS
Holders of Upjohn Common Stock are not entitled to dissenters' appraisal
rights under the DGCL in connection with the Merger.
If the Merger is effected, the Trustee, as the sole holder of record of the
Upjohn Preferred Stock, will be entitled to have the "fair value" of the shares
of Upjohn Preferred Stock not voted in favor of adoption of the Combination
Agreement judicially determined as of the Effective Time (exclusive of any
element of value arising from the consummation or expected consummation of the
Merger) and paid to the Trustee by Upjohn following the Merger, assuming that
the Trustee complies with, and perfects the statutory appraisal rights under,
Section 262 of the DGCL. The following is a brief summary of Section 262,
setting forth the procedures for dissenting from the Merger and demanding such
statutory appraisal rights. This discussion is qualified in its entirety by
reference to the text of Section 262, which is hereby incorporated by reference
in this Prospectus and is attached hereto as Annex D.
In order to exercise appraisal rights, the Trustee must satisfy all the
following conditions: First, it must file a written demand for appraisal with
Upjohn within 20 days after the date of mailing of a notice from Upjohn to the
effect that the Effective Date has occurred or will occur and that appraisal
rights are available (which notice shall be mailed by Upjohn either before the
Effective Date or within 10 days thereafter). It is currently anticipated that
the Merger will be consummated in or around November 1995. This Prospectus is
being mailed to the Trustee as the sole holder of record of Upjohn Preferred
Stock to satisfy such notice
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requirements of Section 262. As a result, to exercise appraisal rights the
Trustee must file a written demand with Upjohn within 20 days after the mailing
of this Prospectus.
Second, the Trustee must not have voted to approve the Combination
Agreement with respect to those shares for which it will be demanding appraisal
rights.
Finally, the Trustee must execute (or have executed on its behalf) a demand
for appraisal. The Trustee, as the sole holder of record of Upjohn Preferred
Stock, may exercise its rights of appraisal with respect to the shares of stock
so held for all or less than all of the shares of Upjohn Preferred Stock not
voted in favor of the Combination Agreement. If appraisal rights are to be
exercised as to less than all such shares, the written demand must set forth the
number of shares of Upjohn Preferred Stock covered by such demand. If the
Trustee fails to state the number of shares of Upjohn Preferred Stock as to
which it is demanding appraisal rights, then the demand will be presumed to
cover all such shares of Upjohn Preferred Stock.
If the Trustee elects to exercise its appraisal rights, it should mail or
deliver its written demand to The Upjohn Company, 7000 Portage Road, Kalamazoo,
Michigan 49001, Attention: Secretary. The written demand for appraisal should
specify the Trustee's full name and mailing address, the number of shares of
Upjohn Preferred Stock owned and that the Trustee is thereby demanding appraisal
of its shares of Upjohn Preferred Stock. A proxy or vote against the adoption of
the Combination Agreement will not by itself constitute such a demand.
Within 120 days after the Effective Time of the Merger, either Upjohn or
the Trustee, if it has complied with the required conditions of Section 262, may
file a petition in the Delaware Court of Chancery (the "Delaware Court")
demanding a determination of the fair value of the shares of Upjohn Preferred
Stock. If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Court will determine if the Trustee is entitled to
appraisal rights and will appraise the shares of Upjohn Preferred Stock as to
which appraisal rights were exercised, determining the fair value of such shares
together with a fair rate of interest to be paid, if any, upon the amount
determined to be the fair value. In determining fair value, the Delaware Court
is authorized to take into account all relevant factors.
The cost of the appraisal proceeding may be determined by the Delaware
Court and assessed against the parties as the Delaware Court deems equitable in
the circumstances.
If the Trustee demands appraisal in compliance with Section 262, it will
not, after the Effective Time of the Merger, be entitled to vote for any purpose
the shares of Upjohn Preferred Stock subject to such demand or to receive
payment of dividends or other distributions on such shares, except for dividends
or distributions, if any, payable at a date prior to the Effective Time.
At any time within 60 days after the Effective Time of the Merger, the
Trustee will have the right to withdraw its demand for appraisal and to accept
the terms offered in the Merger. After this period, the Trustee may withdraw its
demand for appraisal only with the written consent of Upjohn. If no petition for
appraisal is filed with the Delaware Court within 120 days after the Effective
Time of the Merger, the Trustee's rights to appraisal shall cease. The Company
has no obligation to file such a petition. No petition timely filed in the
Delaware Court demanding appraisal will be dismissed as to any stockholder,
however, without approval of the Delaware Court, and such approval may be
conditioned upon such terms as the Delaware Court deems just.
CERTAIN U.S. INCOME TAX CONSEQUENCES
See "Tax Consequences of the Merger and the Offer -- United States Federal
Income Tax Consequences -- Tax Consequences to Upjohn Stockholders," for a
summary of the United States federal income tax consequences of the Merger.
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THE U.S. OFFER TO PURCHASE
INTRODUCTION
UPJOHN STOCKHOLDERS ARE NEITHER BEING ASKED TO, NOR WILL THEY BE PERMITTED
TO, TENDER THEIR UPJOHN SHARES INTO THE OFFER. UPJOHN STOCKHOLDERS WILL
PARTICIPATE IN THE COMBINATION PURSUANT TO THE MERGER. SEE "THE MERGER."
General
The Combination Agreement contemplates that the Company shall commence an
offer to exchange for each outstanding Pharmacia Class A Common Share, each
outstanding Pharmacia Class B Common Share and each outstanding ADS, one share
of New Common Stock or one SDS. Such offer will be conducted in two parts, the
U.S. Offer and the Swedish Offer. The U.S. Offer and the Swedish Offer will be
on substantially the same terms and subject to the same conditions except that
holders of Pharmacia Shares that are U.S. Persons will receive shares of New
Common Stock pursuant to the U.S. Offer and holders of Pharmacia Shares that are
not U.S. Persons will receive, at their option, either shares of New Common
Stock or SDSs pursuant to the Swedish Offer. The U.S. Offer and the Swedish
Offer are collectively referred to herein as the "Offer." The Swedish Offer will
be made in accordance with the Recommendation. The Swedish Offer is not being
made directly or indirectly in, or by use of the mails of, or by any means or
instrumentality (including, without limitation, the mail, facsimile
transmission, telex or telephone) of interstate or foreign commerce in, or any
facilities of a national securities exchange of, the United States.
ON AUGUST 20, 1995, THE BOARD OF DIRECTORS OF PHARMACIA DETERMINED, BY
UNANIMOUS VOTE, THAT THE OFFER IS FAIR TO, AND IN THE BEST INTERESTS OF,
PHARMACIA AND ITS STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
ACCEPT THE OFFER.
Under United States federal securities laws, Pharmacia is required to send
its securityholders a statement setting forth its position with respect to the
U.S. Offer, and file with the Commission a Schedule 14D-9 including such
statement, within ten business days after the commencement of the U.S. Offer.
Pharmacia filed its Schedule 14D-9 concurrently with the filing of the Schedule
14D-1 of the Company, Pharmacia and Upjohn. The Schedule 14D-9 contains the
Pharmacia Board's unanimous recommendation that holders of Pharmacia Securities
ACCEPT the Offer.
The U.S. Offer is being made to holders of ADSs and to U.S. Persons who
hold beneficially or of record Pharmacia Shares. Arrangements have been made so
that the U.S. Offer may also be accepted by Canadian Persons. In connection with
tenders of Pharmacia Securities, each holder tendering such securities into the
U.S. Offer will be required to certify that such holder is either a U.S. Person
or a Canadian Person. As used herein, the term "U.S. Person" has the meaning set
forth in Regulation S promulgated under the Securities Act; the term "United
States" means the United States of America including each of the 50 states and
the District of Columbia, its territories, its possessions and other areas
subject to its jurisdiction; and the term "Canadian Person" means any
individual, corporation, partnership, trust or other entity resident in Canada,
or any corporation, partnership, trust or other entity organized under or
governed by the laws of Canada or any political subdivision thereof.
In order to facilitate the making of the U.S. Offer, the Commission has
issued an order (the "Commission Order") granting the Company certain relief
with respect to certain of the Commission's rules pertaining to tender and
exchange offers in the United States under the Exchange Act, particularly with
respect to announcements of extensions and results of acceptances of tender and
exchange offers, withdrawal rights and the timing of exchange for, or return of,
tendered securities, as described herein.
U.S. Offer. The Company hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus and in the related Offer Letter of
Transmittal, to exchange for (i) each outstanding Pharmacia Class A Common Share
that is owned of record or beneficially by U.S. Persons, one share of New Common
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Stock, (ii) each outstanding Pharmacia Class B Common Share that is owned of
record or beneficially by U.S. Person, one share of New Common Stock, and (iii)
each outstanding ADS, whether or not held by U.S. Persons, one share of New
Common Stock (the "Offer Exchange Ratio").
Conditions. The Offer is conditioned upon the satisfaction or, if
permissible, waiver of the Combination Conditions. See Section 9 below.
Compulsory Acquisition. As described in Section 8 below, the Offer is part
of a plan for the Company to acquire the entire equity interest in Pharmacia.
If, as a result of the Offer or otherwise, the Company acquires Pharmacia
Securities representing more than 90 percent of the share capital of Pharmacia
and voting rights of Pharmacia exercisable at a general meeting of stockholders
of Pharmacia, the Company intends to contribute all of the Pharmacia Securities
acquired in the Offer to Swedish Sub. Swedish Sub (and each remaining
stockholder of Pharmacia) would have the right under Sections 31 through 35 of
Chapter 14 of the Companies Act to commence a process leading to the Compulsory
Acquisition. If this level is obtained by the Company as a result of the Offer
or otherwise, the Company intends to cause Swedish Sub to exercise its right to
effect the Compulsory Acquisition, unless the parties mutually agree that there
is a more effective method of achieving the objectives of the Compulsory
Acquisition (in which case such method will be used). The Compulsory Acquisition
initiated by Swedish Sub will relate to all Pharmacia Securities.
Absent an agreement between Swedish Sub and all remaining holders of
Pharmacia Securities as to the price to be paid in the Compulsory Acquisition,
the price will be set by an arbitration tribunal convened under, and subject to,
the Companies Act. The tribunal will determine the price based on an evaluation
of the Company. Under Sections 31 through 35 of Chapter 14 of the Companies Act,
if an owner holding more than 90 percent of the share capital and voting rights
in a company has acquired the majority of such share capital through a tender
offer, there is a requirement that the compulsory acquisition price be the same
as the value of the consideration paid in its offer for such share capital,
unless there are special reasons for a different price. Where the consideration
is shares, the tribunal typically determines the value of the bidder's shares in
order to determine the price in the Compulsory Acquisition. No assurance can be
given that the price to be paid for Pharmacia Securities in the Compulsory
Acquisition would be equal to the value of the New Common Stock as of the
Effective Time.
After the arbitration tribunal has been constituted and if it confirms that
Swedish Sub has the right to effect the Compulsory Acquisition, Swedish Sub will
have the right to terminate the equity rights of the holders of Pharmacia
Securities (other than Swedish Sub) upon posting appropriate security for
payments to be made in connection with the Compulsory Acquisition. Interest is
set by the tribunal, payable on the price finally determined, typically from the
date of commencement of the Compulsory Acquisition process to the date of
payment. The Company presently intends to cause Swedish Sub to post security and
terminate equity rights pursuant to a Compulsory Acquisition as soon as
reasonably practicable after it is legally permitted to do so. While no
assurance can be given as to the interval of time between the commencement of
the Compulsory Acquisition process and the posting of security, in other
transactions this interval has typically ranged from four to eight months.
Payment will be made after the tribunal has determined the price and may be
withheld until any appeals from the decision of the tribunal have been resolved.
Fees of Tendering Securityholders. Tendering stockholders of Pharmacia
will not be obligated to pay brokerage fees or commissions. The Company will
bear all charges and expenses of Morgan Stanley and Goldman Sachs, which are
acting as dealer managers for the U.S. Offer on behalf of the Company (the
"Dealer Managers"). The Company will bear all charges and expenses of Citibank,
N.A. (the "Depositary") and D.F. King & Co., Inc., which is acting as
information agent in the United States on behalf of the Company in connection
with the U.S. Offer (the "Information Agent").
ADS Facility. Citibank, N.A., which currently acts as the depositary bank
for the ADSs (in such capacity, the "ADS Bank"), has advised the Company that,
as of September 14, 1995, there were 12,773,234 ADSs outstanding, held of record
by 78 ADS holders. Pharmacia has instructed the ADS Bank that from and after
September 18, 1995, it should only deliver ADSs against deposits of Pharmacia
Class A Common Shares by persons who certify to the ADS Bank in proper form
that, among other things, they are either U.S. Persons
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or Canadian Persons. Requests for appropriate forms may be directed to the ADS
Bank at Citibank, N.A., at 111 Wall Street, 5th Floor, ADR Department, telephone
1-800-422-2066.
Canadian Holders. The New Common Stock has not been qualified for
distribution under provincial securities laws in Canada. However, such laws
provide exemptions in certain circumstances from normally applicable
registration and prospectus requirements where securities as in the current
instance are issued in connection with a takeover bid. Exemptions from otherwise
applicable takeover bid requirements may be available either because offers are
made to a limited number of persons in respect of a minimum number of shares and
are prepared in accordance with the rules of the Commission or because of other
exemptions available under the applicable securities laws of the various
Canadian provinces. Holders of Pharmacia Securities that are Canadian Persons
may tender their Pharmacia Securities into the U.S. Offer on the same basis as
U.S. Persons, and, if they so desire, should complete the Offer Letter of
Transmittal to do so. Exchanges of Pharmacia Securities for shares of New Common
Stock with holders of Pharmacia Securities that are Canadian Persons will be
made on the same basis as such exchanges with U.S. Persons. HOLDERS OF PHARMACIA
SECURITIES THAT ARE CANADIAN PERSONS SHOULD CONSULT THEIR OWN TAX ADVISORS FOR
ADVICE ON THE CANADIAN TAX IMPLICATIONS OF THE U.S. OFFER.
Other. The New Common Stock that the Company hereby offers to exchange for
Pharmacia Securities pursuant to this Prospectus has been registered under the
Securities Act, and is described in detail, together with financial and other
information concerning the Company, elsewhere in this Prospectus, which is
included in the Registration Statement. Application will be made to list the New
Common Stock on the NYSE, and the SDSs on the SSE, and the Company expects that
New Common Stock will be quoted on SEAQ International. In addition, the Company
will use its reasonable best efforts to secure a listing of the New Common Stock
on the LSE.
For additional information concerning the Company, see Section 6 below.
THIS PROSPECTUS AND THE RELATED OFFER LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION THAT SHOULD BE READ BEFORE ANY DECISION IS MADE WITH
RESPECT TO ACCEPTING THE U.S. OFFER.
SECTION 1. TERMS OF THE U.S. OFFER; NUMBER OF SHARES; EXPIRATION DATE
General. Upon the terms and subject to the conditions set forth in the
U.S. Offer, as may be amended or supplemented from time to time, the Company
will, in connection with the U.S. Offer, accept for exchange, and exchange all
outstanding Pharmacia Securities subject to the U.S. Offer that are validly
tendered during the Offer Period and not withdrawn prior to the Expiration Date
in accordance with the procedures set forth in Section 3 below. The term "Offer
Period" shall mean the Initial Offer Period, the Interim Offer Period and, if
applicable, the Final Offer Period. The term "Initial Expiration Date" shall
mean 12:00 noon, New York City time on October 20, 1995, unless and until the
Company extends the Initial Offer Period upon the termination of the Interim
Offer Period or otherwise in accordance with the terms and conditions of the
U.S. Offer, in which case the Initial Expiration Date shall mean the latest time
and date at which the Initial Offer Period, as so extended, shall expire. During
the Interim Offer Period, the Offer will continue to be extended to holders of
Pharmacia Securities but withdrawal rights will not be available. If, at the end
of the Interim Offer Period, it has been determined that the Minimum Condition
has been satisfied or will be waived in accordance with the Combination
Agreement, then, subject to the applicable regulations of the Commission and the
SSE, the Company may determine to extend the Offer to the Final Expiration Date.
If, at the end of the Interim Offer Period, the Minimum Condition is determined
not to be satisfied, and the Company determines not to waive such condition, the
Initial Offer Period will be extended in accordance with the terms and
conditions of the U.S. Offer effective as of the last scheduled Initial
Expiration Date, and the Initial Offer Period will expire on the next scheduled
Initial Expiration Date. In the event that any of the Combination Conditions
other than the Minimum Condition has not been satisfied or waived by the end of
the Initial Offer Period, subject to the terms and conditions of the U.S. Offer,
the U.S. Offer would be extended pending the satisfaction of, or a determination
to waive any such condition and, during any such extension, withdrawal rights
would be available to holders of Pharmacia Securities.
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NO ASSURANCE CAN BE GIVEN THAT THE COMPANY WILL EXTEND THE OFFER TO THE
FINAL EXPIRATION DATE AND THAT PHARMACIA STOCKHOLDERS WILL HAVE AN OPPORTUNITY
TO TENDER THEIR PHARMACIA SECURITIES INTO THE OFFER AFTER THE END OF THE INTERIM
OFFER PERIOD.
HOLDERS OF PHARMACIA SECURITIES WILL NOT HAVE THE RIGHT TO WITHDRAW THEIR
PHARMACIA SECURITIES FROM THE OFFER DURING THE INTERIM OFFER PERIOD OR, IF
APPLICABLE, THE FINAL OFFER PERIOD.
The Company expressly reserves the right, in its sole discretion, at any
time or from time to time, to extend the Offer Period for the U.S. Offer for any
reason, including the occurrence of any of the events specified in the
conditions set forth in Section 9 below, by giving oral or written notice of
such extension to the Depositary. It is the current intention of the Company
that the U.S. Offer will be extended if the Swedish Offer is similarly extended.
Subject to the applicable rules and regulations of the Commission and the
SSE, the Company also reserves the right, in its sole discretion, at any time,
to (i) delay acceptance for exchange of and, regardless of whether any Pharmacia
Securities have theretofore been accepted for exchange, delay delivery of shares
of New Common Stock for any Pharmacia Securities tendered into the U.S. Offer
pending receipt of any governmental or other regulatory approvals or other
actions specified in "Risk Factors -- Regulatory Approvals," (ii) terminate the
U.S. Offer and not accept for exchange any Pharmacia Securities upon the
occurrence of any of the events specified in the conditions set forth in Section
9 below, and (iii) waive (to the extent permissible) any condition described in
Section 9 below, or otherwise amend the U.S. Offer in any respect, by giving
oral or written notice of such delay, termination or amendment to the Depositary
and by making a public announcement thereof. Pharmacia and Upjohn may jointly
cause the Company to take certain actions, including waiving any of the
Combination Conditions. The Company has agreed to take all such actions if so
directed.
Without limiting the manner in which the Company may choose to make any
public announcement, whether in connection with an extension, delay,
termination, amendment or waiver of any of the terms of the U.S. Offer, and
except as provided by applicable law, the Company shall have no obligation to
publish, advertise or otherwise communicate any such public announcement other
than by making a press release to the Dow Jones News Service. If such press
release relates to an extension of the U.S. Offer, the Company shall issue such
press release no later than 9:00 a.m. on the next business day after the
scheduled termination of the U.S. Offer. For purposes of the U.S. Offer, a
"business day" means any day other than a Saturday, Sunday or federal holiday
and consists of the time period from 12:01 a.m. through 12:00 midnight, New York
City time.
Other. The U.S. Offer is conditioned upon the satisfaction or, if
permissible, waiver of the Combination Conditions. See Section 9 below.
The Company will not accept for exchange any Pharmacia Securities tendered
into the U.S. Offer and Swedish Offer during the Offer Period unless all
Pharmacia Securities validly tendered into the U.S. Offer and Swedish Offer and
not withdrawn prior to the Expiration Date are accepted for exchange.
The Depositary has provided the Company with a list of record holders of
ADSs for the purpose of disseminating the U.S. Offer to holders of ADSs.
Pharmacia has arranged for the Company to obtain a list of holders of record of
other Pharmacia Shares that have registered addresses in the United States or
Canada and who are believed by Pharmacia to be U.S. Persons or Canadian Persons,
as well as the names of foreign nominees that are believed to be holding ADSs or
Pharmacia Shares on behalf of U.S. Persons or Canadian Persons. This Prospectus,
the Offer Letter of Transmittal and other related materials will be mailed by
the Company to such record holders and will be furnished by the Company to
brokers, dealers, commercial banks, trust companies and similar persons whose
names, or the names of whose nominees, appear on such lists for subsequent
transmittal to beneficial owners of Pharmacia Securities, or who otherwise
indicate to the Company that they are holding Pharmacia Securities for the
benefit of U.S. Persons or Canadian Persons.
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SECTION 2. PROCEDURES FOR TENDERING PHARMACIA SECURITIES
General. In order for a holder of Pharmacia Securities to validly tender
Pharmacia Securities pursuant to the U.S. Offer, an offer letter of transmittal
(the "Offer Letter of Transmittal") or facsimile copy thereof, properly
completed and duly executed, together with any other required documents to the
Depositary specified therein and, in the case of holders of ADSs only,
certificates evidencing tendered ADSs, must be received by the Depositary at one
of its addresses set forth on the back cover of this Prospectus prior to the
Expiration Date. In order for a holder of ADSs to validly tender such ADSs
either (a) the Offer Letter of Transmittal and other required documents, as
described in the preceding sentence, must be delivered as described in the
preceding sentence or (b) in the case of holders of ADSs tendering their ADSs
pursuant to a book-entry transfer, an Agent's Message (as defined below) and any
other required documents, must be received by the Depositary at one of its
addresses set forth on the back cover of this Prospectus, and either
certificates representing such ADSs must be received by the Depositary at one of
such addresses or be delivered pursuant to the procedures for book-entry
transfer set forth below and a confirmation thereof must be received by the
Depositary, in each case prior to the Expiration Date or (c) such holder must
comply with the Guaranteed Delivery Procedures (as defined below).
ANY STOCKHOLDER WHOSE PHARMACIA SECURITIES ARE REGISTERED IN THE NAME OF A
BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE MUST CONTACT
SUCH PERSON IF SUCH STOCKHOLDER DESIRES TO TENDER SUCH PHARMACIA SECURITIES.
In order to accept the U.S. Offer, a holder of Pharmacia Shares will need
to certify that such holder is either a U.S. Person or a Canadian Person, or is
holding such Pharmacia Shares on behalf of a U.S. Person or Canadian Person.
Holders of ADSs do not need to make such certification in order to accept the
U.S. Offer.
THE METHOD OF DELIVERY OF CERTIFICATES REPRESENTING ADSS AND ALL OTHER
REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY
(AS DEFINED BELOW), IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER. IF
DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ENSURE TIMELY DELIVERY.
If certificates for ADSs are forwarded separately to the Depositary, a
properly completed and duly executed Offer Letter of Transmittal (or a facsimile
copy thereof) must accompany each such delivery.
Book-Entry Transfer. THE FOLLOWING PROCEDURES ARE AVAILABLE ONLY TO
HOLDERS OF ADSS, AND ARE NOT AVAILABLE TO HOLDERS OF PHARMACIA SHARES. The
Depositary will establish accounts with respect to the ADSs at The Depository
Trust Company, the Midwest Securities Trust Company and the Philadelphia
Depository Trust Company (each a "Book-Entry Transfer Facility" and,
collectively, the "Book-Entry Transfer Facilities") for purposes of the U.S.
Offer, within two business days after the date of this Prospectus. Any financial
institution that is a participant in the system of any Book-Entry Transfer
Facility may make book-entry deliveries of ADSs by causing such Book-Entry
Transfer Facility to transfer such ADSs into the Depositary's account at such
Book-Entry Transfer Facility in accordance with that Book-Entry Transfer
Facility's procedure for such transfer. Although delivery of ADSs may be
effected through book-entry transfer at the Book-Entry Transfer Facilities, the
Offer Letter of Transmittal (or facsimile copy thereof), properly completed and
duly executed, together with any required signature guarantees and any other
required documents and an Agent's Message, must, in any case, be received by the
Depositary at one of its addresses set forth on the back cover of this
Prospectus prior to the Expiration Date, or the tendering stockholder must
comply with the Guaranteed Delivery Procedures described below. DELIVERY OF
DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE
DEPOSITARY.
The confirmation of a book-entry transfer of ADSs into the Depositary's
account at a Book-Entry Transfer Facility as described above is referred to
herein as a "Book-Entry Confirmation." The term "Agent's Message" means a
message transmitted by a Book-Entry Transfer Facility to, and received by, the
Depositary and forming a part of a Book-Entry Confirmation, which states that
such Book-Entry Transfer Facility has
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received an express acknowledgement from the participant in such Book-Entry
Transfer Facility tendering ADSs that such participant has received and agrees
to be bound by the terms of the Offer Letter of Transmittal and that the Company
may enforce such agreement against the participant.
Signature Guarantees. No signature guarantee is required on Offer Letters
of Transmittal if Pharmacia Securities are tendered (a) by a registered holder
of Pharmacia Securities that has not completed either the box entitled "Special
Delivery Instructions" or the box entitled "Special Payment Instructions" on the
Offer Letter of Transmittal or (b) for the account of financial institutions
(including most commercial banks, savings and loan associations and brokerage
houses) that is a participant in the Security Transfer Agents Medallion Program,
the New York Stock Exchange Medallion Signature Guarantee Program or the New
York Stock Exchange Medallion Program (an "Eligible Institution"). In all other
cases, all signatures on the Offer Letter of Transmittal must be guaranteed by
an Eligible Institution. See Instructions 1 and 5 to the Offer Letter of
Transmittal. If the certificates for ADSs are registered in the name of a person
other than the signer of the Offer Letter of Transmittal, or if exchange is to
be made with, or if the certificates for New Common Stock to be issued pursuant
to the U.S. Offer are to be issued to, or if the certificates for ADSs not
accepted for exchange or not tendered are to be returned to, a person other than
the registered owner(s) of ADSs so surrendered, then the certificates for ADSs
so tendered must be endorsed or accompanied by appropriate stock powers, in
either case signed exactly as the name(s) of the registered owner(s) appear on
the certificates for ADSs, with the signature(s) on such certificates or stock
powers guaranteed as aforesaid. See Instructions 1 and 5 to the Offer Letter of
Transmittal.
Guaranteed Delivery. THE FOLLOWING PROCEDURES ARE AVAILABLE ONLY TO
HOLDERS OF ADSS AND ARE NOT AVAILABLE TO HOLDERS OF PHARMACIA SHARES. If a
holder of ADSs desires to tender ADSs pursuant to the U.S. Offer and such
holder's certificates are not immediately available, or the procedures for
book-entry transfer cannot be completed on a timely basis, or time will not
permit all required documents to reach the Depositary prior to the Expiration
Date, such ADSs may nevertheless be tendered, provided all the following
conditions are satisfied (the "Guaranteed Delivery Procedures"):
(a) such tender is made by or through an Eligible Institution;
(b) a properly completed and duly executed Notice of Guaranteed
Delivery substantially in the form provided by the Company is received
by the Depositary, as provided below, prior to the Expiration Date; and
(c) the certificates for all tendered ADSs (or, in the case of
book-entry transfer of any ADSs into the Depositary's account at a
Book-Entry Transfer Facility, an Agent's Message and timely Book-Entry
Confirmation as described above), in proper form for transfer, in each
case, together with an Offer Letter of Transmittal (or facsimile copy
thereof) properly completed and duly executed, with any required
signature guarantees and any other documents required by the Offer
Letter of Transmittal, are received by the Depositary within three NYSE
trading days after the date of execution of such Notice of Guaranteed
Delivery.
The Notice of Guaranteed Delivery may be delivered by hand to the
Depositary or transmitted by telegram, facsimile transmission or mail to the
Depositary and must include a guarantee by an Eligible Institution in the form
set forth in such Notice of Guaranteed Delivery.
Notwithstanding any other provision hereof, delivery of the New Common
Stock accepted for exchange pursuant to the U.S. Offer will in all cases be made
only after timely receipt by the Depositary of certificates evidencing such ADSs
(or timely Book-Entry Confirmation with respect to such ADSs), and an Offer
Letter of Transmittal (or facsimile copy thereof) properly completed and duly
executed, together with any required signature guarantees or, in the case of a
book-entry transfer, an Agent's Message and any other required documents.
The valid tender of Pharmacia Securities pursuant to one of the procedures
described above will constitute a binding agreement between the tendering
stockholder and the Company upon the terms and subject to the conditions of the
U.S. Offer.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of any tender of
Pharmacia Securities will be determined by the Company with respect to the
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U.S. Offer, in its sole discretion, which determination shall be final and
binding on all parties. The Company reserves the absolute right to reject any or
all tenders determined by it not to be in proper form, or the acceptance for
exchange of which may, in the opinion of its counsel, be unlawful. The Company
also reserves the absolute right to waive any defect or irregularity in the
tender of any Pharmacia Securities. No tender of Pharmacia Securities will be
deemed to have been validly made until all defects or irregularities relating
thereto have been cured or waived. None of the Company, the Depositary, the
Information Agent, the Dealer Managers or any other person will be under any
duty to give notification of any defects or irregularities in tenders or incur
any liability for failure to give any such notification. The interpretation by
the Company of the terms and conditions of the U.S. Offer (which includes the
Offer Letter of Transmittal and the instructions thereto) will be final and
binding.
If the Offer Letter of Transmittal or any certificates or stock powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Depositary, proper evidence satisfactory to the Depositary of their
authority to so act must be submitted.
Other Requirements. By executing the Offer Letter of Transmittal, a
tendering stockholder will irrevocably appoint designees of the Company as such
stockholder's attorneys-in-fact and proxies, with full power of substitution, in
the manner set forth in the Offer Letter of Transmittal, to the full extent of
such stockholder's rights with respect to Pharmacia Securities tendered by such
stockholder and accepted for exchange by the Company in respect of the U.S.
Offer and with respect to any and all other Pharmacia Securities or other
securities issued or issuable in respect of such Pharmacia Securities on or
after the date hereof. All such proxies shall be considered coupled with an
interest in the tendered Pharmacia Securities. Such appointment will be
effective when, and only to the extent that, the Company accepts such Pharmacia
Securities for exchange pursuant to the U.S. Offer. Upon such acceptance for
exchange, all prior proxies given by such stockholder will be revoked without
further action, and no subsequent proxies may be given nor any subsequent
written consents executed (and, if given or executed, will not be deemed
effective). The designees of the Company will be empowered to exercise all
voting and other rights of such stockholder as the Company, in its sole
discretion, may deem proper at any annual or special meeting of Pharmacia's
stockholders or any adjournment or postponement thereof, by written consent in
lieu of any such meeting or otherwise. The Company reserves the right to require
that, in order for Pharmacia Securities to be deemed validly tendered,
immediately upon their exchange for such New Common Stock, the Company must be
able to exercise full voting rights with respect to such Pharmacia Securities.
The acceptance of Pharmacia Securities by the Company pursuant to any of
the procedures described above will constitute a binding agreement between the
tendering stockholder and the Company upon the terms and subject to the
conditions applicable to the U.S. Offer.
SECTION 3. WITHDRAWAL RIGHTS
The Company acknowledges that Rule 14d-7 under the Exchange Act provides
that stockholders of a company that is the subject of an exchange offer who have
tendered their shares of such company's stock have the right to withdraw such
tendered shares at any time during the pendency of the exchange offer. However,
pursuant to the Commission Order, the Commissioner has granted the Company
certain relief from the provisions of Rule 14d-7. Tenders of Pharmacia
Securities in the U.S. Offer are irrevocable, except as otherwise provided in
this section. During the Initial Offer Period, Pharmacia Securities tendered
pursuant to the U.S. Offer may be withdrawn pursuant to the procedures set forth
below at any time during the Initial Offer Period (or any extension thereof).
HOLDERS OF PHARMACIA SECURITIES WILL NOT HAVE WITHDRAWAL RIGHTS DURING ANY
INTERIM OFFER PERIOD OR, IF APPLICABLE, THE FINAL OFFER PERIOD.
To be effective, a written notice of withdrawal or a telegraphic or
facsimile transmission thereof must be timely received by the Depositary at one
of its addresses set forth on the back cover of this Prospectus and must specify
the name of the person having tendered Pharmacia Securities to be withdrawn, the
number and type of Pharmacia Securities to be withdrawn and (if certificates
have been tendered) the name of the registered holder of Pharmacia Securities,
if different from the name of the person who tendered Pharmacia
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Securities. If certificates have been delivered or otherwise identified to the
Depositary, then, prior to the physical release of such Pharmacia Securities,
the identification numbers shown on such certificates must be submitted and,
unless Pharmacia Securities evidenced by such certificates have been tendered by
an Eligible Institution, the signatures on the notice of withdrawal must be
guaranteed by an Eligible Institution. If ADSs have been delivered pursuant to
the procedures for book-entry transfer set forth in Section 2 above any notice
of withdrawal must also specify the name and number of the account at the
appropriate Book-Entry Transfer Facility to be credited with the withdrawn
Pharmacia Securities and otherwise comply with such Book-Entry Transfer
Facility's procedures.
Withdrawals of tendered Pharmacia Securities may not be rescinded, and any
Pharmacia Securities properly withdrawn will thereafter be deemed not validly
tendered for the purposes of the U.S. Offer. However, withdrawn Pharmacia
Securities withdrawn during the Initial Offer Period may be re-tendered by
following one of the procedures described in Section 2 above at any time during
the Offer Period.
All questions as to the validity (including time of receipt) of notices of
withdrawal with respect to the U.S. Offer will be determined by the Company in
its sole discretion, whose determination will be final and binding. None of the
Company, the Depositary, the Dealer Managers, the Information Agent or any other
person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
SECTION 4. ACCEPTANCE FOR EXCHANGE; DELIVERY OF NEW COMMON STOCK
Upon the terms and subject to the conditions of the U.S. Offer (including,
if the U.S. Offer is extended or amended, the terms and conditions of any such
extension or amendment), the Company will accept for exchange, and will
exchange, as promptly as practicable after the Expiration Date, all Pharmacia
Securities validly tendered into the U.S. Offer prior to the Expiration Date and
not withdrawn in accordance with the procedures set forth in Section 3 above.
Subject to applicable rules of the Commission, the Company expressly reserves
the right to delay acceptance for exchange of, or delivery of any consideration
for, Pharmacia Securities tendered into the U.S. Offer pending receipt of any
governmental or other regulatory approvals, orders or actions specified in "Risk
Factors -- Regulatory Approvals."
In all cases, exchange for Pharmacia Securities accepted for exchange
pursuant to the U.S. Offer will be made only after timely receipt by the
Depositary of an Offer Letter of Transmittal (or facsimile copy thereof)
properly completed and duly executed (together with any required signature
guarantees or, in the case of a book-entry transfer of ADSs, an Agent's Message)
and any other documents required by the Offer Letter of Transmittal and, in the
case of ADSs, certificates evidencing such ADSs (or a timely Book-Entry
Confirmation with respect to such ADSs).
For purposes of the U.S. Offer, the Company will be deemed to have accepted
for exchange, and thereby acquired, Pharmacia Securities validly tendered to it
pursuant to the U.S. Offer and not withdrawn as, if and when the Company gives
oral or written notice to the Depositary of its acceptance for exchange of such
Pharmacia Securities tendered pursuant to the U.S. Offer.
In accordance with customary Swedish practice regarding determining the
level of acceptances of the Swedish Offers, it is anticipated that the Company
will be unable to announce the level of acceptances of the U.S. Offer until the
end of the Interim Offer Period, ten business days after the end of the Initial
Offer Period or any extension thereof. The Company acknowledges that Rule
14e-1(c) under the Exchange Act provides that an offeror must pay the
consideration offered or return the securities deposited by, or on behalf of,
securityholders promptly after the termination or withdrawal of an offer.
However, pursuant to the Commission Order, the Commission has granted the
Company certain relief from the provisions of Rule 14e-1(c). If, after
determination of the results of the Offer following the end of the Interim Offer
Period, it is determined that the Minimum Condition has not been satisfied and
will not be waived, and the Company determines to withdraw the Offer, all
tendered securities will be returned promptly thereafter to the holders thereof.
In accordance with the customary practice for tender and exchange offers in
Sweden, in the event the Offer is consummated, the certificates for shares of
New Common Stock to be delivered to holders of Pharmacia Securities pursuant to
the terms of the Offer will, however, not be made available to tendering
stockholders
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whose Pharmacia Securities have been accepted for exchange until approximately
one week after the Expiration Date. Accordingly, if the Offer is not extended
following the expiration of the Interim Offer Period, which will expire on or
around November 3, 1995 (the tenth business day after the Initial Expiration
Date), the Company expects to make such certificates available to tendering
stockholders on or around November 8, 1995. In the event that the Offer is
extended, such certificates are expected to be made available approximately one
week after the Expiration Date, as so extended. Delivery of the certificates for
shares of New Common Stock due to tendering stockholders will be made by deposit
with the Depositary of such certificates, and the date of such delivery shall be
the date such certificates are deemed to have been made available to tendering
stockholders for purposes of the U.S. Offer. The Depositary will act as agent
for tendering stockholders for the purpose of receiving the certificates for New
Common Stock from the Company and transmitting the same to tendering
stockholders.
The Company acknowledges that Rule 14e-1(d) under the Exchange Act provides
that an extension must be accompanied by a public announcement, which shall
include disclosure of the approximate number of securities deposited to date,
issued by 9:00 a.m., Eastern time, on the next business day after the scheduled
expiration date of the Offer. However, pursuant to the Commission Order, the
Commission has granted the Company certain relief from the provisions of Rule
14e-1(d). In accordance with the customary practice in Sweden with respect to
determining the level of acceptances in a Swedish exchange offer, it is
anticipated the Company will not announce the level of acceptances of the U.S.
Offer until approximately ten business days after the end of the Initial Offer
Period as the same may be extended.
If the Initial Offer Period is extended, the extension will be deemed to
have commenced as of the previous Initial Expiration Date and, accordingly,
shall include the Interim Offer Period. Consequently, Pharmacia Securities
tendered during an Interim Offer Period ending with an announcement of an
extension of the Offer will be deemed to be validly tendered and, subject to the
terms and conditions of the U.S. Offer, accepted for exchange. During any
extension, all Pharmacia Securities previously tendered and not withdrawn will
remain subject to the U.S. Offer into which such Pharmacia Securities were
originally tendered, subject to the available rights of a tendering stockholder
to withdraw such holder's Pharmacia Securities. See Section 3 above.
If the Company is delayed in its acceptance for exchange of, or issuance of
New Common Stock in exchange for, Pharmacia Securities or is unable to accept
for exchange, or issue New Common Stock in exchange for, Pharmacia Securities
pursuant to the U.S. Offer for any reason, then, without prejudice to the rights
of the Company with respect to the U.S. Offer under this Prospectus (but subject
to compliance with applicable rules of the Commission), the Depositary may
nevertheless, on behalf of the Company, retain tendered Pharmacia Securities,
subject to withdrawal rights as described in Section 3 above. Under no
circumstances will interest be paid, nor will any additional New Common Stock be
issued, by the Company, regardless of any delay in making such exchange.
If any tendered Pharmacia Securities are not accepted for exchange or
exchanged for any reason, in the case of ADSs, the certificates evidencing any
such ADSs will be returned, without expense to the tendering stockholder (or, in
the case of ADSs delivered by book-entry transfer of such ADSs into the
Depositary's account at a Book-Entry Transfer Facility pursuant to the
procedures set forth in Section 2 above, will be credited to an account
maintained at the appropriate Book-Entry Transfer Facility), as promptly as
practicable after the Expiration Date or termination of the U.S. Offer.
SECTION 5. CERTAIN U.S. INCOME TAX CONSEQUENCES
See "Tax Consequences of the Merger and the Offer -- United States Federal
Income Tax Consequences -- Tax Consequences to Pharmacia Stockholders" for a
summary of the United States federal income tax consequences to Pharmacia
stockholders that are U.S. Persons.
SECTION 6. CERTAIN INFORMATION CONCERNING THE COMPANY
The Company does not own of record any Pharmacia Securities and, except as
otherwise stated in this Prospectus (i) there have not been any contacts,
transactions or negotiations between the Company, any of its
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subsidiaries or, to the best knowledge of the Company, any of the directors or
executive officers of Upjohn, Pharmacia or the Company, on the one hand, and
Pharmacia or any of its directors, officers or affiliates, on the other,
concerning a merger, consolidation, or acquisition; a tender offer or other
acquisition of securities; an election of directors; or a sale or other transfer
of a material amount of assets, (ii) there are no current or proposed material
contracts, arrangements, understandings or relationships between the Company,
its controlling persons or subsidiaries or, to the best knowledge of any of the
persons listed in Schedule A or B hereto, on the one hand, and Pharmacia or any
of its controlling persons, subsidiaries, executive officers, or directors, on
the other, and (iii) neither the Company nor, to the best knowledge of the
Company, any of the persons listed in Schedule A or B hereto has any contract,
arrangement, understanding or relationship with any person with respect to any
Pharmacia Securities. See "Description of the Company -- Directors and Executive
Officers," "Description of Upjohn -- Directors and Executive Officers" and
"Description of Pharmacia -- Directors and Executive Officers."
SECTION 7. PURPOSE OF THE COMBINATION; PLANS FOR PHARMACIA
Holders of Pharmacia Securities do not have appraisal rights as a result of
the U.S. Offer and will not be entitled to payments other than pursuant to the
U.S. Offer and the Compulsory Acquisition. See "Summary -- The Offer and the
Compulsory Acquisition."
If for any reason the Compulsory Acquisition is not consummated, the
Company will evaluate its other alternatives. Such alternatives could include
purchasing additional Pharmacia Securities in the open market, in privately
negotiated transactions, in another tender or exchange offer or otherwise, or
taking no further action to acquire Pharmacia Securities. During the nine-month
period following termination of the Offer, under the Recommendation any such
additional purchases by the Company may not exceed the cash value of the Offer
but thereafter could be at prices greater or less than, or equal to, the price
to be paid for Pharmacia Securities in the U.S. Offer or the Swedish Offer, and
could be for cash or other consideration.
Rule 13e-3 under the Exchange Act applies to certain "going private"
transactions and requires, among other things, that certain financial
information concerning Pharmacia and certain information relating to the
fairness of a proposed transaction and the consideration offered to minority
stockholders in such transaction be filed with the Commission and disclosed to
stockholders prior to consummation or such transaction. Rule 13e-3 may, under
certain circumstances, apply to the Compulsory Acquisition or another business
combination following the purchase of Pharmacia Securities pursuant to the Offer
in which the Company seeks to acquire the remaining Pharmacia Securities not
held by it. The Company believes that Rule 13e-3 will not apply to its
participation in the Offer or to the Compulsory Acquisition.
SECTION 8. DIVIDENDS AND DISTRIBUTIONS
If, on or after the date hereof, Pharmacia should split, combine or
otherwise change any Pharmacia Securities or its capitalization, or disclose
that it has taken any such action, then, without prejudice to the rights of the
Company under Section 9 below, the Company may make such adjustments to the
purchase price (or portion thereof), Offer Exchange Ratio and other terms of the
U.S. Offer as it deems appropriate to reflect such split, combination or other
change.
SECTION 9. CERTAIN CONDITIONS OF THE U.S. OFFER
Notwithstanding any other term of the U.S. Offer, the Company shall not be
required to accept for exchange or, subject to the procedures described in
Section 4 above, to issue the shares of New Common Stock in exchange for, any
Pharmacia Securities tendered pursuant to the U.S. Offer, and may terminate or
amend the U.S. Offer or postpone the acceptance of, or exchange for, Pharmacia
Securities tendered pursuant thereto, unless the Combination Conditions shall
have been satisfied or, if permissible, waived. The Combination Agreement
provides that the Company will not waive any of the Combination Conditions
without the prior written consent of both Upjohn and Pharmacia, and will waive
any of the Combination Conditions if so directed by Upjohn and Pharmacia. See
"The Combination Agreement -- Conditions to the Combination."
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SECTION 10. FEES AND EXPENSES
Morgan Stanley and Goldman Sachs are acting as dealer managers in the
United States in connection with the U.S. Offer. Morgan Stanley is acting as
financial advisor to Pharmacia with respect to the Combination. Goldman Sachs is
acting as financial advisor to Upjohn with respect to the Combination. Neither
Morgan Stanley nor Goldman Sachs will be paid any additional compensation in
connection with services rendered as dealer managers. See "The
Combination -- Fairness Opinion."
The Company has retained D.F. King & Co., Inc. to act as the Information
Agent and Citibank, N.A. to act as Depositary in connection with the U.S. Offer.
The Information Agent may contact stockholders by mail, telephone, telex,
telegraph and personal interview and may request brokers, dealers, banks, trust
companies and other nominee securityholders to forward the materials for the
U.S. Offer to beneficial owners. The Information Agent and the Depositary each
will receive reasonable and customary compensation for their services, will be
reimbursed for certain reasonable out-of-pocket expenses and will be indemnified
against certain liabilities and expenses in connection therewith, including
certain liabilities under the United States federal securities laws.
The Company will not pay any fees or commissions to any broker or dealer or
other person (other than the Dealer Managers and the Information Agent) for
soliciting tenders of Pharmacia Securities pursuant to the U.S. Offer. Brokers,
dealers, commercial banks and trust companies will be reimbursed by the Company
for customer mailing and handling expenses incurred by them in forwarding
offering material of the Company to their clients.
SECTION 11. MISCELLANEOUS
The U.S. Offer is not being made to (nor will tenders of Pharmacia
Securities be accepted from or on behalf of) holders of Pharmacia Securities in
any jurisdiction in which the making of the U.S. Offer or the acceptance thereof
would not be in compliance with the laws of such jurisdiction. In any
jurisdiction the securities laws or blue sky laws of which require the U.S.
Offer to be made by a licensed broker or dealer, the U.S. Offer is being made on
behalf of the Company by the Dealer Managers or one or more registered brokers
or dealers that are licensed under the laws of such jurisdiction.
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THE COMBINATION
BACKGROUND OF THE COMBINATION
Over the past several years, Upjohn has explored a variety of strategies
designed to position it for the next decade and beyond. Senior management has
sought to build upon the strength of Upjohn's ethical pharmaceutical,
over-the-counter and animal health businesses. In addition, Upjohn has sought to
strengthen its position in its therapeutics businesses through licensing
arrangements with other pharmaceutical companies, and has entered into a number
of such arrangements. Upjohn also considered the possibility of a major joint
venture with, acquisition of, or merger with, another pharmaceutical company to
build upon Upjohn's resources and enable Upjohn to compete more effectively in
the worldwide ethical pharmaceutical, over-the-counter and animal health
markets. The Upjohn Board actively participated in the consideration of these
strategic alternatives.
Pharmacia's strategy has been to maintain and develop leading positions on
a global basis in selected pharmaceutical and other health care market segments.
In particular, Pharmacia has aimed to build upon its current strengths in
selected medical areas with clearly defined patient groups, in which purchasing
decisions are made by a relatively limited number of specialist doctors and
hospital purchasing groups. Pharmacia has also aimed to maintain a significant
presence in certain OTC segments where it seeks to develop health care products
with strong brand names. With respect to research and development, Pharmacia has
directed its efforts to develop new pharmaceuticals and other health care
products offering high therapeutic benefits in areas in which Pharmacia believes
it has the ability to establish a leading global position. Pharmacia has also
sought to expand the markets for its existing products by identifying new
indications as well as by expanding their international market penetration.
Pharmacia recognized that, except in the oncology and ophthalmics areas, it
lacked the critical mass necessary to distribute effectively in the United
States its newly developed products. In order to distribute such products in the
United States and to pursue its general business strategy, Pharmacia has
considered possible strategic alliances or acquisitions and pursued
opportunities to expand its research and development activities in the United
States. Pharmacia retained external consultants as advisors in connection with
its examination of strategic alliances and other investment opportunities.
The Combination arose out of discussions between Upjohn and Pharmacia which
began in March 1995 with respect to alternative forms of strategic
collaboration. Following exploratory discussions of such alternatives, in April
1995, Upjohn and Pharmacia came to believe that a combination of the two
companies would be the most desirable business opportunity and began discussions
regarding such a combination.
On May 4, 1995, Upjohn and Pharmacia executed, as is customary, a
Confidentiality Agreement providing for the exchange of confidential,
proprietary information between Upjohn and Pharmacia for the purpose of
evaluating the proposed Combination. Dr. John L. Zabriskie, Chairman and Chief
Executive Officer of Upjohn, and Mr. Jan Ekberg, President and Chief Executive
Officer of Pharmacia, met on April 25, 1995 and met with the senior management
of both companies on June 8 and 9, 1995, at which time they agreed there was a
basis for further discussions concerning the proposed Combination. On May 10,
1995 the Pharmacia Board met to discuss Pharmacia's U.S. strategy and was
informed that the management had initiated a discussion with a U.S. party
concerning a broad strategic collaboration also outside the U.S. On June 14 and
15, 1995, the Pharmacia Board met and discussed the global strategy of Pharmacia
and was informed in more detail as to the ongoing discussions with Upjohn and
strategic analyses made with regard to the proposed Combination. On June 19,
1995, the Upjohn Board met and was informed as to the status of the discussions
with Pharmacia.
In late June 1995, the parties' counsel and financial advisors commenced
detailed discussions regarding the possible terms of the Combination, including
structuring and documentation issues. The Pharmacia Board met on June 30, 1995
and was informed as to the status of the discussions and provided with
additional details of the proposed Combination. On July 17, 1995, the Upjohn
Board met and was advised of the status of the discussions. Senior management of
Upjohn and Pharmacia met during the weeks of July 24 and July 31 to discuss
various matters relating to the proposed combination and the development of a
business plan for the combined companies going forward.
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Following initial contacts in June, in July 1995, certain directors and
senior management of Pharmacia met with representatives of Volvo and Stattum to
discuss the proposed combination and to solicit the views of Volvo and Stattum
with respect thereto. Subsequent to that meeting, Volvo retained J.P. Morgan &
Co. as its financial advisor in connection with its consideration of the
proposed Combination. From time to time during the course of the negotiations,
the proposed combination was discussed among J.P. Morgan & Co., Morgan Stanley
and Goldman Sachs. Each of Volvo and Stattum has indicated its intention to
support the Combination by tendering its Pharmacia Shares into the Offer.
The parties' counsel and financial advisors continued their discussions
throughout August 1995. Senior management of Upjohn and Pharmacia met during the
week of August 7, 1995 to discuss various matters concerning the Combination and
the Combination Agreement. During the week of August 14, 1995, senior management
continued to discuss the terms of the Combination and the Combination Agreement
by telephone.
A special meeting of the Upjohn Board was held on August 12, 1995 to
discuss the progress of the negotiations. At that meeting, Upjohn's senior
management and counsel and financial advisor made detailed presentations to the
Upjohn Board. Another special meeting of the Upjohn Board was held on August 19,
1995 to consider the Combination and the related agreements. At that meeting,
Upjohn's senior management and counsel and financial advisors again made
detailed presentations to the Upjohn Board concerning all aspects of the
Combination. Following such presentations, the Upjohn Board unanimously approved
the Combination Agreement and the related agreements and voted unanimously to
recommend that holders of Upjohn Common Stock and Upjohn Preferred Stock vote
FOR adoption of the Combination Agreement.
Meetings of the Pharmacia Board were held on August 12 and 17, 1995 to
discuss the progress of the negotiations with Upjohn. In addition, on August 17,
1995, the Pharmacia Board authorized its President and Chief Executive Officer
to negotiate and enter into the Co-Promotion Agreement. A special meeting of the
Pharmacia Board was held on August 20, 1995 to consider the Combination and the
related agreements, at which the Pharmacia Board unanimously approved the
Combination Agreement and the related agreements, which had been reviewed in
detail with Pharmacia's management and the Pharmacia Board at various meetings
over the course of the negotiations, and voted unanimously to recommend that
holders of Pharmacia Securities ACCEPT the Offer.
On August 17, 1995, the Company and Merger Sub were incorporated in
Delaware for the purpose of facilitating the Combination. Pharmacia and Upjohn
each subscribed to 500 shares of New Common Stock, and the Company subscribed to
100 shares of the common stock, par value $.01 per share, of Merger Sub.
On August 20, 1995, the board of directors of the Company, by unanimous
written consent, authorized the execution, delivery and performance of the
Combination Agreement and the related agreements and, as sole stockholder of
Merger Sub, adopted the Combination Agreement. On August 20, 1995, the board of
directors of Merger Sub, by unanimous written consent, authorized the execution,
delivery and performance of the Combination Agreement.
REASONS FOR THE COMBINATION; BOARDS' RECOMMENDATIONS
Upjohn
The Upjohn Board believes that the terms of the Combination Agreement are
fair to, and in the best interests of, Upjohn and its stockholders and
unanimously recommends that the stockholders of Upjohn vote FOR adoption of the
Combination Agreement.
The Upjohn Board believes that the Merger offers the unique opportunity to
combine two already successful and financially sound companies to form the
Company, a company with the financial strength, product base, critical mass in
research and worldwide market reach to excel in the rapidly changing and
increasingly competitive global pharmaceutical industry. The Upjohn Board
considered the significant benefits associated with combining Upjohn's and
Pharmacia's pharmaceutical businesses in light of the Board's belief that the
Combination represents an excellent fit of the two companies' respective
strategic advantages in
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pharmaceutical research, crucial therapeutic areas and key geographic markets in
North America, Europe and Japan.
In arriving at its determination, the Upjohn Board considered a number of
factors, including the opinion of Goldman Sachs, financial advisor to Upjohn,
described herein. See "-- Fairness Opinions." In addition, the Upjohn Board
considered a number of factors, including, without limitation, the following:
1. The Upjohn Board's view that in the future large companies will be
better able to compete in the pharmaceutical industry and that the Company
will have the efficiencies of scale necessary to provide it with the
research, product development and marketing resources that are likely to be
critical to growth and success in the pharmaceutical industry.
2. The Upjohn Board's view that Upjohn's and Pharmacia's respective
cash flows and relatively low debt ratios will provide the Company with the
ability to pursue strategic acquisitions and invest in the development of
existing and new businesses, technologies and research programs.
3. The significant operating cost savings and revenue synergies that
the Company expects to achieve through the consolidation of Upjohn's and
Pharmacia's respective research and development programs and the
integration of overlapping manufacturing, distribution, sales and
administrative operations.
4. The Upjohn management's projections concerning the probable
financial performance and condition, business operations and prospects of
Upjohn as a separate entity and the Company on a pro forma combined basis.
5. The Upjohn Board's belief that Pharmacia's businesses are
complementary to those of Upjohn in terms of geographic strength and
therapeutic area concentration.
6. The opportunity the Combination will afford the Company to maximize
sales of existing and new products in the U.S., Europe and Japan, through
the combination of the sales and marketing organizations of Upjohn and
Pharmacia.
7. The Upjohn Board's view that the Combination will enable the
Company to achieve greater leadership in certain core pharmaceutical
segments such as oncology, diseases of the central nervous system,
infectious diseases, asthma, urinary incontinence and vascular disease,
through the expected launch of up to 28 product introductions from 1995
through 1998 consisting of 17 new products, eight existing products for new
indications, and three existing products that will be introduced in the
United States.
8. The fact that the stockholders of Upjohn will hold approximately
50% of the equity in the Company, assuming full acceptance of the Offer by
Pharmacia stockholders.
9. The role that Upjohn's management is expected to play in the
management of the Company and the Board's assessment of the experience and
skill of Upjohn's and Pharmacia's respective management teams.
10. The Upjohn Board's expectation that the Combination will be
accounted for as a "pooling of interests" for financial reporting purposes
and will be a tax free transaction to Upjohn's stockholders.
11. The Upjohn Board's assessment of Upjohn's strategic alternatives
to the Combination, including remaining an independent company, conducting
acquisitions, entering into joint ventures and merging or consolidating
with a party or parties other than Pharmacia.
12. The presentation of Upjohn's financial advisor, Goldman Sachs, and
the delivery of its oral opinion, subsequently confirmed in writing, that,
as of August 19, 1995, the Exchange Ratio was fair to the Upjohn
stockholders.
13. The fact that no gain or loss will be recognized by Upjohn, the
Company or the Merger Sub for United States federal income tax purposes.
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14. The fact that one-half of the Board of Directors of the Company
will be comprised of citizens of the United States or Canada and one-half
of the Board of Directors of the Company will be comprised of nationals of
Sweden or other European Union member states.
The Upjohn Board did not quantify or attempt to assign relative weights to
the specific factors considered in reaching its determination.
Pharmacia
The Pharmacia Board has determined that the terms of the Offer are fair to,
and in the best interests of, Pharmacia and its stockholders. Accordingly, the
Pharmacia Board unanimously recommends that the Pharmacia securityholders ACCEPT
the Offer.
The Pharmacia Board believes that the Combination is founded on sound
industrial logic and will inure to the benefit of the Pharmacia stockholders. In
addition, the Pharmacia Board believes that the Combination offers the
opportunity to create a substantial company with greater financial resources and
flexibility, competitive strengths and business opportunities than would be
possible for Pharmacia alone. In that regard, the Pharmacia Board concluded that
the Combination would increase significantly the two companies' diversity of
product lines and technologies and their market franchises and geographic
markets.
In reaching its determination, the Pharmacia Board consulted with
Pharmacia's management, as well as its legal and financial advisors, and
considered a number of factors, including, without limitation, the following:
1. Pharmacia's need to strengthen its global position, particularly in the
United States market, and to establish a presence in the United States within
the field of research and development.
2. The consolidation taking place among pharmaceutical companies and the
belief that a large company will be better able to compete in the pharmaceutical
industry, having the efficiencies of scale necessary to provide it with the
research, product development and marketing resources that are critical to
growth and success in the pharmaceutical industry.
3. Management's assessment of possible strategic alternatives for
Pharmacia.
4. Information concerning the financial performance and condition, business
operations and prospects of each of Upjohn and Pharmacia as separate entities
and on a pro forma combined basis.
5. Its belief that Upjohn's businesses provide an excellent geographic and
product fit with Pharmacia's businesses, especially for the U.S. market.
6. The ability the Combination will afford Pharmacia to utilize the core
technologies and knowledge of the Company, for example, in the fields of
biotechnology and advanced chemistry, to develop more rapidly cost-effective
pharmaceutical compounds.
7. The opportunity the Combination will afford the Company to achieve
improved positions in certain core pharmaceutical segments such as oncology,
metabolic diseases, critical care, neurological diseases and infectious
diseases.
8. Its belief that the Combination offers to Pharmacia a unique opportunity
to create a combined company with greater financial resources and flexibility,
competitive strengths and business opportunities than would be possible for
Pharmacia alone, and to fulfill its strategic objectives of global reach,
competitive strength and improved distribution capability for Pharmacia's
products.
9. The potential significant synergies that the Combination will achieve
through consolidation and integration of research and development programs and
certain manufacturing, distribution, sales, marketing and administrative
operations and functions of Pharmacia and Upjohn.
10. The fact that Upjohn and Pharmacia each have capable management teams
that have established track records, and that by combining the expertise of
Upjohn's and Pharmacia's managements, the Company
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should be better able to compete in the pharmaceutical industry than each of
Upjohn and Pharmacia alone and to take advantage of the opportunities that the
Combination may create.
11. The role that Pharmacia's experienced and proven management will play
in the overall management and development of the Company.
12. The fact that the board of directors of the Company will be equally
composed of Swedish/European and United States/Canadian individuals, and that
the Company will maintain a substantial connection with Sweden (including having
the annual general meeting of stockholders of the Company in Stockholm in
alternate years and having the SDSs listed on the SSE).
13. The fact that the Pharmacia stockholders will have approximately a 50%
(assuming full acceptance of the Offer by Pharmacia stockholders) equity
interest in a global pharmaceutical and healthcare company and will be able to
benefit from the significant synergies expected to result from the Combination.
14. The expectation that the Offer will not result in an immediate tax
charge to the stockholders of Pharmacia under Swedish and United States tax
laws.
15. The expectation that the Combination will be accounted for under
applicable United States accounting rules and the applicable Commission
accounting standards as a "pooling of interests" for financial reporting
purposes.
16. The likelihood of consummation of the Combination, including the terms
and conditions of the Combination Agreement, and the limited conditions to the
consummation of the Combination.
17. The written opinion of Morgan Stanley dated August 20, 1995 that, as of
the date of such opinion, as set forth in such opinion, the Offer Exchange Ratio
was fair from a financial point of view to the holders of the Pharmacia Shares.
In view of the wide variety of factors considered in connection with its
evaluation of the proposed Combination, the Pharmacia Board of Directors did not
find it practicable to, and did not, quantify or otherwise attempt to assign
relative weights to the specific factors considered in reaching its
determination.
FAIRNESS OPINIONS
Upjohn Financial Advisor
On August 19, 1995, Goldman Sachs delivered its oral opinion to the Upjohn
Board that, as of the date of such opinion, the Exchange Ratio was fair to the
Upjohn stockholders. Goldman Sachs subsequently confirmed such oral opinion by
delivery of its written opinion by delivery of its written opinion, dated as of
September 15, 1995.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS, DATED AS OF
SEPTEMBER 15, 1995, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED
HERETO AS ANNEX B TO THIS PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE.
UPJOHN STOCKHOLDERS SHOULD READ SUCH OPINION IN ITS ENTIRETY. GOLDMAN SACHS'
OPINION IS DIRECTED ONLY TO THE EXCHANGE RATIO AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER OF UPJOHN AS TO HOW SUCH STOCKHOLDER SHOULD
VOTE AT THE UPJOHN SPECIAL MEETING. THE SUMMARY OF THE OPINION OF GOLDMAN SACHS
SET FORTH IN THIS PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF SUCH OPINION.
In connection with its opinion, Goldman Sachs reviewed, among other things,
(i) the Combination Agreement; (ii) the Co-Promotion Agreement; (iii) the Annual
Reports to Stockholders and Annual Reports on Form 10-K or Form 20-F, as
applicable, of Upjohn and Pharmacia for, respectively, the five years ended
December 31, 1994 and the year ended December 31, 1994; (iv) certain interim
reports to stockholders of Upjohn and Pharmacia and, in the case of Upjohn,
Quarterly Reports on Form 10-Q; (v) certain other communications from Upjohn and
Pharmacia to their respective stockholders; (vi) the Prospectus dated June 16,
1994 related to Pharmacia's public offering of Class A Common Shares and ADSs;
and (vii) certain internal financial analyses and forecasts for Upjohn and
Pharmacia prepared by their respective managements and certain financial
analyses and forecasts for the combined operations of Upjohn and Pharmacia
prepared by their respective managements and provided to Goldman Sachs by
Upjohn. Goldman Sachs also held
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discussions with members of the senior management of Upjohn and Pharmacia
regarding the past and current business operations, financial condition and
future prospects of their respective companies and of the combined operations of
Upjohn and Pharmacia. In addition, Goldman Sachs reviewed the reported price and
trading activity for the Upjohn Common Stock and the Pharmacia Securities,
compared certain financial and stock market information for Upjohn and Pharmacia
with similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations in the pharmaceutical industry specifically and in other industries
generally and performed such other studies and analyses as it considered
appropriate.
Goldman Sachs relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by it for
purposes of its opinion. Goldman Sachs also relied upon the managements of
Upjohn and Pharmacia as to the reasonableness and achievability of the financial
and operating forecasts (and the assumptions and bases therefore) provided to
Goldman Sachs by Upjohn, and with Upjohn's consent Goldman Sachs assumed that
such forecasts, including, without limitation, projected cost savings and
operating synergies resulting from the Combination, reflect the best currently
available estimates and judgments of such respective managements and that such
projections and forecasts will be realized in the amounts and time periods
contemplated thereby. Goldman Sachs assumed with Upjohn's consent that the
Combination will be accounted for as a "pooling of interests" transaction under
generally accepted accounting principles. In addition, Goldman Sachs has not
made an independent evaluation or appraisal of the assets and liabilities of
Upjohn or Pharmacia or any of their respective subsidiaries and Goldman Sachs
has not been furnished with any such evaluation or appraisal.
The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its oral opinion to Upjohn's Board of
Directors on August 19, 1995. In connection with the written opinion of Goldman
Sachs attached hereto as Annex B, Goldman Sachs confirmed the appropriateness of
their reliance on the analyses used to render the oral opinion rendered on
August 19, 1995 by performing procedures to update certain of such analyses and
by reviewing the assumptions on which such analyses were based and the factors
considered in connection therewith.
Historical Stock Trading Analysis. Goldman Sachs examined the history of
the trading prices for the Upjohn Common Stock and the ADSs in relation to each
other for the past year. Goldman Sachs' analysis also showed that during the
thirty trading days prior to August 18, 1995, the Upjohn Common Stock traded at
a price as high as 1.59 times and as low as 1.57 times the then current ADS
price.
Selected Companies Analysis. Goldman Sachs reviewed and compared certain
financial information relating to Upjohn to corresponding financial information,
ratios and public market multiples for six publicly traded corporations in the
United States and 11 publicly traded companies in Europe: American Home Products
Corporation, Astra AB, Bayer AG, Bristol-Myers Squibb Company, Ciba-Geigy AG,
Eli Lilly & Company, Glaxo Wellcome plc, Merck & Company, Inc., Pfizer, Inc.,
Pharmacia AB, Roche Holding AG, Sandoz AG, Sanofi SA, SmithKline Beecham plc,
Synthelabo SA, Schering-Plough Corporation and Zeneca Group plc (the "Selected
Companies"). The Selected Companies were chosen because they are publicly-traded
companies with operations that for purposes of analysis may be considered
similar to Upjohn. Goldman Sachs calculated and compared various financial
multiples and ratios. The multiples of Upjohn were calculated using a price of
$39 5/8 per share of Upjohn Common Stock, the closing price of the Upjohn Common
Stock on the NYSE on August 18, 1995. The multiples and ratios for Upjohn and
each of the Selected Companies were based on the most recent publicly available
information. With respect to the Selected Companies, Goldman Sachs considered
Total Entity Value (i.e., market value of common equity plus preferred equity
and book value of debt less cash and marketable securities) as a multiple of the
latest twelve months ("LTM") sales, as a multiple of LTM earnings before
interest, taxes, depreciation and amortization ("EBITDA") and as a multiple of
LTM earnings before interest and taxes ("EBIT"). Goldman Sachs' analyses of the
Selected Companies indicated entity multiples of LTM sales, which ranged from
0.6x to 4.9x, LTM EBITDA, which ranged from 4.1x to 13.8x, and LTM EBIT, which
ranged from 8.4x to 16.9x, compared to entity multiples of 2.1x, 8.2x and 10.5x,
respectively, for Upjohn. Goldman Sachs also considered for the Selected
Companies estimated calendar year 1995 and 1996 price/earnings multiples, which
ranged from 11.3x to 19.5x for estimated calendar year 1995 and 9.8x to 16.8x
for estimated calendar year 1996 compared to 14.9x and 14.6x, respectively, for
Upjohn.
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Discounted Cash Flow Analysis. Goldman Sachs performed a discounted cash
flow analysis using Upjohn's management's projections. Operating cash flow
represents the amount of cash generated and available for principal, interest
and dividend payments after providing for ongoing business operations and taxes.
Goldman Sachs aggregated (x) the present value of the projected operating cash
flows over the five year period from 1996 through 2000 with (y) the present
value of the range of terminal values described below. Goldman Sachs calculated
Upjohn's terminal values in the year 2000 based on multiples ranging from 11x to
15x projected 2001 net income. These terminal values as well as the projected
cash flows for the years 1996 through 2000 were then discounted to present value
using discount rates from 11% to 15%. The various ranges for discount rates and
terminal value multiples were chosen to reflect judgments regarding theoretical
analyses of cost of capital and future growth rates. Based upon the foregoing
discounted cash flow analysis, the net present value per share of Upjohn Common
Stock ranged from $44.87 to $67.14.
Goldman Sachs also performed a discounted cash flow analysis with respect
to the New Common Stock to be received by Upjohn stockholders (based on the
Exchange Ratio of 1.45 shares of New Common Stock for each share of Upjohn
Common Stock) using Upjohn's and Pharmacia's managements' projections and
assuming the achievement of projected cost and revenue synergies.
Goldman Sachs, in applying a discounted cash flow analysis to the
management projections (including the synergies described above) for Upjohn and
Pharmacia, used the same multiples of terminal values and discount rates that
were used for the discounted cash flow analysis that was applied to Upjohn's
management's projections. Based upon the foregoing discounted cash flow
analysis, the net present value of the 1.45 shares of New Common Stock (the
"Upjohn Share Equivalent") to be received by Upjohn stockholders in exchange for
each share of Upjohn Common Stock ranged from $57.57 to $86.24.
Selected Combination Analysis. Goldman Sachs analyzed certain information
relating to eight selected transactions in the pharmaceutical industry since
1989, consisting of Marion-Merrell Dow Inc./Hoechst AG, Wellcome plc/Glaxo plc,
American Cyanamid Company/American Home Products Corporation, Sterling
Winthrop/Sanofi SA, Syntex Corporation/Roche Holding AG, Rorer Group
Inc./Rhone-Poulenc SA, SmithKline Beckman Corporation/Beecham Group and Squibb
Corporation/Bristol-Myers Company (the "Selected Combinations"). Such analysis
indicated that for the Selected Combinations (i) Total Entity Value as a
multiple of LTM sales ranged from 1.8x to 4.4x, and (ii) Total Entity Value as a
multiple of LTM EBIT ranged from 10.2x to 23.4x. The analysis also indicated
equity consideration as a multiple of LTM net income ranged from 15.8x to 38.7x.
No company or transaction used in the above analyses as a comparison is
identical to Upjohn, Pharmacia or the Combination. Accordingly, an analysis of
the results of the foregoing is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading value of the companies to which they are being compared.
Pro Forma Merger Analysis. Goldman Sachs prepared pro forma analyses of
the financial impact of the Combination using the Exchange Ratio. Using earnings
estimates for Upjohn and Pharmacia prepared by their respective managements as
well as publicly available research analysts' earnings estimates for the years
1995, 1996, 1997 and 1998 and assuming projected cost and revenue synergies were
achieved, Goldman Sachs compared the earnings per share ("EPS") of Upjohn Common
Stock, on a standalone basis, to the earnings per Upjohn Share Equivalent on a
pro forma basis. Based on such analyses, the proposed transaction would be
accretive to Upjohn's stockholders on an EPS basis in the years 1996, 1997 and
1998.
Contribution Analysis. Goldman Sachs reviewed certain historical and
estimated future operating and financial information (including, among other
things, sales, pharmaceutical sales, EBIT, net income, research and development
expenditures, market capitalization, total book value, tangible book value, cash
(net of debt) and total assets) for Upjohn, Pharmacia and the pro forma combined
company based on Upjohn's and Pharmacia's managements' forecasts for each of
Upjohn, Pharmacia and the Company for the years 1995 and 1996. Goldman Sachs'
analysis of the relative income statement contributions of Upjohn and Pharmacia
to the Company on a pro forma basis did not take into account any of the
synergies that may be realized following the Combination. The foregoing analysis
indicated that in 1995 Upjohn would have contributed 47.8% to combined sales,
47.5% to combined pharmaceutical sales, 48.9% to combined EBIT, 54.3% to
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combined research and development and 53.4% to combined net income. The analysis
described above also indicated that in 1996 Upjohn would have contributed 46.9%
to combined sales, 45.3% to combined pharmaceutical sales, 49.2% to combined
EBIT, 53.4% to combined research and development and 52.2% to combined net
income.
Stockholder Value Impact Analysis. Goldman Sachs also prepared an
illustrative analysis of the potential impact of the Combination on Upjohn
stockholder value. Based on 1996 earnings estimates (of both Upjohn's and
Pharmacia's managements and of the most recent publicly available research
analysts' estimates) and price/earnings multiples ranging from 13.4x to 15.0x,
Goldman Sachs calculated the implied values per share of Upjohn Common Stock and
New Common Stock. Goldman Sachs' analysis indicated an implied market price per
share of Upjohn's Common Stock under (i) Upjohn's management's view which ranged
from $40.65 to $45.45 and (ii) the analysts' view which ranged from $36.63 to
$40.95. The analyses of Goldman Sachs with respect to the New Common Stock
indicated implied market prices per Upjohn Share Equivalent under both Upjohn's
management's and the analysts' views which ranged from $43.47 to $48.60. Goldman
Sachs also analyzed the implied market price of the New Common Stock based upon
full realization in 1996 of the projected value at maturity of projected cost
synergies plus projected 1996 revenue synergies. This analysis indicated implied
market prices per Upjohn Share Equivalent under both management's and the
analysts' views which ranged from $51.52 to $57.60.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
transaction used in the above analyses as a comparison is identical to Upjohn or
Pharmacia or the Combination. The analyses were prepared exclusively for
purposes of Goldman Sachs' rendering its opinion to the Upjohn Board as to the
fairness of the Exchange Ratio and do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities actually may be
sold. Analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses. Because such analyses are inherently
subject to uncertainty, being based upon numerous factors or events beyond the
control of the parties or their respective advisors, none of Upjohn, Pharmacia,
the Company, Merger Sub, Goldman Sachs or any other person assumes
responsibility if future results are materially different from those forecast.
As noted in "The Merger -- Reasons for the Merger and Upjohn Board
Recommendation," Goldman Sachs' opinion to the Upjohn Board was only one of many
factors taken into consideration by the Upjohn Board in making its determination
to approve the Combination Agreement. The foregoing summary does not purport to
be a complete description of the presentation by Goldman Sachs to the Upjohn
Board and is qualified by reference to the written opinion of Goldman Sachs set
forth in Annex B hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. Upjohn selected Goldman
Sachs as its financial advisor because it is an internationally recognized
investment banking firm that has substantial experience in transactions similar
to the Combination. Goldman Sachs has provided certain investment banking
services to Pharmacia from time to time, including acting as a managing
underwriter of a public offering of Pharmacia Class A Common Shares and ADSs in
June, 1994.
Goldman Sachs provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on
securities of Upjohn and/or Pharmacia for its own account and for the account of
customers. Prior to Goldman Sachs' retention by Upjohn, Goldman Sachs had
accumulated a long position of 145,683 shares of Upjohn Common Stock, a short
position of 84,803 shares of Upjohn Common Stock and a short position of 750 OTC
call option contracts on shares of Upjohn Common Stock as well as a short
position of 17,700 Pharmacia Class A Common Shares, a long position of 52,200
ADSs and a short position of 10,000 ADSs.
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Pursuant to the terms of an engagement letter (the "Engagement Letter")
dated August 14, 1995, Upjohn is obligated to pay Goldman Sachs $5,300,000 for
acting as financial advisor in connection with the proposed Combination,
including rendering the fairness opinion described above. Pursuant to the terms
of the Engagement Letter, if the Combination is consummated, Upjohn will be
required to pay Goldman Sachs an additional $10,200,000. Whether or not the
proposed Combination is consummated, Upjohn has also agreed to reimburse Goldman
Sachs for its reasonable out-of-pocket expenses, including fees and
disbursements of counsel, and to indemnify Goldman Sachs and certain related
persons against certain liabilities relating to or arising out of its
engagement, including certain liabilities under the Federal securities laws.
Pharmacia Financial Advisor: Pharmacia retained Morgan Stanley to act as
its financial advisor in connection with the Combination. Morgan Stanley was
selected by Pharmacia to act as Pharmacia's financial advisor based on Morgan
Stanley's qualifications, expertise and reputation, as well as Morgan Stanley's
investment banking relationship and familiarity with Pharmacia. The Offer
Exchange Ratio was determined as a result of negotiations between Pharmacia and
Upjohn and was not determined or recommended by Morgan Stanley.
Morgan Stanley rendered to the Pharmacia Board at its meeting on August 20,
1995 its oral opinion, subsequently confirmed in writing, that, based upon and
subject to the various considerations set forth in the opinion, as of the date
of its opinion, the Offer Exchange Ratio was fair from a financial point of view
to holders of the Pharmacia Shares.
THE FULL TEXT OF THE OPINION OF MORGAN STANLEY DATED AUGUST 20, 1995, WHICH
SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN, IS ATTACHED AS ANNEX C TO THIS PROSPECTUS. PHARMACIA STOCKHOLDERS
ARE URGED TO READ THE OPINION CAREFULLY AND IN ITS ENTIRETY. MORGAN STANLEY'S
OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE OFFER EXCHANGE RATIO TO THE
HOLDERS OF PHARMACIA SECURITIES FROM A FINANCIAL POINT OF VIEW AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF PHARMACIA AS TO HOW SUCH
STOCKHOLDER SHOULD RESPOND TO THE OFFER. THE SUMMARY OF THE OPINION OF MORGAN
STANLEY SET FORTH IN THIS PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF SUCH OPINION.
In rendering its opinion, Morgan Stanley, among other things: (i) analyzed
certain publicly available financial statements and other information of
Pharmacia and Upjohn; (ii) analyzed certain internal financial statements and
other financial and operating data, including certain financial projections,
concerning Pharmacia and Upjohn prepared by the managements of Pharmacia and
Upjohn, respectively, and discussed certain of this data with senior executives
of Pharmacia and Upjohn; (iii) reviewed the reported prices and trading activity
for the Pharmacia Securities and the Upjohn Common Stock; (iv) compared the
financial performance of Pharmacia and Upjohn and the prices and trading
activity of the Pharmacia Securities and Upjohn Common Stock with that of
certain other comparable publicly traded companies and their securities; (v)
reviewed and discussed with the senior management of Pharmacia its assessment of
the strategic rationale for the transaction and the perceived benefits of the
transaction to the holders of Pharmacia Securities, based on senior management's
estimates of the potential cost savings and other synergies likely to be
achieved by the Company if the Combination is consummated (as set out in the
Joint Business Plan) and its assessment of the prospects for, and risks
associated with, Upjohn's products and research and development portfolio; (vi)
reviewed the likely impact of the Combination on the future earnings per share
for Pharmacia stockholders, based on the forecast financial performance of
Pharmacia and Upjohn set out in (ii) above and the cost savings and other
synergies discussed in (v) above; (vii) participated in certain discussions and
negotiations among representatives of Pharmacia and Upjohn and their advisors;
(viii) reviewed the Combination Agreement, the Registration Statement, including
this Prospectus and certain related documents including the proposed Company
Certificate and Company By-laws; and (ix) conducted such other analysis as
Morgan Stanley deemed appropriate.
Morgan Stanley assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by it for purposes of
rendering its opinion. With regard to the financial forecasts, Morgan Stanley
assumed that they were reasonably prepared on bases reflecting the best
currently available estimates of the future financial performance of Pharmacia
and Upjohn. Morgan Stanley assumed and relied upon the accuracy of advice
received from Enskilda with regard to certain Swedish aspects of the
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Merger, including but not limited to, the structuring of the SDS program and
certain Swedish capital markets and regulatory issues. Morgan Stanley also
assumed and relied upon the accuracy and completeness of the advice and opinions
of: (a) KPMG Bohlins AB and Mannheimer Swartling that the Combination will
satisfy the deferral provisions of Section 27 para 4 of the Swedish State Income
Tax Law and will therefore not result in any immediate taxation of the Swedish
holders of Pharmacia Shares; and (b) KPMG Bohlins AB (or another member of the
KPMG group) that the Combination will qualify as a "pooling of interests"
transaction for financial reporting purposes.
Morgan Stanley noted that the Combination Agreement and other documents
relating to the Combination included, among other things, certain provisions
designed to create a balance of control in the Company. Morgan Stanley also
noted that, as a result of the Offer Exchange Ratio, the stockholders of
Pharmacia and Upjohn will receive an essentially equal ownership share in the
Company, and that, accordingly, the Offer Exchange Ratio does not reflect a
change of control premium to either Pharmacia or Upjohn stockholders.
Morgan Stanley did not make any independent evaluation or appraisal of the
assets or liabilities of Pharmacia or Upjohn, nor was it furnished with any such
appraisals. Morgan Stanley's opinion stated that it is necessarily based on
economic, market and other conditions as in effect on, and the information made
available to Morgan Stanley as of the date of such, opinion.
The following is a brief summary of certain of the financial analyses
performed by Morgan Stanley in connection with the preparation of its opinion
letter and reviewed with the Pharmacia management and/or Pharmacia Board at
various meetings over the course of its assignment:
Stock Price Performance: As part of its analysis, Morgan Stanley reviewed
the recent stock market performances of Pharmacia and Upjohn and compared the
performance of each with the other. Morgan Stanley also compared the stock price
performance of each of Pharmacia and Upjohn with the respective selected
companies referred to below.
Pharmacia Selected Companies Analysis: Morgan Stanley also compared
certain publicly-available financial information of Pharmacia with a group of
several publicly traded companies in the pharmaceutical industry, including, but
not limited to, Astra AB, Hafslund Nycomed AS, Novo Nordisk A/S, Schering AG,
Synthelabo SA, Zeneca Group PLC and Rhone Poulenc Rorer Inc. Such financial
information included, among other things, market valuation, market value as a
multiple of earnings, and aggregate value as a multiple of revenue.
Upjohn Selected Companies Analysis: Morgan Stanley also compared certain
publicly-available financial information of Upjohn with a group of several
publicly traded companies in the pharmaceutical industry, including, but not
limited to, Eli Lilly and Company, Schering-Plough Corporation, Pfizer Inc,
Rhone Poulenc Rorer Inc, Merck & Co., Inc and Warner-Lambert Company. Such
financial information included, among other things, market valuation, market
value as a multiple of earnings, and aggregate value as a multiple of revenue.
Contribution Analysis: Morgan Stanley analysed Pharmacia's contribution to
the Company if the Combination were to be consummated. This analysis included:
(i) Market Value Contribution: Morgan Stanley compared the market values of each
of Pharmacia and Upjohn. Such analysis showed that during the period of
discussions between Pharmacia and Upjohn, Pharmacia's contribution to combined
market value ranged from approximately 42.6% to 49.7%, based on the number of
primary shares outstanding for each company. As part of this analysis, Morgan
Stanley analysed the capital structures of both Pharmacia and Upjohn, including
the Upjohn employee stock options and the Upjohn Preferred Stock; (ii) Income
Statement Contribution: Such analysis was based on financial data provided by
the managements of Pharmacia and Upjohn. The analysis showed (inter alia) that,
for 1996, with Pharmacia data stated on a Swedish GAAP basis, Pharmacia would
contribute approximately 52.6%, 51.7% and 49.3% of the revenues, EBIT (earnings
before interest and taxes) and net income of the combined company respectively
(excluding the impact of any share repurchase program). After adjusting the
Pharmacia data for U.S. GAAP, such analysis showed that, for 1996, Pharmacia
would contribute 47.0% of the net income of the combined company (excluding the
impact of any share repurchase program); (iii) Discounted Cash Flow Analysis:
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Morgan Stanley conducted a discounted cash flow analysis for each of Pharmacia
and Upjohn, based on financial data provided by the managements of Pharmacia and
Upjohn. Such analysis assumed terminal value multiples ranging from 7 to 9 times
EBIT, perpetual growth rates ranging from 4% to 6%, and discount rates of 13% to
17%. The analysis showed that, assuming mid-point terminal value EBIT multiples
and discount rates for each company, Pharmacia would contribute approximately
48.6% of the combined discounted cash flow value.
Pro Forma Analysis of the Combination: Morgan Stanley analyzed certain pro
forma effects of the Combination on the earnings and capitalization of the
Company. These analyses were based on certain forecasts provided by Pharmacia's
senior management regarding the financial performance of Pharmacia and certain
forecasts prepared by Upjohn's senior management regarding the financial
performance of Upjohn, as well as mean analyst estimates for both companies.
Based on such analysis, and after taking into account certain cost savings and
other synergies that Pharmacia management considered the Company could achieve
if the Combination were consummated, but before certain non-recurring costs,
Morgan Stanley observed that the Combination would result in accretion to
estimated earnings per share for Pharmacia stockholders for the fiscal years
ending December 31, 1996, 1997 and 1998. Morgan Stanley also analyzed the net
present value of the cost savings and other synergies that Pharmacia management
considered the Company could achieve if the Combination were consummated. Morgan
Stanley observed that, after taking into account certain non-recurring charges,
the after-tax net present value of a 50% share in such synergies ranged from
approximately $5.35 to approximately $6.38 per Pharmacia Share.
The summary of the Morgan Stanley analyses set forth above does not purport
to be a complete description of the work performed by Morgan Stanley and
presented to the management and/or the Pharmacia Board at various meetings over
the course of its assignment. Morgan Stanley believes that its analyses and the
summary set forth above must be considered as a whole and that selecting
portions of its analyses, or of the above summary, could create an incomplete
view of the process underlying the analyses performed by Morgan Stanley in
connection with the preparation of its opinion letter. In performing its
analyses, Morgan Stanley made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the control of Pharmacia or Upjohn. The analyses performed by
Morgan Stanley are not necessarily indicative of actual values or actual future
results, which may be significantly more or less favorable than suggested by
such analyses.
Morgan Stanley is an internationally recognized investment banking and
advisory firm. Morgan Stanley, as part of its investment banking business, is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for corporate and other purposes. Morgan Stanley makes
a market in both Pharmacia Securities and Upjohn Common Stock and may continue
to provide investment banking services to the Company in the future. In the
course of its market-making and other trading activities, Morgan Stanley may,
from time to time, have a long or short position in, and buy and sell,
securities of Pharmacia and Upjohn. Morgan Stanley and its affiliates provide
financial advisory and financing services to Pharmacia, Upjohn and Volvo and
have received customary fees in connection with these services.
If the Merger is successfully consummated, Pharmacia will pay Morgan
Stanley a transaction fee of $17,700,000. Pharmacia has agreed to reimburse
Morgan Stanley for its out-of-pocket expenses and to indemnify Morgan Stanley
and its affiliates, their respective directors, officers, agents and employees
and each person, if any, controlling Morgan Stanley, or any of its affiliates
against certain liabilities, including liabilities under federal securities
laws, and expenses, related to Morgan Stanley's engagement.
STOCK EXCHANGE LISTINGS
The Company expects to apply for listing of the New Common Stock on the
NYSE and the LSE and the SDSs on the SSE. The Company also expects that the New
Common Stock will be quoted on SEAQ International immediately following the
Effective Time. In addition, the Company has agreed to use its reasonable best
efforts to secure a listing of the New Common Stock on the LSE following the
Effective Time.
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It is a condition to the Combination that the shares of New Common Stock and the
SDSs issuable in the Merger and the Offer be approved for listing on the NYSE
and the SSE, respectively, upon official notice of issuance.
If the Combination is consummated, Upjohn Common Stock and the Pharmacia
Shares will cease to be listed on the NYSE and the SSE, respectively, and the
ADSs will cease to be designated as NASDAQ NMS securities. In such event, Upjohn
intends to apply to the SEC for the deregistration of the Upjohn Common Stock,
and Pharmacia intends to apply to the SEC for the deregistration of the ADSs.
FEDERAL SECURITIES LAW RESTRICTIONS
Upon consummation of the Combination, the Company will have approximately
504 million shares of New Common Stock outstanding, assuming full acceptance of
the Offer by Pharmacia stockholders, and 7,263 shares of New Preferred Stock
outstanding. These shares will be freely transferable under the Securities Act,
except for New Common Stock issued to any person deemed to be an affiliate of
the Company for purposes of Rule 145 under the Securities Act at the Effective
Time ("Affiliates"), except for New Common Stock issued in the Swedish Offer
(which may not be sold in the United States during a 40-day restricted period
following the Effective Time) and except for the shares of New Preferred Stock,
which will be restricted securities for purposes of the Securities Act.
Affiliates may not sell their shares of New Common Stock acquired in connection
with the Combination except pursuant to an effective registration statement
under the Securities Act covering such shares or in compliance with Rule 145 or
another applicable exemption from the registration requirements of the
Securities Act. Volvo, which owns Pharmacia Shares representing approximately
27.5% of the share capital and 27.8% of the voting rights, and Stattum, which
owns Pharmacia Shares representing approximately 14.1% of the share capital and
11.8% of the voting rights, may be deemed to be Affiliates for purposes of Rule
145. Pursuant to the Registration Rights Agreement, Volvo has agreed that it
will not sell, transfer, pledge, hypothecate, or otherwise dispose of any shares
of New Common Stock received by it in the Offer in violation of the Securities
Act and until after such time as consolidated financial statements reflecting at
least 30 days of combined operations have been published by the Company, except
as permitted by Staff Accounting Bulletin No. 76 issued by the staff of the
Commission.
Pursuant to the Registration Rights Agreement, Volvo will have certain
registration rights with respect to the shares of New Common Stock. The timing
of any sales or other dispositions by Volvo will depend on market and other
conditions, and could occur relatively soon after the Effective Time. See "The
Registration Rights Agreement." It is expected that Stattum will enter into an
agreement substantially similar to the Registration Rights Agreement.
ACCOUNTING TREATMENT
The Combination is expected to qualify as a "pooling of interests" under
U.S. GAAP and applicable Commission accounting rules. Accordingly, the assets
and liabilities of Upjohn and Pharmacia will be carried forward to the Company
at their historical recorded bases. Results of operations of the Company will
include the results of both Upjohn and Pharmacia for the entire fiscal year in
which the Combination occurred. The reported balance sheet amounts and results
of operations of the separate corporations for prior periods will be combined,
reclassified and conformed, as appropriate, to reflect the combined balance
sheets and statements of results of operations for the Company. It is a
condition to the consummation of the Offer and the Merger that the Company and
Pharmacia each receive from each of KPMG Bohlins AB one of Pharmacia's
independent accountants, (or another member of the the KPMG Group), and Coopers
& Lybrand L.L.P., Upjohn's independent accountants, a letter to the effect that
the respective independent accountants concur with the conclusions of Upjohn's
and Pharmacia's managements that the transaction contemplated herein, if
consummated as planned, will qualify for "pooling of interests" accounting
treatment under applicable U.S. and Swedish accounting rules including, without
limitation, applicable published rules and regulations of the SEC. See
"Unaudited Pro Forma Combined Financial Statements."
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THE COMBINATION AGREEMENT
The following description of certain terms of the Combination Agreement is
only a summary and does not purport to be complete. This discussion is qualified
in its entirety by reference to the complete text of the Combination Agreement
which is attached to this Prospectus as Annex A and is incorporated by reference
herein. Capitalized terms used in this section and not otherwise defined in this
Prospectus shall have the meanings ascribed to them in the Combination
Agreement.
THE MERGER
Effective Time of the Merger
The Combination Agreement provides that, provided that the Combination
Agreement has not been terminated in accordance with its terms, as promptly as
practicable after the satisfaction or, if permissible, waiver of the Combination
Conditions (or such other date as may be agreed to in writing by Pharmacia and
Upjohn), and substantially contemporaneously with the Company's acquisition of
Pharmacia Securities pursuant to the Offer, the parties will cause the Merger to
be consummated by filing a Certificate of Merger with the Secretary of State of
the State of Delaware in such form as required by, and executed in accordance
with Section 251 of, the DGCL.
Effects of the Merger
The Combination Agreement provides that, at the Effective Time, Merger Sub
will be merged with and into Upjohn. As a result of the Merger, (i) the separate
corporate existence of Merger Sub will cease and Upjohn will be the surviving
corporation after the Merger, (ii) the Certificate of Incorporation of Upjohn
will be amended and restated in its entirety to read as the Certificate of
Incorporation of Merger Sub as in effect immediately prior to the Effective
Time, and (iii) the By-laws of Merger Sub, as in effect immediately prior to the
Effective Time, will become the By-laws of Upjohn. The directors of Merger Sub
at the Effective Time will, from and after the Effective Time, become the
directors of Upjohn, and the officers of Upjohn at the Effective Time will, from
and after the Effective Time, continue to be the officers of Upjohn.
Consideration to be Received in the Merger
The Combination Agreement provides that, at the Effective Time, by virtue
of the Merger and without any action on the part of Upjohn, Merger Sub, the
Company or the holders of any shares of Upjohn Common Stock or Upjohn Preferred
Stock: (a) each share of Upjohn Common Stock issued and outstanding immediately
prior to the Effective Time (other than any shares of Upjohn Common Stock
described in clause (c) below) will be converted, subject to Section 2.02(e) of
the Combination Agreement, into the right to receive 1.45 shares of New Common
Stock; (b) each share of Upjohn Preferred Stock issued and outstanding
immediately prior to the Effective Time (other than any shares of Upjohn
Preferred Stock described in clause (c) below) will be converted into the right
to receive one share of New Preferred Stock; (c) each share of Upjohn Stock held
in the treasury of Upjohn and each share of Upjohn Stock owned by Pharmacia or
any direct or indirect wholly owned subsidiary of Pharmacia or of Upjohn will be
cancelled and extinguished without any conversion thereof and no payment shall
be made with respect thereto; and (d) each issued and outstanding share of
Merger Sub common stock will be converted into one validly issued, fully paid
and non-assessable share of common stock of Upjohn, as the surviving
corporation.
As promptly as practicable after the Effective Time, the Company will cause
the Exchange Agent to mail to each registered holder of an Upjohn Common Stock
certificate (y) a Merger Letter of Transmittal and (z) instructions for use in
effecting the surrender of such Upjohn certificates in exchange for a
certificate representing shares of New Common Stock and cash in lieu of any
fractional shares. No certificates or scrip representing fractional shares of
New Common Stock will be issued upon the surrender for exchange of such
certificates, and such fractional share interests will not entitle the owner
thereof to voting or any other rights of a stockholder of the Company. Each
holder of a fractional share interest will be paid an amount in cash
representing such holder's proportionate interest in the net proceeds from the
sale by the Exchange Agent on
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behalf of all such holders of the aggregate of the fractions of shares of New
Common Stock that would otherwise be issued to such holders.
Treatment of Upjohn Stock Options and Deferred Awards
The Combination Agreement provides that, prior to the Effective Time,
Upjohn will effect such amendments or take such other actions under the Upjohn
Stock Option Plans (as defined in the Combination Agreement) as are necessary to
render inapplicable the provisions, if any, contained in such plans that provide
for the payment of cash by Upjohn in respect of the cancellation of Upjohn
Options (as defined in the Combination Agreement) resulting from the execution
of the Combination Agreement and the consummation of the Combination, and the
Company and Upjohn will take all such action as may be necessary to cause each
unexpired and unexercised Upjohn Option under the Upjohn Stock Option Plans, or
otherwise granted by Upjohn other than pursuant to any Upjohn Stock Option Plan,
to be assumed by the Company at the Effective Time on terms and conditions
generally set forth below. All shares of Upjohn Common Stock credited to
participants in the Upjohn Incentive Programs (as defined in the Combination
Agreement) pursuant to a Deferred or Basic Portion of an Award (as defined in
the Upjohn Incentive Programs) will be converted into the number of credited
shares of New Common Stock (including fractional shares) obtained by multiplying
the credited shares of Upjohn Common Stock by the Exchange Ratio.
At the Effective Time, each Upjohn Option, whether vested or unvested, will
be automatically converted into an option to purchase a number of shares of New
Common Stock equal to the number of shares of Upjohn Common Stock that could
have been purchased immediately prior to the Effective Time (assuming full
vesting) under such Upjohn Option multiplied by the Exchange Ratio (rounded up
or down to the nearest whole number of shares of New Common Stock) at a price
per share of New Common Stock equal to the per share option exercise price
specified in such Upjohn Option divided by the Exchange Ratio (rounded up or
down to the nearest whole cent). Except as otherwise provided in the Combination
Agreement, each such Substitute Option will provide the option holder with
rights and benefits that are no less favorable to him or her than were provided
under the corresponding Upjohn Option.
Appraisal Rights
The Combination Agreement provides that shares of Upjohn Preferred Stock
that are outstanding immediately prior to the Effective Time and that have not
been voted in favor of adoption of the Combination Agreement will not be
converted into or represent the right to receive shares of New Preferred Stock
if the Trustee has properly demanded appraisal therefor in accordance with
Section 262 of the DGCL.
THE OFFER
The Combination Agreement states that, provided that the Combination
Agreement has not been terminated in accordance with its terms, the Company will
commence the Offer on or as soon as practicable after the Registration Statement
Effective Date (as defined in the Combination Agreement) and otherwise in
accordance with applicable laws. Pursuant to the Offer, (i) the Company will
offer to exchange for each Pharmacia Share one share of New Common Stock or one
SDS and (ii) the Company will offer for each ADS one share of New Common Stock.
The initial expiration date of the Offer will be the date that is 20
Business Days from the Offer Commencement Date (as defined in the Combination
Agreement) and, provided that the Combination Agreement has not been terminated,
will be extended by the Company from time to time thereafter until such time as
all of the Combination Conditions have been satisfied; provided, however, that
after the satisfaction of the Upjohn Stockholder Approval Condition (as defined
in the Combination Agreement), with the consent of Pharmacia and Upjohn, the
Company may permit the Offer to expire at the next scheduled expiration date.
Subject only to the satisfaction or, if permissible, waiver of the Combination
Conditions, the Company will accept for exchange and will exchange all Pharmacia
Securities validly tendered and not withdrawn pursuant to the terms of the Offer
at the earliest practicable time following the Expiration Date.
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Promptly after the Effective Time, the Company will designate such number
of individuals, rounded up to the next whole number, on the Pharmacia Board as
will give the Company representation on the Pharmacia Board equal to the product
of the total number of non-union directors on the Pharmacia Board (giving effect
to the directors elected pursuant to this sentence) multiplied by the percentage
that the aggregate number of Pharmacia Shares beneficially owned by the Company
following the Effective Time bears to the total number of Pharmacia Shares then
outstanding, whom Pharmacia will, subject to compliance with applicable Laws and
promptly following the Effective Time and from time to time thereafter, cause to
be elected as directors of Pharmacia.
Compulsory Acquisition
The Combination Agreement provides that, as soon as practicable after the
Effective Time, the Company will, unless the parties mutually agree that there
is a more effective method of achieving the objectives of the Compulsory
Acquisition (in which case such method will be used), contribute all of the
Pharmacia Securities owned by it to Swedish Sub in exchange for all of the
capital stock of Swedish Sub, and will cause Swedish Sub to take all actions
necessary and proper under the Companies Act to commence a process leading to
the Compulsory Acquisition. The Company will, in connection therewith, cause
Swedish Sub to act to obtain advance title to such shares of Pharmacia
Securities upon deposit of appropriate collateral with the statutory
arbitrators, and the Company will transfer to Swedish Sub cash or other property
sufficient to make such deposit.
In the event of consummation of the Offer following the waiver of the
Minimum Condition, the Company will, as promptly as practicable following the
Effective Time, conduct such other offers (including, without limitation,
pursuant to open market purchases) as are necessary to obtain, when aggregated
with the number of shares and voting power of Pharmacia Securities already owned
by it, more than 90% of the number of shares and voting power of then
outstanding Pharmacia Securities. Thereafter, the Company will take the actions
described in the preceding paragraph.
CONDITIONS TO THE COMBINATION
The Combination Agreement provides that the obligations of Pharmacia,
Upjohn, the Company and Merger Sub to consummate the Transactions, or to permit
the consummation of the Transactions, are subject to the satisfaction or, if
permitted by applicable law, waiver of the following conditions: (a) the
Registration Statement shall have been declared effective by the Commission
under the Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall have been issued by the Commission and no
proceeding for that purpose shall have been initiated by the Commission; (b) the
Prospectus shall have been approved by the SSE and no stop order suspending the
effectiveness of the Prospectus shall have been issued by the SSE and no
proceeding for that purpose shall have been initiated by the SSE; (c) the
Combination Agreement shall have been adopted by the requisite affirmative vote
of the stockholders of Upjohn in accordance with the DGCL and Upjohn's Restated
Certificate of Incorporation and By-laws; (d) no court of competent jurisdiction
shall have issued or entered any Order which is then in effect and has the
effect of making any of the Transactions illegal or otherwise prohibiting their
consummation; (e) any waiting period (and any extension thereof) applicable to
the consummation of the Transactions under the HSR Act and any other
competition, merger control or similar law, including Council Regulation (EEC)
No. 4064/89, shall have expired or been terminated; (f) all consents, approvals
and authorizations legally required to be obtained to consummate the Combination
shall have been obtained from all Governmental Entities, except where the
failure to obtain any such consents, approvals and authorizations would not
result in a change in or effect on the business of Upjohn or Pharmacia that is,
or is reasonably likely to be, materially adverse to the business, assets
(including intangible assets), liabilities (contingent or otherwise), condition
(financial or otherwise) or results of operations of Upjohn, Pharmacia and their
respective subsidiaries, taken as a whole; (g) each of KPMG Bohlins AB (or
another member of the KPMG Group) and Coopers & Lybrand, L.L.P. will have issued
an opinion addressed to Pharmacia and Upjohn, that each of the Merger and the
Offer and Compulsory Acquisition will qualify as "a pooling of interests" under
applicable U.S. and Swedish accounting rules including, without limitation,
applicable Commission accounting standards; (h) there shall have been
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received, each in form and substance reasonably satisfactory to Pharmacia and
Upjohn, evidence that (1) Upjohn shall have amended the Upjohn Stock Option
Plans or taken such other actions as are necessary to render inapplicable the
provisions, if any, contained in such plans that provide for the payment of cash
by Upjohn in respect of the cancellation of Stock Options resulting from the
execution of the Combination Agreement and the consummation of the Transactions
and to provide in lieu thereof that each unexpired and unexercised Stock Option
under the Upjohn Stock Option Plans or otherwise granted by Upjohn other than
pursuant to any Upjohn Stock Option Plan shall be assumed by the Company at the
Effective Time on the terms and conditions set forth in Section 2.04(b) of the
Combination Agreement, (2) Upjohn shall have amended the Plan to provide that
the execution of the Combination Agreement and the consummation of the
Transactions will not constitute a "change of control" (as defined in Section 16
of such Plan) resulting in automatic vesting under the Plan and (3) all consents
necessary or desirable to preserve for the Company any right or benefit under
each note, bond, mortgage, indenture, lease, license, contract, agreement or
other instrument or obligation listed in Section 4.05(a) of the Upjohn
Disclosure Schedule shall have been obtained, except in the case of clause (3),
where the failure to obtain any such consents would not result in a change in or
effect of the business of Upjohn that is, or is reasonably likely to be,
materially adverse to the business, assets (including intangible assets),
liabilities (contingent or otherwise), condition (financial or otherwise) or
results of operations of Upjohn and its subsidiaries taken as a whole; (i) (1)
Sullivan & Cromwell shall have issued its opinion, addressed to the Company,
Upjohn and Pharmacia, based upon customary representations of Upjohn and the
Company, and, if required, Pharmacia, and customary assumptions, to the effect
that the Merger will be treated for federal income tax purposes as a
reorganization qualifying under the provisions of Section 368(a) of the Code and
that each of Upjohn, the Company and Merger Sub will be a party to the
reorganization within the meaning of Section 368(b) of the Code, and/or that the
Merger (in conjunction with the acquisition of Pharmacia Shares pursuant to the
Offer) will be treated as a transfer of property described in Section 351(a) of
the Code, such opinion to be dated on or about the date that is two business
days prior to the date this Prospectus is first mailed to stockholders of Upjohn
and Pharmacia, which opinion shall not have been withdrawn or modified in any
material respect; (2) Shearman & Sterling shall have issued its opinion
addressed to the Company, Pharmacia and Upjohn, based upon customary
representations of Pharmacia, the Company and Upjohn, and customary assumptions,
to the effect that the Offer (in conjunction with the acquisition of shares of
Upjohn stock pursuant to the Merger) will be treated for federal income tax
purposes as a transfer of property described in Section 351(a) of the Code, such
opinion to be dated on or about the date that is two business days prior to the
date this Prospectus is first mailed to stockholders of Upjohn and Pharmacia,
which opinion shall not have been withdrawn in any material respect; and (3)
Mannheimer Swartling and KPMG Bohlins AB shall have issued their opinion
addressed to the Company, Upjohn and Pharmacia, based upon representations of
Pharmacia and assumptions concerning, among other things, the actions of holders
of Pharmacia Shares, to the effect that, under the income tax laws of Sweden,
none of the Company, Pharmacia or the Pharmacia stockholders will recognize
taxable income or gain as a result of the Offer; (j) the shares of New Common
Stock to be issued pursuant to the Merger and the Offer shall have been
authorized for listing on the NYSE, subject to official notice of issuance, and
the SDSs representing the New Common Stock shall have been authorized for
listing on the SSE; and (k) a number of Pharmacia Securities representing more
than 90% of the number of shares and voting power of then outstanding Pharmacia
Securities shall have been validly tendered and not withdrawn prior to the
expiration of the Offer.
The obligations of Upjohn to consummate the Combination, or to permit the
consummation of the Combination, are subject to the satisfaction or, if
permitted by applicable law, waiver of the following further conditions: (a)
each of the representations and warranties of Pharmacia contained in the
Combination Agreement shall be true and correct as of the Effective Time as
though made on and as of the Effective Time, except where any such failure or
failures to be so true and correct, in the aggregate, would not have a Pharmacia
Material Adverse Effect (as defined in the Combination Agreement), and except
that those representations and warranties that address matters only as of a
particular date shall remain true and correct as of such date, except where any
such failure or failures to be so true and correct, in the aggregate, would not
have a Pharmacia Material Adverse Effect, and Upjohn shall have received a
certificate of the Chairman, President or Chief Financial Officer of Pharmacia
to such effect; and (b) Pharmacia shall have performed or
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complied in all material respects with all agreements and covenants required by
the Combination Agreement to be performed or complied with by it on or prior to
the Effective Time and Upjohn shall have received a certificate of the Chairman,
President or Chief Financial Officer of Pharmacia to that effect.
The obligations of Pharmacia to consummate the Combination, or to permit
the consummation of the Combination, are subject to the satisfaction or, if
permitted by applicable law, waiver of the following further conditions: (a)
each of the representations and warranties of Upjohn contained in the
Combination Agreement shall be true and correct as of the Expiration Date, as
though made on and as of the Expiration Date, except where any such failure or
failures to be so true and correct, in the aggregate, would not have an Upjohn
Material Adverse Effect (as defined in the Combination Agreement), and except
that those representations and warranties that address matters only as of a
particular date shall remain true and correct as of such date, except where any
such failure or failures to be so true and correct, in the aggregate, would not
have an Upjohn Material Adverse Effect, and Pharmacia shall have received a
certificate of the Chairman, President or Chief Financial Officer of Upjohn to
such effect; and (b) Upjohn shall have performed or complied in all material
respects with all agreements and covenants required by the Combination Agreement
to be performed or complied with by it on or prior to the Effective Time, and
Pharmacia shall have received a certificate of the Chairman, President or Chief
Financial Officer of Upjohn to that effect.
REPRESENTATIONS AND WARRANTIES
The Combination Agreement contains various representations and warranties
of Upjohn, Pharmacia, the Company and Merger Sub relating to (i) each of their
respective organizations and similar corporate matters, (ii) each of their
capitalizations, (iii) authorization, execution, delivery, performance and
enforceability of the Combination Agreement, and (iv) the absence of conflicts,
violations and defaults under their respective organizational documents and
certain other agreements and documents. In addition, the Combination Agreement
contains various representations and warranties of Upjohn and Pharmacia relating
to, among other things, (i) permits and compliance with laws, (ii) the documents
and reports filed by them with the Commission and the SSE and the accuracy of
the information contained therein, (iii) the absence of certain changes or
events, (iv) employee benefit plans and labor matters, (v) certain accounting
and tax matters, (vi) material contracts and debt instruments, (vii) litigation,
(viii) environmental matters, (ix) intellectual property, (x) taxes, (xi) the
opinions of the parties' respective financial advisors and (xii) brokers.
CERTAIN COVENANTS; CONDUCT OF BUSINESS PRIOR TO CONSUMMATION OF THE TRANSACTIONS
Upjohn has agreed that, prior to the Effective Time, except as otherwise
contemplated by the Combination Agreement or unless Pharmacia has otherwise
agreed in writing, which agreement will not be unreasonably withheld or delayed,
(1) the businesses of Upjohn and the Upjohn Subsidiaries shall be conducted only
in, and Upjohn and the Upjohn Subsidiaries shall not take any action except in,
the ordinary course of business consistent with past practice and (2) Upjohn
shall use its reasonable best efforts to keep available the services of such of
the current officers, significant employees and consultants of Upjohn and the
Upjohn Subsidiaries and to preserve the current relationships of Upjohn and the
Upjohn Subsidiaries with such of the customers, suppliers and other persons with
which Upjohn or any Upjohn Subsidiary has significant business relations as
Upjohn deems reasonably necessary in order to preserve substantially intact its
business organization. Except as contemplated by the Combination Agreement, the
Upjohn Board will not (unless required by applicable laws or stock exchange
regulations) cause or permit Upjohn or any Upjohn Subsidiary to, and will
neither cause nor permit any of Upjohn's affiliates (over which it exercises
control), or any of their officers, directors, employees and agents to, prior to
the Effective Time, directly or indirectly, do, or agree to do, any of the
following, without the prior written consent of Pharmacia, which consent will
not be unreasonably withheld or delayed: (a) amend or otherwise change its
Restated Certificate of Incorporation or By-laws or equivalent organizational
documents; (b) issue, sell, pledge, dispose of, grant, transfer, lease, license,
guarantee, encumber or authorize the issuance, sale, pledge, disposition, grant,
transfer, lease, license, guarantee or encumbrance of, (i) any shares of capital
stock of Upjohn or any Upjohn Subsidiary of any class, or securities convertible
or exchangeable or exercisable for any shares of such capital stock, or any
options, warrants or other rights of any kind to acquire any shares of such
capital stock, or any other ownership interest
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(including, without limitation, any phantom interest), of Upjohn or any Upjohn
Subsidiary (except for the issuance of (A) a maximum of 10,867,250 shares of
Upjohn Common Stock issuable pursuant to the Upjohn Stock Options outstanding on
the date of the Combination Agreement and the issuance, in the ordinary course
of business and consistent with past practice, of the Upjohn Stock Options to
purchase a maximum of 1,771,299 shares of Upjohn Common Stock pursuant to the
Upjohn Stock Option Plans in effect on the date of the Combination Agreement and
the shares of Upjohn Common Stock issuable pursuant to such Upjohn Options, in
accordance with the terms of the Upjohn Stock Option Plan; (B) a maximum of
650,000 shares of Upjohn Series A Preferred Stock pursuant to the Rights
Agreement; (C) a maximum of 7,322,020 shares of Upjohn Common Stock issuable
upon conversion of the Upjohn Preferred Stock; (D) subject to Section 7.01(f) of
the Combination Agreement, any securities required by virtue of (x) the Upjohn
Incentive Programs and (y) the Upjohn Deferred Compensation Plan for Directors;
and (E) a maximum of 6,653,523 rights to purchase shares of Upjohn Preferred
Stock issuable in connection with issuances of Upjohn Common Stock made in
accordance with this paragraph or (ii) any property or assets of Upjohn or any
Upjohn Subsidiary, except in the ordinary course of business and in a manner
consistent with past practice; (c) declare, set aside, make or pay any dividend
or other distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock, other than (i) any regular quarterly
dividend declared and paid in accordance with past practice and not in excess of
$.37 per share of Upjohn Common Stock for any quarter ending prior to September
30, 1995, (ii) a quarterly dividend not in excess of $.39 per share of Upjohn
Common Stock for the quarter ending December 31, 1995 and any subsequent quarter
and (iii) regular quarterly cash dividends not in excess of $629.69 per share of
Upjohn Preferred Stock; (d) reclassify, combine, split, subdivide or redeem,
purchase or otherwise acquire, directly or indirectly, any of its capital stock;
(e)(i) acquire (including, without limitation, by merger, consolidation, or
acquisition of stock or assets) any interest in any corporation, partnership,
other business organization, person or any division thereof or any assets, other
than acquisitions of assets in the ordinary course of business consistent with
past practice and any other acquisitions for consideration that are not, in the
aggregate, in excess of $250,000,000; (ii) incur any indebtedness for borrowed
money or issue any debt securities or assume, guarantee or endorse, or otherwise
as an accommodation become responsible for, the obligations of any person for
borrowed money, except for indebtedness for borrowed money incurred in the
ordinary course of business and consistent with past practice or incurred to
refinance outstanding indebtedness for borrowed money existing on the date of
the Combination Agreement or other indebtedness for borrowed money with a
maturity of not more than one year in a principal amount not, in the aggregate,
in excess of $200,000,000; (iii) terminate, cancel, request or agree to any
material change in any Upjohn Material Contract (as defined in the Combination
Agreement) or enter into any contract or agreement material to the business,
results of operations or financial condition of Upjohn and the Upjohn
Subsidiaries taken as a whole, in either case other than in the ordinary course
of business, consistent with past practice; (iv) make or authorize any capital
expenditure, other than capital expenditures that are not, in the aggregate, in
excess of $350,000,000 for Upjohn and the Upjohn Subsidiaries taken as a whole;
or (v) enter into or amend any contract, agreement, commitment or arrangement
that, if fully performed, would not be permitted under this clause (e); (f)
increase the compensation payable or to become payable to its officers or
employees, except for increases in accordance with past practices in salaries or
wages of employees of Upjohn or any Upjohn Subsidiary who are not officers of
Upjohn, or grant any rights to severance or termination pay to, or enter into
any employment or severance agreement with, any director, officer or other
employee of Upjohn or any Upjohn Subsidiary, or establish, adopt, enter into or
amend any collective bargaining, bonus, profit sharing, thrift, compensation,
stock option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund, policy
or arrangement for the benefit of any director, officer or employee, except as
contemplated by the Combination Agreement or to the extent required by
applicable Law or the terms of a collective bargaining agreement; (g) take any
action with respect to accounting policies or procedures, other than actions in
the ordinary course of business and consistent with past practice; (h) waive,
release, assign, settle or compromise any material claims or litigation; (i)
make any tax election or settle or compromise any material federal, state, local
or foreign income tax liability; or (j) authorize or enter into any formal or
informal agreement or otherwise make any commitment to do any of the foregoing.
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Pharmacia has agreed to comply with substantially similar limitations with
regard to the conduct of its business prior to the Effective Time.
COMPETING TRANSACTIONS
Pursuant to the Combination Agreement, each of Upjohn, Pharmacia, the
Company and Merger Sub has agreed that it will not, directly or indirectly, and
will instruct its officers, directors, employees, subsidiaries, agents or
advisors or other representatives (including, without limitation, any investment
banker, attorney or accountant retained by it), not to, directly or indirectly,
solicit, initiate or knowingly encourage (including by way of furnishing
nonpublic information), or take any other action knowingly to facilitate, any
inquiries or the making of any proposal or offer (including, without limitation,
any proposal or offer to its stockholders) that constitutes, or may reasonably
be expected to lead to, any Competing Transaction (as defined below), or enter
into or maintain or continue discussions or negotiate with any person or entity
in furtherance of such inquiries or to obtain a Competing Transaction, or agree
to or endorse any Competing Transaction, or authorize or permit any of the
officers, directors or employees of such party or any of its subsidiaries, or
any investment banker, financial advisor, attorney, accountant or other
representative retained by such party or any of such party's subsidiaries, to
take any such action. Each party to the Combination Agreement will notify the
other party promptly if any proposal or offer, or any inquiry or contact with
any person with respect thereto, regarding a Competing Transaction is made. Each
party to the Combination Agreement immediately will cease and cause to be
terminated all existing discussions or negotiations with any parties conducted
prior to August 20, 1995 with respect to a Competing Transaction and promptly
request that all confidential information furnished on behalf of such party be
returned. Each party to the Combination Agreement agrees not to release any
third party from, or waive any provision of, any confidentiality or standstill
agreement to which it is a party.
Notwithstanding the foregoing, the board of directors of each party may
cause such party to furnish information to, and may participate in discussions
or negotiations with, any person that, unsolicited by such party, has submitted
a written proposal to such board of directors relating to a Competing
Transaction, in each case to the extent that the board of directors of such
party determines in good faith that the failure to do so would cause the board
of directors of such party to breach its fiduciary duties to such party or its
stockholders under applicable laws after receipt of advice to such effect from
independent legal counsel (who may be such party's regularly engaged independent
legal counsel) and any such furnishing of information and participation in
discussions or negotiations will not constitute a breach of the Combination
Agreement by such party; provided, however, that any party furnishing such
information, or participating in such discussions or negotiations, will notify
the other promptly of such action and will, in any such notice, indicate the
identity of the person making such written proposal and, in reasonable detail,
the terms and conditions of such written proposal.
Notwithstanding the foregoing, the provisions of the Combination Agreement
relating to Competing Transaction will apply to directors of Pharmacia and
Upjohn solely in their capacity as directors of Pharmacia and Upjohn,
respectively, and no actions taken by such directors in their capacity as
officers or directors of any other person shall be deemed to be a violation of
such provisions of the Combination Agreement.
The Combination Agreement defines a "Competing Transaction" to mean any of
the following involving Pharmacia or Upjohn, as the case may be (other than the
Combination contemplated by the Combination Agreement): (i) a merger,
consolidation, share exchange, business combination or other similar
transaction; (ii) any sale, lease, exchange transfer or other disposition of 25%
or more of the assets of such party and its subsidiaries, taken as a whole; or
(iii) a tender offer or exchange offer for, or any other acquisition of, 10% or
more of the outstanding voting securities of such party.
The Combination Agreement provides that the Confidentiality Agreement
executed by Upjohn and Pharmacia on May 4, 1995 survives the execution of the
Combination Agreement. Pursuant to the Confidentiality Agreement, each party
agreed not to disclose information given to it by the other party except in
certain circumstances.
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THE COMPANY BOARD OF DIRECTORS AND THE GLOBAL CORPORATE MANAGEMENT CENTER
The Combination Agreement provides that, immediately prior to the Effective
Time, the Company will, and Pharmacia and Upjohn will cause the Company to, take
action to (i) cause the full Board of Directors of the Company at the Effective
Time to consist of (A) eight persons who are currently directors of Pharmacia
and are mutually agreeable to Pharmacia and Upjohn and (B) eight persons who are
currently directors of Upjohn and are mutually agreeable to Pharmacia and Upjohn
and (ii) cause to be confirmed as (w) Chairman of the Company, Jan Ekberg, (x)
President and Chief Executive Officer of the Company, John L. Zabriskie, (y)
Executive Vice President of the Company, Goran Ando, and (z) Executive Vice
President of the Company, Robert C. Salisbury. Pharmacia and Upjohn will
designate the persons who will be the directors of the Company at the Effective
Time no later than the Registration Statement Effective Date.
The Combination Agreement provides that at the Effective Time, Pharmacia
and Upjohn will cause the Company to have an Executive Management Committee
consisting of the Chairman, the President and Chief Executive Officer and the
Executive Vice Presidents of the Company referred to above. The President and
Chief Executive Officer will be the chairman of the Executive Management
Committee. The purpose of the Executive Management Committee will be to enhance
communication, coordination, and effective shared decision making among the
senior executives of the Company, and the members of such committee shall meet
from time to time to consult with each other on key issues relating to the
business of the Company. The Executive Management Committee will be dissolved at
such time as the Board of Directors of the Company determines that the synergies
expected to be obtained as a result of the Combination have been substantially
realized.
As soon as practicable after the Effective Time, but in no event later than
six months after the Effective Time, the Company will establish its global
corporate management group in or proximate to London. The officers of the
Company will cause those certain persons as shall be agreed to by Pharmacia and
Upjohn prior to the date of the Combination Agreement to have their principal
place of business established in the United Kingdom.
SWEDISH DEPOSITARY FACILITY
The Combination Agreement provides that as soon as practicable after the
date of the Combination Agreement, the Company will use its reasonable best
efforts to cause a commercial bank to operate a depositary facility in Sweden
for the New Common Stock. The Company will pay all fees of such commercial bank
relating to the establishment and operation of such depositary facility,
including, without limitation, any fees payable in connection with the trading
of the SDSs and the distribution of dividends.
EMPLOYEE BENEFIT MATTERS
Pharmacia, Upjohn and the Company each agree to the following with respect
to the compensation and benefits programs of Pharmacia, Upjohn and the Company:
(i) except as contemplated by the Combination Agreement or Annex A to
the Combination Agreement, for a period of 18 months following the
Effective Time, Pharmacia and Upjohn will each maintain employee benefit
plans and arrangements which in the aggregate will provide a similar level
of benefits to active and retired employees of the respective companies to
those provided under the respective companies' employee benefit plans and
arrangements as in effect immediately prior to the Effective Time;
provided, however, that changes may be made to such employee benefit plans
and arrangements to the extent necessary to comply with applicable law.
From and after the Effective Time, the Company will honor, and will cause
Upjohn or Pharmacia, as the case may be, to honor in accordance
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with their terms, all existing employment and severance agreements and
severance plans which apply to current or former employees or directors of
Upjohn or Pharmacia. The Company will honor all outstanding awards under
the Upjohn Incentive Programs.
(ii) To the extent that service is relevant for purposes of
eligibility, participation, vesting or benefit accrual under any employee
benefit plan, program or arrangement established or maintained by the
Company, Pharmacia or Upjohn, employees of Pharmacia and Upjohn will be
credited for service accrued or deemed accrued prior to the Effective Time
with Pharmacia or Upjohn, as the case may be, provided, however, that such
crediting of service does not result in the duplication of benefits or an
unintended windfall with respect to the accrual of benefits.
(iii) Effective as of the Effective Time, the Plan will be amended to
permit employees of Pharmacia who are United States citizens or are
regularly employed in the United States or its territories or possessions
to participate therein.
(iv) The Company, Pharmacia and Upjohn will undertake a review to
determine whether it is desirable for the Company to establish one or more
employee stock ownership plans or equivalent arrangements for non-U.S.
employees, which will be structured after taking into account local laws
and practices as well as tax and other relevant considerations, in which
Pharmacia and Upjohn employees at locations outside the United States will
be eligible to participate.
(v) Effective as of the Effective Time, the Company will adopt an
equity-based management incentive plan or equivalent arrangement in which
key employees of Pharmacia and Upjohn will be eligible to participate on an
equivalent basis. Such Equity Plan will provide for the granting of stock
options and/or other equity-based awards, and it is anticipated that stock
options under such Equity Plan will be granted to participating key
employees after the Effective Time in accordance with past practice of
Upjohn.
(vi) Effective as of the Effective Time, the Company will adopt an
annual incentive compensation plan in which key employees of Pharmacia and
Upjohn will be eligible to participate on an equivalent basis.
UPJOHN RIGHTS AGREEMENT
Upjohn has represented that it has taken all necessary action to amend the
Rights Agreement so that neither the execution of the Combination Agreement nor
the consummation of the Merger will (a) cause the Rights issued pursuant to the
Rights Agreement to become exercisable, (b) cause Volvo, Stattum, Pharmacia, the
Company or Merger Sub to become an Acquiring Person (as such term is defined in
the Rights Agreement) or (c) give rise to a Distribution Date or a Triggering
Event (as each term is defined in the Rights Agreement).
Upjohn has also covenanted to take all necessary action, prior to the
Effective Time, (i) to redeem, for $.05 per Right, all of the outstanding
Rights, effective immediately prior to the Effective Time, and (ii) to ensure
that after such redemption (A) none of Upjohn, the Company or Merger Sub shall
have any obligations under the Rights or the Rights Agreement and (B) none of
the holders of the Rights shall have any rights under the Rights or the Rights
Agreement.
TERMINATION OR AMENDMENT OF THE COMBINATION AGREEMENT
The Combination Agreement provides that it may be terminated and the Merger
and the Offer may be abandoned at any time prior to the Effective Time,
notwithstanding any requisite approval and adoption of the Combination
Agreement, as follows:
(a) by mutual written consent duly authorized by the Boards of
Directors of each of Pharmacia and Upjohn;
(b) by either Pharmacia or Upjohn, if the Effective Time shall not
have occurred on or before February 15, 1996; provided, however, that (i)
the right to terminate the Combination Agreement under
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this paragraph (b) shall not be available to the party whose failure to
fulfill any obligation under the Combination Agreement shall have been the
cause of, or resulted in, the failure of the Effective Time to occur on or
before such date; (ii) if the applicable federal antitrust authority shall
seek an Order with respect to the legality of the Combination under
applicable antitrust Laws, the Combination Agreement may be extended prior
to the termination thereof by written notice of either Pharmacia or Upjohn
to the other to the date that is 30 days following the date on which a
ruling with respect to such an Order is entered by a trial court or
administrative body; and (iii) if such Order shall have been entered which
had the effect of enjoining the consummation of the Combination and any
party thereto shall have commenced an appeal thereof, the Combination
Agreement may be extended prior to the termination thereof by written
notice of either Pharmacia or Upjohn to the other to the date which is 30
days following the issuance of a decision by the applicable appeals court
with respect to such an appeal; provided, further, that, notwithstanding
anything to the contrary in this paragraph (b), in no event shall the
Combination Agreement be extended beyond May 31, 1996;
(c) by either Pharmacia or Upjohn, if any Order preventing the
consummation of the Merger or the Offer or Compulsory Acquisition shall
have been entered by any court of competent jurisdiction and shall have
become final and nonappealable;
(d) by Pharmacia, if (i) the Upjohn Board withdraws, modifies or
changes its recommendation of the Combination Agreement in a manner adverse
to the Company or Pharmacia or shall have resolved to do so, (ii) the
Upjohn Board shall have recommended to the stockholders of Upjohn a
Competing Transaction or shall have resolved to do so, or (iii) a tender
offer or exchange offer for 10% or more of the outstanding shares of
capital stock of Upjohn is commenced, and the Upjohn Board fails to
recommend against acceptance of such tender offer or exchange offer by its
stockholders (including by taking no position with respect to the
acceptance of such tender offer or exchange offer by its stockholders);
(e) by Upjohn, if (i) the Board of Directors of Pharmacia withdraws,
modifies or changes its recommendation of the Offer in a manner adverse to
the Company or Upjohn or shall have resolved to do so, (ii) the Pharmacia
Board shall have recommended to the stockholders of Pharmacia a Competing
Transaction or shall have resolved to do so, or (iii) a tender offer or
exchange offer for 10% or more of the outstanding shares of capital stock
of Pharmacia is commenced (other than the Offer), and the Pharmacia Board
fails to recommend against acceptance of such tender offer or exchange
offer by its stockholders (including by taking no position with respect to
the acceptance of such tender offer or exchange offer by its stockholders);
(f) by Pharmacia or Upjohn, (i) if the Combination Agreement shall
fail to receive the requisite vote for adoption at the Upjohn Special
Meeting or any adjournment or postponement thereof, or (ii) the Offer
expires without any Pharmacia Securities having been accepted for payment;
(g) by Pharmacia, upon a breach of any material representation,
warranty, covenant or agreement on the part of Upjohn set forth in the
Combination Agreement, or if any representation or warranty of Upjohn shall
have become untrue, in either case such that the conditions set forth in
Section 9.03 of the Combination Agreement would not be satisfied; provided,
however, that, if such breach is curable by Upjohn through the exercise of
its best efforts and for so long as Upjohn continues to exercise such best
efforts, Pharmacia may not terminate the Combination Agreement under this
paragraph (g);
(h) by Upjohn, upon a breach of any material representation, warranty,
covenant or agreement on the part of Pharmacia set forth in the Combination
Agreement, or if any representation or warranty of Pharmacia shall have
become untrue, in either case such that the conditions set forth in Section
9.02 of the Combination Agreement would not be satisfied; provided,
however, that, if such breach is curable by Pharmacia through the exercise
of its best efforts and for so long as Pharmacia continues to exercise such
best efforts, Upjohn may not terminate the Combination Agreement under this
paragraph (h);
(i) by Pharmacia, if the Pharmacia Board shall, following receipt of
advice of independent legal counsel (who may be Pharmacia's regularly
engaged independent legal counsel) that failure to so terminate would cause
the Pharmacia Board to breach its fiduciary duties under applicable Laws,
have
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withdrawn, modified or changed its recommendation of the approval of the
Offer in a manner adverse to the Company or Upjohn and, on or prior to such
date, any person (other than the Company or Upjohn) shall have made a
public announcement or otherwise communicated to Pharmacia and its
stockholders with respect to a Competing Transaction; provided, however,
that Pharmacia may not terminate the Combination Agreement pursuant to this
paragraph (i) until three business days have elapsed following delivery to
Upjohn of written notice of such determination of Pharmacia (which written
notice will inform Upjohn of the material terms and conditions of the
Competing Transaction); provided, further, however, that such termination
under this paragraph (i) shall not be effective until Pharmacia has made
payment to Upjohn of the amounts required to be paid pursuant to Section
10.05(c) of the Combination Agreement; or
(j) by Upjohn, if the Upjohn Board shall, following receipt of advice
of independent legal counsel (who may be Upjohn's regularly engaged
independent legal counsel) that failure to so terminate would cause the
Upjohn Board to breach its fiduciary duties under applicable laws, have
withdrawn, modified or changed its recommendation of the adoption of the
Combination Agreement in a manner adverse to the Company or Pharmacia and,
on or prior to such date, any person (other than the Company or Pharmacia)
shall have made a public announcement or otherwise communicated to Upjohn
and its stockholders with respect to a Competing Transaction; provided,
however, that Upjohn may not terminate the Combination Agreement pursuant
to this paragraph (j) until three business days have elapsed following
delivery to Pharmacia of written notice of such determination of Upjohn
(which written notice will inform Pharmacia of the material terms and
conditions of the Competing Transaction); provided further, however, that
such termination under this paragraph (j) shall not be effective until
Upjohn has made payment to Pharmacia of the amounts required to be paid
pursuant to Section 10.05(b) of the Combination Agreement.
In the event of termination of the Combination Agreement, the Combination
Agreement will become void, there will be no liability under the Combination
Agreement on the part of Pharmacia, Upjohn, the Company or Merger Sub or any of
their respective officers or directors, and all rights and obligations of each
party thereto will cease, subject to the remedies of the parties set forth
below; provided, however, that no party will be relieved from liability for the
willful breach of any of its respective representations and warranties or the
breach of any of its respective covenants or agreements set forth in the
Combination Agreement.
Except as set forth below, all Expenses (as defined below) incurred in
connection with the Combination Agreement and the Transactions will be paid by
the party incurring such Expenses, whether or not the Merger or the Offer is
consummated, except that Pharmacia and Upjohn each will pay one-half of all
Expenses relating to printing, filing and mailing this Prospectus and all
Commission and other regulatory filing fees incurred in connection with the
Registration Statement and the Disclosure Documents. "Expenses" as used in the
Combination Agreement consist of all out-of-pocket expenses (including, without
limitation, all fees and expenses of counsel, accountants, investment bankers,
experts and consultants to a party to the Combination Agreement 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 the
Combination Agreement; the preparation, printing, filing and mailing of this
Prospectus, the solicitation of stockholder approvals and all other matters
related to the closing of the Transactions.
Upjohn has agreed that, if (A) Upjohn terminates the Combination Agreement
pursuant to paragraph (j) set forth above, (B) (y) Pharmacia terminates the
Combination Agreement pursuant to paragraph (d) set forth above and (z) at the
time of such termination, any person shall have made a public announcement or
otherwise communicated to Upjohn and its stockholders with respect to a
Competing Transaction with respect to Upjohn, or (C) (i) Pharmacia terminates
the Combination Agreement pursuant to paragraph (f)(i) set forth above due to
the failure of the Upjohn Stockholder Approval Condition, (ii) at the time of
such failure, any person shall have made a public announcement or otherwise
communicated to Upjohn and its stockholders with respect to a Competing
Transaction with respect to Upjohn and (iii) within 12 months thereafter, such
Competing Transaction shall be consummated, in each case resulting in a Change
of Control (as defined below) of Upjohn, then promptly after such termination,
or (in the case of clause (C)) promptly after the consummation of such Competing
Transaction, Upjohn shall reimburse Pharmacia for all
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of its Expenses (upon receipt of reasonable documentation in respect thereof) up
to an aggregate amount of $50,000,000.
Pharmacia has agreed that, if (A) Pharmacia shall terminate the Combination
Agreement pursuant to paragraph (i) set forth above, (B) (y) Upjohn shall
terminate the Combination Agreement pursuant to paragraph (e) set forth above
and (z) at the time of such termination, any person shall have made a public
announcement or otherwise communicated to Pharmacia and its stockholders with
respect to a Competing Transaction with respect to Pharmacia or (C) (i) Upjohn
shall terminate the Combination Agreement pursuant to paragraph (f)(ii) set
forth above due to the fact that the Offer has expired without any Pharmacia
Securities having been accepted for payment, (ii) at the time of such failure,
any person shall have made a public announcement or otherwise communicated to
Pharmacia and its stockholders with respect to a Competing Transaction with
respect to Pharmacia and (iii) within 12 months thereafter, such Competing
Transaction shall be consummated, in each case resulting in a Change of Control
(as defined below) of Pharmacia, then promptly after such termination, or (in
the case of clause (C)) promptly after the consummation of such Competing
Transaction, Pharmacia shall reimburse Upjohn for all its Expenses (upon receipt
of reasonable documentation in respect thereof) up to an aggregate amount of
$50,000,000.
The Combination Agreement defines a "Change of Control" with respect to any
particular person to mean the occurrence of any of the following events with
respect to such person: (i) there shall be consummated (A) any merger,
consolidation or combination involving such person in which such person is not
the continuing or surviving corporation, or pursuant to which shares of such
person's voting stock would be converted in whole or in part into cash, other
securities or other property, other than a merger, consolidation or combination
involving such person in which the holders of such person's voting stock
immediately prior to the merger, consolidation or combination have substantially
the same proportionate ownership of voting stock of the surviving corporation
immediately after the merger, consolidation or combination or (B) any sale,
lease, exchange or transfer (in one transaction or a series of related
transactions) of all or substantially all of the assets of such person, or (ii)
any person, other than such person or a subsidiary thereof or any employee
benefit plan sponsored by such person or a subsidiary thereof or a corporation
owned, directly or indirectly, by the stockholders of such person in
substantially the same proportions in their ownership of stock of such person,
shall become the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of securities of such person representing 50% or more of the
combined voting power of then outstanding securities ordinarily (and apart from
rights accruing in special circumstances) having the right to vote in the
election of directors, as a result of a tender or exchange offer, open market
purchases, privately negotiated purchases or otherwise.
Each of Pharmacia and Upjohn has agreed that the payments described above
shall be the sole and exclusive remedies of the parties upon a termination of
the Combination Agreement pursuant to paragraph (d), (e), (f), (i) or (j) set
forth above, as the case may be, and such remedies will be limited to the
payments stipulated above, regardless of the circumstances giving rise to such
termination; provided, however, that nothing in the Combination Agreement will
relieve any party from liability for the willful breach of any of its respective
representations and warranties or the breach of any of its respective covenants
or agreements set forth in the Combination Agreement.
In the event that Pharmacia or Upjohn, as the case may be, fails to pay any
Expenses when due, the amount of any such Expenses will be increased to include
the costs and expenses actually incurred or accrued by the other (including,
without limitation, fees and expenses of counsel) in connection with the
collection under and enforcement of the Expenses provisions of the Combination
Agreement, together with interest on such unpaid Expenses, commencing on the
date that such Expenses became due, at a rate equal to the rate of interest
publicly announced by Citibank, N.A., from time to time, in the City of New
York, as such bank's Prime Rate plus 1.00%.
The Combination Agreement may be amended by the parties thereto by action
taken by or on behalf of their respective Boards of Directors at any time prior
to the Effective Time; provided, however, that, after the adoption of the
Combination Agreement by the stockholders of Upjohn, no amendment may be made
that would reduce the amount or change the type of consideration into which each
share of Upjohn Stock will be
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converted upon consummation of the Merger. The Combination Agreement may not be
amended except by an instrument in writing signed by the parties thereto.
At any time prior to the Effective Time, any party to the Combination
Agreement may (a) extend the time for the performance of any obligation or other
act of any other party thereto, (b) waive any inaccuracy in the representations
and warranties contained therein or in any document delivered pursuant thereto,
and (c) waive compliance with any agreement or condition contained therein;
provided, however, that the Company and Merger Sub (x) will waive any of the
Combination Conditions if so directed by Pharmacia and Upjohn, jointly, and (y)
may not waive any Combination Condition without the prior written consent of
each of Upjohn and Pharmacia. Any waiver of a Combination Condition, or any
determination that such Combination Condition has been satisfied, will be
effective only if made in writing by each of Upjohn and Pharmacia and, unless
otherwise specified in such writing, will thereafter operate as a waiver (or
satisfaction) of such Combination Condition for any and all purposes of the
Combination Agreement. Any such extension or waiver will be valid if set forth
in an instrument in writing signed by the party or parties to be bound thereby.
DIRECTOR AND OFFICER LIABILITY
The Combination Agreement provides that for a period of six years after the
Effective Time, the Company will cause to be maintained in effect the current
directors' and officers' liability insurance policies maintained by Upjohn and
Pharmacia (provided that the Company may, and in the event of the cancellation
or termination of such policies, the Company will substitute therefor policies
reasonably satisfactory to the indemnified parties of at least the same coverage
containing terms and conditions which are no less advantageous) with respect to
claims arising from facts or events that occurred prior to the Effective Time.
The Combination Agreement provides that from and after the Effective Time,
the Company agrees that it will indemnify and hold harmless each present and
former director and officer of Upjohn or Pharmacia, determined as of the
Effective Time, against any Costs (as defined in the Combination Agreement)
incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to matters existing or occurring at or prior to the
Effective Time, whether asserted or claimed prior to, at or after the Effective
Time, to the fullest extent that Upjohn or Pharmacia would have been permitted
under Delaware or Swedish law, as the case may be, and their charter documents
(each as in effect on the date of the Combination Agreement) to indemnify such
indemnified parties (and the Company will also advance expenses as incurred to
the fullest extent permitted under applicable Law; provided that such
indemnified party to whom expenses are advanced provides an undertaking to repay
such advances if it is ultimately determined that such indemnified party is not
entitled to indemnification); and provided, further, that any determination
required to be made with respect to whether an officer's or director's conduct
complies with the standards set forth under Delaware or Swedish law and Upjohn's
or Pharmacia's charter documents will be made by independent counsel selected by
the Company.
To the extent the foregoing provision does not serve to indemnify and hold
harmless an Indemnified Party (as defined in the Combination Agreement), for a
period of six years after the date of the Combination Agreement, the Combination
Agreement provides that the Company will, subject to the terms set forth in the
Combination Agreement, indemnify and hold harmless, to the fullest extent
permitted under applicable Law (and the Company will also advance expenses as
incurred to the fullest extent permitted under applicable Law; provided that the
Indemnified Party to whom expenses are advanced provides an undertaking to repay
such advances if it is ultimately determined that such Indemnified Party is not
entitled to indemnification), each Indemnified Party against any Costs incurred
in connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of or pertaining
to the Transactions; provided, however, that the Company will not be required to
indemnify any Indemnified Party if it is determined that the Indemnified Party
acted in bad faith and not in a manner such Indemnified Party believed to be in
or not opposed to the best interests of Upjohn or Pharmacia, as the case may be.
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THE CO-PROMOTION AGREEMENT
The following description of certain terms of the Co-Promotion Agreement is
only a summary and does not purport to be complete. This discussion is qualified
in its entirety by reference to the complete text of the Co-Promotion Agreement
which is incorporated in this Prospectus by reference to Upjohn's Current Report
on Form 8-K, dated August 21, 1995.
Upjohn and Pharmacia have entered into the Co-Promotion Agreement, pursuant
to which Upjohn will co-promote Pharmacia's Fragmin, Estring and Mycobutin
products in the United States and Canada commencing on the date of the
completion of the initial product promotion plan, and terminating, in the case
of each product, on the later of December 31, 2000 and the date five years after
the commencement of co-promotion activities with respect to such product. Upon a
Change of Control (as defined in the Co-Promotion Agreement) of either Upjohn or
Pharmacia, either party may terminate the agreement.
The Co-Promotion Agreement is not conditioned upon the consummation of the
Combination. The Co-Promotion Agreement provides that Pharmacia shall pay to
Upjohn an amount equal to such fraction of 25% of the aggregate net sales of the
products as the amount of Upjohn's promotional efforts under the Co-Promotion
Agreement bears to the aggregate amount of such efforts expended by both
parties, provided that Upjohn will be allocated at least 60% of the promotional
efforts under the Co-Promotion Agreement and, accordingly, will receive not less
than 15% of the aggregate net sales of the products. Such promotional efforts
are to be measured by the aggregate time spent on co-promotional activities by
each party's U.S. and Canadian salesforce. Neither party shall be entitled to
any other compensation with respect to the co-promotion of the products other
than as explicitly provided in the Co-Promotion Agreement.
REGISTRATION RIGHTS AGREEMENT
The following description of certain terms of the Registration Rights
Agreement is only a summary and does not purport to be complete. This discussion
is qualified in its entirety by reference to the complete text of the
Registration Rights Agreement which is an exhibit to the Registration Statement
and is incorporated by reference herein. Capitalized terms used in this section
and not otherwise defined in this Prospectus have the meanings ascribed to them
in the Registration Rights Agreement.
Pursuant to the Registration Rights Agreement, at any time following the
date on which Volvo first receives New Common Stock in connection with the
Offer, to and including the date on which the Company shall have obtained a
written opinion of legal counsel reasonably satisfactory to Volvo and addressed
to the Company and Volvo to the effect that the New Common Stock held by Volvo
may be publicly offered for sale in the United States by Volvo without
restriction as to manner of sale and amount of securities sold and without
registration under the Securities Act, Volvo shall have the right on five
occasions to require the Company to file a registration statement under the
Securities Act in respect of all or a portion of the New Common Stock obtained
by Volvo in connection with the Offer. As promptly as practicable, but in no
event later than 30 days after the Company receives a written request from Volvo
demanding that the Company so register the number of New Common Stock specified
in such request, which number shall not be less than 7,500,000, the Company
shall file with the Commission and thereafter use its reasonable best efforts to
cause to be declared effective a registration statement providing for the
registration of such number of the New Common Stock as Volvo shall have demanded
be registered. In addition, if the Company shall file a registration statement
with respect to New Common Stock, Volvo will be entitled to cause the Company to
register securities obtained by Volvo in connection with the Offer under such
registration statement. Certain of the rights of Volvo under the Registration
Rights Agreement are assignable to third parties with the consent of the Company
(which may not be unreasonably withheld). Pharmacia, Upjohn and the Company have
indicated their willingness to enter into a registration rights agreement
substantially similar to the Registration Rights Agreement with Stattum.
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TAX CONSEQUENCES OF THE MERGER AND THE OFFER
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material United States federal
income tax consequences of the Merger and the Offer and is not intended to be a
complete discussion of all potential tax effects that might be relevant to the
Merger or the Offer. Such discussion deals only with citizens or residents of
the United States or domestic corporations that hold shares of Upjohn Common
Stock or Pharmacia Securities ("U.S. Holders"), except that the discussion below
of tax consequences to Pharmacia stockholders also is directed to Canadian
Persons who accept the U.S. Offer. This summary assumes that the shares of
Upjohn Common Stock, or the Pharmacia Securities, as the case may be, have been
held as capital assets. The summary may not be applicable to certain classes of
taxpayers, including, without limitation, the holder of Upjohn Preferred Stock,
insurance companies, tax-exempt organizations, financial institutions,
securities dealers, broker-dealers, foreign persons, persons who hold shares of
Upjohn Common Stock or Pharmacia Securities as part of a straddle or conversion
transaction, and persons who acquired shares of Upjohn Common Stock or Pharmacia
Securities pursuant to an exercise of employee stock options or rights or
otherwise as compensation. Moreover, the state, local, foreign and estate tax
consequences to Upjohn and Pharmacia stockholders are not discussed.
This summary is based on laws, regulations, rulings, practice and judicial
decisions now in effect, all of which are subject to change (possibly with
retroactive effect) by legislation, administrative action or judicial decision.
No ruling has been or will be requested from the Internal Revenue Service on any
tax matter relating to the consequences of the Merger or the Offer. EACH
STOCKHOLDER OF UPJOHN AND PHARMACIA IS URGED TO CONSULT WITH SUCH STOCKHOLDER'S
OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE
COMBINATION DESCRIBED HEREIN, INCLUDING THE APPLICABILITY AND EFFECT OF ANY
STATE, LOCAL OR FOREIGN TAX LAWS, AND OF CHANGES IN APPLICABLE TAX LAWS.
Tax Consequences to Upjohn Stockholders
In the opinion of Sullivan & Cromwell, special counsel to Upjohn, the
following is a discussion of the material United States federal income tax
consequences of the Merger to Upjohn stockholders. This opinion is based, among
other things, on customary representations of the parties and customary
assumptions.
In the opinion of Sullivan & Cromwell, no gain or loss will be recognized
by Upjohn, the Company or Merger Sub for United States federal income tax
purposes as a result of the Merger. A U.S. Holder of Upjohn Common Stock who,
pursuant to the Merger, exchanges such U.S. Holder's Upjohn Common Stock solely
for New Common Stock will not recognize gain or loss for United States federal
income tax purposes. The basis of shares of New Common Stock received in the
Merger by U.S. Holders of Upjohn Common Stock (including the basis of any
fractional share interest in New Common Stock) will be the same as the basis of
the shares of Upjohn Common Stock surrendered in exchange therefor. The holding
period of the shares of New Common Stock received by each U.S. Holder of Upjohn
Common Stock will include the holding period of the Upjohn Common Stock
surrendered in exchange therefor.
No fractional shares of New Common Stock will be issued pursuant to the
Merger. A U.S. Holder of Upjohn Common Stock who, pursuant to the Merger,
receives cash in lieu of a fractional share of New Common Stock will be treated
as having received such cash in exchange for such fractional share interest.
Provided that the fractional share interest would have constituted a capital
asset in the hands of such U.S. Holder, the holder should in general recognize
capital gain or loss on such deemed redemption in an amount equal to the
difference between the amount of cash received and the U.S. Holder's adjusted
tax basis in the fractional share of New Common Stock.
The distribution of cash to Upjohn stockholders before the Merger in
redemption of the outstanding Rights issued pursuant to the Rights Agreement
will be a dividend taxed as ordinary income.
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Tax Consequences to Pharmacia Stockholders
In the opinion of Shearman & Sterling, counsel to Pharmacia, the following
is a discussion of the material United States federal income tax consequences of
the Offer to Pharmacia stockholders that are U.S. Holders or Canadian Persons
that accept the U.S. Offer. This opinion is based, among other things, on
customary representations of the parties and customary assumptions.
In the opinion of Shearman & Sterling, no gain or loss will be recognized
by Pharmacia or the Company for United States federal income tax purposes as a
result of the Offer. A Pharmacia stockholder who holds Pharmacia Securities and
who, pursuant to the Offer, exchanges such Pharmacia Securities for New Common
Stock will not recognize gain or loss for United States federal income tax
purposes. The basis of shares of New Common Stock received in the Offer by such
a holder of Pharmacia Securities will be the same as the basis of the Pharmacia
Securities surrendered in exchange therefor. The holding period of the shares of
New Common Stock received by such holder of Pharmacia Securities will include
the holding period of the Pharmacia Securities exchanged therefor.
SWEDISH TAX CONSEQUENCES
Tax Consequences to Pharmacia Stockholders
A non-Swedish stockholder, other than an individual, is liable to tax in
Sweden on the exchange of Pharmacia Securities only if the stockholder maintains
a permanent establishment in Sweden and the holding of the Pharmacia Securities
is effectively connected with such permanent establishment. The taxable capital
gain, if any, will correspond to the difference between the acquisition cost for
tax purposes and the market value of the shares in the Company immediately after
the exchange. The tax rate is 28 per cent. If, on the other hand, a capital loss
is realized such loss is deductible against the income of the permanent
establishment. However, if the Pharmacia Securities were held as capital assets,
the loss may be deducted only against capital gains on other shares or similar
instruments. Such a loss can be carried forward until a qualifying capital gain
arises.
Individuals who are not resident in Sweden for tax purposes may generally
be taxed on the exchange of Pharmacia Securities only if the person at any time
during the ten calendar years immediately preceding the year when the exchange
takes place (in this case, 1985 - 1994) has maintained his habitual abode or
been resident or lived permanently in Sweden. Furthermore, such liability to tax
would arise only if an applicable income tax treaty permits Sweden to levy tax
or if no tax treaty is applicable. The treaty between Sweden and the U.S. does
not contain such permission. Accordingly, an individual who is resident in the
United States cannot be taxed in Sweden on the exchange of Pharmacia Securities.
The tax treaty between Sweden and Canada gives Sweden the right to tax an
individual who is resident in Canada and who has been a resident of Sweden at
any time during the six years immediately preceding the exchange of the
Pharmacia Securities. The taxable capital gain, if any, will correspond to the
difference between the acquisition cost for tax purposes and the market value of
the shares in the Company immediately after the exchange. The tax rate is 30%.
If, on the other hand, a capital loss is realized, such loss is fully deductible
against capital gains on shares or similar securities which are listed on a
stock exchange and which are taxable in Sweden. If gains that are available
derive from non-listed shares or similar securities, the deductible loss is
reduced to 70%. Any remaining loss cannot be carried over to a later year.
BECAUSE OF THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, EACH HOLDER IS URGED
TO CONSULT SUCH HOLDER'S TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO
SUCH HOLDER OF THE U.S. OFFER OR THE COMPULSORY ACQUISITION, INCLUDING THE
EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX RULES AND THE EFFECT OF
POSSIBLE CHANGES IN THE TAX LAWS.
HOLDERS OF PHARMACIA SECURITIES WHO ARE CANADIAN PERSONS SHOULD CONSULT
THEIR TAX ADVISOR WITH RESPECT TO THE CONSEQUENCES UNDER CANADIAN LAW IF SUCH
HOLDER ACCEPTS THE U.S. OFFER.
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REGULATORY MATTERS
Consummation of the Combination is conditioned upon the receipt of all
material governmental authorizations, consents, orders and approvals, subject to
waiver of such condition, if permissible, in accordance with the terms of the
Combination Agreement. Upjohn and Pharmacia intend to pursue vigorously all
required regulatory approvals. However, there can be no assurance that such
approvals will, in fact, be obtained, or, if obtained, as to the timing of their
receipt. See "Risk Factors -- Regulatory Approvals" and "The Combination
Agreement -- Conditions to the Combination."
ANTITRUST
Under the HSR Act and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Combination may not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the Department of Justice (the "Antitrust
Division") and specified waiting period requirements have been satisfied. On
August 31, 1995, Upjohn and Pharmacia filed notification and report forms under
the HSR Act with the FTC and the Antitrust Division. The required waiting period
under the HSR Act will expire on September 30, 1995, unless such waiting period
is earlier terminated by the FTC and the Antitrust Division or extended by a
request from the FTC or the Antitrust Division for additional information or
documentary material prior to the expiration of the waiting period. At any time
before or after consummation of the Combination, the Antitrust Division or the
FTC could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the consummation
of the Combination or seeking divestiture of substantial assets of Upjohn or
Pharmacia. At any time before or after the Effective Time of the Merger, and
notwithstanding that the HSR Act waiting period has expired, any state could
take such action under the antitrust laws as it deems necessary or desirable in
the public interest. Such action could include seeking to enjoin the
consummation of the Combination or seeking divestiture of assets of Upjohn or
Pharmacia or any of their respective businesses. Private parties may also seek
to take legal action under the antitrust laws under certain circumstances.
The FTC and the Antitrust Division frequently scrutinize the legality under
U.S. antitrust laws of transactions such as the Combination. At any time before
or after the Combination, the FTC or the Antitrust Division could take such
action under U.S. antitrust laws as it deems necessary or desirable in the
public interest, including seeking to enjoin the Combination prior to
consummation, or seeking appropriate equitable relief, including divestiture of
assets of Upjohn, Pharmacia or their affiliates. Private parties and state
attorneys general may also bring legal action under U.S. and State antitrust
laws under certain circumstances. On the basis of knowledge and information as
to the businesses in which Upjohn, Pharmacia and their affiliates are engaged,
Upjohn and Pharmacia believe that consummation of the Combination will not
violate U.S. or State antitrust laws. Nevertheless, there can be no assurance
that a challenge to the Combination on antitrust grounds will not be made or of
the result if such a challenge is made.
Based on information available to them, Upjohn and Pharmacia believe that
the Combination can be effected in compliance with federal and state antitrust
laws. However, there can be no assurance that a challenge to the consummation of
the Merger on antitrust grounds will not be made or that, if such a challenge
were made, Upjohn and Pharmacia would prevail or would not be required to accept
certain conditions possibly including certain divestitures in order to
consummate the Combination.
EUROPEAN UNION
Upjohn and Pharmacia each conduct business in member states of the European
Community. EC Council Regulation 4064/89 requires that certain acquisitions
involving parties with aggregate worldwide sales and individual European
Community sales exceeding certain thresholds must be notified to and approved by
the European Commission. The proposed Combination is subject to the requirements
of EC Council Regulation 4064/89.
The European Commission must review a notifiable proposed acquisition to
determine whether it is compatible with the common market. An acquisition which
does not create or strengthen a dominant position
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as a result of which effective competition would be significantly impeded in the
common market or in a substantial part of the common market is considered to be
compatible with the common market. Where the European Commission finds that such
proposed acquisition raises serious doubts as to its compatibility with the
common market, the European Commission may, within one month following
notification, initiate proceedings to investigate the proposed acquisition. If
it does initiate proceedings, the European Commission must make a final
determination as to whether or not the proposed acquisition is compatible with
the common market no later than four months after the initiation of proceedings.
Upjohn and Pharmacia notified the European Commission of the Transactions by
filing Form CO with the European Commission on August 28, 1995.
If the European Commission's approval of the Combination is subject to
compliance with certain conditions, there can be no assurance that the Company,
Upjohn or Pharmacia will be able to satisfy or comply with such conditions or be
able to cause their respective subsidiaries to satisfy or comply with any such
conditions or that compliance or noncompliance will not have adverse
consequences for the Company after consummation of the Combination. The Company,
Upjohn and Pharmacia believe that the proposed Combination is compatible with
the common market under EC Council Regulation 4064/89. Nevertheless, there can
be no assurance that a challenge to the proposed Combination on the grounds that
the proposed Combination is not compatible with the common market will not be
made or, if a challenge is made, what the result will be. The Company's
obligation to consummate the Combination is conditioned on the expiration or
termination of the period of suspension under EC Council Regulation 4064/89.
STATE TAKEOVER LAWS
A number of states have adopted laws and regulations applicable to attempts
to acquire securities of corporations that are incorporated or have substantial
assets, stockholders, principal executive offices or principal places of
business or whose business operations otherwise have substantial economic
effects in such states. In Edgar v. MITE Corp., the Supreme Court of the United
States invalidated on constitutional grounds the Illinois Business Takeover
Statute, which, as a matter of state securities law, made takeovers of
corporations meeting certain requirements more difficult. However, in 1987, in
CTS Corp. v. Dynamics Corp. of America, the Supreme Court held that the State of
Indiana may, as a matter of corporate law and, in particular, with respect to
those aspects of corporate law concerning corporate governance, constitutionally
disqualify a potential acquiror from voting on the affairs of a target
corporation without the prior approval of the remaining stockholders. The state
law before the Supreme Court was by its terms applicable only to corporations
that had a substantial number of stockholders in the state and were incorporated
there.
Upjohn and Pharmacia, directly or through subsidiaries, conduct business in
a number of states throughout the United States, some of which have enacted
takeover laws. The Company does not know whether any of these laws will, by
their terms, apply to the Combination and has not complied with any such laws.
Should any person seek to apply any state takeover law to the Combination, the
Company will take such action as then appears desirable, which may include
contesting the validity of such statute in appropriate court proceedings. If it
is asserted that one or more state takeover laws applies to the Combination and
it is not determined by an appropriate court that such act or acts do not apply
or are invalid as applied to the Combination, then the Company might be required
to file certain information with, or receive approvals from, the relevant state
authorities. In addition, if enjoined, the Company might be unable to consummate
or be delayed in consummating the Combination. In such case, the Company may not
be obligated to accept for exchange any Pharmacia Securities deposited under the
Offer.
FEDERAL FOOD, DRUG, AND COSMETIC ACT, ETC.
The Company understands that each of Upjohn and Pharmacia is subject to the
United States Federal Food, Drug, and Cosmetic Act (the "FFDCA") as well as the
regulations of other federal and state agencies. Pursuant to regulations
promulgated under the FFDCA, changes in individual ownership, corporate or
partnership structure, location or drug-handling activity must be submitted
within five days of such changes to the FFDCA by Form FD-2656 (Registration of
Drug Establishment) as an amendment to the Registration of Drug Establishment
currently on file with the FFDCA. The Company, Upjohn and Pharmacia intend to
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cooperate in complying with the applicable requirements of the FFDCA. The
Company also understands that Upjohn's and Pharmacia's businesses may be subject
to similar regulation by the laws of foreign jurisdictions in which Upjohn and
Pharmacia operate and the Company plans to take all such action as is desirable
or necessary as described in "Other Laws" below.
OTHER LAWS
Upjohn and Pharmacia conduct operations in a number of countries where
regulatory filings or approvals may be required or advisable in connection with
the consummation of the Combination. The companies are currently in the process
of reviewing whether other filings or approvals may be required or desirable in
other countries which may be material to the Company and its subsidiaries. It is
recognized that certain of such filings may not be completed and certain of such
approvals (which are not as a matter of practice required to be obtained prior
to effectiveness of a merger transaction) may not be obtained prior to the
Effective Time.
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DESCRIPTION OF THE COMPANY
The Company was recently incorporated as a corporation under the laws of
the State of Delaware for the purpose of facilitating the Combination. The
Company has not conducted any activities other than in connection with its
organization and in connection with the Combination. After the consummation of
the Transactions, Upjohn and Pharmacia will be, directly or indirectly, wholly
owned subsidiaries of the Company, which will have its global corporate
management center in London, England. As of the Effective Time, the stockholders
of Upjohn immediately prior to the Effective Time and the stockholders of
Pharmacia immediately prior to the Effective Time will each own approximately 50
percent of the voting stock of the Company, assuming full acceptance of the
Offer by Pharmacia stockholders. The Company's fiscal year will end on December
31.
Following consummation of the Combination, the Company intends to combine
and consolidate the respective research and development, manufacturing, sales,
marketing and administrative operations of Upjohn, Pharmacia and their
respective subsidiaries. While management of the Company believes that the
Combination will create a combined entity with the resources to compete more
effectively on a worldwide basis, the Company will continue to be subject to the
competitive factors described under "Description of Upjohn" and "Description of
Pharmacia -- Competition."
Management of the Company will review the operations of Upjohn and
Pharmacia and, upon completion of such review, will develop plans or proposals
regarding, among other things, the integration or combination of the research
and development efforts, production facilities and other operations of Upjohn
and Pharmacia.
BUSINESS
The Company would have had 1994 sales of nearly $7 billion (based upon the
combined sales of Pharmacia and Upjohn), with prescription pharmaceutical sales
placing it among the top ten in the worldwide pharmaceutical industry. In
addition, based on combined 1994 results, the Company would have had 36% of its
sales in the United States, compared with approximately 34% of the worldwide
pharmaceutical market, ranking among the top 15 pharmaceutical companies in the
United States market, 45% of its sales in Europe, compared with approximately
28% of the worldwide pharmaceutical market, ranking among the top five
pharmaceutical companies in the European market, and 9% of its sales in Japan,
compared with 21% of the worldwide pharmaceutical market, ranging among the top
20 pharmaceutical companies in the Japanese market, and among the top three
non-Japanese pharmaceutical companies. The Company will also actively
participate in the developing markets of the Pacific Rim, Eastern Europe and
Latin America. The Company will have a broad product portfolio with sales
expected to exceed $500 million in six key therapeutic areas.
The Company's initial annual research and development expenditures are
expected to exceed $1 billion. The Company's research and development activities
will be focused on medically important therapeutic areas, including diseases of
the central nervous system, oncology, critical care medicine, infectious
diseases, female and reproductive health, nutritional deficiencies, metabolic
diseases, ophthalmology, urology and inflammatory disorders, and will be
conducted principally in the Company's three operational headquarters in
Kalazamoo, Michigan, Stockholm/Uppsala, Sweden and Milan, Italy.
The Company expects to benefit from the complementary research and
development strengths of Upjohn and Pharmacia and from extensions of existing
products into new formulations and indication areas. These synergies are
expected to result in 28 introductions from 1995 through 1998 consisting of 17
new products, eight existing products for new indications, and three existing
products that will be introduced in the United States as set forth in the table
below and deeper penetration of existing markets.
86
<PAGE> 93
<TABLE>
<CAPTION>
NEW CHEMICAL ENTITIES NEW INDICATIONS UNITED STATES
----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
Zinecard -- Cardio protectant Genotropin -- Adult growth Genotropin -- Short Stature
Caverject -- Erectile hormone deficiency Fragmin -- Prevention of
dysfunction Rogaine OTC -- Male pattern deep
Freedox -- subarchnoid baldness vein thrombosis
hemorrhage Rogaine 5% -- Male pattern Estring -- Local hormone
Camptosar -- Solid tumors baldness replacement
Remisar -- Bladder cancer Colestic OTC --
Latanoprost -- Glaucoma Hyperlipidemia
Cabergoline -- Parkinson's
Disease Cyclo-Provera -- Contraceptive
Pramipexole -- Parkinson's Fragmin -- Unstable angina
Disease Freedox -- Head injury
Reboxetine -- Depression Latanoprost (comb.) --
rFVIII -- Hemophilia Glaucoma
SnET2 -- Cancer
Eltanolone -- Anesthesia
Rescriptor -- AIDS
Hemopure -- Blood substitute
Tolterodine -- Urinary
Incontinence
Triptorelin -- Prostate
Cancer
Luvox -- Obsessive Compulsive
Disorder
</TABLE>
The Company expects to have 24 products in early phase clinical testing,
including agents in oncology, diseases of the central nervous system, infectious
diseases, asthma, urinary incontinence and vascular disease that have shown
positive results in earlier testing.
The Company is also expected to have one of the world's strongest
biotechnology capabilities with more than 1,000 scientists experienced in the
recombinant and monoclonal technologies of molecular biology. The Company
expects this biotechnology expertise to enhance its strength in other core areas
such as oncology, in which the Company is expected to be a world research
leader. The Company's strengths in molecular biology will also strengthen the
Company's efforts in critical care medicine and inflammatory disorders. For
additional information concerning the Company, see "Description of Upjohn" and
the Financial Statements of Upjohn contained elsewhere herein, and "Description
of Pharmacia" and the Financial Statements of Pharmacia contained elsewhere
herein. The Company intends to pursue a strategy aimed at prolonging the
relatively short patent life of pharmaceutical products resulting from their
long development time. The Company expects to employ a number of measures,
including upgrading certain products to create new patented products (as
Pharmacia did with respect to its Adriamycin/Farmorubicin product), and
converting certain suitable patented products to "over the counter" products (a
strategy being pursued by Upjohn with respect to its hair growth product
Rogaine). There can be no assurances, however, that the Company will be
successful in implementing these or similar strategies.
As of the Effective Time, the Company will have approximately 34,500
employees.
DIVIDEND POLICY
The first dividend of the Company for the quarter ending December 31, 1995
is expected to be $0.27 per share of New Common Stock, indicating an annual
dividend of $1.08 per share. Thereafter, it is expected to be the policy of the
Company Board that the aggregate dividends declared on the shares of New Common
Stock in each year will range between 40% to 50% of the consolidated net income
of the Company (as calculated under U.S. GAAP) in such year. However, the
declaration and payment of future dividends will depend upon the income,
financial condition and capital and cash requirements of the Company,
restrictions on dividends
87
<PAGE> 94
under applicable laws governing the Company and other factors. Accordingly,
there can be no assurance that dividends will be paid in the future nor any
assurance as to the amount thereof.
DIRECTORS AND EXECUTIVE OFFICERS
The following persons, as of the Effective Time, will be the Directors
and/or Officers:
<TABLE>
<CAPTION>
NAME POSITION
------------------------------------------------ -----------------------------
<S> <C>
Jan Ekberg...................................... Chairman and Director
John L. Zabriskie............................... President and Chief Executive
Officer and Director
Goran Ando...................................... Executive Vice President
Robert C. Salisbury............................. Executive Vice President
Richard H. Brown................................ Director
Frank C. Carlucci............................... Director
Gustaf Douglas.................................. Director
M. Kathryn Eickhoff............................. Director
Daryl F. Grisham................................ Director
Soren Gyll...................................... Director
William E. La Mothe............................. Director
Goran Linden.................................... Director
Berthold Lindquist.............................. Director
Olof Lund....................................... Director
William D. Mulholland........................... Director
William U. Parfet............................... Director
Ulla Reinius.................................... Director
Bengt Samuelsson................................ Director
</TABLE>
For certain biographical information concerning the foregoing Directors and
Officers, see "Description of Upjohn -- Directors and Executive Officers" and
"Description of Pharmacia -- Directors and Executive Officers."
There are no family relationships among any current Director or Officer and
any other current Director or Officer of the Company.
Additional Officers will be appointed and announced at a later date. Half
of such additional Officers are expected to be selected from the current
management of Upjohn, and half of such additional Officers are expected to be
selected from the current management of Pharmacia. For biographical information
concerning such Officers, see "Description of Upjohn -- Directors and Executive
Officers" and "Description of Pharmacia -- Directors and Executive Officers."
Prior to the Effective Time, Mats Pettersson will serve as Chairman of the
Company Board and Executive Vice President of the Company, Robert C. Salisbury
will serve as President and Chief Executive Officer and as a Director of the
Company, Mats Lidgard will serve as Executive Vice President and Treasurer and
as a Director of the Company and Kenneth M. Cyrus will serve as Executive Vice
President and Secretary and as a Director of the Company. Such individuals will
be the only Directors and Officers of the Company prior to the Effective Time.
For certain biographical information concerning Messrs. Pettersson and Lidgard,
see "Description of Pharmacia -- Directors and Executive Officers." For certain
biographical information concerning Messrs. Salisbury and Cyrus, see
"Description of Upjohn -- Directors and Executive Officers."
88
<PAGE> 95
The Company By-laws require a board comprised of not less than eight nor
more than 16 members, which number may be increased or decreased within such
range by the Company Board. Until the annual meeting of Stockholders at which
Directors are elected in 2001, (i) the Chairman of the Company Board and the
President and Chief Executive Officer may not both be citizens of the United
States or Canada or nationals of Sweden or other European Union member states
and (ii) one-half of the Directors shall be citizens of the United States or
Canada and one-half shall be nationals of Sweden or other European Union member
states. In addition, the Chairman of the Company Board and the President and
Chief Executive Officer may not be the same person unless otherwise approved by
a Supermajority Director Vote or a Supermajority Stockholder Vote. As of the
Effective Time, the Company will have 16 Directors. As permitted under the DGCL,
the Company Board is classified into three classes which are to be as nearly
equal as possible. Directors in each class serve for a term of three years, with
the exception that members of the first class will initially be elected for a
term of one year after which members of such class will then be elected for a
term of three years, and members of the second class will initially be elected
for a term of two years, after which members of such class will then be elected
for a term of three years. Elections are staggered such that one class is
elected each year.
For information concerning the beneficial ownership of Upjohn Common Stock
by Upjohn directors and executive officers, see "Description of
Upjohn -- Beneficial Ownership of Upjohn Common Stock." For information
concerning the beneficial ownership of Pharmacia Shares by Pharmacia directors
and executive officers, see "Description of Pharmacia -- Directors and Executive
Officers and Beneficial Ownership of Pharmacia Common Shares."
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Directors and executive officers of the Company will receive no
compensation from the Company prior to the Effective Time. Certain of the
Directors and executive officers of the Company are presently directors and/or
executive officers of Upjohn and Pharmacia and are entitled to compensation and
certain other employment benefits from Upjohn and Pharmacia, respectively. See
"Risk Factors -- Interests of Management" for a discussion of certain interests
of the directors and executive officers of Upjohn and Pharmacia in the
Combination. Information concerning certain matters relating to the employment
and compensation of the directors and executive officers of Upjohn is contained
in Upjohn's Annual Report on Form 10-K for the year ended December 31, 1994 and
is incorporated herein by reference. Information concerning certain matters
relating to the employment and compensation of the directors and executive
officers of Pharmacia is contained in Pharmacia's Annual Report on Form 20-F for
the year ended December 31, 1994 and is incorporated herein by reference. See
"Available Information."
Employment and Severance Agreements
It is presently expected that after the Effective Time the officers of the
Company will enter into employment and severance agreements with the Company
and/or, in certain cases, the subsidiaries of the Company. Such severance
agreements are expected to contain, in the case of the executive Directors and
officers of the Company who are currently officers of Upjohn, substantially
similar provisions to their current agreements (see "Description of
Upjohn -- Directors and Executive Officers"). In the case of the Company
officers who are currently Pharmacia officers, it is expected that they will
enter into agreements comparable to those to which the Upjohn officers will
enter into, but no decisions as to specific terms have been made. The
remuneration of the officers of the Company may be varied following the
Combination but will be determined by a compensation committee consisting of
non-executive directors of the Company and will be based upon the level of
responsibility of such officers.
The Company's Executive Compensation Plans
The Combination Agreement provides that effective as of the Effective Time
the Company shall adopt, for key employees of Pharmacia and Upjohn, an
equity-based management incentive plan or equivalent arrangement providing for
stock options and other equity-based awards, and an annual incentive
compensation plan.
89
<PAGE> 96
UNAUDITED CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited condensed pro forma combined balance sheet as of
June 30, 1995, and the unaudited condensed pro forma combined statements of
earnings for the years ended December 31, 1994, 1993 and 1992 and the six-month
periods ended June 30, 1995 and 1994 have been prepared to illustrate the
estimated effects of the proposed combination of Pharmacia and Upjohn in
accordance with U.S. GAAP under the "pooling of interests" method of accounting.
A condition in order to account for the merger as a "pooling of interests" under
U.S. GAAP is that there must at a minimum be an exchange of at least 90% of the
outstanding common stock of each of Upjohn and Pharmacia. The Combination will
occur through the formation of the Company which will issue an assumed
503,722,558 shares of New Common Stock and an assumed 7,263 shares of New
Preferred Stock, which will be exchanged for all of the outstanding Pharmacia
Securities and shares of Upjohn Common Stock and Upjohn Preferred Stock. The
Unaudited Condensed Pro Forma Combined Balance Sheet as of June 30, 1995 was
prepared as if the Combination was consummated at June 30, 1995. The Unaudited
Condensed Pro Forma Combined Statements of Earnings for the years ended December
31, 1994, 1993 and 1992 and the six-month periods ended June 30, 1995 and 1994
were prepared as if the Combination was consummated as of January 1, 1992. The
unaudited condensed pro forma combined financial statements are based on the
historical consolidated financial statements of Pharmacia and Upjohn giving
effect to the Combination under the assumptions and adjustments outlined in the
accompanying Notes to Unaudited Condensed Pro Forma Combined Financial
Statements.
The unaudited condensed pro forma combined financial statements have been
prepared in accordance with U.S. GAAP. The financial statements of Pharmacia
have been converted from Swedish GAAP to U.S. GAAP and translated into U.S.
dollars for purposes of this presentation (see Note 1 of the Notes to unaudited
condensed pro forma combined financial statements.) Swedish GAAP differs in
certain significant respects from U.S. GAAP. A reconciliation of net income and
shareholders' equity of Pharmacia from Swedish GAAP to U.S. GAAP is presented in
Note 25 to the Consolidated Financial Statements of Pharmacia contained
elsewhere herein.
The unaudited condensed pro forma combined financial statements do not give
effect to certain restructuring and rationalization costs expected to be
incurred following the Combination. The management of the Company presently is
considering the nature and extent of the charges to be so incurred. Such costs
presently cannot be reasonably predicted in a manner sufficient to quantify the
amount and timing of such charges under U.S. GAAP. Upon final determination, a
substantial charge or charges will be recorded during 1995 and/or 1996 and be
reflected in the Company's statement of earnings as a non-recurring charge or
charges to operations in accordance with U.S. GAAP. The actual payments to
implement the restructuring and rationalization are expected to be made over a
two to three year period. In addition, although the Company expects to realize
cost reductions from the Combination and the restructuring and rationalization,
no effect has been given in the Company's unaudited condensed pro forma combined
financial statements to any such benefits.
The unaudited condensed pro forma combined financial statements are
provided for illustrative purposes only and do not purport to represent what the
financial position or results of operations of the Company would actually have
been if the Combination had in fact occurred on the dates indicated or to
project the financial position or results of operations for any future date or
period. The unaudited pro forma combined financial statements should be read in
conjunction with the notes thereto and the consolidated financial statements of
Pharmacia and Upjohn and the related notes thereto contained elsewhere herein.
The Combination Agreement provides that each outstanding Pharmacia Class A
Common Share, Pharmacia Class B Common Share and ADS representing one Pharmacia
Class A Common Share will be exchanged for one share of New Common Stock or SDS,
each outstanding share of Upjohn Common Stock will be exchanged for 1.45 shares
of New Common Stock and each outstanding share of Upjohn Preferred Stock will be
exchanged for one share of New Preferred Stock. The precise number of
outstanding shares cannot be determined until the Effective Date. For purposes
of the unaudited condensed pro forma financial statements, the actual number of
shares of capital stock of Pharmacia and Upjohn issued and outstanding at June
30, 1995 has been used to calculate the issuance of shares of New Common Stock
and New Preferred Stock pursuant to the Offer and the Merger.
90
<PAGE> 97
PHARMACIA & UPJOHN, INC.
UNAUDITED CONDENSED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1995
<TABLE>
<CAPTION>
HISTORICAL
---------------------------- PRO FORMA
-----------------------------
PHARMACIA(1) UPJOHN ADJUSTMENTS COMBINED
------------ ----------- ----------- -----------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.......... $ 198,141 $ 303,914 $ (69,000)(2) $ 433,055
Short-term investments............. 900,929 328,443 1,229,372
Trade accounts receivable (net).... 913,046 671,767 1,584,813
Inventories........................ 500,379 502,172 1,002,551
Deferred income taxes and other.... 286,541 335,584 622,125
----------- ----------- --------- -----------
Total current assets............ 2,799,036 2,141,880 (69,000) 4,871,916
----------- ----------- --------- -----------
Investments........................ 127,367 598,254 725,621
Property, plant and equipment, at
cost............................ 2,359,380 3,203,532 5,562,912
Less allowance for depreciation.... (1,035,456) (1,351,189) (2,386,645)
----------- ----------- -----------
Net property, plant and
equipment....................... 1,323,924 1,852,343 3,176,267
----------- ----------- -----------
Other noncurrent assets............ 119,656 426,390 546,046
Intangibles, (net)................. 1,592,702 224,719 1,817,421
----------- ----------- --------- -----------
Total assets.................... $ 5,962,685 $ 5,243,586 $ (69,000) $11,137,271
=========== =========== ========= ===========
Current liabilities:
Accounts payable, accrued
liabilities and dividends
payable......................... $ 732,392 $ 297,119 $ 1,029,511
Short-term borrowings, including
current maturities of long-term
debt............................ 700,034 60,285 760,319
Income taxes payable............... 180,103 226,702 406,805
Other.............................. 179,140 494,967 674,107
----------- ----------- -----------
Total current liabilities....... 1,791,669 1,079,073 2,870,742
----------- ----------- -----------
Long-term debt....................... 85,508 515,005 600,513
Guaranteed of ESOP debt.............. 267,200 267,200
Postretirement benefit cost.......... 15,040 374,607 389,647
Deferred income taxes and other
noncurrent liabilities............. 609,401 505,322 1,114,723
Shareholders' equity:
Preferred stock.................... -- 292,719 $(292,719)(3d) 292,719
292,719(3d)
Common stock....................... 880,413 190,590 (880,413)(3a) 5,038
2,558(3a)
(190,590)(3b)
2,480(3b)
Capital in excess of par value,
statutory reserves and other.... 1,755,034 97,291 877,855(3a) 2,222,451
188,110(3b)
(695,839)(3c)
Retained earnings.................. 825,620 2,891,048 (69,000)(2) 3,647,668
ESOP deferred compensation and note
receivable from ESOP Trust...... -- (273,430) (273,430)
Treasury stock, at cost............ -- (695,839) 695,839(3c)
----------- ----------- --------- -----------
Total shareholders' equity...... 3,461,067 2,502,379 (69,000) 5,894,446
----------- ----------- --------- -----------
Total liabilities and
shareholders' equity.......... $ 5,962,685 $ 5,243,586 $ (69,000) $11,137,271
=========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of the
unaudited condensed pro forma combined financial statements.
91
<PAGE> 98
PHARMACIA & UPJOHN, INC.
UNAUDITED CONDENSED PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
HISTORICAL
--------------------------- PRO FORMA
PHARMACIA(1) UPJOHN COMBINED
------------ ---------- ----------
(DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Operating revenue:
Net sales........................................... $1,808,125 $1,643,446 $3,451,571
Other revenue....................................... 21,117 74,123 95,240
---------- ---------- ----------
Total....................................... 1,829,242 1,717,569 3,546,811
---------- ---------- ----------
Operating costs and expenses:
Cost of products sold............................... 525,735 446,828 972,563
Research and development............................ 289,324 290,809 580,133
Marketing and administrative........................ 681,085 628,153 1,309,238
Restructuring, rationalization and merger related
costs............................................ 11,853 -- 11,853
---------- ---------- ----------
Total....................................... 1,507,997 1,365,790 2,873,787
---------- ---------- ----------
Operating income...................................... 321,245 351,779 673,024
---------- ---------- ----------
Interest income..................................... 57,900 40,690 98,590
Interest expense.................................... (32,015) (12,988) (45,003)
Foreign exchange.................................... (23,160) (1,147) (24,307)
Other, (net)........................................ -- (1,557) (1,557)
---------- ---------- ----------
Earnings from continuing operations before income
taxes............................................... 323,970 376,777 700,747
---------- ---------- ----------
Provision for income taxes............................ 131,740 109,300 241,040
---------- ---------- ----------
Earnings from continuing operations................... 192,230 267,477 459,707
---------- ---------- ----------
Dividends on preferred stock (net of tax)............. -- 6,186 6,186
---------- ---------- ----------
Earnings from continuing operations available for
common shareholders................................. $ 192,230 $ 261,291 $ 453,521
========== ========== ==========
Primary earnings from continuing operations per common
share............................................... $ 0.90(4)
==========
Fully diluted earnings from continuing operations per
common share........................................ $ 0.88(4)
==========
Weighted average equivalent shares used in primary per
share calculation................................... 506,277(4)
==========
Weighted average equivalent shares used in fully
diluted per share calculation....................... 519,694(4)
==========
</TABLE>
The accompanying notes are an integral part of the
unaudited condensed pro forma combined financial statements.
92
<PAGE> 99
PHARMACIA & UPJOHN, INC.
UNAUDITED CONDENSED PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1994
<TABLE>
<CAPTION>
HISTORICAL
--------------------------- PRO FORMA
PHARMACIA(1) UPJOHN COMBINED
------------ ---------- ----------
(DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Operating revenue:
Net sales........................................... $1,730,358 $1,619,350 $3,349,708
Other revenue....................................... 23,276 24,507 47,783
---------- ---------- ----------
Total....................................... 1,753,634 1,643,857 3,397,491
---------- ---------- ----------
Operating costs and expenses:
Cost of products sold............................... 507,002 420,558 927,560
Research and development............................ 233,995 303,091 537,086
Marketing and administrative........................ 692,472 617,982 1,310,454
---------- ---------- ----------
Total....................................... 1,433,469 1,341,631 2,775,100
---------- ---------- ----------
Operating income...................................... 320,165 302,226 622,391
---------- ---------- ----------
Interest income..................................... 45,286 27,356 72,642
Interest expense.................................... (46,045) (12,671) (58,716)
Foreign exchange.................................... 4,933 (2,079) 2,854
Other (net)......................................... (126) (374) (500)
---------- ---------- ----------
Earnings from continuing operations before income
taxes............................................... 324,213 314,458 638,671
---------- ---------- ----------
Provision for income taxes............................ 137,629 72,500 210,129
---------- ---------- ----------
Earnings from continuing operations................... 186,584 241,958 428,542
---------- ---------- ----------
Dividends on preferred stock (net of tax)............. -- 6,126 6,126
---------- ---------- ----------
Earnings from continuing operations available for
common shareholders................................. $ 186,584 $ 235,832 $ 422,416
========== ========== ==========
Primary earnings from continuing operations per common
share............................................... $ 0.84(4)
==========
Fully diluted earnings from continuing operations per
common share........................................ $ 0.82(4)
==========
Weighted average equivalent shares used in primary per
share calculation................................... 505,360(4)
==========
Weighted average equivalent shares used in fully
diluted per share calculation....................... 518,197(4)
==========
</TABLE>
The accompanying notes are an integral part of the
unaudited condensed pro forma combined financial statements.
93
<PAGE> 100
PHARMACIA & UPJOHN, INC.
UNAUDITED CONDENSED PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
HISTORICAL
--------------------------- PRO FORMA
PHARMACIA(1) UPJOHN COMBINED
------------ ---------- ----------
(DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS
<S> <C> <C> <C>
Operating revenue:
Net sales........................................... $3,429,364 $3,274,996 $6,704,360
Other revenue....................................... 48,880 69,542 118,422
---------- ---------- ----------
Total....................................... 3,478,244 3,344,538 6,822,782
---------- ---------- ----------
Operating costs and expenses:
Cost of products sold............................... 1,046,702 843,152 1,889,854
Research and development............................ 490,081 607,187 1,097,268
Marketing and administrative........................ 1,357,367 1,294,752 2,652,119
Restructuring, rationalization and merger related
costs............................................ 19,837 -- 19,837
---------- ---------- ----------
Total....................................... 2,913,987 2,745,091 5,659,078
---------- ---------- ----------
Operating income...................................... 564,257 599,447 1,163,704
---------- ---------- ----------
Interest income..................................... 97,630 59,624 157,254
Interest expense.................................... (87,517) (24,600) (112,117)
Foreign exchange.................................... 23,208 (1,087) 22,121
Other, (net)........................................ 30,210 10,104 40,314
---------- ---------- ----------
Earnings from continuing operations before income
taxes............................................... 627,788 643,488 1,271,276
---------- ---------- ----------
Provision for income taxes............................ 283,425 154,400 437,825
---------- ---------- ----------
Earnings from continuing operations................... 344,363 489,088 833,451
---------- ---------- ----------
Dividends on preferred stock (net of tax)............. -- 12,291 12,291
---------- ---------- ----------
Earnings from continuing operations available for
common shareholders................................. $ 344,363 $ 476,797 $ 821,160
========== ========== ==========
Primary earnings from continuing operations per common
share............................................... $ 1.62(4)
==========
Fully diluted earnings from continuing operations per
common share........................................ $ 1.60(4)
==========
Weighted average equivalent shares used in primary per
share calculation................................... 505,432(4)
==========
Weighted average equivalent shares used in fully
diluted per share calculation....................... 518,363(4)
==========
</TABLE>
The accompanying notes are an integral part of the
unaudited condensed pro forma combined financial statements.
94
<PAGE> 101
PHARMACIA & UPJOHN, INC.
UNAUDITED CONDENSED PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
HISTORICAL
--------------------------- PRO FORMA
PHARMACIA(1) UPJOHN COMBINED
------------ ---------- ----------
(DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Operating revenue:
Net sales........................................... $3,167,530 $3,339,957 $6,507,487
Other revenue....................................... 12,692 40,579 53,271
---------- ---------- ----------
Total....................................... 3,180,222 3,380,536 6,560,758
---------- ---------- ----------
Operating costs and expenses:
Cost of products sold............................... 1,038,665 783,590 1,822,255
Research and development............................ 481,591 612,490 1,094,081
Marketing and administrative........................ 1,330,111 1,316,138 2,646,249
Restructuring, rationalization and merger related
costs............................................ 59,869 208,789 268,658
---------- ---------- ----------
Total....................................... 2,910,236 2,921,007 5,831,243
---------- ---------- ----------
Operating income...................................... 269,986 459,529 729,515
---------- ---------- ----------
Interest income..................................... 176,529 50,789 227,318
Interest expense.................................... (151,018) (31,496) (182,514)
Foreign exchange.................................... 2,308 (4,556) (2,248)
Other (net)......................................... (641) 6,306 5,665
---------- ---------- ----------
Earnings from continuing operations before income
taxes............................................... 297,164 480,572 777,736
---------- ---------- ----------
Provision for income taxes............................ 132,942 84,201 217,143
---------- ---------- ----------
Earnings from continuing operations................... 164,222 396,371 560,593
---------- ---------- ----------
Dividends on preferred stock (net of tax)............. -- 12,125 12,125
---------- ---------- ----------
Earnings from continuing operations available for
common shareholders................................. $ 164,222 $ 384,246 $ 548,468
========== ========== ==========
Primary earnings from continuing operations per common
share............................................... $ 1.08(4)
==========
Fully diluted earnings from continuing operations per
common share........................................ $ 1.07(4)
==========
Weighted average equivalent shares used in primary per
share calculation................................... 506,414(4)
==========
Weighted average equivalent shares used in fully
diluted per share calculation....................... 519,256(4)
==========
</TABLE>
The accompanying notes are an integral part of the
unaudited condensed pro forma combined financial statements.
95
<PAGE> 102
PHARMACIA & UPJOHN, INC.
UNAUDITED CONDENSED PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
HISTORICAL
--------------------------- PRO FORMA
PHARMACIA(1) UPJOHN COMBINED
------------ ---------- ----------
(DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Operating revenue:
Net sales........................................... $2,653,657 $3,256,188 $5,909,845
Other revenue....................................... -- 28,560 $ 28,560
---------- ---------- ----------
Total....................................... 2,653,657 3,284,748 5,938,405
---------- ---------- ----------
Operating costs and expenses:
Cost of products sold............................... 868,863 754,483 1,623,346
Research and development............................ 344,367 553,297 897,664
Marketing and administrative........................ 1,142,560 1,292,204 2,434,764
Restructuring, rationalization and merger related
costs............................................ 24,221 22,055 46,276
---------- ---------- ----------
Total....................................... 2,380,011 2,622,039 5,002,050
---------- ---------- ----------
Operating income...................................... 273,646 662,709 936,355
---------- ---------- ----------
Interest income..................................... 197,547 50,054 247,601
Interest expense.................................... (104,270) (31,253) (135,523)
Foreign exchange.................................... (95,166) (3,397) (98,563)
Other (net)......................................... 2,748 (5,223) (2,475)
---------- ---------- ----------
Earnings from continuing operations before income
taxes............................................... 274,505 672,890 947,395
---------- ---------- ----------
Provision for income taxes............................ 97,743 145,900 243,643
---------- ---------- ----------
Earnings from continuing operations................... 176,762 526,990 703,752
---------- ---------- ----------
Dividends on preferred stock (net of tax)............. -- 12,084 12,084
---------- ---------- ----------
Earnings from continuing operations available for
common shareholders................................. $ 176,762 $ 514,906 $ 691,668
========== ========== ==========
Primary earnings from continuing operations per common
share............................................... $ 1.36(4)
==========
Fully diluted earnings from continuing operations per
common share........................................ $ 1.34(4)
==========
Weighted average equivalent shares used in primary per
share calculation................................... 508,565(4)
==========
Weighted average equivalent shares used in fully
diluted per share calculation....................... 521,446(4)
==========
</TABLE>
The accompanying notes are an integral part of the
unaudited condensed pro forma combined financial statements.
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PHARMACIA & UPJOHN, INC.
NOTES TO UNAUDITED CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
The unaudited condensed pro forma combined financial statements have been
prepared to reflect the Combination of Pharmacia and Upjohn through the
formation of the Company which will issue an assumed 503,722,558 shares of New
Common Stock and an assumed 7,263 shares of New Preferred Stock, which will be
exchanged for all of the outstanding Pharmacia Securities and shares of Upjohn
Common Stock and the Upjohn Preferred Stock. The Combination is accounted for
under the pooling-of-interests method of accounting in accordance with U.S.
GAAP.
(1) The historical Pharmacia consolidated financial statements included
elsewhere herein have been prepared in accordance with Swedish GAAP and
denominated in Swedish kronor with a reconciliation of net income and
stockholders' equity to U.S. GAAP included in the Notes to the consolidated
financial statements. See "Note 25 to the Consolidated Financial Statements of
Pharmacia." The Pharmacia historical financial information included in these
unaudited condensed pro forma combined financial statements has been presented
in accordance with U.S. GAAP and translated into U.S. dollars at a rate of $1 =
SEK 7.2625 as of June 30, 1995 and using the weighted average rates of exchange
for the six-month periods ended June 30, 1995 and 1994, and for the years ended
December 31, 1994, 1993 and 1992 of $1 = SEK 7.3402, 7.9053, 7.7128, 7.8004 and
5.8214, respectively.
(2) To record estimated expenses associated with the Combination, which
include, without limitation, fees and expenses of investment bankers, legal
counsel, accountants and consultants incurred by Pharmacia and Upjohn in
connection with or related to the authorization, preparation, negotiation and
execution of the Combination Agreement and the preparation, printing, filing and
mailing of this Prospectus including solicitation of stockholder approvals and
all other matters related to closing the Transactions.
(3) To record the issuance of shares of New Common Stock, and 7,263 shares
of New Preferred Stock in exchange for the outstanding Pharmacia Securities, the
outstanding shares of Upjohn Common Stock (at an exchange ratio of 1.45 to 1) as
set forth below, and 7,263 outstanding shares of Upjohn Preferred Stock.
<TABLE>
<CAPTION>
PHARMACIA UPJOHN
------------ ------------
<S> <C> <C>
Pharmacia Class A Common Shares outstanding
(par value SEK 25)........................................ 164,724,715 --
Pharmacia Class B Common Shares outstanding
(par value SEK 25)........................................ 91,027,398 --
Upjohn Common Stock outstanding (par value $1.00)........... -- 171,014,100
----------- -----------
255,752,113 171,014,100
Exchange ratio to New Common Stock
(par value $.01).......................................... 1.00 1.45
----------- -----------
255,752,113 247,970,445
=========== ===========
New Common Stock to be issued............................... 503,722,558
===========
</TABLE>
(3a) Record issuance of New Common Stock to Pharmacia stockholders.
(3b) Record issuance of New Common Stock to Upjohn stockholders.
(3c) Record cancelation of Upjohn treasury stock pursuant to the
Combination Agreement.
(3d) Record exchange of Upjohn's Preferred Stock for New Preferred Stock
(an exchange ratio of 1:1) pursuant to the Combination Agreement.
(4) Primary earnings from continuing operations per share are computed by
dividing earnings from continuing operations available to holders of New Common
Stock by the weighted average of common shares outstanding based on the share
exchange ratio (including common share equivalents, principally stock options).
Fully diluted earnings from continuing operations per share have been computed
assuming that all of the convertible preferred stock and convertible debenture
loans are converted into common shares.
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DESCRIPTION OF UPJOHN
GENERAL
Upjohn was founded in 1886 by Dr. W.E. Upjohn as a sole proprietorship and
incorporated under the laws of the State of Michigan in 1909. In 1958, just
prior to its initial public offering of securities and its listing on the New
York Stock Exchange, Upjohn was reorganized and incorporated under the laws of
the State of Delaware. Its principal executive offices are in Kalamazoo,
Michigan. Upjohn operates in a single industry segment, Pharmaceutical Products,
which includes prescription and nonprescription products for both humans and
animals. Information concerning Upjohn's historical business is contained in
Upjohn's Annual Report on Form 10-K for the year ended December 31, 1994 which
is incorporated herein by reference.
Upjohn historically has engaged primarily in the research, development,
production and sale of prescription pharmaceuticals, and it continues to be
among the preeminent drug manufacturers in the United States. Upjohn
manufactures and markets a broad line of prescription drugs, primarily central
nervous system agents, nonsteroidal anti-inflammatory and analgesic agents,
antibiotics, steroids, contraceptives, oral antidiabetes agents, female and
reproductive health products and a hair growth product. These are principally
products which were developed or invented in its laboratories or for which
licenses to make, use and sell such products have been obtained from others.
Upjohn also manufactures for distribution to the general public certain
nonprescription drugs and manufactures pharmaceutical chemicals and
intermediates for use in its own products and for bulk sales. In addition,
Upjohn researches, develops, manufactures and markets pharmaceutical and vaccine
products for both food and companion animals for sale to veterinarians, feed
manufacturers and livestock producers.
Upjohn's most important pharmaceutical products, many of which it sells
under other trademarks in foreign markets or as generic products, are discussed
below, together with a summary indication of their principal uses and
applications. Except where specifically noted, none of these products are
subject to significant patent protection or market exclusivity.
BUSINESS AREAS
Upjohn currently defines its operations in four business areas:
Prescription Pharmaceuticals, Consumer Products, Chemicals and Animal Health.
The following table, which has been derived from Upjohn's Consolidated Financial
Statements contained elsewhere in this Prospectus, provides a year-to-year
comparison of Upjohn's consolidated net sales by major pharmaceutical product
group for each of the last three fiscal years(1):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Central nervous system............................... $ 455.3 $ 749.7 $ 783.3
Steroids, anti-inflammatory and analgesic............ 413.4 406.5 422.1
Reproductive and women's health...................... 511.1 362.5 292.6
Critical care, transplant and cancer................. 412.1 383.1 344.3
Infectious disease................................... 439.0 394.0 346.4
Animal health........................................ 336.2 332.6 320.7
Other products and materials......................... 707.9 711.6 746.8
-------- -------- --------
Consolidated net sales.......................... $3,275.0 $3,340.0 $3,256.2
======= ======= =======
</TABLE>
---------------
(1) 1993 and 1992 data have been conformed to current year product group
classifications.
For information regarding Upjohn's total sales, operating income, total
assets, capital expenditures and depreciation and amortization, for each of the
last three fiscal years, see the Upjohn Consolidated Financial Statements and
the accompanying notes contained elsewhere in this Prospectus.
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<PAGE> 105
PRESCRIPTION PHARMACEUTICALS
Upjohn researches, develops, manufactures and markets high-value human
pharmaceutical products to health care providers worldwide.
Principal Products
Central Nervous System ("CNS") Disorder Products. Upjohn produces two
major drugs for CNS disorders, XANAX and HALCION. XANAX Tablets, containing
alprazolam, are used for symptomatic relief of anxiety with and without
depressive symptoms and for the treatment of panic disorder. The U.S. compound
patent for XANAX expired in late 1993, resulting in intense generic competition
that caused a significant decline in sales of XANAX, which was partially offset
by Upjohn's sales of generic alprazolam. The use patent for the panic disorder
indication for XANAX expires in 2002. HALCION Tablets, containing triazolam, are
a hypnotic agent for the treatment of insomnia. The U.S. compound patent on
HALCION also expired in late 1993, resulting in generic competition that reduced
sales of the product.
Oral Antidiabetes Agents. Upjohn's major oral antidiabetes agents are
MICRONASE Tablets, containing glyburide, and GLYNASE PresTab Tablets, also
containing glyburide, for the treatment of non-insulin-dependent diabetes.
Anti-Inflammatory Agents. Upjohn markets ANSAID Tablets, a nonsteroidal
anti-inflammatory product containing flurbiprofen, for treatment of
osteoarthritis and rheumatoid arthritis, and MOTRIN Tablets, a nonsteroidal
anti-inflammatory product containing ibuprofen, used in the treatment of
rheumatoid arthritis and osteoarthritis and as a general analgesic for mild to
moderate pain, including dysmenorrhea.
Antibiotic Products. Upjohn and its subsidiaries provide a broad line of
antibiotic products including CLEOCIN and LINCOCIN products. CLEOCIN PHOSPHATE
is an injectable form of clindamycin that is used in the treatment of certain
life-threatening anaerobic infections. CLEOCIN T is a topical formulation for
treatment of acne. CLEOCIN is used to treat bacterial vaginosis. LINCOCIN is
used in the treatment of serious infections caused by many strains of
gram-positive bacteria. Upjohn has exclusive U.S. marketing rights to VANTIN
Tablets and Oral Suspension, an advanced cephalosporin antibiotic, under patents
licensed from Sankyo Company, Ltd., which rights will become semi-exclusive in
1997. Upjohn also markets ZEFAZONE Sterile Powder, another cephalosporin
antibiotic, under license from Sankyo.
Steroid Hormone Products. Upjohn markets several steroid hormones having a
variety of uses, including the treatment of allergic reactions, inflammation,
asthma and certain hormone deficiencies. The most important synthetic hormone is
PROVERA Tablets, which is a female sex hormone replacement agent. Upjohn
produces various forms of chemical modifications of hormones, under the
trademark MEDROL, which is used to treat a number of inflammatory and allergic
conditions. SOLU-CORTEF Sterile Powder and SOLU-MEDROL Sterile Powder are
injectable corticosteroid products. Upjohn also markets DEPO-PROVERA
Contraceptive Injection, which will lose marketing exclusivity in the U.S. in
late 1995, and OGEN Tablets and Vaginal Cream, an estrogen replacement product,
licensed from Abbott Laboratories.
Prostaglandin Products. Upjohn also markets certain prostaglandin
products, including PROSTIN E2 Vaginal Suppository, which is generally used for
pregnancy disorders, and PROSTIN VR PEDIATRIC Sterile Solution, for
cardiovascular use. PREPIDIL Gel, used for cervical ripening, is protected by
U.S. patents until 2003.
Other Prescription Pharmaceuticals. Upjohn produces and sells ROGAINE
Topical Solution, a 2% solution of minoxidil applied topically to restore hair
growth in men with male pattern baldness and in women with androgenetic alopecia
or hereditary hair loss. The product is also sold in numerous foreign countries.
The United States patents covering ROGAINE expire in early 1996.
Other prescription drugs include ATGAM Sterile Solution, an
immunosuppressant product, COLESTID Granules, Flavored Granules and Tablets, a
cholesterol-lowering agent, and CYTOSAR-U Sterile Powder, used for the treatment
of leukemia. CAVERJECT Sterile Powder, a patient injection for home treatment of
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erectile dysfunction, is marketed in several foreign countries and has been
approved for marketing in the United States where it will be introduced in
September, 1995.
Upjohn has formed Greenstone Healthcare Solutions to participate in the
disease management business, providing services in prevention, screening,
diagnosis, treatment, case management, education and outcome assessment.
CONSUMER PRODUCTS
Upjohn develops, manufactures and markets safe, efficacious,
nonprescription health care products to drug stores, food stores, and mass
merchandisers in the United States.
Principal Products
Upjohn manufactures and distributes products which do not require a
prescription, including MOTRIN IB Tablets, Caplets and Gelcaps, an analgesic;
KAOPECTATE products, for diarrhea; CORTAID products, anti-inflammatory topical
products; the family of UNICAP vitamin products; DRAMAMINE, anti-motion sickness
medicines; and MYCITRACIN, an antibiotic ointment for treatment of minor skin
infections and burns. Upjohn also holds a license from Hoechst-Roussel
Pharmaceuticals Inc. for exclusive United States rights to the nonprescription
laxative products DOXIDAN and SURFAK. Upjohn also has a U.S. marketing
arrangement with McNeil Consumer Products Company whereby Upjohn will receive
access to several ibuprofen-based and other products being developed by McNeil.
CHEMICALS
Upjohn researches, develops, manufactures and markets bulk pharmaceutical
chemicals and selected high-technology specialty (nonpharmaceutical) chemicals.
In addition, Upjohn contract manufactures finished dosage forms.
ANIMAL HEALTH
Upjohn researches, develops, manufactures and markets a broad range of
pharmaceutical and vaccine products for both food and companion animals to meet
the market needs of veterinarians, feed manufacturers and livestock producers.
Upjohn ranks approximately tenth in the world in terms of market share of total
Animal Health product sales. Approximately 55% of the total Animal Health
product sales are in the United States.
Principal Products
Upjohn develops, manufactures and sells animal pharmaceutical products and
animal feed additives, the sales of which fluctuate with changes in the
agricultural economy. These products are sold worldwide to veterinarians, feed
manufacturers, distributors and growers who choose Upjohn's products primarily
because of their efficacy and suitability for particular uses, as well as price
and quality. Major products include NAXCEL Sterile Powder, an antibiotic for
bovine and swine respiratory disease and early chick mortality; LINCO-SPECTIN
Soluble Powder and Premix, a combination lincomycin/spectinomycin antibiotic;
LINCOMIX 20 and LINCOMIX 50 Feed Medication, which are feed-additive
antibiotics; MGA Premix, which is a growth-promoting feed additive for feedlot
heifers; various products for the treatment of mastitis, including PIRSUE; DELTA
ALBAPLEX Tablets and LINCOCIN, which are small-animal antibiotics; and LUTALYSE
Sterile Solution, which is used to synchronize breeding performance in mares and
cattle. In addition, Upjohn sells a line of animal health vaccines through
Oxford Veterinary Laboratories, Inc. (Bio-Vac Labs, Inc.).
SALES BY PRINCIPAL COUNTRIES
Upjohn manufactures and sells many of the prescription pharmaceuticals
described above in over 50 countries worldwide. In addition to the United
States, Upjohn's principal markets are Western Europe, Japan, the Pacific
Region, Latin America, the Middle East and Canada. Smaller markets are in
Eastern Europe,
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Russia, India, China and South America. In 1994, international human
pharmaceutical sales reflected an increase of 12 percent over 1993. In addition,
Upjohn's international business accounted for 44 percent of total sales in 1994,
compared to 39 percent in 1993. Upjohn also received 199 international product
registrations in certain markets that it expects to contribute to future sales
growth. For a comparison of Upjohn's operations and sales by geographic area see
"Geographic Area Information" below. Upjohn competes with a large number of
other companies primarily on the basis of product differentiation and price. The
most significant product areas for Upjohn's international sales are antibiotics,
central nervous system agents and corticosteroids.
PRODUCTION
Upjohn's main manufacturing building, which is located at Upjohn's
Kalamazoo site, contains about 1,630,000 square feet. Other major buildings at
the Kalamazoo site include a large fermentation plant where antibiotics and
steroids are produced, a new complex used for production of fine chemicals, and
buildings devoted to chemical and fermentation process development. In Europe,
Upjohn conducts a complex manufacturing operation and distributes products and
administratively supports its business units through its plant and offices in
Belgium. This plant specializes in, among other things, sterile manufacturing,
freeze drying, suspensions, solutions, syringes and high speed packaging. The
plant also supplies products for use in the United States, Europe and through
the world. Animal Health products are principally manufactured in Upjohn's
pharmaceutical production units located in the United States, the United Kingdom
and Belgium. Upjohn also has some minor contract manufacturing arrangements.
In addition, Upjohn conducts substantial pharmaceutical manufacturing
operations in Puerto Rico through a wholly owned subsidiary. Under current law,
the earnings from this subsidiary will be partially exempt from both United
States and Puerto Rico income taxes. The federal Omnibus Budget Reconciliation
Act of 1993 will reduce in future years the amount of Puerto Rico tax benefits
available under Section 936 of the Internal Revenue Code (ultimately reducing
the benefit under the current law by 60 percent). If earnings from Upjohn's
Puerto Rican subsidiary are repatriated in the form of a dividend to Upjohn,
such earnings would be subject to a Puerto Rican withholding tax of up to 10% of
the amount repatriated. Under the Puerto Rican tax exemption grant, certain
credits are available to reduce Puerto Rican withholding taxes. See Notes E and
H to the Consolidated Financial Statements of Upjohn contained elsewhere in this
Prospectus for further information, including the effect on Upjohn's net
earnings of the Puerto Rican tax exemption grant and the investment of earnings
from Puerto Rican operations.
MARKETING AND DISTRIBUTION
Upjohn has separate sales personnel for U.S. prescription drugs, U.S.
nonprescription drugs, U.S. animal health products, foreign pharmaceuticals and
foreign animal health products. Upjohn generally distributes its products to
customers through its own distribution network, although in some foreign
countries independent distributors are used. Upjohn's worldwide pharmaceutical
sales force consists of approximately 4,000 people, 1,300 of which are located
in the United States, 750 in Europe and 550 in Japan. In addition, sales agents
are used in some foreign countries.
The current U.S. prescription marketing organization is divided into four
key areas: consumer-driven, outpatient, institutional and managed care. The
consumer-driven group employs more than 200 sales representatives concentrating
on patient-influenced products involving women's health, hair care and men's
sexual health. This group emphasizes fee-for-service providers,
direct-to-consumer advertising and professional patient communication materials.
The outpatient business is conducted by approximately 900 representatives and
focuses on office-based physicians and medications for treatment of CNS
conditions, infectious diseases and metabolic and cardiovascular diseases. These
products are usually covered by outpatient reimbursement systems and are
distributed through usual outpatient retail channels. The institutional
business, employing about 100 representatives, targets inpatient critical care
facilities, marketing specialty products for CNS, trauma, cancer and organ
transplantation. Prescription of these products is usually determined by the
treatment protocol selected by the physician and is usually covered by patient
reimbursement systems. The managed care business, which also covers governmental
sales, utilizes approximately 75
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account directors and representatives dealing directly with decision-makers at
the provider level. This group offers cross-functional customized services
incorporating non-pharmaceutical products, such as outcome data and educational
programs, as well as Upjohn products, to enhance value. Marketing and sales
activities are conducted by Upjohn personnel in all major markets. Similarly
distribution activities are generally performed by Upjohn personnel. In some
countries, however, this activity is fulfilled by agents.
Delta West Pty. Limited, an Australian subsidiary of Upjohn, manufactures
and distributes a broad line of generic products for hospital applications, with
particular emphasis on injectable oncolytic products in plastic containers,
primarily in Australia, New Zealand and Southeast Asia. Delta West is in the
process of expanding its export efforts through the Asia-Pacific region and
other markets. Delta West and Upjohn have formed a collaboration with Gensia
Laboratories Inc. to develop and market Delta West and Gensia generic oncology
and pain products in the United States.
Geneva Pharmaceuticals, Inc., a subsidiary of CIBA-GEIGY Corporation, has
certain rights to market generic versions of Upjohn's XANAX, HALCION, ANSAID,
MICRONASE and CLEOCIN T products under an agreement with Upjohn. Upjohn also
markets certain generic products through its subsidiary, Greenstone Ltd.
Upjohn has an agreement with Biopure Corporation under which Upjohn will
acquire sales and marketing rights to an hemoglobin-based oxygen carrier product
developed for human or animal use by Biopure.
Upjohn has joint marketing agreements with Burroughs Wellcome Co. to
jointly market in the United States ZOVIRAX, a product for the treatment of
genital herpes and shingles, which absent renewal will expire on December 31,
1995 and with Solvay S.A. to jointly market in the United States and certain
European countries Solvay's LUVOX (fluvoxamine), a product for treatment of
obsessive-compulsive disorder and depression (the product is approved for
depression in Europe and Canada but not yet in the United States). Under the
same agreement, Solvay S.A. jointly markets HALCION and XANAX in the United
States and certain European countries.
COMPETITION
The pharmaceutical industry is highly competitive. Upjohn's principal
competitors consist of major international corporations with substantial
resources. A drug may be subject to competition from alternative therapies
during the period of patent protection and thereafter it will also be open to
competition from generic products. The manufacturers of generic products
typically do not bear the related research and development costs and
consequently are able to offer generic products at considerably lower prices
than the branded equivalents. A research-based pharmaceutical company will
therefore normally seek to achieve a sufficiently high profit margin and sales
volume during the period of patent protection to justify the original investment
and to fund research for the future. There are, however, a number of factors
which may enable products to remain profitable once patent protection has
ceased. These include the establishment of a strong brand image with the
prescriber or the consumer, supported by an active trademark registration and
enforcement policy, and the development of a broader range of alternative
formulations than the generic manufacturer typically supplies.
As is the case for the pharmaceutical industry in general, the introduction
of new products and processes by competitors may affect pricing levels or result
in product replacement for existing products, and there can be no assurances
that any of Upjohn's products may not become outmoded, notwithstanding patent or
trademark protection. In addition, increasing governmental and other pressures
towards the dispensing of generic products in substitution for brand-name drugs
may increase competition for products no longer covered by patents.
Over the last few years, the pharmaceutical industry has experienced
increased vertical and horizontal consolidation, and the breadth of products
offered and distribution capabilities of a company may become a competitive
feature. Upjohn competes with other pharmaceutical companies in discovering or
licensing new chemical entities useful in treating medical conditions. In
addition, significant changes in marketing conditions
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are occurring in both the United States and foreign pharmaceutical markets,
including decreased pricing flexibility, restrictions on promotional and
marketing practices and the impact of managed care, particularly with respect to
product selections and pricing concessions.
REGULATION
Upjohn's products have for many years been subject to regulation by
federal, state and foreign governments. Such regulation has generally been aimed
at product safety and labeling. In the United States, most human and animal
pharmaceutical products manufactured or sold by Upjohn are subject to regulation
by the U.S. Food and Drug Administration ("FDA") as well as by other federal and
state agencies. The FDA regulates the introduction of new drugs, advertising of
prescription drug products, manufacturing, laboratory and clinical practices,
labeling, packaging and record-keeping with respect to drug products. The FDA
also reviews the safety and effectiveness of marketed drugs and may require
withdrawal of products from the market and modification of labeling claims where
necessary. In addition, the manufacturing, marketing and use of Animal Health
products are closely regulated in all major markets including the Department of
Agriculture ("USDA") which regulates Animal Health products within the United
States.
Government approval of new drugs under the federal Food, Drug and Cosmetic
Act requires substantial evidence of safety and efficacy. As a result of this
requirement, as interpreted by the FDA, the length of time and the laboratory
and clinical information required for approval of a New Drug Application ("NDA")
is considerable.
The FDA has adopted streamlined procedures for the approval of duplicate
drugs (drugs containing the same active ingredient as the originator's product),
including Abbreviated New Drug Applications ("ANDAs"). Approval of ANDAs may not
be made effective prior to expiration of valid patents. The FDA has established
a similar expedited approval process for antibiotics. The availability of the
ANDA and expedited antibiotic approval processes has reduced the time period and
expense required to obtain FDA approval of some competing products and has
facilitated generic competition.
At the state level, so-called "generic substitution" legislation permits
the dispensing pharmacist to substitute a different manufacturer's version of a
drug for the one prescribed. In a number of states, such substitution is
mandatory unless precluded by the prescribing physician.
Interest in the FDA approval mechanism for duplicate or generic drugs and
"generic substitution" by pharmacists has been increased by limits on government
reimbursement of drug costs in health and welfare programs (Medicare and
Medicaid).
Pharmaceutical manufacturers are required to provide rebates to state
governments for prescriptions covered by Medicaid. Rebates for single-source and
innovator multiple-source drugs are approximately 15 percent of the average
manufacturer price ("AMP") for each drug or the AMP minus the best price a
company offered to any given purchaser (excluding certain federal customers),
whichever was greater. Approximately 8% of Upjohn's pharmaceutical business
involves Medicaid. In November 1992, ceiling prices were placed on products sold
to the Department of Defense, the Veterans Administration and the Public Health
Service ("PHS"). In addition, manufacturers are required to sell products to PHS
grantees at the net Medicaid price (AMP minus the Medicaid rebate). The issue of
further price controls on sales of prescription drugs continues to be considered
in Congress and various states, and additional federal or state legislation to
limit prices of prescription drugs is possible.
It is difficult to predict the ultimate effect of streamlined approval of
duplicate or generic drugs, "generic substitution," the Medicaid reimbursement
and rebate programs and possible price limitations. However, Upjohn believes
that its development of patented and exclusively licensed products may moderate
the impact of programs and legislation focusing mainly on products available
from multiple suppliers.
Similar product regulatory laws are found in most other countries in which
Upjohn manufactures or sells its products. There, too, the thrust of
governmental inquiry and action has been primarily toward reducing the prices of
prescription drugs.
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Upjohn is subject to administrative action by the various regulatory
agencies. Such actions may include product recalls, seizures of products and
other civil and criminal actions.
PATENTS AND TRADEMARKS
Upjohn considers that the overall protection from its United States and
foreign patents and trademarks and from licenses under patents belonging to
others is of material value. However, it is believed that no single patent or
license is of material importance in relation to the business as a whole. Rights
under patents and know-how are both given and taken. In 1994, Upjohn recorded
income for use of know-how and patents totaling approximately $6.4 million and
expenses totaling approximately $39.9 million.
RESEARCH AND DEVELOPMENT
Total research and development expenditures have increased almost every
year for more than a decade, amounting to $553.3 million in 1992, $612.5 million
in 1993 and $607.2 million in 1994. In 1994, this amount represented 18.5% of
total sales, one of the highest rates in the industry.
The focus of Upjohn's research is on the innovative science necessary to
develop novel NCEs of exceptional therapeutic and business potential and to
develop replacement products and product extensions that will protect and expand
markets created by the NCEs. Upjohn focuses on developing unique compounds in
selected therapeutic areas, including critical care, cardiovascular diseases,
cancer and infectious diseases (including AIDS), central nervous system
diseases, metabolic disorders, virology and inflammation biology. Specific
Upjohn strategies include:
- effective global management of research and development activities to
provide maximum flexibility and efficient use of limited resources;
- an emphasis on novel NCEs that address unmet medical needs;
- planning for multiple formulations, indications and dosing regimens; and
- reduction of development time in order to maximize the period of market
exclusivity.
Upjohn concentrates its resources on fewer than 20 key projects in
discovery, compared to 70 five years ago, resulting in reduced development time
and quicker product registration.
New products introduced in the U.S. since 1992 accounted for approximately
25 percent of U.S. human prescription pharmaceutical sales during 1994.
To take advantage of the global revolution in biomedical sciences, Upjohn
combines in-house programs with aggressive licensing activity and collaborations
to leverage opportunities and expertise around the world. During 1994, Upjohn
entered into 153 technology transfer agreements, one of which, with Incyte
Pharmaceuticals, provides Upjohn with access to important DNA sequencing and
analysis technology to find new targets for therapeutic intervention.
Upjohn's global network for R&D consists principally of the Kalamazoo,
Michigan site, Upjohn Laboratories-Europe, centered in Crawley, U.K., and Puurs,
Belgium, and Upjohn Pharmaceuticals Limited (UPL) in Tokyo and Tsukuba, Japan.
Preclinical and clinical studies are conducted simultaneously at different
locations to speed development activities.
United States Requirements for Clinical Testing of New Drugs
The steps required before a new drug may be marketed in the United States
include: (a) preclinical laboratory and animal tests to assess the potential
safety and efficacy of the compound; (b) the submission to the FDA of an
application for an Investigational New Drug exemption ("IND"), before human
clinical trials may commence; (c) well-controlled human clinical trials to
establish the safety and efficacy of the drug;
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(d) the submission of an NDA to the FDA; and (e) the FDA approval of the NDA and
product labeling prior to any commercial sale or shipment of the drug.
Human clinical trials are typically conducted in three phases (Phase I, II
and III) and are subject to specific protocols for each phase that must be
submitted in advance to the FDA. Even if the study is successfully completed
with the desired outcome, the FDA may still require further proof of efficacy or
safety. Also, each clinical study must be conducted under the auspices of a
qualified, independent Institutional Review Board ("IRB") at the institution at
which the study will be conducted. The three phases of clinical trials generally
are conducted sequentially, but may overlap substantially. In Phase I, the
initial introduction of the drug into human subjects, trials are conducted with
a small number of patients to test for safety, side effects, dosage tolerance,
metabolism and clinical pharmacology. Phase I testing for an indication
typically takes at least one year to complete. Phase II involves well-controlled
tests in a larger but still limited patient population to determine the efficacy
of the drug for specific indications, to determine optimal dosage, and to
identify possible side effects and safety risks. Phase II testing for an
indication typically takes from one and one-half to two and one-half years to
complete. In certain circumstances involving cancer and other life-threatening
diseases, the FDA has approved the marketing of new drugs based upon Phase II
trials in patients who have failed to respond to conventional therapy. When an
agent is found to be effective in Phase II evaluations, expanded Phase III
trials are undertaken to evaluate the overall risks and benefits of the drug in
relationship to the treated disease in light of other available therapies. Phase
III trials are large-scale, multi-center, trials which are designed to provide
enough data for statistical proof of efficacy and safety to satisfy FDA
requirements. Phase III studies for an indication generally take from two and
one-half to five years to complete. FDA may suspend clinical trials at any time
if it determines that the patients are exposed to a significant health risk.
There can be no assurance that Phase I, Phase II or Phase III testing will be
completed successfully with respect to any of the Company's compounds under
development.
The results of the preclinical studies and human clinical trials are
submitted to the FDA in the form of an NDA for approval of the drug. The NDA
includes information pertaining to the chemistry, formulation, activity and
manufacture of the drug and each component of the final product, as well as
details relating to the sponsoring company. Submission of an NDA does not assure
FDA approval for marketing. The NDA application review process takes more than
two years on average to complete, although review of treatments for cancer and
other life-threatening diseases may be accelerated and generally average less
than two years. However, the process may take substantially longer if the FDA
has questions or concerns about a product. In general, the FDA requires at least
two adequate and well-controlled human clinical studies demonstrating efficacy
with sufficient levels of statistical assurance. However, additional clinical
data may be requested by FDA. The FDA also may request additional information,
such as long-term toxicity studies or other studies relating to product safety.
Notwithstanding the submission of such data, the FDA ultimately may decide that
the application does not satisfy its regulatory criteria for approval and reject
the NDA or modify the scope of the claims requested. Also, the FDA may require
additional clinical tests following NDA approval to confirm product safety and
efficacy (Phase IV clinical tests). Finally, after marketing commences, the FDA
may require modification of product labeling or may withdraw approval of the NDA
based upon reported safety or efficacy experience with the product.
Clinical Status of Upjohn R&D Compounds in the United States
In the United States, Upjohn currently has 23 compounds in preclinical
development, four compounds in Phase I, seven compounds in Phase II, eight
compounds, new indications or major line extensions in Phase III, and six
compounds, new indications or major line extensions for which an NDA or a
supplement to a current NDA ("SNDA") has been filed. While it cannot be
predicted which, if any, of Upjohn's R&D compounds will ultimately be approved
by the FDA for marketing in the United States, industry averages indicate that
the probability of ultimate FDA approval is 23% for Phase I, 31% for Phase II,
64% for Phase III and 74% where an NDA or SNDA has been filed. Upjohn's
historical experience is similar to industry averages. Since 1992, Upjohn has
received FDA approval for nine NDAs and over 50 SNDAs.
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The following chart describes Upjohn's most important compounds in Phase I
or later development.
<TABLE>
<CAPTION>
PRODUCT PRINCIPAL INDICATION CLINICAL STATUS
---------------------------------- ---------------------------------- ----------------------------------
<S> <C> <C>
REMISAR Tablets (bropirimine) Bladder cancer Phase III -- U.S./Europe
Phase II -- Japan
CPT-II Colorectal, lung and cervical Phase II/III
(irinotecan)* cancers
TOMOSAR Breast cancer and lymphoma Phase II
(menogaril)
Adozelesin Solid tumors and leukemia Phase II -- U.S.
Phase II -- Japan
Carzelesin and Bizelesin Solid tumors and leukemia Phase I
CORVERT Atrial arrhythmias (irregular NDA filed 10/94
(ibutilide fumarate IV) heartbeat)
FREEDOX IV Solution Subarachnoid hemorrhage Phase III -- U.S./Europe
(tirilazad mesylate) Head injury Phase III -- U.S./Canada
Spinal cord injury Phase III -- U.S./Europe
HEMOPURE Sterile Solution* Blood supplement Phase II (Revised formulation in
pre- clinical)
Lomerizine* Migraines NDA filed in Japan
Triptorelin* Prostate cancer and endometriosis NDA to be filed in 1996 based on
existing data and additional
bioequivalence data
Pramipexole dihydrochloride* Parkinson's Disease Phase III
Schizophrenia Phase II
Depression Phase II
ROGAINE 5% Topical Solution Androgenetic alopecia Phase III
RESCRIPTOR Tablets (delaverdine AIDS and HIV seropositive Phase III
mesylate)
Atevirdine mesylate AIDS and HIV seropositive Phase II/III
CLEOCIN Vaginal Ovule Bacterial vaginosis Phase III
U-100592 and U-100766 Antibiotic treatment of Phase I
(oxazolidinones) gram-positive bacterial
infections.
CYCLO-PROVERA Sterile Aqueous Contraception Filing strategy is dependent on
Suspension* review of existing data
</TABLE>
---------------
* Products licensed from other companies.
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<TABLE>
<CAPTION>
PRODUCT THERAPEUTIC MARKET SIZE COMMENTS
---------------------------------- ---------------------------------- ----------------------------------
<S> <C> <C>
REMISAR Tablets (bropirimine) U.S. -- 50,000 patients; Japan and Oral oncolytic and immunomodulator
Europe -- 70,000 patients being developed for worldwide
markets. Being co-developed with
Yakult Honsha in Japan.
CPT-II U.S. -- 80,000 patients Novel, potent single agent therapy
(irinotecan)* licensed from Yakult Honsha;
initial development for colorectal
cancer.
TOMOSAR Japan -- 50,000 patients Being developed for the Japanese
(menogaril) market only.
Adozelesin Will depend on types of cancers Novel, potent single agent.
targeted for development.
Carzelesin and Bizelesin Will depend on types of cancers Novel, potent single agents.
targeted for development.
CORVERT U.S. -- 1.5 million patients Class III antiarrhythmic being
(ibutilide fumarate IV) developed initially for the U.S.
market.
FREEDOX IV Solution Total patients worldwide over 1 U.S. NDA for severe SAH postponed
(tirilazad mesylate) million (200,000 patients for pending higher dosage studies.
subarachnoid hemorrhage)
HEMOPURE Sterile Solution* New market Hemoglobin-based oxygen carrier
licensed from and being
co-developed with Biopure for U.S.
market.
Lomerizine* Japanese market about $6 million Licensed from Kanebo, Ltd. for
Japanese market only.
Triptorelin* U.S. prescription market over $600 Licensed from Debiopharm for U.S.
million market; already approved in
Europe.
Pramipexole dihydrochloride* Worldwide Parkinson's disease Stimulates D3 neuron receptors in
market approximately $1 billion, the brain. Joint development and
schizophrenia and depression worldwide marketing with
affect millions of people Boehringer Ingelheim as licensor.
ROGAINE 5% Topical Solution U.S. market: More concentrated formulation than
20 million women currently marketed product; U.S.
30 million men use patent expires 2/96.
RESCRIPTOR Tablets (delaverdine Total HIV infected people -- 17 Non-nucleoside reverse
mesylate) million; AIDS -- 2.6 million transcriptase inhibitor.
people
Atevirdine mesylate Total HIV infected people -- 17 Non-nucleoside reverse
million; AIDS -- 2.6 million transcriptase inhibitor.
people
CLEOCIN Vaginal Ovule U.S. prescription market -- $30 Suppository formulation. Global
million filing strategy.
U-100592 and U-100766 Worldwide antibiotic market -- $26 New class of antibiotics with
(oxazolidinones) billion novel mechanism of action; global
development and filing strategy.
CYCLO-PROVERA Sterile Aqueous Worldwide contraceptive market -- Injectable monthly contraceptive
Suspension* $2.2 billion licensed from Path/Concept.
</TABLE>
---------------
* Products licensed from other companies.
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The following section describes the most important product candidates under
development by Upjohn.
Freedox (tirilazad mesylate)
Freedox is a parenteral multimechanistic antioxidant that limits ischemia
and trauma-induced lipid peroxidation in animal models. Applications for severe
subarachnoid hemorrhage (SAH) indications have been filed in 33 countries with 6
approvals received for the indication in males at a dose of 6 mg/kg/day. Several
other European countries are actively reviewing the file and meetings are
scheduled to answer any outstanding questions. The Phase II/III SAH studies
demonstrated a gender difference in efficacy at the top dose tested (6
mg/kg/day). It has been shown that pre-menopausal women and patients on
anticonvulsants, particularly phenytoin, have a faster rate of metabolism and
thus are likely to need more drug to demonstrate efficacy. Accordingly, two
Phase III trials are ongoing (one in Europe and one in the U.S.) to evaluate
efficacy of 15 mg/kg/day in women. The European trial is approximately 55%
enrolled and the U.S. has an enrollment of about 15%. There have been no safety
problems evident. A U.S. safety study using higher doses in males is also being
conducted.
A U.S. head injury trial using Freedox was stopped prematurely after 98%
enrollment in December 1994. Recent analysis of data from the trial indicated
that the safety concern that stopped the trial was related to an imbalance in
the patient treatment groups (fewer than expected deaths in the control group)
and did not indicate general safety concerns for Freedox. The data will be
reported soon to investigators and regulatory agencies. Preliminary analysis
indicates that the U.S. study did not demonstrate overall statistically
significant efficacy for head injury in the targeted sub-groups. The data are
still being evaluated as to efficacy with other sub-populations. A final report
on the U.S. trial should be released by year-end. A second head injury study
using Freedox is being conducted in Europe and should be reported by year-end.
Results of the U.S. and European head injury studies will be considered
collectively. Depending on the study results, a decision will be made whether to
seek approval in the U.S. or Europe on the basis of the current studies, conduct
one or more additional clinical studies or abandon head injury as a possible
indication in the U.S. and/or Europe.
Multi-year clinical studies for the stroke indication are continuing
utilizing higher doses of Freedox. A study for spinal cord injury sponsored by
the National Institute of Health (NIH) will have enrollment completed soon.
The U.S. patent for Freedox expires in 2009. There is minimal competition
for Freedox other than nimodipine for SAH in U.S. and Europe and azagiel in
Japan. Other single mechanistic approach compounds under evaluation include
AT-877 (an intracellular calcium channel blocker), AVS (an oxygen-free radical
scavenger), DR-3305 (an anti-oxygen agent), and OP 2507 (a PGI2 analog for SAH).
Pramipexole
Pramipexole has preferential D3 receptor agonist activity and is under
development for Parkinson's Disease, depression and schizophrenia. The compound
was licensed from, and is being co-developed with, Boehringer-Ingelheim, with
plans for worldwide co-marketing. A pre-NDA meeting with the FDA was held on
August 15, 1995 to discuss the Parkinson's Disease indication. Upjohn expects to
file an NDA by year-end. The NDA will include three North American studies,
which produced good results at well-tolerated doses for both early and late
stage Parkinson's Disease. Improvement was seen in scores of mentation, behavior
and mood, as well as in motor evaluations. The European filing will be dependent
on finalization of a European early disease study (enrollment completed) as well
as a bromocriptine comparator trial. Plans are for a centralized EU application
by late 1996 for Parkinson's Disease. The pramipexole compound patent expires in
2005 in Europe and Japan, and in 2006 in the U.S. The competition for
Parkinson's Disease drugs includes L-dopa, cabergoline, bromocriptine,
pergolide, lisuride and ropinirole. Phase II studies for depression and
schizophrenia are expected to be completed in 1996. If activity is demonstrated,
Phase III programs would then be initiated.
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CAMPTOSAR(R) -- CPT-11 (irinotecan hydrochloride)
Irinotecan, an injectable DNA topisomerase-I inhibitor pro-drug licensed
from Yakult Honsha, is in Phase II testing in the U.S. for refractory colorectal
cancer. Clinical data shows a positive dose-dependent response rate. A clinical
pre-NDA meeting has been scheduled with the FDA in October to share the data
Upjohn plans to submit under an accelerated approval process. If the FDA meeting
is positive, an NDA for refractory colorectal cancer will be filed with Phase II
data before year-end. The drug has already been approved in Japan and France,
although reports in the Japanese press have implicated irinotecan in several
fatalities, perhaps from adverse drug interactions.
In the U.S. and Latin America, Phase II cervical and small cell lung cancer
studies have also been conducted. The Phase II non-small cell lung study is
closed, and Phase III planning has begun for colorectal and non-small cell lung
trials. Also, Phase I studies for oral CPT-11 are underway to determine the
maximal tolerated dose.
The potential competition for irinotecan includes 5-Fluorouracil (5-FU),
Floxuridine (FUDR), topotecan, GL-147211, 9-amino camptothecin and DX-8951.
Corvert (ibutilide fumarate)
Corvert is a parenteral Class III antiarrhythmic for the treatment of
atrial flutter and fibrillation. The NDA was submitted October 31, 1994 and a
Cardiovascular Advisory Board meeting will be held on October 19-20, 1995 to
discuss the drug. The international dossier will be available in November 1995
in which the favorable results of a Sotalol comparator trial will be added to
the NDA packet.
Clinical data showed that Corvert was approximately 40% effective in
cardioversion to sinus rhythm, and when administered in one or two 1 mg doses
intravenously, Corvert can be used in patients with depressed cardiac function
with equally good results. Clinical data demonstrated relatively few side
effects and a low incidence (2-4%) of proarrhythmic events.
The U.S. patent issued October 13, 1992, and there is patent protection in
Europe, Japan and Mexico. The competition is amiodarone (p.o. & IV), Sotalol
(p.o.) and Bretyllium, along with many Class I antiarrhythmics.
REMISAR(R) Tablets
REMISAR (bropirimine) is an oral oncolytic and immunomodulator targeted for
treatment of bladder cancer in situ. Development is in late stage Phase III. The
U.S. patent was issued in 1995. Primary competition is from the current
intravesicular products.
Oxazolidinones
The oxazolidinones are antibiotics that have a novel mechanism of action:
inhibition of mRNA translation. Two agents are in Phase I testing (oral and IV
multiple day dosing) for evaluation of safety and human pharmacokinetics. In
vitro studies show them to be effective against gram-positive bacteria,
including antibiotic-resistant strains of staphylococci, streptococci and
enterococci. Adequate plasma levels have been obtained in normal healthy
volunteers with both agents and the selection of which one to move into Phase II
testing will be made before year-end. There have been no unexpected side effects
with either agent. International patent protection is afforded until 2013. A
patent application is pending in the U.S. Known competition includes the
existing products Braxin and Synercid.
HEMOPURE
The original HEMOPURE(R) and a revised formulation are biologics under
development with Biopure Corporation as potential human blood supplements
providing tissue oxygenation. HEMOPURE could become an alternative to human
blood transfusions. There are currently no competitive products, although
several companies, including Somatogen, Baxter Healthcare, Delta Biotechnology,
Quest Biotechnology and North-
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field Labs, are working on hemoglobin-based products. A U.S. compound patent was
issued in 1992, and a process patent was issued in 1994.
Adozelesin
Adozelesin is a novel, extremely potent cancer agent targeted for treatment
of leukemia and solid tumors. Phase II studies are underway in Japan in
collaboration with Yakult Honsha. Early clinical results indicate activity in
acute myeloid leukemia, with severe, prolonged myelosuppression. The compound
appears to have minimal route and schedule dependence. The U.S. patent was
issued in 1990. Principal competition is ADRIAMYCIN, cisplatin, 5-FU and
duocarmycins (KW-2189).
Rescriptor Tablets (delaverdine mesylate)
Delaverdine mesylate, a non-nucleoside reverse transcriptase inhibitor for
the treatment of AIDS and HIV seropositive/asymptomatic patients, is currently
in Phase III development. The U.S. compound patent was filed in December 1990.
Following an August 1995 meeting with U.S. and Canadian regulatory authorities,
it was recommended that Upjohn format the surrogate marker data from two large
U.S./Canadian trials and provide these data for accelerated regulatory review.
The exact analysis plan is currently under review at FDA. If the data
demonstrate a significant change in CD4 counts and a decrease in viral burden,
an NDA would be submitted to FDA in early 1996.
Competition in this area would include the nucleosides (AZT, ddI and ddC),
and the non-nucleotides (nevirapine and loviride both of which are in Phase III
development). Alternative therapies include several potential protease
inhibitors in Phase II/III development by Upjohn and other major pharmaceutical
companies. Delaverdine would be used in combination with one or more of the
above classes of anti-HIV agents. Reported side effects are primarily rashes,
unlike the nucleosides, which have significant limitations due to toxicity.
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GEOGRAPHIC AREA INFORMATION
The table below shows Upjohn's operations by geographic area. All sales are
shown by the originating area. United States exports to third-party customers
are less than 10 percent. Sales to affiliates between geographic areas are
priced to reflect consideration of economic circumstances and the regulations of
countries in which the transferring entities are located. These transfers, which
are primarily human-use products from the United States, are eliminated in
consolidation. Upjohn's international businesses are subject in varying degrees
to a number of risks inherent in carrying on business in certain countries
outside the United States, including possible nationalization, expropriation,
price controls, political instability, varying controls on the repatriation of
earnings and other restrictive government actions. In addition, currency
fluctuations take place from time to time, which can have either a favorable or
unfavorable effect on operating income. Upjohn does not regard these factors as
a deterrent to further expansion of its international operations. However,
Upjohn closely reviews its methods of operations, particularly in developing
countries, and adopts strategies responsive to changing economic and political
conditions.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1994 1993 1992
---------- ---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
SALES TO UNAFFILIATED CUSTOMERS (INCLUDES EXPORTS):
United States.......................................... $1,948,215 $2,150,778 $2,092,131
Europe................................................. 638,733 571,112 597,984
Japan and Pacific...................................... 425,790 394,741 353,919
Other foreign.......................................... 262,258 223,326 212,154
INTERAREA SALES TO AFFILIATES FROM:
United States.......................................... 400,761 354,528 356,297
Europe................................................. 119,254 117,142 110,590
Japan and Pacific...................................... 2,245 2,559 1,201
Other foreign.......................................... 12,715 10,627 10,205
Eliminations........................................... (534,975) (484,856) (478,293)
---------- ---------- ----------
Total............................................. $3,274,996 $3,339,957 $3,256,188
========= ========= =========
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
AND MINORITY EQUITY:
United States.......................................... $ 533,096 $ 497,718 $ 624,595
Europe................................................. 43,705 (38,842) 10,757
Japan and Pacific...................................... 22,666 24,065 5,478
Other foreign.......................................... 43,829 (2,904) 31,073
---------- ---------- ----------
Total............................................. $ 643,296 $ 480,037 $ 671,903
========= ========= =========
IDENTIFIABLE ASSETS, DECEMBER 31:
United States.......................................... $3,867,905 $3,387,980 $3,085,793
Europe................................................. 650,193 570,723 617,199
Japan and Pacific...................................... 485,049 427,395 380,592
Other foreign.......................................... 159,314 147,479 150,357
Discontinued Operations (net).......................... -- 278,344 279,158
---------- ---------- ----------
Total............................................. $5,162,461 $4,811,921 $4,513,099
========= ========= =========
</TABLE>
PROPERTIES
Upjohn owns its main pharmaceutical plants and general offices, which
consist of a group of buildings containing approximately 5,000,000 square feet
of floor space, all of which were constructed since 1948 and are considered
adequate for Upjohn's present needs, on about 500 acres of a 2,200 acre tract
located six miles
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southeast of Kalamazoo, Michigan. The Henrietta Street complex, owned by Upjohn
and consisting of approximately 33 acres, includes a group of buildings
aggregating about 2,500,000 square feet that houses Upjohn's research
laboratories and offices. Pharmaceutical fermentation, production, warehouse and
office facilities, containing approximately 510,000 square feet, are located on
a 259 acre site owned by Upjohn near Arecibo, Puerto Rico. Upjohn also owns or
leases distribution warehouses in several major cities in the United States.
Upjohn owns a 2,140 acre farm complex northeast of Kalamazoo, which includes the
principal offices of Upjohn's animal health business, including veterinary
research facilities, with offices, laboratory and farm buildings aggregating
about 410,000 square feet. Upjohn also has animal health products production and
research facilities in several locations in the United States and in foreign
countries. In Europe, Upjohn owns 48.7 acres of land in Puurs, Belgium, 27.7
acres of which are developed and are the site of Upjohn's manufacturing and
office facilities and 21 acres of which remain available for future utilization.
The main building on this site has a total of 444,000 square feet, 185,700 of
which are dedicated to manufacturing and the remainder of which is used for
offices, utilities and maintenance and miscellaneous support functions.
EMPLOYEES
Upjohn had a total of approximately 16,400 regular employees on July 31,
1995, 8,800 of which were employed in the United States and Puerto Rico while
the remaining 7,600 regular employees were located outside of the United States
and Puerto Rico.
Upjohn believes that it has good relations with its employees. Employees at
several non-U.S. locations are represented either by freely elected unions or by
legally mandated workers' councils or similar organizations.
ENVIRONMENTAL MATTERS
Significant capital and operating expenses will be incurred to address
environmental remediation in connection with the phase-out of industrial
chemical operations at Upjohn's North Haven, Connecticut plant, improving
controls on air emissions at the Kalamazoo manufacturing facility, addressing
environmental issues at other Company facilities and certain Superfund and
similar third-party waste disposal sites. Since several capital projects are
undertaken for both environmental control and other business purposes, such as
production process improvements, it is difficult to estimate the specific
capital expenditures for environmental control. However, including all such
multi-purpose capital projects as environmental expenditures, it is estimated
that capital expenditures for environmental protection for 1995 and 1996 will be
approximately $35 million and $25 million, respectively. Operating expenses in
1994 for compliance with environmental protection laws and regulations are
estimated to have been approximately $50 million. Such operating expenses in
1995 are estimated to be approximately $60 million. Cash payments charged to
environmental reserves in 1994 totaled $10 million and are expected to be
approximately $15 million in 1995.
Upjohn has been identified as a potentially responsible party ("PRP") at a
number of third-party waste sites, including, the West KL Avenue Landfill
located in Kalamazoo County, Michigan which is on the United States
Environmental Protection Agency's ("EPA") National Priorities List. In September
1991, Upjohn and three local governmental units agreed to a consent decree with
the EPA for the West KL site, which has been approved by the United States
Department of Justice and entered by a federal court, to undertake necessary
remedial action. The costs of remediation are currently estimated to be $40
million, of which other viable parties are expected to contribute more than
one-half of the total cost.
Negotiations with environmental agencies continue in connection with
remediation of an abandoned sludge pile and other areas at the site of Upjohn's
discontinued industrial chemical operations in North Haven, Connecticut. Upjohn
is in the process of evaluating other existing environmental conditions at the
North Haven, Connecticut facility with the intention of addressing concerns that
may be determined appropriate.
PRODUCT LIABILITY INSURANCE
Upjohn monitors the safety of its products following their launch in the
market by the collation of details of adverse reactions to the products.
Notwithstanding these and other measures, product liability is a significant
commercial risk for Upjohn and other pharmaceutical companies. Certain
pharmaceutical
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companies in past years have had to make very substantial settlements of claims
in respect of injuries alleged to have been caused by the use of their products.
There is an increasing readiness, particularly in the U.S., for patients or
their families, where treatment has allegedly caused injury or death, to seek
redress through litigation or other means against one or all of the medical
practitioner, hospital and drug manufacturer.
The market for product liability insurance contracted significantly in the
mid-1980s as a result of the increased incidence and cost of claims. Upjohn, in
common with other companies in the pharmaceutical and other industries,
therefore was not able for a time to purchase the same amount of insurance
coverage as in previous years and had to pay greatly increased premiums.
However, in more recent years, these conditions have improved and Upjohn has
obtained what it believes to be a satisfactory level of coverage, though still
at substantially higher premium costs than in the early 1980s and with
substantial deductibles and retainage.
LITIGATION
Various suits and claims arising in the ordinary course of business,
primarily for personal injury and property damage alleged to have been caused by
the use of Upjohn's products, are pending against Upjohn and its subsidiaries.
Upjohn is a defendant in approximately 100 product liability lawsuits
involving its benzodiazepine product, HALCION, some of which seek punitive
damages based on alleged deficiencies in the product approval process and
compliance with regulations. In addition, Upjohn is a defendant in over 100
lawsuits in Australia involving DEPO-MEDROL.
The U.S. Food and Drug Administration, with the assistance of the United
States Attorney's Office in Grand Rapids, Michigan, is conducting a review of
the FDA's prior inspection report on HALCION, including an assessment of the
conclusions of the report, the approval of the drug, related FDA processes and
procedures and the violation of any laws. Upjohn cannot predict the outcome of
this review.
A shareholder derivative complaint alleges a pattern of misconduct by
Upjohn and names certain current and former officers and directors as
defendants. The suit alleges that the defendants purposely concealed or
minimized reports of side effects related to HALCION, which allegedly caused
damage and loss to Upjohn as a company, improper election of directors, payment
of excessive incentive compensation and stock option bonuses to the named
defendants. Upjohn does not believe that there is merit to the claims and will
defend the suit.
In addition to actions involving the West KL Avenue Landfill discussed
above under "Environmental Matters," Upjohn is involved in several
administrative and judicial proceedings relating to environmental concerns,
including actions brought by the U.S. EPA and state environmental agencies for
cleanup at approximately 40 "Superfund" or similar sites. Upjohn's estimate of
the ultimate cost to be incurred in connection with these environmental
situations could change due to uncertainties at many sites with respect to
potential cleanup remedies, the estimated cost of cleanup and Upjohn's ultimate
share of a site's cost.
Upjohn discharges certain cooling water, storm water runoff, and
non-process wastewater from its production facility in Kalamazoo County,
Michigan, to nearby surface waters. While no formal enforcement action has been
taken to date, the State of Michigan has asserted that some of the Upjohn
discharges may have been in violation of applicable law and regulation. The
State has indicated an intent to seek enforcement through an administrative
order with fines and penalties in excess of $100,000.
Upjohn is a party along with at least 30 other defendants (both
manufacturers and wholesalers) in several federal civil antitrust lawsuits some
of which have been or are in the process of being consolidated and transferred
to the Federal District Court for the Northern District of Illinois for purposes
of discovery. These suits, brought by state pharmacies and chains, generally
allege unlawful conspiracy, price discrimination and price fixing and, in some
cases unfair competition, and specifically allege that Upjohn and the other
named defendants violated: (1) the Robinson-Patman Act by giving substantial
discounts to hospitals, nursing homes, mail-order pharmacies and HMOs without
according the same discounts to retail drugstores, and (2) Section 1 of the
Sherman Antitrust Act by entering into illegal vertical combination with other
manufacturers and wholesalers to restrict certain discounts and rebates so they
benefitted only favored customers. The
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Federal District Court for the Northern District of Illinois has certified a
class consisting of retail pharmacies, and the same court has pending before it
a suit with approximately 2,500 named retail pharmacies. The suits seek treble
damages and an injunction prohibiting the alleged illegal practices. In
addition, similar actions have been brought in Alabama, California, Colorado,
Minnesota, New York, Washington and Wisconsin state courts. The California State
court has recently certified a class of consumers seeking damages resulting from
the same alleged conspiracy by the defendant pharmaceutical companies.
Based on information currently available and Upjohn's experience with
lawsuits of the nature of those currently filed or anticipated to be filed which
have resulted from business activities to date, the amounts accrued for product
and environmental liabilities arising from the litigation and proceedings
referred to above are considered to be adequate. Although Upjohn cannot predict
the outcome of individual lawsuits, the ultimate liability should not have a
material effect on its consolidated financial position; and unless there is a
significant deviation from the historical pattern of resolution of such issues,
the ultimate liability should not have a material adverse effect on Upjohn's
results of operations or liquidity.
For further information concerning litigation and environmental matters,
see Notes J and K to the Consolidated Financial Statements of Upjohn contained
elsewhere in this Prospectus.
DIRECTORS AND EXECUTIVE OFFICERS
The following individuals are the directors of Upjohn:
Frank C. Carlucci, age 64, Chairman, The Carlyle Group, a merchant bank in
Washington, D.C. Mr. Carlucci was vice chairman of The Carlyle Group from 1989
to 1993. He served as U.S. Secretary of Defense from 1987 to 1989. Mr. Carlucci
is currently on the board of directors of Ashland Oil, Inc.; Bell Atlantic
Corporation; Connecticut Mutual Life Insurance Company; General Dynamics
Corporation; Kaman Corporation; Neurogen Corporation; Northern Telecom Limited;
The Quaker Oats Company; SunResorts, Ltd., N.V.; Texas Biotechnological
Corporation and Westinghouse Electric Corporation; and serves on the board of
trustees for the nonprofit Rand Corporation. Mr. Carlucci has served as a
Director of The Upjohn Company since 1990 and is a member of the Audit;
Compensation and Incentive; Finance; and Nominating Committees of the Board.
William D. Mulholland, age 69, former Chairman of the Board and Chief
Executive Officer of the Bank of Montreal. Mr. Mulholland is currently a
director of the Bank of Montreal and Canadian Pacific Ltd. He is a trustee of
Queen's University and a member of the Advisory Committee on Canadian Studies at
the School of Advanced International Studies, Johns Hopkins University. Mr.
Mulholland has received honorary Doctor of Laws degrees from Memorial University
and Queen's University. He has served as a Director of Upjohn since 1977 and is
Chairman of the Executive; and Compensation and Incentive Committees and a
member of the Finance; and Nominating Committees of the Board.
John L. Zabriskie, Ph.D., age 56, Chairman of the Board and Chief Executive
Officer of Upjohn. Prior to joining Upjohn in 1994, Dr. Zabriskie had spent his
entire career with Merck & Co., Inc. During his last five years with Merck, he
held several officer positions in sales, marketing, public affairs and
manufacturing, serving most recently as executive vice president of Merck & Co.,
Inc., and president, Merck Manufacturing Division. He is active in the debate
over U.S. health care reform as a member of the Healthcare Leadership Council
and a past member of the Jackson Hole Group for Healthcare Reform. He is also
active in the Pharmaceutical Research and Manufacturers Association of America.
Dr. Zabriskie has served on the boards of Penjerdel Corporation; Pennsylvania
Biotechnology Association; the National Pharmaceutical Council, Inc.; Morristown
Memorial Hospital and Wells College. He is currently a director of First of
America Bank Corporation, Kellogg Company and Southwest Michigan Healthcare
Coalition. He began serving as a Director of Upjohn in January 1994 and is a
member of the Executive and Finance Committees of the Board.
M. Kathryn Eickhoff, age 55, President, Eickhoff Economics Incorporated,
economic consultants. Ms. Eickhoff is the former associate director for Economic
Policy, United States Office of Management and Budget. She serves as a director
of AT&T; National Westminster Bancorp. Inc. and Tenneco Inc. Ms. Eickhoff is a
member of several business organizations including The Conference of Business
Economists;
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The Economic Club of New York and the National Association of Business
Economists. She served as a Director of Upjohn from 1982 to 1985 and returned as
a Director in 1987. She is Chairman of the Finance Committee and a member of the
Audit; Executive; and Nominating Committees of the Board.
Daryl F. Grisham, age 68, President and Chief Executive Officer, Parker
House Sausage Company. Mr. Grisham joined Parker House Sausage Company in 1954.
He has been a director of that company since 1961 and was promoted to his
current position in 1969. Mr. Grisham is a former director for G.D. Searle and
Company and Illinois Bell Telephone Co. He serves as a director of Harris
Bankcorp, Inc.; Lincoln Park Zoological Society; Rehabilitation Institute of
Chicago and the Lyric Opera of Chicago. He also serves as a trustee for the
Chicago Museum of Science & Industry and Northwestern University. He has served
as a Director of Upjohn since 1989. He is Chairman of the Social Responsibility
Committee and is a member of the Compensation and Incentive; Executive and
Nominating Committees of the Board.
Lawrence C. Hoff, age 66, former President and Chief Operating Officer of
Upjohn. Mr. Hoff has long been active in major industry and educational
associations including having served as a director, American Diabetes
Association, Inc.; trustee, Borgess Medical Center; director, Council on Family
Health; chairman, Pharmaceutical Research and Manufacturers of America; member,
U.S. Chamber of Commerce, International Policy Committee. He holds an honorary
Doctor of Science in Pharmacy degree from Massachusetts College of Pharmacy and
Allied Health Sciences, and is currently a director of Alpha Beta Technology,
Inc.; Curative Technologies, Inc. and Medimmune, Inc. He has served as a
Director of Upjohn since 1973 and is a member of the Audit and the Social
Responsibility Committees of the Board.
Jerry R. Mitchell, M.D., Ph.D., age 54, Vice Chairman of the Board and
President, Upjohn Laboratories. Previously, Dr. Mitchell had been Executive Vice
President and President, Upjohn Laboratories (1991-92); and Senior Vice
President and President, Upjohn Laboratories (1990). Prior to joining Upjohn,
Dr. Mitchell was a professor of internal medicine and the director of the Center
for Experimental Therapeutics, Baylor College of Medicine and Affiliated
Hospitals. During his distinguished career, Dr. Mitchell has served on many
national advisory boards and committees and has received numerous honors and
scientific awards. He has published two books and has written hundreds of
manuscripts and abstracts. Dr. Mitchell has been a Director of Upjohn since
1991.
William U. Parfet, age 48, President and Chief Executive Officer of
Richard-Allan Medical Industries, Inc., a manufacturer of surgical equipment and
medical supplies. Prior to joining Richard-Allan in October 1993, Mr. Parfet had
been Vice Chairman of the Board of Upjohn, and was President (1991-93) and
Executive Vice President (1989-91) before that. Mr. Parfet serves on various
boards of directors, including Bissell, Inc., CMS Energy Corporation, the
Financial Accounting Foundation, Flint Ink Corporation, Old Kent Financial
Corporation, Stryker Corporation and Universal Foods, Inc. He has served as a
Director of Upjohn since 1985 and is a member of the Finance and the Social
Responsibility Committees of the Board.
Richard H. Brown, age 48, President and Chief Executive Officer of H&R
Block Inc. Prior to joining H&R Block in August, 1995, Mr. Brown was Vice
Chairman of Ameritech Corp., a telecommunications company. Mr. Brown was elected
Ameritech vice chairman in January 1993. He joined Illinois Bell as president
and chief executive officer in 1990 and, prior to that, he was executive vice
president of United Telecom and U.S. Sprint. He is a member of the Economic Club
of Chicago, a trustee, Rush Presbyterian-St. Luke's Medical Center, Vice
Chairman of the board of trustees of Ohio University Foundation and serves
actively in many non-profit organizations in Illinois. Mr. Brown also serves on
a number of other boards. He has served as a Director of Upjohn since September
1993 and is a member of the Compensation and Incentive; the Nominating; and the
Social Responsibility Committees of the Board.
Geraldine A. Kenney-Wallace, age 52, Past-President and Vice-Chancellor of
McMaster University, Ontario, Canada, and currently Senior Fellow, Faculty of
Management, University of Toronto. Dr. Kenney-Wallace is a member of the board
of directors of the Bank of Montreal, DMR Inc., General Motors (Canada) and
Northern Telecom Ltd. She serves on the advisory board of the Canadian
Foundation for AIDS Research, the Manning Foundation, the Canada-Japan Forum,
the Canadian National Roundtable on the Environment and the Economy and the
Singapore National Science and Technology Boards. During her scientific career
in lasers, ultra-fast phenomena and optoelectronics, Dr. Kenney-Wallace has
received
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<PAGE> 122
numerous honors and scientific awards. She has served as a Director of Upjohn
since 1993 and is a member of the Audit; the Finance; and the Social
Responsibility Committees of the Board.
William E. LaMothe, age 68, former Chairman of the Board and Chief
Executive Officer of Kellogg Company, a food company. Mr. LaMothe is a former
director of the Food and Drug Law Institute, Kimberly Clark Corporation, Unisys
Corporation and the Western Michigan University Foundation. He is currently a
director of Allstate Insurance Companies, Kellogg Company and Sears Roebuck and
Company; and he is a member of the board and a trustee for the W. K. Kellogg
Foundation Trust. Mr. LaMothe serves on the board of The Battle Creek Community
Foundation. He has served as a Director of Upjohn since 1986 and is a member of
the Audit; the Compensation and Incentive; the Executive; and the Nominating
Committees of the Board.
Ley S. Smith, age 61, President and Chief Operating Officer of Upjohn. Mr.
Smith was elected President and Chief Operating Officer in 1993; he became Vice
Chairman of the Board in 1991; and was elected Executive Vice President in
January 1989. Mr. Smith also served as Acting Chief Executive Officer of Upjohn
from April 1993 until January 1994. He is currently a member of the Borgess
Medical Center Board of Trustees and board member for the Biopure Corporation.
Mr. Smith is active in a wide variety of business, community, and medical- and
pharmaceutical-related activities, including the Pharmaceutical Research and
Manufacturers of America; the Virginia Neurological Institute; the Health,
Welfare and Retirement Income Task Force of the Business Roundtable; and the
Greater Kalamazoo United Way. He has served as a Director of Upjohn since 1989.
Antonio M. Gotto, Jr., M.D., age 59, Chairman of the Department of Medicine
at Baylor College of Medicine. Dr. Gotto was appointed to the Board of Directors
of Upjohn in November 1994. He is Distinguished Service Professor and Chairman
of the Department of Internal Medicine at Baylor College of Medicine. He holds
the J.S. Abercrombie Chair of Atherosclerosis Research and the Bob and Vivian
Smith Chair in Internal Medicine. He is Chief of the Internal Medicine Service
at The Methodist Hospital and Ben Taub County Hospital in Houston, Texas. He is
director of the Medtronic Corporation. He is a former member of: the National
Academy of Sciences -- Institute of Medicine; the National Heart, Lung, and
Blood Advisory Council for the National Institutes of Health; and the National
Diabetes Advisory Board. He has served as National President of the American
Heart Association. He is currently President of the International
Atherosclerosis Society, Co-Chairman of the U.S.-Russian and U.S.-Italian
Cardiovascular Workgroups and Secretary of the Texas and district Rhodes Scholar
Selection Committee. He has received many awards, honorary degrees and
recognition by foreign governments. He is a member of the Audit and the Social
Responsibility Committees of the Board.
The Board of Directors is composed of three classes of members. One class
of directors is elected each year to hold office for a three-year term and until
successors of such class are duly elected and qualified. At each annual meeting
of the stockholders, directors of the class whose term then expires shall be
elected for a full term of three years to succeed the directors of such class,
so that the term of office of the directors of one class shall expire in each
year. Upjohn's Restated Certificate of Incorporation provides that retiring
Directors are eligible for reappointment at the annual meeting at which they
retire.
Certain directors and officers of Upjohn are, and as of the Effective Time
will be, directors and/or executive officers of the Company. See "Description of
the Company -- Directors and Executive Officers." For a discussion of certain
matters relating to the employment and compensation of the directors and
executive officers of the Company, see "Description of the
Company -- Compensation of Directors and Executive Officers of the Company." See
also "Risk Factors -- Interests of Management."
In addition to Mr. Zabriskie, Mr. Smith and Mr. Mitchell, the following
individuals are Upjohn's executive officers:
Kenneth M. Cyrus, age 56, Executive Vice President, Secretary and General
Counsel since 1994. Formerly Senior Vice President, Secretary and General
Counsel from 1991 to 1994, and prior thereto Vice President, Secretary and
General Counsel from 1988 to 1991.
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<PAGE> 123
Donald R. Parfet, age 42, Executive Vice President since 1995. Formerly
Executive Vice President for Administration from 1991 to 1995, and prior thereto
Senior Vice President for Administration from 1989 to 1991.
Robert C. Salisbury, age 51, Executive Vice President and Chief Financial
Officer since 1994. Formerly Senior Vice President for Finance and Chief
Financial Officer from 1991 to 1994, and prior thereto Vice President for
Finance and Chief Financial Officer from 1989 to 1991.
Jack J. Jackson, age 49, Senior Vice President for U.S. and Canadian
Pharmaceutical Operations since 1994. Formerly Vice President for Western
Hemisphere Pharmaceutical Operations from 1992 to 1994, prior thereto Vice
President for North American Pharmaceutical Operations from 1991 to 1992, and
prior thereto Vice President for U.S. Pharmaceutical Sales from 1989 to 1991.
Fernando A. Leal, age 53, Senior Vice President for Strategic Planning and
Business Development since 1995. Formerly Senior Vice President for
International and Pharmaceutical Operations from 1994 to 1995, and prior
thereto, Senior Vice President for Japan, Pacific and European Operations from
1993 to 1994, Vice President for Pacific and Latin American Pharmaceutical
Operations from 1992 to 1993 and Vice President for Japan/Pacific/Latin America
from 1989 to 1992.
Carlos A. Salvagni, age 59, Senior Vice President for Technical Operations
since 1994. Formerly Senior Vice President for Worldwide Manufacturing and
Engineering from 1993 to 1994, and prior thereto Vice President for Worldwide
Manufacturing from 1990 to 1993.
BENEFICIAL OWNERSHIP OF UPJOHN COMMON STOCK
Under regulations of the Commission, persons who have power to vote or
dispose of Upjohn's shares, either alone or jointly with others, are deemed to
be beneficial owners of such shares. Because the voting or dispositive power of
certain shares listed in the following table is shared, the same securities in
such cases are listed opposite more than one name in the table. The total number
of shares of Upjohn Common Stock listed below for directors and executive
officers as a group eliminates such duplication.
Pursuant to Schedule 13G filed with the Securities and Exchange Commission
by State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, as Trustee of the Plan and The Capital Group Companies,
Inc., 333 South Hope Street, Los Angeles, California 90071, respectively, Upjohn
believes that State Street Bank and Trust Company is the beneficial owner of
7.4% of Upjohn's outstanding Common Stock, and The Capital Group Companies, Inc.
exercised investment discretion, but not voting power over 6.6% of Upjohn's
outstanding Common Stock owned by various institutional investors, each as of
December 31, 1994.
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<PAGE> 124
Set forth in the following table are the beneficial holdings as of
September 1, 1995 of all directors, the five most highly compensated executive
officers and all directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK BENEFICIALLY OWNED(1)
-------------------------------------------------------------
SOLE VOTING SHARED VOTING OPTIONS
AND/OR AND/OR EXERCISABLE
DISPOSITIVE DISPOSITIVE WITHIN 60 % OF
POWER POWER DAYS CLASS
------------- --------------- ----------- -----
<S> <C> <C> <C> <C>
Richard H. Brown(2)........................ 2,238(3) -- -- *
Frank C. Carlucci.......................... 8,203(3) -- -- *
M. Kathryn Eickhoff........................ 1,500 -- -- *
Antonio M. Gotto........................... 810(3) -- -- *
Daryl F. Grisham........................... 9,216(3) -- -- *
Lawrence C. Hoff(2)........................ 39,122 -- -- *
Geraldine A. Kenney-Wallace................ 1,384(3) -- -- *
William E. LaMothe(2)...................... 12,544(3) -- -- *
Jerry R. Mitchell.......................... 9,155(4) -- 147,654 *
William D. Mulholland...................... 3,007 -- -- *
Donald R. Parfet(2)........................ 542,357(4) 1,388,911(5)(6) 160,350 1.1
William U. Parfet.......................... 501,892(4) 1,260,750(6) 151,176 1.0
Robert C. Salisbury........................ 18,152(4) -- 130,372 *
Ley S. Smith(2)............................ 14,705(4) -- 214,914 *
John L. Zabriskie(2)....................... 36,163 -- 250,000 *
Directors and Executive Officers
as a Group (19 persons)(2)............... 1,251,720(3)(4) 2,366,911(5)(6) 1,455,791 2.8
</TABLE>
---------------
* Less Than 1%.
(1) Excludes the following share units which were awarded under the Company's
Incentive Compensation Plans but payment of which is deferred: L. C. Hoff,
4,176; J. R. Mitchell, 6,242; D. R. Parfet, 4,742; W. U. Parfet, 548; R. C.
Salisbury, 10,037; L. S. Smith, 9,045; J. L. Zabriskie, 4,831; and directors
and executive officers as a group, 72,283.
(2) Excludes 350 shares held by the spouse of R. H. Brown; 10,000 shares held by
the spouse of L. C. Hoff; 770 shares held by the spouse of W. E. LaMothe;
13,219 shares held by the spouse of D. R. Parfet; 2,200 shares held by the
spouse of L. S. Smith; 100 shares held by the spouse of J. L. Zabriskie; and
26,639 shares held by the spouses of directors and executive officers as a
group.
(3) Includes the following number of shares representing deferred directors'
fees payable in stock which are held in trust with respect to which the
individual has sole voting power: R. H. Brown, 1,919; F. C. Carlucci, 7,703;
A. M. Gotto, 810; D. F. Grisham, 9,116; G. A. Kenney-Wallace, 1,134; and W.
E. LaMothe, 10,344.
(4) Includes the following number of shares or share equivalents credited under
The Upjohn Employee Savings Plan with respect to which the individual has
sole voting power: J. R. Mitchell, 809; D. R. Parfet, 2,727; W. U. Parfet,
4,249; R. C. Salisbury, 4,212; L. S. Smith, 1,710; J. L. Zabriskie, 63; and
directors and executive officers as a group, 25,306.
(5) Includes shares over which D. R. Parfet has sole or shared voting or
dispositive power as a member of the Board of Trustees of The W. E. Upjohn
Unemployment Trustee Corporation, a non-profit corporation which supports
research on economic and social problems related to unemployment.
(6) Includes shares held in trust over which voting and/or dispositive power is
shared in his capacity as trustee under various trusts.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Donald R. Parfet, Executive Vice President, and William U. Parfet,
Director, are brothers.
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UPJOHN SUMMARY SELECTED FINANCIAL DATA
The summary selected financial data for the five years ended December 31,
1994 have been derived from the audited consolidated financial statements of
Upjohn and Notes thereto. The summary financial data for the six months ended
June 30, 1995 and 1994 is unaudited. The following data should be read in
conjunction with "Upjohn Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Upjohn's Consolidated Financial
Statements and Notes thereto included elsewhere herein and are qualified in
their entirety by reference to the Consolidated Financial Statements and such
Notes.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- --------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Operating revenue................ $1,717.6 $1,643.9 $3,344.5 $3,380.5 $3,284.7 $3,057.9 $2,675.3
Earnings from continuing
operations before cumulative
effect of accounting
changes(a)..................... 267.5 242.0 489.1 396.4 527.0 521.5 435.9
Earnings per share from
continuing operations before
cumulative effect of accounting
changes(a)..................... 1.51 1.36 2.75 2.20 2.92 2.87 2.36
Dividends declared per share..... .74 .74 1.48 1.48 1.42 1.26 1.04
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------
AT JUNE 30, 1995 1994 1993 1992 1991 1990
-------------------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets..................... $5,243.6 $5,162.5 $4,811.9 $4,513.1 $4,053.9 $3,578.8
Long-term debt................... 515.0 521.0 526.8 402.9 295.5 274.6
Total Shareholders' Equity....... 2,502.4 2,382.6 2,085.6 2,015.5 2,005.2 1,779.6
</TABLE>
---------------
(a) Refer to Note D to Upjohn's Consolidated Financial Statements relating to
January 1, 1993 accounting changes resulting in a net charge of $18.9 or
$.11 per share and to January 1, 1992 accounting changes resulting in a net
charge of $222.9 or $1.26 per share.
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UPJOHN MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
When comparing year-to-year earnings, accounting changes and restructuring
charges recorded in each of the prior two years should be considered. In 1993,
Upjohn made two accounting changes: the adoption of calendar-year reporting for
subsidiaries formerly reporting on a fiscal year and the adoption of Statement
of Financial Accounting Standards (SFAS) No. 112 relating to postemployment
benefits. The cumulative effect of these changes reduced 1993 net earnings by
$18.9 million ($.11 per share). In 1992, Upjohn adopted SFAS No. 106 relating to
postretirement benefit costs other than pensions and SFAS No. 109 relating to
accounting for income taxes. The cumulative effect of these accounting changes
reduced net earnings by $222.9 million ($1.26 per share) (see Note D to Upjohn's
Consolidated Financial Statements contained elsewhere herein).
SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO SIX MONTHS ENDED JUNE 30, 1994
Overview of Consolidated Results
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
-----------------------
1995 1994
-------- --------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Total revenue......................................................... $1,717.6 $1,643.9
Operating income...................................................... 351.8 302.2
Earnings from continuing operations before income taxes and
minority interests.................................................. 376.8 314.5
Earnings from continuing operations................................... 267.5 242.0
Net earnings.......................................................... 267.5 254.8
Earnings per common share:
-- Primary.......................................................... $ 1.51 $ 1.36
-- Fully diluted.................................................... $ 1.46 $ 1.32
</TABLE>
All sales data and financial statement results for the six months ended
June 30, 1994 have been restated to reflect the sale of the Asgrow Seed Company
as a discontinued operation.
Second-quarter 1995 international sales were up 18 percent to $422 million
from $357 million in the second quarter of 1994. International sales represented
51 percent of the consolidated total as compared to 44 percent one year earlier.
Domestic sales of $413 million declined 11 percent from $462 million for the
same comparative periods. Total consolidated sales for the second quarter were
$835 million, up from $819 million in the second quarter of 1994 as the result
of a three percent increase in price, a four percent increase from foreign
exchange, offset by a five percent decline in volume. For the six months ended
June 30, 1995, international sales of $822 million were up 21 percent from $678
million while domestic sales of $821 million were down 13 percent from $941
million. International sales represented slightly over 50% of the consolidated
total for the 1995 year-to-date period.
Total revenue for the first six months of 1995 benefited from the first
quarter 1995 sale of Upjohn's rights under a product co-marketing agreement.
This sale added $26 million (15 cents per share) to net earnings for the six
months ended June 30, 1995. This agreement increased earnings per share by 2
cents and 3 cents, respectively, in the second quarter and first six months of
1994.
An increase in the effective tax rate reduced primary earnings per share by
5 cents and 13 cents for the second quarter and first six months of 1995,
respectively. Also affecting year-to-year comparison, the discontinued Asgrow
Seed Company contributed $2 million (1 cent per share) and $13 million (7 cents
per share) to net earnings in the second quarter and first six months of 1994,
respectively.
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Product Sales
The table below provides a year-to-year comparison of consolidated net
sales by major pharmaceutical product group:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
---------------------
1995 1994
-------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Central nervous system.......................................... $ 214.7 $ 225.2
Steroids and anti-inflammatory and analgesic.................... 174.1 208.1
Reproductive and women's health................................. 267.2 244.7
Critical care, transplant and cancer............................ 232.4 198.1
Infectious disease.............................................. 260.2 215.7
Animal health................................................... 171.4 153.5
Other products and materials.................................... 323.4 374.1
-------- --------
Consolidated net sales.......................................... $1,643.4 $1,619.4
======= =======
</TABLE>
The second quarter 1995 worldwide decline in sales of central nervous
system agents was the net result of continuing international sales growth
recorded for both XANAX/alprazolam, the anti-anxiety agent, and
HALCION/triazolam, the sleep-inducing agent, being offset by ongoing generic
competition against XANAX in the U.S. The second quarter 1995 U.S. sales decline
in XANAX was significantly less in both dollars and as a percent of prior year
sales than that experienced during either the second quarter of 1994 or the
first quarter of 1995.
A significant decline in the U.S. sales of ANSAID (flurbiprofen), resulting
from generic competition first encountered in late 1994, led to the overall
decline in the steroid, anti-inflammatory and analgesic product group for both
the second quarter and first six months of 1995. MOTRIN IB, the over-the-counter
nonsteroidal analgesic agent, also recorded significant sales declines for both
measurement periods in 1995. These declines have been attributed to efforts to
reduce inventories and to intense competition resulting from increased
promotional activity by competitors within this market segment. Strong sales
increases of specialty and commodity steroids in Europe mitigated the decline in
this product group for the quarter.
Good U.S. sales performance in the second quarter of 1995 by DEPO-PROVERA,
the injectable contraceptive, continued to lead the growth in the reproductive
and women's health products group. A U.S. Food and Drug Administration
moratorium protecting the exclusivity of DEPO-PROVERA expires in October 1995.
This performance was partially offset by the continuing decline in the sales of
OGEN, the estrogen replacement therapy, that has been subject to generic
substitution.
The sales increases in the critical care, transplant and cancer products
group was led by foreign sales of SOLUMEDROL, the injectable steroid, and other
MEDROL products. Strong international sales growth in the DALACIN (CLEOCIN in
the U.S.) family of antibiotic products led the growth in the infectious disease
products category while sales of VANTIN, the broad-spectrum oral antibiotic,
were down slightly in the U.S.
The second quarter increase in sales of animal health products was led by
Lincomycin and Spectinomycin antibiotic products in international markets.
International sales also benefitted from the performance of the antibiotic
EXCENEL (NAXCEL in U.S. markets). U.S. sales of NAXCEL increased primarily due
to a favorable comparison to the prior year second quarter.
Continuing generic competition for MICRONASE Tablets (glyburide), the oral
anti-diabetes agent that lost U.S. market exclusivity in the second quarter of
1994, resulted in the decline in sales of other products and materials for both
the second quarter and first six months of 1995. GLYNASE PresTab, the oral
anti-diabetes agent, continued to record good growth. U.S. FDA moratoriums on
the approval of Abbreviated New Drug Applications (ANDAs) protecting the
exclusivity for GLYNASE expired at the end of March, 1995.
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<PAGE> 128
Costs and Expenses
Consolidated operating expenses, stated as a percent of net sales, were as
follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
---------------
1995 1994
---- ----
<S> <C> <C>
Cost of products sold.............................................. 27.2% 26.0%
Research and development........................................... 17.7 18.7
Marketing and administrative....................................... 38.2 38.2
Operating income................................................... 21.4 18.7
</TABLE>
Cost of products sold as a percent of sales was slightly below prior-year
levels for the quarter but was up for the year-to-date period as the result of a
change in product and geographic mix. These rates are higher than in prior years
because Upjohn's generic and other products carry lower gross margins than the
products that have recently lost patent protection. Also, as noted above, a
higher percentage of total sales were realized in international markets.
Upjohn's product line generally carries lower gross margins in international
markets. For the second quarter of 1995, this measure benefited from the effects
of foreign exchange.
Expenditures for research and development were down somewhat both in
dollars and as a percent of sales for the second quarter and first six months of
1995. This is the result of a favorable comparison due to the timing of certain
expenditures related to major clinical trials. It is expected that, in dollars,
research and development expenditures for the current year will approximate
those incurred for the full year 1994.
The increase in marketing and administrative expense, as a percent of
second quarter sales is primarily the result of additional marketing investments
required in the emerging international markets of Central Europe, Latin America
and the Asian and Pacific region. These factors offset the significant dollar
savings realized in the U.S. from expense controls and from the 1993
restructuring. For the year-to-date, this measure was flat as a percent of sales
because first quarter savings in the U.S. had exceeded the expense growth in
international markets.
The increase in operating income as a percent of sales for the current
year-to-date is the direct result of the revenue realized from the sale of
rights under the product co-marketing agreement discussed above. Excluding
revenue and expenses related to this agreement, operating income would have been
18.8 percent of sales, up from 18.2 percent for the prior year-to-date period.
Nonoperating Income and Expense
Net interest income increased in 1995, due largely to investment of the
proceeds from the sale of the discontinued Asgrow Seed Company. Second quarter
and the six months of 1994 minority equity in earnings (losses) of $1.9 million
and ($218,000), respectively, have been reclassified to "All other, net" for
consistency with the current year presentation. These measures for the
equivalent periods in 1995 were immaterial.
Income Taxes
The estimated annual effective tax rate for 1995 is 29 percent, compared to
24 percent in 1994 (the effective rate for the first six months of 1994 was 23
percent after the restatement to reflect the exclusion of Asgrow Seed Company).
The higher rate for 1995 resulted from changes in the U.S. tax law, which
significantly reduced tax benefits from operations in Puerto Rico.
122
<PAGE> 129
Financial Condition
The following ratios are presented as indicators of financial condition and
performance:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
-------- ------------
<S> <C> <C>
Working capital (in millions).................................. $1,063 $1,011
Current ratio.................................................. 1.98 1.90
Debt to total capitalization................................... 25.2% 26.0%
Return on average equity -- continuing operations.............. 21.9% 21.9%
</TABLE>
The increase in working capital at June 30, 1995, with a corresponding
improvement in the current ratio, resulted from increased inventories at the end
of the second quarter consisting of higher quantities of products facing U.S.
generic competition on the basis of price and substitution. In international
markets, inventory levels were up as the result of exchange fluctuations.
Accounts receivable are also up due to the effects of exchange, primarily in
Europe and Japan, as well as due to a change to self-distribution in Japan. The
proceeds from the sale of the Asgrow Seed Company also contributed to the
relatively high level of working capital. A common stock repurchase program that
will utilize approximately $300 million is currently in the process of
implementation. The ratio of debt to total capitalization benefits from the
increase in total shareholders equity. The return on average equity-continuing
operations includes the benefit from and sale of the Upjohn's rights under the
co-marketing agreement noted above.
Cash from operations in the first six months of 1995 of $253 million
decreased from $311 million due to the increases in inventories and accounts
receivables noted above. The current year measure was reduced by approximately
$24 million in spending against restructuring reserves established in 1993
compared to $49 million in the first six months of 1994. There is not expected
to be significant cash spending related to restructuring for the remainder of
the year. Cash expenditures for the acquisition of property, plant and equipment
has declined from the prior year. Cash required for the purchase of treasury
stock is up for the first six months of 1995.
Other Items
In early July 1995, the U.S. FDA approved CAVERJECT Sterile Power
(alprostadil for injection) for the diagnosis and treatment of erectile
dysfunction. CAVERJECT had already been approved for sale in 25 countries around
the world.
All company operations continue to be subject to increased environmental
regulation and legislation, as well as more stringent cleanup requirements and
legal actions (see Notes E and F to Upjohn's Consolidated Financial Statements).
Upjohn is unable to predict what effect these matters or any pending or
future legislation, regulations, or government actions may have on its business.
123
<PAGE> 130
1994 COMPARED TO 1993
Overview of Consolidated Results
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1994 1993
-------- --------
(DOLLARS IN MILLIONS,
EXCEPT PER-SHARE
DATA)
<S> <C> <C>
Total revenue................................................... $3,344.5 $3,380.5
Operating income................................................ 599.4 459.5
Earnings from continuing operations before income taxes and
minority equity............................................... 643.3 480.0
Earnings from continuing operations............................. 489.1 396.4
Net earnings.................................................... 490.8 392.4
Net earnings per common share:
-- Primary.................................................... $ 2.76 $ 2.18
-- Fully diluted.............................................. $ 2.68 $ 2.13
</TABLE>
In 1993, Upjohn recorded restructuring charges that reduced operating
income by approximately $209 million (approximately $155 million, or $.89 per
share after tax), primarily associated with a worldwide work-force reduction,
the write-down of certain assets and the reduction of excess manufacturing
capacity.
Several actions were taken to increase Upjohn's focus on its core
pharmaceutical business, including the 1994 divestitures of the Asgrow Seed
Company and Upjohn's interest in a chicken-breeding joint venture and the 1993
divestiture of Asgrow Florida Company. Both the sales of the Asgrow Seed Company
and Asgrow Florida Company have been reported as discontinued operations.
Accordingly, certain prior-period financial data have been restated to reflect
only the continuing operations of Upjohn (see Note B to Upjohn's Consolidated
Financial Statements contained elsewhere herein).
With the sale of the three agricultural segment operations identified
above, Upjohn has elected to report its business operations as a single industry
segment -- Pharmaceutical Products. This industry designation more accurately
reflects the ongoing operations of Upjohn. Prior-year data presented in this
review also reflect the single Pharmaceutical Products industry segment.
Product Sales
The table below provides a year-to-year comparison of consolidated net
sales by major pharmaceutical product group(1):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1994 1993
-------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Central nervous system.......................................... $ 455.3 $ 749.7
Steroids, anti-inflammatory and analgesic....................... 413.4 406.5
Reproductive and women's health................................. 511.1 362.5
Critical care, transplant and cancer............................ 412.1 383.1
Infectious disease.............................................. 439.0 394.0
Animal health................................................... 336.2 332.6
Other products and materials.................................... 707.9 711.6
-------- --------
Consolidated net sales..................................... $3,275.0 $3,340.0
======== ========
</TABLE>
---------------
(1) Prior year data has been conformed to current year product group
classifications.
124
<PAGE> 131
Consolidated domestic sales of pharmaceutical products in 1994 decreased 10
percent to $1,847 million from $2,046 million in 1993. Domestic sales in 1994
were 56 percent of total consolidated sales, down from 61 percent in 1993.
International sales in 1994 were $1,428 million, up 10 percent from $1,294
million in 1993. Consolidated sales for 1994 were down as the result of a 3
percent decline in price, offset in part by a 1 percent benefit from foreign
exchange. Volume was unchanged.
The current year decline in worldwide sales of central nervous system
agents was the result of intense generic competition against XANAX, the
anti-anxiety agent, which lost U.S. patent protection in October 1993. The U.S.
decline in sales of XANAX was offset somewhat by sales of Upjohn's generic
anti-anxiety agent alprazolam. In international markets, XANAX continued to
record good growth. Sales of HALCION Tablets (triazolam), the sleep inducing
agents, were also down in the U.S. largely due to the loss of U.S. patent
protection in October 1993. Sales of HALCION in international markets were up in
1994, reversing the trend of decline encountered over the past few years. The
decline in sales of central nervous system agents is expected to continue in
1995.
The 1994 growth in the steroid, anti-inflammatory and analgesic product
group was led by MOTRIN IB, the over-the-counter nonsteroidal analgesic agent,
which continued to perform well in a very competitive market. This performance
resulted in part from a 1993 agreement that provided access to new-product
technology and product-line extensions. This and other product sales gains
offset the decline in U.S. sales of ANSAID Tablets (flubiprofen), which resulted
from generic competition encountered in late 1994. U.S. patent protection for
ANSAID expired in February 1993.
Sales of reproductive and women's health products recorded strong growth
benefiting from the addition of OGEN, the estrogen replacement therapy acquired
in late 1993. Sales of DEPO-PROVERA, the injectable contraceptive, continued to
record strong increases in both U.S. and international markets. Combined
worldwide sales of PROVERA Products (medroxyprogesterone), the progestational
agents, were up for the year in spite of a moderate decline in the U.S. due to
increasing generic competition. CAVERJECT, for erectile dysfunction, was
approved for sale in 12 countries in 1994 and also contributed to sales.
International sales of SOLU-MEDROL, the injectable steroid, and other
MEDROL products led the growth in the critical care, transplant and cancer
product group. Sales of ATGAM, the immunosuppressant, were up slightly for the
year. In 1994, Upjohn completed a series of agreements with Yakult Honsha Co.
Ltd. for the rights to develop and market the anti-cancer compound irinotecan
for several indications in the U.S., Canada, and Latin America. Clinical
development of this compound is currently in process.
VANTIN, the broad-spectrum oral antibiotic sold primarily in the U.S., led
the growth in the infectious disease product group. Sales of CLEOCIN (DALACIN in
international markets), the family of antibiotic products, demonstrated good
growth in international markets but declined in the U.S. Sales of CLEOCIN T
Products (clindamycin topical) were down for the year due to U.S. generic
competition.
In the animal health product group, PIRSUE, introduced late in 1993 for the
treatment of mastitis, and LUTALYSE, the fertility-control agent, both provided
1994 sales growth. Sales of MGA, the feed additive, were flat. Sales of NAXCEL
(EXCENEL in international markets), the antibiotic, were up in international
markets and down slightly in the U.S. due to a lower-than-average cattle
population. Sales of lincomycin and companion animal products were down in 1994.
In the other products and materials category, GLYNASE PresTab, the oral
anti-diabetes agent, continued to record good growth in the U.S. Sales of
MICRONASE Tablets (glyburide), the oral anti-diabetes agents, were down
significantly from 1993 levels as a result of the loss of U.S. market
exclusivity in the second quarter of 1994. While Upjohn will continue to sell
its generic glyburide to minimize the effect of third-party generic competition,
it is anticipated that combined sales of MICRONASE and glyburide will decline in
1995. Sales of ROGAINE, the treatment for hair loss, were up for the year. The
consumer products CORTAID, the anti-itch medication; DOXIDAN and SURFAK, the
treatments for constipation; and DRAMAMINE, the treatment for motion sickness,
all demonstrated good growth, while sales of KAOPECTATE, the treatment for
diarrhea, were down for the year.
125
<PAGE> 132
Other Operating Revenue
Operating income for 1994 benefited from marketing alliance agreements with
Burroughs-Wellcome Co. for the promotion of their product ZOVIRAX, and with
Hoechst-Roussel Pharmaceuticals Inc. ("HRPI") to market and detail their product
ALTACE. The agreement with Burroughs-Wellcome expires at the end of 1995. An
agreement has been reached with HRPI to sell Upjohn's rights relating to ALTACE
effective January 1, 1995.
Costs and Expenses
Consolidated operating expenses, stated as a percent of sales, were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------
1994 1993
---- ----
<S> <C> <C>
Cost of product sold................................................... 25.7% 23.5%
Research and development............................................... 18.5 18.3
Marketing and administrative........................................... 39.5 39.4
Restructuring.......................................................... 6.3
Operating income....................................................... 18.3 13.8
</TABLE>
The rise in 1994 cost of products sold compared to 1993 is the result of a
change in product mix, which is primarily due to U.S. generic competition
encountered with the major products identified previously. Compared to the
products that lost patent protection, Upjohn's generic equivalents and other
products have lower gross margins. The decline is also due to a higher
percentage of total worldwide pharmaceutical product sales in international
markets where Upjohn's products generally carry lower gross margins.
Expenditures for research and development in 1994 were up slightly as a
percent of sales from 1993 due primarily to the timing of expenses related to
large clinical programs. Both 1994 and 1993 research and development
expenditures were significantly higher than in 1992 due to the continuing costs
associated with accelerated development of FREEDOX IV Solution (tirilazad
mesylate) and other compounds.
In December 1994, further enrollment in the North American clinical trial
of FREEDOX for severe to moderate head injury was suspended pending further
analysis of an unexplained difference in mortality rates. At the time of
suspension, enrollment in this trial was 98 percent complete. The results were
unexpected because a fully-enrolled study in Europe showed no signs of the
effects encountered in the North American trial. Upjohn will continue to
medically evaluate patients in both the North American and European trials for
six months following treatment. The data from both trials will be analyzed to
assess the therapeutic benefit of FREEDOX in the treatment of severe to moderate
head injury and to determine the reason for the difference in mortality
encountered in the North American trial. Analysis of the results of other
clinical trials of FREEDOX for subarachnoid hemorrhage, spinal cord injury and
stroke has not identified any safety concerns and these trials will continue.
Marketing and administrative expense as a percent of sales in 1994 was
comparable to 1993. Savings from the 1993 and 1992 restructuring realized in
this expense category were offset by increases in other costs related to various
marketing programs and by other expenses. A portion of the increased costs in
1994 resulted from new-product marketing expenses related to LUVOX, the
treatment for obsessive-compulsive disorder, which will be sold in the U.S.
LUVOX is a product of Solvay Pharmaceuticals Inc. Unfavorable foreign exchange
comparisons in certain international markets also added to this expense category
in 1994.
The restructuring plan announced in October 1993 was in the process of
being implemented during 1994. At the beginning of 1994, approximately 400
employees had left Upjohn under the 1993 restructuring, while at the end of 1994
that number had increased to approximately 1,100 (see Note C to Upjohn's
Consolidated Financial Statements contained elsewhere herein). Certain elements
of the 1993 plan are still in the process of implementation. All aspects of the
1992 plan had been implemented by the end of 1993. The gross combined benefit to
1995 earnings from the 1992 and 1993 restructuring is expected to be
approximately $120 million.
126
<PAGE> 133
The benefit is expected to increase moderately after 1995 when all aspects of
the 1993 restructuring plan are fully implemented.
Earnings before taxes and minority equity from Upjohn's operations in
Europe of $44 million were up significantly in 1994 from a loss of $39 million
in 1993. This improvement is the result of increased sales volume, a net
favorable effect from exchange and savings from expense reductions. The 1993
European measure was depressed largely due to unfavorable exchange and the costs
of restructuring. Sales increased in Japan largely as the result of favorable
exchange, which was partially offset by continuing price erosion in that market.
Restructuring did not have a significant adverse effect on earnings in Japan and
the Pacific geographic area in 1993. In other international markets, increases
in sales volume, which were offset somewhat by exchange, and expense savings led
to the significant increase in earnings before taxes from 1993 levels. The costs
of restructuring reduced earnings in other international markets in 1993 (see
Note U to Upjohn's Consolidated Financial Statements contained elsewhere
herein).
Nonoperating Income and Expense
The favorable interest income to interest expense relationships have
increased in both 1993 and 1994. Nonoperating income in 1994 also benefited from
the favorable resolution of a coverage dispute with an insurance carrier and the
gain on the sale of a joint venture. The 1993 measure includes a nonoperating
gain on the sale of a cough/cold medicine trademark.
Income Taxes
The effective tax rate for 1994 was 24 percent, compared to 17.5 percent in
1993. When the tax benefits related to restructuring are excluded, the 1993 rate
would have been 22 percent. The increase in 1994 is the result of a higher
proportion of earnings from international operations, which are taxed at
relatively higher rates, and a lower proportion of total earnings from
operations in Puerto Rico. The major products encountering U.S. generic
competition are manufactured in Puerto Rico.
The Omnibus Budget Reconciliation Act of 1993 will have a significant
impact on Upjohn's net earnings beginning in 1995. The Act ultimately reduces
tax benefits from operations in Puerto Rico under Section 936 of the Internal
Revenue Code by 60 percent. The change had little effect on the tax rate for
1994.
Financial Condition
The following ratios are presented as indicators of financial condition and
performance:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
1994 1993
-------- ------
<S> <C> <C>
Working capital (millions)....................................... $1,011.0 $678.0
Current ratio.................................................... 1.9 1.7
Debt to total capitalization..................................... 26.0% 28.1%
Return on average equity -- continuing operations before
accounting changes............................................. 21.9% 19.3%
</TABLE>
The significant increase in working capital and the corresponding
improvement in the current ratio were largely the result of the year-end 1994
receipt of the proceeds from the sale of the Asgrow Seed Company which were
temporarily invested in cash equivalents. Also contributing to the improvement
in these measures was the increase in short-term investments, which were
classified on the balance sheet as other current assets. Upjohn recently
announced a common stock repurchase program, to be completed in 1995, which will
utilize approximately $300 million. The working capital increase and improvement
in the current ratio realized at the end of 1993 was because the proceeds of
medium-term notes had been used during that year to reduce outstanding
commercial paper.
127
<PAGE> 134
The 1994 ratio of debt to total capitalization benefited from the increase
in total shareholders' equity when compared to a consistent level of
year-to-year total borrowing. The 1994 improvement in return on average equity
before accounting changes was due to the favorable earnings comparison.
Net earnings in 1993 were reduced by the after-tax expense associated with
restructuring, totaling $154.6 million. Excluding the cost of the restructuring,
return on average equity would have been 27.5 percent in 1993.
Net cash provided by operations was $710 million in 1994 compared to $780
million in 1993. Significant adjustments were made to 1993 cash provided by net
earnings to reflect the non-cash effects of restructuring charges. Spending
against the related restructuring reserves reduced the 1994 measure by $72
million. This spending was primarily the result of the reduction in personnel
and is expected to be less than $35 million in 1995. Nonoperating uses of cash
in 1994 included purchase of investments; the addition of property, plant and
equipment; the payment of dividends to shareholders; and the purchase of
treasury stock. The largest source of cash from nonoperating activities was
realized from the sale of the Asgrow Seed Company.
In 1993, proceeds of a $200 million 5.875% debt issue under a 1993 shelf
registration were utilized to redeem $200 million of 8% notes that were called
at par on July 1, 1993. Medium-term borrowing at the end of 1994 was unchanged
from 1993 at $466 million. Upjohn had $134 million available for future
borrowing under the 1993 and 1991 shelf registrations at the end of 1994 (see
Note I to Upjohn's Consolidated Financial Statements contained elsewhere
herein).
Upjohn utilizes derivative financial instruments in conjunction with its
foreign currency risk management programs. These programs employ
over-the-counter forward exchange contracts and purchased foreign currency
options to hedge existing net transaction exposures and certain existing
obligations in several subsidiary locations. These exposures arise both from
intercompany and third-party transactions. Foreign currency options are
occasionally utilized to hedge anticipated transactions. Risk of loss in the
hedging of anticipated transactions is minimized through the exclusive use of
purchased foreign currency options.
The hedging activities seek to protect operating results and cash flows
from the potential adverse effects of foreign currency fluctuations. This is
done by offsetting the gains or losses on the underlying exposures with losses
and gains on the instruments utilized to create the hedge. Upjohn does not
utilize derivative financial instruments for trading purposes.
Upjohn is obligated to make contributions to certain employee benefit
programs and may elect to continue funding one other program. Upjohn's cash flow
requirements under the Employee Stock Ownership Plan will begin to accelerate in
1996 from current levels (see Notes I and P to Upjohn's Consolidated Financial
Statements contained elsewhere herein), and there will be a minimum contribution
required for the U.S. pension plan of approximately $25 million. In both 1993
and 1994, Upjohn has made contributions to a Voluntary Employee Benefit
Association to partially prefund postretirement benefit obligations. Future
contributions are discretionary.
As indicated in Note J to Upjohn's Consolidated Financial Statements
contained elsewhere herein, Upjohn has committed to making a series of
investments in a company that intends to manufacture a hemoglobin-based oxygen
carrier.
Upjohn's future cash provided by operations and borrowing capacity is
expected to cover normal cash flow needs and planned capital additions for the
foreseeable future, despite the adverse effects of the expiration of patents and
other product protection discussed below.
Patent Expirations
A U.S. Food and Drug Administration (FDA) moratorium on the approval of
Abbreviated New Drug Applications (ANDAs) for products containing glyburide, the
generic name for MICRONASE, expired in May 1994. Patent protection of ANSAID,
CLEOCIN T, XANAX and HALCION expired in 1993. No significant patent protection
remains on PROVERA. Upjohn began marketing generic equivalents for most of these
products in 1993 and 1994. U.S. sales of these six products, including that of
the generic equivalents,
128
<PAGE> 135
declined from $1,068 million in 1993 to $672 million in 1994. While it is
anticipated that sales of these products will continue to decrease over the next
several years, the decline is expected to be lower than that experienced in
1994.
FDA moratoriums on the approval of ANDAs protect exclusivity for GLYNASE
until March 1995 and for DEPO-PROVERA until November 1995. U.S. patent
protection for ROGAINE will expire in February 1996.
Sales growth of other existing products, the acquisition and development of
new products, the marketing of generic equivalents and efforts to control costs
and enhance revenues are expected to offset much of the effects of the loss of
patent and ANDA protection. Therefore, the combined earnings impact of the
patent expirations, offset by these strategies and actions, are not expected to
be as severe in 1995 as in 1994. Earnings in years subsequent to 1995 depend on
the success of new products and the strategies noted above.
Other Items
Upjohn is subject to extensive environmental legislation and regulation.
Environmental compliance costs, including capital expenditures related to future
production, have been increasing each year. Additional environmental
expenditures are expected in the near future at the Kalamazoo, Michigan,
production site in connection with groundwater remediation and improved control
of surface water discharges. Other projects related to the prevention,
mitigation and elimination of environmental effects are being planned and
implemented at other facilities worldwide.
Upjohn is involved in several administrative and judicial proceedings
relating to environmental matters, including actions brought by the U.S.
Environmental Protection Agency and state environmental agencies for cleanup at
approximately 40 "Superfund" or similar sites, including the West KL Avenue
Landfill in Kalamazoo County, Michigan. Upjohn's estimate of the ultimate cost
to be incurred in connection with these sites could change due to the potential
existence of joint and several liability, possible recovery from other
potentially responsible parties, the cleanup standards to be required and the
technologies to be employed. An accrual has been recorded, but added costs could
be incurred in connection with the various remedial actions. Although the
outcome of these matters cannot be predicted with certainty, Upjohn does not
believe that the ultimate liability will have a material effect on its
consolidated financial position; and unless there is a significant deviation
from the historical pattern of the resolution of such issues, Upjohn does not
believe that the ultimate liability will have a material adverse effect on
Upjohn's results of operations or liquidity.
Studies are in process toward a final remediation plan for the site of
Upjohn's discontinued industrial chemical operations in North Haven, Conn.
Zoning violations issues related to a sludge pile located on the site have been
resolved with the town. The final plan of remediation of the pile will be worked
out among Upjohn, the Connecticut Department of Environmental Protection and the
U.S. EPA with input from the public. Upjohn cannot at the present time predict
the final resolution of the sludge pile issue and has not established any
reserves for the cost of offsite disposal. Upjohn believes that it has
established sufficient reserves to cover the anticipated costs of remedial
activities that Upjohn expects may be ultimately required.
129
<PAGE> 136
1993 COMPARED TO 1992
Overview of Consolidated Results
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1993 1992
-------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Net sales....................................................... $3,340.0 $3,256.2
Operating income................................................ 459.5 662.7
Earnings from continuing operations before income taxes and
minority equity(1)............................................ 480.0 671.9
Earnings from continuing operations(1).......................... 396.4 527.0
</TABLE>
---------------
(1) Before accounting changes.
Upjohn made an accounting change and adopted three new accounting
pronouncements that should be considered when comparing year-to-year earnings
results. In the first quarter of 1993, the pharmaceutical and agricultural
subsidiaries that formerly reported on a November 30 fiscal year adopted
calendar-year reporting. The cumulative effect of this accounting change reduced
1993 net earnings by $7.8 million ($.04 per share). As of the first quarter of
1993, Upjohn adopted Statement of Financial Accounting Standards (SFAS) No. 112
relating to postemployment benefits. Adoption of this statement reduced 1993 net
earnings by $11.1 million ($.07 per share). In 1992, Upjohn adopted SFAS No. 106
which relates to postretirement benefit costs other than pensions and SFAS No.
109 relating to accounting for income taxes. The cumulative effect of these
accounting changes reduced net earnings by $223 million ($1.26 per share).
In the third quarter of 1993, Upjohn recorded restructuring charges of $209
million ($155 million, or $.89 per share after tax) associated with a worldwide
work-force reduction of approximately eight percent, the elimination or
reduction of excess manufacturing capacity in 14 plants and the write-down of
certain intangible and fixed assets. In 1992, restructuring charges of $22
million ($13.4 million, or $.08 per share after tax) were made to reflect the
cost of a special voluntary early retirement program elected by approximately
500 employees in the U.S. and Puerto Rico and other staff reductions in non-U.S.
locations.
Certain prior-period data have been restated to reflect the sale of Asgrow
Florida Company, which was completed in the fourth quarter of 1993 and is
reported as a discontinued operation. More information concerning this and the
items above is included in the Notes to the Upjohn Consolidated Financial
Statements contained elsewhere herein.
Growth in consolidated net sales for the year resulted from increases of
two percent in U.S. and non-U.S. sales to $2.2 billion and $1.4 billion,
respectively. The percentage of U.S. to consolidated sales was unchanged in 1993
from 1992 at 61 percent. Human health care sales represented 83 percent of the
consolidated total in both 1992 and 1993. Consolidated sales growth for the year
resulted from a three percent increase in volume, partially offset by a one
percent adverse effect from foreign exchange. There was no net change in price.
The following summarizes consolidated costs and operating income as a
percent of sales:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------
1993 1992
---- ----
<S> <C> <C>
Cost of product sold................................................... 24% 23%
Research and development............................................... 18 17
Marketing and administrative........................................... 39 40
Restructuring.......................................................... 6 1
Operating income....................................................... 14 20
</TABLE>
Cost of products sold in 1993 was unchanged as a percent of sales from the
prior year because non-U.S. and agricultural product mix improved, offsetting
the adverse effects of pharmaceutical generic competition in
130
<PAGE> 137
the U.S. in the fourth quarter of 1993. This measure remained unchanged in 1993
when compared to 1992. The significant increase in research and development
costs in 1993 resulted primarily from accelerated development efforts associated
with Freedox IV Solution (tirilazad mesylate) for several indications and other
accelerated development efforts. Reductions realized during 1993 in marketing
and administration expense were largely offset by an unusual third-quarter
charge to increase provisions for certain liabilities.
Human Health Care
Sales. Sales of human health care products by major product group for 1993
and 1992 are provided in the table below.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1993 1992
------- -------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Central nervous system agents...................... $ 750 $ 783
Steroids, anti-inflammatory and analgesic agents... 941 895
Antibiotics........................................ 423 370
Other products and materials....................... 893 887
------- -------
Total.................................... $ 3,007 $ 2,935
====== ======
</TABLE>
In 1993, the worldwide increase in sales of human health care products
resulted from a three percent increase in volume, partially offset by a one
percent adverse effect from foreign exchange. There was no net change in price.
U.S. sales grew one percent while non-U.S. sales grew four percent.
U.S. patents on Xanax and Halcion expired in October 1993. Upjohn began
selling generic versions of branded Xanax and Halcion tablets late in the third
quarter of 1993. Combined sales of Xanax and generic alprazolam, the
anti-anxiety agents, were down due to generic competition arising in the U.S.
during the fourth quarter. In non-U.S. locations, Xanax continued to record good
sales growth. Combined worldwide sales of Halcion and Upjohn's generic
triazolam, the sleep-inducing agents, were down from 1992 due primarily to a
decline in non-U.S. sales.
Sales growth for all products was led by Depo-Provera, the injectable
contraceptive introduced in the U.S. for this indication in the first quarter of
1993. Solu-Medrol, the injectable steroid, and other Medrol products sold
primarily in non-U.S. markets contributed to growth in the steroid,
anti-inflammatory and analgesic product group. Combined sales of Provera and
generic medroxyprogesterone, the progestational agents, recorded growth in both
the U.S. and non-U.S. Markets. Motrin IB, the over-the-counter nonsteroidal
analgesic agent, experienced good U.S. sales growth, while sales of Ansaid, the
nonsteroidal anti-inflammatory agent, continued to decline in 1993 due to
competition from other companies' branded products. The U.S. patent on Ansaid
expired in February 1993.
Sales growth of antibiotics was led by Vantin, the broad-spectrum oral
antibiotic introduced to the U.S. market late in the third quarter of 1992. The
family of Dalacin products (clindamycin) sold in non-U.S. markets also provided
growth in this product class.
Glynase, the oral and antidiabetes agent sold primarily in the U.S., led
growth in the other products category, while sales of Micronase declined
somewhat for the year. Atgam, the immunosuppressant, continued to record
excellent growth on a worldwide basis, while sales of Rogaine, the treatment for
hair loss, were down significantly for the year.
Operating Profit. Operating profit in the human health care segment of
$493 million declined 25 percent from $657 million in 1992 as a result of the
restructuring and the unusual charge recorded in the third quarter of 1993.
These costs reduced operating profit in this segment by $213 million for the
year. Restructuring charges in 1992 reduced segment operating profit by $20
million.
Geographic area operating profits in Europe declined significantly from
1992 but were partially offset by increases in Japan and the Pacific region. The
declines in the European region were directly related to
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decreased sales of Halcion and increases in the provision for uncollectible
accounts in both years. In 1993, price erosion in Japan tempered the increase in
that geographic area. The net effect of unfavorable exchange rates in these
markets also reduced 1993 segment operating profits.
Cost of products sold rose at a rate in excess of sales due to a change in
product mix. Compared to the products that lost patent protection in 1993,
Upjohn's generic equivalents and other remaining products have lower gross
margins. Declining sales of Halcion in non-U.S. markets were replaced by sales
of lower-margin products. Segment research and development expenditures
continued to increase at a rate well in excess of sales. The accelerated testing
of Freedox IV Solution; alprostadil, the treatment for erectile dysfunction; CNS
products and anti-AIDS compounds have driven the increase in this expense.
Segment marketing and administrative costs also increased for the year. Expense
savings were more than offset by the recognition of the unusual charge recorded
in this expense category increasing these costs slightly as a percent of sales.
Various marketing agreements entered into in recent years continued to
contribute to total revenue, including the agreement with Hoechst-Roussel
Pharmaceutical, Inc., under which Upjohn is jointly marketing Altace, a
treatment for hypertension.
Agricultural
Sales. Agricultural segment sales declined two percent in 1993 compared to
increases of six percent in 1992. The sales decline resulted from a one percent
increase in volume offset by a three percent decline due to foreign exchange.
There was no significant change in price. Non-U.S. sales declined seven percent
while domestic sales increased three percent.
Worldwide animal health sales grew four percent in 1993. Good growth in the
U.S. was offset by declines in non-U.S. markets, resulting primarily from
foreign exchange. U.S. animal health sales growth was led by Naxcel/Excenel, the
antibiotic, which also realized growth in non-U.S. markets. Sales of
lincomycin-based products declined both in the U.S. and non-U.S. markets.
Lutalyse, the fertility control agent, achieved good worldwide sales growth
while MGA, the feed additive, provided good growth in the U.S.
Worldwide sales of vegetable and agronomic seeds declined seven percent
from 1992. Vegetable seed sales were down somewhat in the U.S. and off
significantly in non-U.S. markets. Early vegetable seed shipments to certain
U.S. customers in 1992 reduced sales recorded in 1993 while lower sales were
recorded in certain European markets due to exchange comparisons and volume
reductions. Sales of agronomic (field crop) seed were also down for the year in
both U.S. and non-U.S. markets. Sales in December 1993 benefited from
accelerated shipments to dealers that were intended to increase the availability
of seed to farmers early in the sales season. The U.S. agronomic sales decline
resulted partially from sales price declines related to the change from an agent
to a dealer basis and from unusually high product returns associated with the
1993 flooding in the mid-western U.S. Non-U.S. agronomic sales declined, in
spite of strong contributions from corn sales in Mexico, due to the loss of
soybean subsidies in Europe.
In December 1993, Upjohn sold Asgrow Florida Company ("AFC") to Terra
Industries, Inc. The sale includes the agricultural chemical business and
certain assets of AFC. The vegetable and agronomic seed sales activities of AFC
will be continued by Upjohn's Asgrow Seed subsidiary. The sale has been
accounted for as a discontinued operation; this review reflects the results of
continuing operations only.
Animal health sales increased to 55 percent of segment sales in 1993, up
from 52 percent in 1992. Non-U.S. sales decreased to 42 percent of the segment
total, down from 44 percent in 1992.
Operating Profit. Agricultural segment operating profit decreased 12
percent for the year to $56 million, down from $64 million in 1992. Operating
profit benefited in both 1993 and 1992 from marketing and administrative expense
controls. In 1993, the decline in this expense category was also due to the
change from an agent to dealer basis for agronomic products. Gross margins
improved for the segment primarily due to an improvement in product mix.
Research and development expense grew as a percent of sales over 1992.
Restructuring costs reduced operating profit in 1993, while costs associated
with restructuring and operating charges related to SFAS No. 106 had a negative
effect on 1992 segment operating profit.
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Corporate and Interest
In 1993, corporate and interest increased to $59 million as compared to $24
million in 1992 primarily as the result of charges associated with the current
year restructuring. In 1991, Upjohn incurred a significant charge related to the
funding of a vehicle to administer Upjohn's charitable contributions and
accruals to increase environmental reserves. No such charges were required in
either 1992 or 1993, while recovery of amounts related to a joint venture
benefited 1992.
The favorable comparison of interest income over interest expense continued
in 1993; however, the net interest earned in 1993 was down slightly from the
prior year primarily due to lower interest rates on investments.
Income Taxes
The annual effective tax rate for 1993 was 18.1 percent, compared to 22
percent in 1992. Excluding the tax benefits related to the restructuring charges
and other unusual items (including adjustments of deferred tax amounts due to
the new tax law), the effective tax rate for 1993 would have been 22 percent,
unchanged from the prior year. The lower 1992 rate resulted primarily from a
lesser proportion of non-U.S. earnings taxed at relatively higher rates.
SFAS No. 109 was adopted effective January 1, 1992. The cumulative effect
of this accounting change was favorable adjustment to 1992 net earnings of $13
million, resulting primarily from adjusting deferred tax balances to reflect
current tax rates.
Financial Condition
The following ratios are presented as indicators of financial condition and
performance:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1993 1992
------ ------
<S> <C> <C>
Working capital (millions)......................................... $887.0 $756.0
Current ratio...................................................... 1.8 1.7
Debt to total capitalization....................................... 28.3% 30.4%
Return on average equity -- continuing operations before accounting
changes.......................................................... 19.6% 27.1%
</TABLE>
Working capital increased at the end of 1993, with a corresponding
improvement in the current ratio, because medium-term notes were used to reduce
outstanding commercial paper borrowing. Overall, Upjohn increased total
borrowing under two shelf registrations from $138 million at the end of 1992 to
$466 million at the end of 1993, using medium-term notes and one discrete issue.
Proceeds of the April 1993 discrete issue of $200 million 5.875% notes were used
to redeem the $200 million 8% notes that were called at par on July 1, 1993. At
the end of 1993, Upjohn had $134 million available for future borrowing under
the 1993 and 1991 shelf registrations (see Notes to Upjohn's Consolidated
Financial Statements contained elsewhere herein).
In 1993, the ratio of debt to total capitalization decreased from the prior
year-end to 28.3% due to a reduction in total combined short-term and long-term
debt. Costs of restructuring and the cumulative effect of accounting changes
reduced shareholders' equity. The restructuring and accounting changes also had
the effect of reducing the return on average equity below prior levels.
Net cash provided by operations of $780 million in 1993 compared to $597
million in 1992. The current year increase was primarily due to increased net
earnings and reduced accounts receivable when compared to the prior year.
Significant adjustments were made to cash provided by net earnings to reflect
the non-cash effects of the 1993 restructuring charges and the 1992 cumulative
effect of account changes. Funds generated by 1993 operations were supplemented
by increased issuance of long-term debt. Cash was used primarily for the
purchase of fixed assets, reduction of commercial paper and refinancing an issue
of long-term debt that had required the payment of higher rates of interest.
Investments in 1992 included the acquisition of
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Sanorania OHG and Delta West Limited. Other significant uses of cash included
payment of dividends and the purchase of treasury stock.
Patent Expirations
U.S. patent protection expired on several major products during 1993,
including Ansaid (February), Cleocin T (July), Xanax (October) and Halcion
(October). The patent on Micronase expired in 1992; however, an FDA moratorium
on the approval of Abbreviated New Drug Applications for products containing
glyburide, the generic name for Micronase, continued until May 1994. No
significant patent protection remains on Provera.
The combined U.S. sales for these six products were approximately $1,100
million in each of the years 1991 through 1993. Most of these products carried a
higher profit margin than other products sold by Upjohn and contributed a higher
proportion of net earnings than their respective contributions to consolidated
sales.
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DESCRIPTION OF PHARMACIA
OVERVIEW
Pharmacia is an international health care company which engages in the
research, development, manufacture and sale of pharmaceutical and other related
health care products. Following the 1993 acquisition of FICE, Pharmacia became
one of the 20 largest pharmaceutical companies in the world. In 1994,
Pharmacia's sales were MSEK 26,450, of which 92.4% were generated from customers
outside Sweden. In 1994, operating income from continuing operations was MSEK
5,398. Information concerning Pharmacia's historical business is contained in
Pharmacia's annual report on Form 20-F for the year ended December 31, 1994,
which is incorporated herein by reference.
Pharmacia has established and maintained leading positions in the markets
for many of its largest selling products. Many of these products are
concentrated in medical areas with clearly defined patient groups, in which
purchasing decisions are made by a relatively limited number of specialist
doctors and hospital purchasing groups to whom Pharmacia markets with focused
sales teams. Pharmacia also sells other pharmaceutical and health care products
to general practitioners and in the OTC market.
In August 1994, Pharmacia reorganized its organizational structure by
consolidating and thereby reducing its number of business areas from ten to
seven. Pharmacia also has one business development project. The three new
business areas and their 1994 sales are: Biopharmaceuticals (MSEK 4,031), which
operates in therapeutic areas of growth deficiencies, antithrombosis, plasma
products and biotechnology research; Pharmaceuticals Uppsala (MSEK 4,173), which
operates in therapeutic areas of cataract surgery, inflammatory bowel
diseases/rheumatoid arthritis ("IBD/RA"), gynecology and local products sold in
the Nordic countries; and Pharmaceuticals Milan (MSEK 8,101), which operates in
therapeutic areas of oncology, immunology, central nervous system and products
sold mainly in Italy, France and Spain. The remaining four business areas (which
are unchanged) and their 1994 sales are: Hospital Care (MSEK 2,904), Consumer
Pharma (MSEK 1,722), Diagnostics (MSEK 1,669) and Pharmacia Biotech (MSEK
2,818), and the business development project is Pharmacia Biosensor (MSEK 155).
In 1994, Pharmacia sold Deltec, formerly a business area, to Smiths Industries
plc for aggregate consideration of $150 million (approximately MSEK 1,111).
Pharmacia's 10 largest selling products or product groups in 1994 were
Genotropin (a human growth hormone produced by recombinant DNA technology),
Healon (a viscoelastic substance used in cataract surgery), Farmorubicin (a
cytostatic used primarily to treat solid tumors and lymphoma), in vitro allergy
diagnostics (laboratory systems for detecting allergies by means of a blood
sample), Adriamycin (a cytostatic used primarily to treat solid tumors, leukemia
and lymphoma), Fragmin (a low molecular weight heparin), Sermion (a product used
to treat cognitive and behavioral disorders related to senile dementia),
Nicorette (a line of smoking cessation products), Intralipid (a fat emulsion for
parenteral nutrient delivery) and Salazopyrin (a treatment for inflammatory
bowel diseases and rheumatoid arthritis). These 10 products represented 44% of
Pharmacia's 1994 sales.
DEVELOPMENT
Pharmacia's predecessor was Procordia AB ("Procordia"), originally a state
holding company for a variety of businesses, which was granted a listing on the
SSE in 1987. By 1989, Procordia's businesses had become increasingly directed
toward health care and branded consumer products. Procordia's 1990 merger with
the pharmaceutical company then known as Pharmacia AB ("Old Pharmacia") and the
food company Provendor AB ("Provendor") significantly increased its size in
terms of sales. Kabi Pharmacia AB ("Kabi Pharmacia"), a subsidiary of Procordia,
was formed through the merger of Procordia's KabiVitrum AB ("KabiVitrum") and
the pharmaceutical business of Old Pharmacia. The remaining part of Old
Pharmacia formed Pharmacia Biosystems AB ("Pharmacia Biosystems"), which
included primarily Pharmacia's current Diagnostics and Pharmacia Biotech and
former Deltec business areas and the Pharmacia Biosensor business development
project. As a result of the 1990 merger, the ownership interest of the Swedish
State in Procordia was reduced and Volvo acquired a significant ownership
interest in Procordia.
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ACQUISITION OF FICE
Following a number of smaller acquisitions of pharmaceutical businesses by
Kabi Pharmacia, in 1993 Pharmacia acquired the majority of the pharmaceutical
businesses of Erbamont N.V. included in Farmitalia Carlo Erba S.r.1. of Italy,
Erbamont Inc. of the United States and their respective subsidiaries from
Montedison S.p.A. ("Montedison") for approximately MSEK 6,800 in cash. The
pharmaceutical businesses acquired from Montedison are referred to herein as
"FICE". Pharmacia also agreed to make supplemental payments based on sales for
specified periods of certain products. In 1992, its last full financial year
prior to being acquired, FICE had total revenues of Lit. 1,511,449 million (MSEK
7,008).
FICE brought to Pharmacia leading positions in certain products, in
particular in the oncology area, with strong geographic positioning in southern
Europe, Latin America, the Far East and, in oncology, in the United States. FICE
also contributed research and development expertise in synthetic chemistry which
was complementary to Pharmacia's existing expertise, and certain central nervous
system products and local product lines in Italy and Spain.
BCP DEMERGER
In June 1993, Procordia's two principal owners, Volvo and Stattum announced
their agreement to seek the separation of Procordia's operations into two parts:
a pharmaceuticals and biotechnology group and a branded consumer products group.
The assets and liabilities associated with the branded consumer products
operations of Procordia were transferred to BCP Branded Consumer Products AB
("BCP"), a wholly owned subsidiary of Procordia. In November 1993, Procordia
demerged its entire interest in BCP with effect from July 1, 1993 by
distributing to Pharmacia's stockholders one BCP share in respect of each
Procordia share. At the same time, Procordia changed its name to Pharmacia AB.
MAJOR SHAREHOLDERS
In connection with the 1993 BCP demerger, Stattum and Volvo agreed to
exchange all of Stattum's shares in BCP for A Shares and B Shares of Pharmacia
held by Volvo, thereby increasing Stattum's ownership in Pharmacia to 57.6% of
the voting rights and 46.1% of the share capital and reducing Volvo's ownership
interest in Pharmacia to 27.8% of the voting rights and 27.5% of the share
capital. In June 1994, Stattum reduced its shareholding in Pharmacia to 11.8% of
the voting rights and 14.1% of the share capital through an offering of 79.5
million A Shares. See "-- Beneficial Ownership of Pharmacia Common Shares."
RESTRUCTURING
Since the FICE acquisition, Pharmacia has introduced a restructuring plan
to consolidate operations, which includes a reduction of the combined sales
forces, consolidation of marketing companies, the rationalization of production
facilities (including the closure of certain plants), the reduction in number of
personnel in central management and the concentration of the combined research
and development resources on fewer projects in a smaller number of key areas.
The consolidation of the marketing companies was substantially completed during
the first quarter of 1994.
In addition to the FICE integration program, Pharmacia commenced an
extensive program to consolidate production facilities throughout Pharmacia. As
part of this program, Pharmacia expects to reduce substantially the number of
manufacturing facilities by consolidating the manufacture of the same product or
product lines in one or a limited number of centers. Pharmacia has reduced the
number of facilities from 52 at the end of 1991 to 43 as of May 1995. Pharmacia
is currently evaluating its consolidation efforts in connection with the
Combination.
SALES AND MARKETING
Pharmacia's products are sold in over 100 countries worldwide. Pharmacia
markets its products through its own marketing companies in approximately 40
countries to specialist doctors and hospital purchasing groups, as well as to
general practitioners and directly to consumers. Pharmacia currently employs
approximately 3,300 sales representatives, of whom 1,240 market pharmaceutical
products to hospitals and specialist doctors, 1,760 market pharmaceutical
products to general practitioners and 300 market technical products,
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essentially for Pharmacia Biotech and Pharmacia Biosensor, to industry and
academia. Approximately 2,100 representatives operate in Europe, 300 in the
United States, 200 in Japan and 700 in the rest of the world. In certain
countries, sales of selected products are made through local distributors and
licensees. As part of its ongoing commitment to its customers, Pharmacia
periodically organizes educational programs to provide specialist doctors with
information on the most recent product innovations and scientific advances.
Pharmacia's marketing companies are organized by geographical markets to
meet the requirements of the markets in which they operate. As part of its
August 1994 change in organizational structure, existing marketing companies
were grouped together into three marketing regions: Europe, North and South
America and Asia-Pacific.
As part of its restructuring program after the acquisition of FICE,
Pharmacia management undertook a rationalization of marketing entities, in which
it consolidated FICE's marketing resources into Pharmacia's marketing companies.
This aspect of the restructuring was substantially completed by the end of 1993.
In addition, it is anticipated that Pharmacia's marketing companies will be
further reorganized in connection with the Combination. Pharmacia believes that
the acquisition of FICE has helped it to consolidate its presence in European
markets. In the two single largest pharmaceutical markets, the United States and
Japan, as well as in emerging markets in the Far East and elsewhere, Pharmacia
intends to expand its distribution capabilities, both for existing and potential
new products. In Japan, Pharmacia also intends to maintain its licensee
relationships.
Set forth below for the periods shown is an analysis of Pharmacia's sales
attributable to each of the principal geographical areas where Pharmacia's
products are sold.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1993(1) 1992
------ ------- ------
(MSEK)
<S> <C> <C> <C>
GEOGRAPHICAL AREAS
North America
United States.......................................... 3,693 3,632 2,593
Rest of North America.................................. 630 530 178
Japan.................................................... 4,178 3,695 1,689
Italy.................................................... 3,046 2,883 1,203
Sweden................................................... 1,998 2,056 2,047
Rest of Europe........................................... 10,677 9,953 6,774
Rest of World............................................ 2,228 1,959 964
----- -----
Total............................................... 26,450 24,708 15,448
===== =====
</TABLE>
---------------
(1) From May 1, 1993, sales attributable to FICE are included in the figures.
BUSINESS AREAS
General
Pharmacia currently is organized into seven business areas and one business
development project. The business areas are Biopharmaceuticals, Pharmaceuticals
Uppsala, Pharmaceuticals Milan, Hospital Care, Consumer Pharma, Diagnostics and
Pharmacia Biotech, and the business development project is Pharmacia Biosensor.
In 1994, Pharmacia sold Deltec (formerly a business area) to Smiths Industries
plc for aggregate consideration of $150 million (approximately MSEK 1,111).
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Set forth below for the periods shown are sales, which include license
revenues, for each of Pharmacia's business areas. Sales attributable to FICE are
included in the figures from May 1, 1993. FICE's sales in 1993 were primarily in
the Pharmaceuticals Milan and Consumer Pharma business areas. Sales for 1992 and
1993 have not been restated for Pharmacia's current organizational structure.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1993 1992
------ ------ ------
(MSEK)
<S> <C> <C> <C>
BUSINESS AREA
Biopharmaceuticals(1).................................... 4,031 -- --
Pharmaceuticals Uppsala(2)............................... 4,173 -- --
Pharmaceuticals Milan(3)................................. 8,101 -- --
Peptide Hormones(4)...................................... -- 2,611 2,148
Ophthalmics(5)........................................... -- 2,217 1,665
Oncology Immunology(6)................................... -- 2,797 314
Therapeutics(7).......................................... -- 6,128 2,529
Hospital Care............................................ 2,904 2,692 2,222
Plasma Products(8)....................................... -- 497 441
Consumer Pharma.......................................... 1,722 1,588 1,142
Diagnostics.............................................. 1,669 1,697 1,414
Pharmacia Biotech........................................ 2,818 2,702 1,917
Other(9)................................................. 1,032 1,779 1,656
----- ----- ------
Total............................................... 26,450 24,708 15,448
===== ===== ======
</TABLE>
---------------
(1) Includes the former Peptide Hormones and Plasma Products business areas and
the Antithrombosis and Cardiovascular therapeutic areas (each formerly
included in Therapeutics business area).
(2) Includes the former Ophthalmics business area, the IBD/RA and
Urology/Gynecology therapeutic areas (each formerly included in Therapeutics
business area) and several of therapeutic drugs sold in the Nordic
countries.
(3) Includes the former Oncology Immunology business area, the CNS therapeutic
area (formerly included in Therapeutics business area) and other local
products.
(4) Included in Biopharmaceuticals in 1994.
(5) Included in Pharmaceuticals Uppsala in 1994.
(6) Included in Pharmaceuticals Milan in 1994.
(7) Products from the former Therapeutics business area are included in either
the Biopharmaceuticals, Pharmaceuticals Uppsala or Pharmaceuticals Milan
business area in 1994.
(8) Included in Biopharmaceuticals in 1994.
(9) Includes Deltec, Pharmacia Biosensor and certain activities outside
Pharmacia's main business areas.
Biopharmaceuticals
Peptide Hormones. Pharmacia's products in the area of growth hormones and
growth factors are prepared by means of recombinant DNA technology. Essentially
all of Pharmacia's sales in this area consist of sales of Genotropin, a
recombinant human growth hormone identical to the body's own hormone. Genotropin
was developed by Pharmacia after initial molecular biological development by
Genentech, Inc. ("Genentech"). Genotropin had sales of MSEK 2,565 in 1994.
Genotropin, which promotes longitudinal bone growth, is used for the treatment
of children of short stature whose condition is due to insufficient growth
hormone secretion or to Turner's syndrome, an inherited chromosomal defect in
girls. Pharmacia has received its first approvals to use Genotropin to treat
adults who have growth hormone deficiency in New Zealand, Austria and the Czech
Republic and children who suffer from short stature due to chronic renal
insufficiency in several smaller markets. In November 1994, the European Union's
expert committee for pharmaceutical
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matters recommended that European Union members approve Genotropin for treatment
of adults with growth-hormone deficiency. Following this, Pharmacia received
approvals from authorities in Sweden, Denmark, Germany, France, the Netherlands
and Italy for this indication. Pharmacia is the only company to date to have
been granted regulatory approval for the adult growth hormone deficiency
indication. A deficiency of growth hormone in adults may cause serious physical
and mental disorders, including brittleness of bones, excessive fat and too
little muscle, a higher incidence of cardiovascular disease and depression.
Genotropin is marketed by Pharmacia in Europe, Australia and southeast
Asia, and through independent distributors in Japan and most other markets
outside the United States and Canada, to a small, highly specialized group of
pediatric and adult endocrinologists and selected pediatricians. Pharmacia
estimates that it has over half of the market (in terms of sales) for human
growth hormones outside the United States and Canada. Genotropin competes with a
number of synthetic growth hormones. Pharmacia's principal competitors in the
Peptide Hormone product area are Novo Nordisk A/S, Eli Lilly & Co. and
Ares-Sereno A.S.
Pharmacia seeks to maintain Genotropin's market share for existing
indications by providing customer service and product support through programs
designed to aid endocrinologists and selected pediatricians in the diagnosis,
treatment and monitoring of patients with the indicated condition. Pharmacia has
established centers for growth and metabolic research and training based on
close cooperation with clinics and universities in Sweden, the United Kingdom,
Australia, Germany and France. Pharmacia also continues to develop new devices
to simplify the administration of Genotropin, which requires children to have
daily injections during the growth years. For example, Pharmacia has developed
three injection devices, KabiPen, KabiQuick and KabiVial, incorporating a
dual-chamber ampoule as a mixing device, which makes Genotropin easier to
administer. These devices have been introduced in all of Pharmacia's major
markets.
Pursuant to an agreement between Pharmacia and Genentech, Genentech has
exclusive marketing rights for its comparable growth hormone product in the
United States and Canada, while Pharmacia has exclusive marketing rights for
Genotropin in the rest of the world. From November 1995, Pharmacia will be able
to market its growth hormone products in the United States and Canada. During
1995 and 1996, Genentech will, in addition to its marketing rights in the United
States and Canada, obtain on a country-by-country basis the right to market its
growth hormone products worldwide. Pharmacia does not believe that the
expiration of the exclusive marketing period will have a material negative
impact on its sales of Genotropin.
Although Pharmacia has some process patents relating to Genotropin, in many
jurisdictions an endogenous hormone cannot be patented and several competitors
have developed recombinant growth hormone products, which are available in most
markets.
The market for existing indications for Genotropin is expected to expand at
a slower rate in the future because a high proportion of children afflicted by
growth hormone insufficiency or Turner's syndrome already receive growth hormone
treatment and certain of such children are discontinuing treatment as they reach
adulthood. In addition, competition has increased. Pharmacia believes, however,
that it can increase the size of the market for Genotropin through its use in
new indications, such as treating adults with growth hormone deficiency.
Plasma Products. Pharmacia manufactures pharmaceuticals from blood plasma
for use in three main areas: the treatment of hemophilia, immunology (primarily
as protection against infection) and intensive care. Pharmacia's plasma products
business area had sales of MSEK 503 in 1994. Pharmacia's principal plasma
products market is Sweden, but other major markets include Germany and the
Middle Eastern countries. Pharmacia's principal competition in plasma products
is Rhone-Poulenc Rorer Inc.
Pharmacia's largest selling plasma product is ATenativ (Antithrombin in
Sweden), which is used for preventing blood clots and treating coagulation
disturbances. Other plasma products include Octonativ-M, a coagulation factor
VIII product used for treating hemophilia A, and Albumin, which is used as a
plasma expander in intensive care.
Antithrombosis. In the antithrombosis area, Pharmacia focuses on products
for the prevention and treatment of thrombosis (blood clots) and acute
myocardial infarction. Fragmin, Pharmacia's principal cardiovascular product,
had 1994 sales of MSEK 763. Fragmin is a low molecular weight heparin
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("LMWH") for the prevention of thrombosis in connection with surgery, during
hemodialysis (the removal of waste substances by circulating blood through a
dialyzer that functions as an artificial kidney) and in the treatment of acute
deep vein thrombosis. Fragmin is currently marketed by Pharmacia's own sales
force in Europe, primarily to orthopedic surgeons, general surgeons and
internists. In Japan, Fragmin is marketed by a licensee for use during
hemodialysis. Patents on Fragmin expire beginning in 1998. Fragmin competes with
several other LMWHs. Fragmin competes with cardiovascular products manufactured
by Elf Sanofi S.A. and Rhone-Poulenc Rorer Inc.
Pharmacia is currently seeking to increase the number of countries where
Fragmin is approved for sale. Currently, the largest markets for Fragmin are
France, Japan, Germany and the Nordic countries. In December 1994, the FDA
approved Fragmin for use as a prophylaxis against thrombosis in abdominal
surgery. A month earlier, Pharmacia received approval in Canada for the use of
Fragmin as a prophylaxis against thrombosis, in the treatment of deep vein
thrombosis and in renal dialysis. In Sweden, Fragmin was approved for the
treatment of deep vein thrombosis given in one injection per day. Pharmacia is
also currently developing new ways to administer Fragmin and is researching
other indications for its use.
Pharmacia also produces and sells Kabikinase (streptokinase), a
thrombolytic agent, for the treatment of acute myocardial infarction as well as
deep vein thrombosis and massive pulmonary embolism. Kabikinase is marketed in
Europe and the United States, primarily to cardiologists and internists.
Kabikinase has no patent protection and competes with other products and
therapies, some of which have larger market shares despite substantially higher
prices.
Pharmaceuticals Uppsala
Ophthalmics. Pharmacia develops, produces and markets viscoelastic
products (products made with a viscous substance which protects the eye during
surgery) and intraocular lenses ("IOLs") for use in ophthalmic surgery.
Healon, Pharmacia's principal ophthalmics product, is a viscoelastic
substance which includes sodium hyaluronate and is used primarily in cataract
surgery to facilitate the implantation of plastic IOLs without injuring the
sensitive cells lining the cornea and functions as a soft surgical instrument.
Pharmacia markets Healon directly to ophthalmologists in Europe, the United
States and Japan and through independent distributors in certain other
countries. Pharmacia believes that Healon is the global market leader of
viscoelastic products used in ophthalmic surgery. Healon had 1994 sales of MSEK
1,591.
The global market (outside the United States) for viscoelastic products has
grown primarily because of an increase in the number of cataract operations,
particularly in the Far East. This increase is due in part to the development of
an ophthalmic surgical technique that requires larger quantities of viscoelastic
agents than earlier techniques. Pharmacia is currently assisting in educating
and training ophthalmologists in this surgical technique.
Because of the absence of observed side effects and Healon's similarity to
the fluid actually found in the human eye, Pharmacia believes that Healon is the
highest quality product in its market. Healon is patented in the United States
only until 1996, but, because of the close relationships developed over a number
of years between Pharmacia and users of Healon, Pharmacia does not expect that
the loss of patent protection will have a material adverse effect on Healon
sales. Healon's U.S. and Japanese market shares have been negatively affected
due to greater U.S. and Japanese competition principally from Alcon Laboratories
Inc., Seikagu S.A. and Shiseido.
Pharmacia has introduced Healon GV in a number of markets. Healon GV is a
sodium hyaluronate with greater viscosity than Healon, which allows Healon GV to
be used in performing advanced surgical procedures to correct cataracts.
Pharmacia also produces IOLs made of PMMA (polymethylmethacrylate), which
are surgically implanted in the eye to replace the natural lens when it becomes
cloudy and partly opaque because of cataracts. The customer groups for Healon
and IOLs are the same. Competition in the IOL market is intense, causing
pressure on prices and a slight decline in Pharmacia's sales volume and market
share. Pharmacia has
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acquired Iovision Inc., a U.S. company that develops, manufactures and markets
soft, foldable IOLs for use in cataract surgery. Pharmacia believes Iovision's
products complement its existing line of Cee On lenses and strengthen
Pharmacia's position in this market. Pharmacia continues to seek to acquire new
products in this field.
Inflammatory Bowel Diseases/Rheumatoid Arthritis. Within the autoimmunity
field, Pharmacia focuses on treatments for IBD, including ulcerative colitis,
Crohn's disease, and rheumatoid arthritis.
Salazopyrin (sulfasalazin), including Salazopyrin EN-tabs, is Pharmacia's
principal product in this field and in 1994 had sales of MSEK 643. Salazopyrin,
introduced in 1941, is widely used in the treatment of IBD, and Pharmacia
believes that it has approximately 50% of the served IBD market. Salazopyrin is
marketed by Pharmacia in Europe and the United States and through independent
distributors in Japan and over 30 other countries, primarily to
gastroenterologists and colo-rectal surgeons. Salazopyrin has had no patent
protection since the 1960s and is subject to competition from other products and
therapies, as well as to some generic competition.
In 1985, Pharmacia introduced Salazopyrin in the form of Salazopyrin
EN-tabs for the treatment of rheumatoid arthritis. Salazopyrin EN-tabs are
marketed by Pharmacia in Europe, primarily to rheumatologists. Pharmacia has
applied for approval to market Salazopyrin EN-tabs in Japan and the United
States.
The development by Pharmacia of Dipentum, another product for the treatment
of persons with IBD, with fewer observed side effects than Salazopyrin, was
based on experience gained from Salazopyrin. Dipentum was launched in 1988. It
is currently marketed by Pharmacia in the United States (only for maintenance
treatment of remission in patients intolerant to sulfasalazin) and Europe and
through independent distributors in five other countries. Although Dipentum has
patent protection in the countries in which it is marketed, it competes with
other products.
Pharmacia's principal IBD competitors are Procter & Gamble Co., Solvay S.A.
and Dr. Falk Pharma GmbH.
Urology/Gynecology. In the second half of 1993, Pharmacia introduced
Estring, a product designed to reduce estrogen deficiency in women through low
dose substitution. The product is currently marketed to gynecologists in Sweden,
Finland and Denmark, and in the United Kingdom. Estring, a local hormone
replacement therapy for post-menopausal women, is a soft intravaginal plastic
ring that secretes a low dose of natural estrogen over a period of three months.
The product competes with ointments which are intended for local daily
application. Pharmacia has submitted applications to have Estring approved
throughout Europe as well as in the United States, Canada and Australia. An
application is being prepared in Japan as well. To market Estring in Europe,
Pharmacia and Leiras, the pharmaceutical affiliate of Huhtamaki Oy, a Finnish
pharmaceuticals and confectionery group, formed a jointly-owned marketing
company in connection with which Pharmacia has acquired a 10.9% stake in
Huhtamaki. In addition to Estring, the new company will market Leiras' new
contraceptive product Levonova/Mirena.
In the area of bleeding control, Pharmacia has marketed Cyklokapron,
primarily in Europe, for over 25 years for the treatment of menorrhagia
(abnormally excessive menstruation).
Pharmacia's products for urinary incontinence are Dridase/Ditropan
(inlicensed) and Cetiprin Novum, and it has an additional new compound in the
area of urinary incontinence, tolterodine, in Phase III clinical trials. See
"-- Research and Development."
Nordic Pharmaceuticals: Circulation/Pain/Generics. Pharmacia has a number
of products aimed at the outpatient prescription market primarily in the Nordic
area that are focused on hypertension, angina pectoris (strain of the heart
muscle resulting from decreased blood supply) and pain control. The largest
selling products in 1994 were Cardizem for the treatment of hypertension and
angina pectoris and Dolcontin/Contalgin/MS Contin for controlling chronic pain,
each of which is inlicensed. Other products in the area of circulatory diseases
are Monoket OD and Sorbangil for antianginal therapy. In 1994, sales of the
Nordic Pharmaceuticals product range amounted to MSEK 723.
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Pharmaceuticals Milan
Oncology/Immunology. Pharmacia is one of the world's leading producers of
anticancer drugs. Its most important products in the oncology area are
Farmorubicin with 1994 sales of MSEK 1,466, and Adriamycin with 1994 sales of
MSEK 1,076. Each of these products is used in the treatment of breast cancer as
well as other solid tumors and both are among the world's most frequently
prescribed anticancer drugs.
Adriamycin was Pharmacia's first anthracycline preparation. The related
patent expired in 1990. Subsequent research efforts to reduce the toxicity and
increase the efficacy of Adriamycin led to the development of Farmorubicin, a
second generation anthracycline antibiotic used primarily to treat solid tumors
(primarily breast and bladder cancer) and lymphomas. Pharmacia sells
Farmorubicin in Europe, Canada, Central and South America and Japan.
Farmorubicin is sold primarily to oncologists. Although a number of product
patents relating to Farmorubicin expire in the mid-to-late 1990s, patents on the
best-selling formulation of Farmorubicin do not expire until after the year
2000. Farmorubicin's principal competitors are products manufactured by
Bristol-Myers Squibb Company, Zeneca Group plc and Schering-Plough Corporation.
Pharmacia also produces Zavedos/idamycin (idarubicin), an anthracycline
used to treat acute leukemia that can be administered both intravenously and
orally, as well as Estracyt, which is used for the treatment of advanced
prostate cancer. Idarubicin is sold by Pharmacia in the United States and
Europe. Based on clinical tests to date, Pharmacia believes that Zavedos is
superior to standard therapy in extending the survival of certain patients who
suffer from acute myeloblastic leukemia. Although a number of product patents
relating to Zavedos expire in the mid-to-late 1990s, patents on what Pharmacia
believes to be its most valuable commercial formulations of Zavedos do not
expire until 2002. Estracyt is marketed by Pharmacia in the United States and
Europe, primarily to urologists and oncologists. Estracyt has no patent
protection and is subject to competition from other products and therapies.
Following approval in May 1995, Zinecard was launched in the United States and
Canada. Zinecard is a new preparation for reducing cardiac side-effects in women
with metastatic breast cancer who are undergoing treatment with doxorubicin
(Adriamycin).
In 1993, Pharmacia launched a new product, Mycobutin, for the prevention of
Mycobacterium Avium Complex ("MAC"), a fatal bacterial infection that is one of
the most common causes of death for HIV-positive individuals and people with
full-blown AIDS. Pharmacia is currently selling the product in the United
States, Canada, Italy, the United Kingdom, France, Germany, Spain and Australia,
among others. Mycobutin is marketed to specialists in infectious diseases and to
internists. The relevant patent rights in the United States have recently been
extended until 1999. Such patent rights expire in Europe in 2001. Pharmacia
believes that, to date, Mycobutin is the only approved therapy for the
prevention of MAC in the world. In certain markets, including Italy, France and
the United Kingdom, Mycobutin has also been approved for use in the treatment
for tuberculosis.
Central Nervous System Disorders. Sermion, Pharmacia's principal product
for treating central nervous system disorders, was launched in the 1960s and had
reported sales of MSEK 803 in 1994. Sermion is used primarily to treat cognitive
and behavioral disorders related to senile dementia.
Sermion has no patent protection and competes with peripheral vasodilators
and nootropics. Generally, Sermion is marketed by Pharmacia to neurologists,
internists, geriatricians and general practitioners worldwide. In east Asia
(including Japan), Argentina and France, Sermion is marketed by independent
distributors. Pharmacia currently does not sell Sermion in North America,
Australia, New Zealand and certain European countries.
Pharmacia recently launched Dostinex (cabergoline) as a lactation inhibitor
(to stop the secretion of breast milk). Dostinex was launched in the United
Kingdom, Australia, Italy, Germany and Belgium, and expects to complete European
introductions in 1995.
Pharmacia's principal competitors in the CNS product area are Sandoz Ltd.,
Schwabe GmbH & Co., American Home Products Company and Hoechst AG.
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Pharmacia has two compounds in the CNS area, cabergoline and reboxetine,
that are currently in phase III clinical studies. Pharmacia has submitted an
application for cabergoline in Europe, and it is in phase III clinical studies
in the United States and Japan. See "-- Research and Development."
Local Products. Sales in this product area amounted to MSEK 3,035, of
which more than 60% is attributable to Italy and Spain. Local products are also
sold in France, Germany and Mexico. Local lines comprise products for treatment
in the areas of infectious diseases, cardiovascular diseases, antibiotics and
diabetes, including Ardine/Zimox (antibiotics) and Ibustrine (cardiovascular
diseases). This product area had a 2% decrease in total sales during 1994 due to
the elimination of Italian reimbursement programs. See
"-- Competition -- Pricing."
Hospital Care
Pharmacia's Hospital Care products consist primarily of Total Parenteral
Nutrition ("TPN") products, which supply the daily requirements of nutrients
directly into the bloodstream of patients who are unable to eat or drink, or
unable to digest food properly, and intravenous ("IV") solutions and systems for
fluid therapy. Pharmacia also develops and manufactures fat-emulsion based
products for use in anesthesia and has recently launched a family of inhalation
anesthetics in Europe.
Nutrition. The Nutrition therapeutic area comprises a number of products
for intravenous nutrition, including products that meet the body's nutritional
needs for fat, amino acid solutions, vitamins and trace elements.
Pharmacia believes that it is a leading company in the world market for TPN
products. Pharmacia's largest selling TPN product is the fat emulsion
Intralipid, launched in 1962. Intralipid had 1994 sales of MSEK 675. Intralipid
is marketed by Pharmacia in Europe and through independent distributors in the
United States, Japan, and other countries to surgeons and anesthesiologists. The
product is available in over 100 countries worldwide. Intralipid competes with a
variety of products, including those manufactured by Braun Melsungen AG,
Clintec, The Green Cross Corporation and Abbott Laboratories.
Intralipid has no patent protection and competes with a limited number of
other fat emulsions in all its major markets. Although sales of Intralipid in
recent years have not shown significant growth, the compound is increasingly
being used in mixed products and as a vehicle for delivery of third-party
products, and proprietary emulsion technology is planned to be used for delivery
of certain Pharmacia products under development, such as Eltanolone, which is
currently in phase III clinical trials. See "-- Research and Development."
The TPN market in western Europe and the United States is relatively
mature, with limited growth potential and increasing price competition, although
the fat emulsion sector of the market is growing slightly. Pharmacia is seeking
to increase its market share by developing new convenience products and systems
for the delivery of its nutritional products. In 1991, Pharmacia acquired from
IMED the European sales rights to its infusion pumps. Hospital care continues to
sell Deltec's ambulatory pumps and access devices in certain European countries.
Anesthesia. The Anesthesia therapeutic area primarily develops,
manufactures and markets fat-soluble anesthetic preparations for intravenous
use. In 1991, Pharmacia entered into a marketing agreement with Ohmeda (formerly
Anaquest), a division of BOC Healthcare, which granted Pharmacia the European
marketing rights to Ohmeda's inhalation anesthetic compound, Suprane. Pharmacia
began marketing Suprane in Sweden and the United Kingdom during 1993. Suprane
has also been registered and is currently marketed in several additional
countries. Ohmeda acquired the corresponding option to market in North America
Pharmacia's anesthetic compound, Eltanolone. During 1994, Pharmacia has been
granted the European marketing rights to isoflurane and enflurane, two
additional inhalation anesthetic compounds produced by Ohmeda.
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Consumer Pharma
Pharmacia's Consumer Pharma business area comprises Nicorette and various
non-prescription drugs with strong positions in certain local markets.
Pharmacia's Consumer Pharma business area had sales of MSEK 1,722 in 1994, of
which Nicorette represented MSEK 802. Pharmacia develops, manufactures and
markets pharmaceuticals under the brand names Nicorette and Nicotrol for smokers
who seek a medical product to aid in smoking cessation. Pharmacia's Nicorette
chewing gum and transdermal patch administer nicotine to the body through
slow-release formulations in order to alleviate withdrawal symptoms. The first
Nicorette product, Nicorette chewing gum, was introduced in 1978. Pharmacia
management believes that Pharmacia's share of the market for smoking cessation
products is approximately 40%.
Nicorette is marketed by Pharmacia in Europe (except in Spain) and
Australia and through independent distributors in the United States, Canada and
Spain. Nicorette chewing gum was recently launched in Japan, and the marketing
of Nicorette nasal spray is in its introductory phase in seven countries,
including Sweden.
Regulatory approval has been obtained throughout Europe (except France) to
market Nicorette as a non-prescription drug. Substantial sales increases have
occurred in all countries where OTC status has been obtained. Pharmacia has
applied for OTC status in the United States.
Although Pharmacia's U.S. patent covering nicotine polacrilex, the active
ingredient in Nicorette chewing gum, expired in August 1992, Nicorette chewing
gum is likely to be protected from generic competition in the United States
until 1999 due to additional regulatory exclusivity provided by U.S.
legislation. In other countries, Pharmacia has no patent protection for
Nicorette chewing gum; however, the Nicorette transdermal patch is patented in
selected jurisdictions.
Pharmacia introduced the Nicorette transdermal patch in the United States
(under the name Nicotrol) and in Sweden in August 1992 and in several other
European countries, including the United Kingdom, during 1993.
Pharmacia's products compete in Europe and North America, mainly with
transdermal nicotine patches marketed by other pharmaceutical companies. In
1993, the nicotine patch market in the United States suffered from declining
demand. Pharmacia is continually seeking to develop novel ways of administering
nicotine for smoking cessation. Pharmacia believes this multi-product strategy
gives it a marketing advantage over its competitors in the smoking cessation
field. Pharmacia's smoking cessation products compete with products sold by
Ciba-Geigy primarily.
Pharmacia also manufactures a range of non-prescription drugs, vitamins,
minerals and dietary supplements which are sold to the OTC market primarily in
the Nordic area and Italy. Pharmacia's largest OTC products, other than
Nicorette, are the laxative Microlax and Treo, a pain-reliever. Pharmacia is the
leader in the Swedish non-prescription pharmaceutical market. In the Swedish
non-prescription analgesic (pain-relieving agent) market, Pharmacia has other
strong brands such as Magnecyl and Ipren. Pharmacia also produces, for sale
primarily in Italy, the Carlo Erba OTC product line which consists largely of
skin-care products and cough and cold medicines.
Diagnostics
Pharmacia is the world leader in the area of in vitro allergy diagnostics
with more than 70% of the world market. The diagnostics business area had 1994
sales of MSEK 1,669. Pharmacia's main allergy diagnostic product, the Pharmacia
CAP System, was introduced in 1989. It is a highly automated laboratory system
that enables testing from patient blood samples for allergenic sensitivity to
nearly 500 substances. Pharmacia believes that no competitor in the allergy
diagnostic business possesses a product that can test allergenic sensitivity to
as many different substances. Pharmacia markets the Pharmacia CAP System to
diagnostic laboratories worldwide. Patents on the Pharmacia CAP System expire in
2003. The Pharmacia CAP System competes with products manufactured by Elf Sanofi
S.A., Ciba-Geigy Ltd. and Diagnostic Products Corp.
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Pharmacia's largest market for allergy diagnostics is Japan, while sales in
the United States are relatively low because of the relatively high incidence of
more traditional in vivo (skin prick) diagnostic testing by medical
professionals in the United States.
Pharmacia has recently introduced diagnostic products in the fields of
asthma monitoring and alcohol-related diseases in Europe. The Pharmacia CAP
System, ECP FEIA, is intended primarily for follow-up monitoring of patients
suffering from asthma. The CDTect alcohol indicator utilizes a blood specimen to
measure changes in the transferrin molecule, which allows the detection of high
regular alcohol intake over an extended period of time. Pharmacia is continuing
research and development to establish even more effective testing methods.
Pharmacia Biotech
Pharmacia Biotech is one of the world's leading suppliers of biotechnology
equipment. Pharmacia Biotech is operated as a separate, self-contained business
within Pharmacia. It develops, manufactures and sells systems, reagents and
chemicals for pharmaceutical and biotechnology companies and for life science
research in the public and private sectors. The business area's traditional
products are for use in laboratory-scale chromatography and electrophoresis, two
key separation technologies for biomolecules. Pharmacia Biotech also produces
reagents, chemicals and systems used by researchers to perform experiments in
the areas of molecular and cell biology, and media and systems devoted to
large-scale purification of substances prepared by biotechnological methods in
the pharmaceutical industry. Pharmacia Biotech's business objective is to
satisfy the needs of biotech supply customers by providing them with
value-added, knowledge-based products and services for the development and
commercialization of applications in the biotechnology field. Pharmacia Biotech
had sales of MSEK 2,818 in 1994.
Pharmacia Biotech's systems and instruments are manufactured primarily in
Sweden, although limited manufacturing is also conducted in the United Kingdom.
Chemical products are manufactured mainly in Sweden and the United States, with
an additional site in Denmark. As part of Pharmacia's ongoing restructuring
program, Pharmacia Biotech's products are all shipped from a single warehouse in
Sweden and all local warehouses in Europe have been closed.
Pharmacia Biotech sells its products to the biopharmaceutical and
biotechnology industries, universities and other publicly funded research
centers through dedicated marketing entities in North America, Europe, Japan,
Brazil, India, Hong Kong, Korea and Australia. Sales are made directly to end
users. The biggest market for Pharmacia Biotech's products is Europe, followed
by the United States and Japan. Most of Pharmacia Biotech's competitors are
based in the United States. In addition to its sales to third parties, Pharmacia
Biotech also provides products to support Pharmacia's pharmaceutical research
and development efforts.
In recent years, the market for biotechnology research instruments and
other products has been adversely affected by budgeting constraints in
universities and publicly funded research centers, resulting in increasing
competition and price pressure.
As part of its strategy to compete on technological advancements, Pharmacia
Biotech purchased, in July 1992, the assets of Dynochrom A/S, a Norwegian
company specializing in the development of polymer-based products for use in
chromatography for the biotechnology industry. In February 1995, Pharmacia
Biotech acquired Hoefer Scientific Instruments, a California company,
strengthening Pharmacia Biotech's market position in electrophoresis.
Products produced and sold by Pharmacia Biotech include FPLC, a
market-leading system for preparative purification of biomolecules, ALF Express
for automatic sequencing of genes, the Hi-Trap and RESOURCE product ranges of
media and pre-packed columns for chromatography and the STREAMLINE, Fast-Flow
and SOURCE product ranges of media for process-scale lab purification. Pharmacia
Biotech's leading molecular reagent products are being converted to Pharmacia's
patented "Ready-To-Go" products, which obviate the need for refrigerated storage
and shipping generally required for molecular reagent products and thereby
simplifies usage, as well as distribution and storage by the customer.
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Pharmacia continues to examine from time to time opportunities to further
its strategic objectives and international presence in connection with its
biotechnology business.
BUSINESS DEVELOPMENT PROJECT -- PHARMACIA BIOSENSOR
Pharmacia Biosensor ("Biosensor") develops, manufactures and markets
systems for the analysis and characterization of complex biological substances,
such as monoclonal antibodies. These systems link biology, optics, physics and
electronics for research applications within academic institutions and the
pharmaceutical and biotechnology industries. Biosensor technology allows the
researcher to measure in real time the speed and strength of interactions
between biomolecules; for example, between antibodies and antigens or between
receptors and ligands.
Biosensor's most important markets are Europe, the United States and Japan.
Biosensor has not been designated a business area because it is still at an
early stage of development. Pharmacia Biosensor had a positive operating result
for the first time in 1994.
With its launch of BIAcore in late 1990, Biosensor was the first company
with a commercial product in the new technological area of affinity biosensors.
To date, over 300 systems have been sold, primarily in Europe, the United States
and Japan. The largest single application is found within the biopharmaceutical
industry in rational drug design. Biosensor's products and technology have
potential additional applications in the health care, veterinary and food and
agricultural areas. Biosensor introduced BIAlite in 1993, a manual instrument
system designed to provide greater access to Biosensor technology to academic
research institutions.
In September 1994, Biosensor launched BIAcore 2000, which is a fully
automatic instrument intended for use by customers who demand higher sensitivity
and capacity than that provided by BIAcore.
Pharmacia continues to examine from time to time opportunities to further
its strategic objectives and international presence in connection with its
biosensor business.
RESEARCH AND DEVELOPMENT
Pharmacia aims to direct its research and development effort to develop new
innovative pharmaceuticals and other health care products offering high
therapeutic benefits in a number of therapeutic areas in which Pharmacia
believes it has the ability to establish a leading global position. Pharmacia
also seeks to expand the markets for its existing products by identifying new
indications and administrative forms as well as by expanding their international
market penetration. Pharmacia concentrates its research and development
resources on selected areas both where it has inhouse expertise and where there
are identified substantial unmet medical needs. Pharmacia intends to devote
between 12% and 15% of its annual sales to research and development.
Of Pharmacia's research and development resources, approximately 43%
currently are allocated to new chemical entity ("NCE") research and development
(advancing compounds from the drug candidate stage to clinical phase III),
approximately 20% for product support and process development, approximately 20%
for the development of new applications for existing products and approximately
17% in discovery research.
Pharmacia currently employs approximately 3,300 persons involved in
research and development, most of whom are in Sweden and Italy. Set forth below
are Pharmacia's annual research and development expenses and such expenses as a
percentage of revenues for the periods shown.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Research and development expenses, MSEK..................... 3,758 3,131 2,064
Research and development expenses as a percentage of
revenues.................................................. 14.2% 12.7% 13.4%
</TABLE>
The research and development expenses provided above have been calculated
according to the criteria adopted by The Association of the Swedish
Pharmaceutical Industry and The Swedish Central Bureau of Statistics. Costs
include direct costs for research and development, depreciation on and interest
expense for equipment used in research and development, patent costs and a
portion of general and administrative costs.
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Pharmacia's 1992, 1993 and 1994 research and development expenses, calculated in
accordance with Swedish GAAP, were MSEK 1,859, MSEK 2,812 and MSEK 3,488,
respectively. See Note 3 of Notes to Consolidated Financial Statements of
Pharmacia.
Primary responsibility for implementing Pharmacia's research and
development priorities rests within the business areas, while corporate sets
strategies and directions. However, where it is advantageous to concentrate
expertise in a particular discipline or disciplines and impracticable to
maintain and support a separate staff for each business area, specialized
resources are aggregated and provided as needed to the business areas. Pharmacia
has established a small number of research and development committees chaired by
Pharmacia's senior research and development management to prioritize the
allocation of resources and to monitor and review projects in different stages
of development, in line with overall policies set by Pharmacia's senior
management. Pharmacia has developed many of its products from its own research
as well as in close collaboration with university researchers and seeks to
develop innovative, cost-effective new products as well as new indications and
improvements on existing products.
Pharmacia's continuing concentration of its research and development
efforts on selected strategic treatment areas has allowed it to supply greater
funding for individual projects within those areas. Pharmacia's current focus on
NCE research includes the regulation of cell growth and neuropharmacology. In
studying the regulation of cell growth, Pharmacia's researchers are particularly
interested in examining uncontrolled growth (which is of importance in oncology
immunology) and inadequate growth and catabolic states (which involve the
breakdown of muscle and fat). Additional NCE research is being conducted in the
areas of anesthesia, eye diseases (including glaucoma) and atherosclerosis as
well as in the other areas described below. Pharmacia is also researching new
indications for existing products in several areas, including blood clotting and
bleeding, pharmaceuticals for intravenous administration (primarily nutrient
solutions and plasma products), cataract surgery, allergy diagnostics and
smoking cessation.
The research and development process has historically taken from 10 to 15
years from discovery to initial product launch and is conducted in various
stages. During each stage of development, there is a substantial risk that the
desired objectives will not be achievable and that the product will therefore
have to be abandoned or the objectives modified. During the "preclinical" stage,
generally the first two to four years, research scientists search for the active
substance in the laboratory and perform pharmacology and toxicology studies of
effects in various animals. Before testing in humans, an application for the
compound must be filed and processed by the requisite regulatory authorities,
which may take up to one year or longer. Testing in humans is performed in
different clinical phases to assure the safety and efficacy of the new compound.
In clinical phase I, studies to establish the tolerance, absorption,
distribution, metabolism and excretion of the compound are performed on healthy
human subjects. Clinical phase II studies are performed on a limited number of
patients and clinical phase III comparative studies are performed on a larger
number of patients in order to establish efficacy and safety. Together, phases
I, II and III typically take from three to five years to complete. Thereafter,
an application containing all data for the proposed drug is sent to regulatory
authorities for approval, which may take an additional one to two years. Further
clinical trials, called phase IV trials, are generally carried out after product
launch to continue to monitor the efficacy and safety of a new drug.
Pharmacia's NCE portfolio comprises a number of original compounds at
various stages of development. At present, Pharmacia has 9 projects in phase III
clinical trials (of which two relate to inlicensing agreements), five projects
involving NCE compounds in phase II clinical trials and a number of projects in
phase I and at the preclinical research stage. Launch for the majority of these
products can be expected 1996-2000. There can be no assurance that any of
Pharmacia's NCE research and development projects will survive the development
process and ultimately obtain the requisite regulatory approvals. Pharmacia
would expect to launch most of those compounds that survive the development and
regulatory process during 1996-2000. In addition, research undertaken by other
pharmaceutical companies may at any time lead to the launch of competing or
improved therapies. The table below sets forth in summary form Pharmacia's
current principal
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NCE research and development projects in phase II and III clinical trials in
order of expected new drug application.
<TABLE>
<CAPTION>
COMPOUND (THERAPEUTIC AREA) INDICATION CLINICAL PHASE
---------------------------------------------------- --------------------------- --------------
<S> <C> <C>
Latanoprost (Ophthalmic Diseases) Glaucoma III submitted
Cabergoline (CNS) Parkinson's disease III submitted
Reboxetine (CNS) Depression III
Recombinant factor VIII (Bleeding/Bleeding Hemophilia III
Disorders)
Structured lipids (Nutrition) Parenteral nutrition III
Eltanolone (Anesthesia) Anesthesia III
Tolterodine (Urology/Gynecology) Urinary incontinence III
Linomide (Oncology) Leukemia III
Efabetic (inlicensed) (Diabetes) Neuropathy III
SnET2 (inlicensed) (Oncology) Skin cancer III
Exemestane (Oncology) Breast cancer II/III
Thymocronan (Infection) Hepatitis C/HIV II
Linomide (Multiple Sclerosis) Multiple sclerosis II
9-Aminocamptothecin (Oncology) Solid tumors II
FA31A (Autoimmunity) Rheumatoid arthritis II
GLIO (Nutrition) Chemotherapy and radiation II
protection
CT-emulsion Imaging enhancer II
</TABLE>
The following discussion of certain of Pharmacia's original compounds
currently in phase II or phase III clinical trials is organized according to
therapeutic area and not by business area. In addition, applications have been
filed seeking approvals for new indications, formulations or markets for a
number of other existing products.
Ophthalmic Diseases. Pharmacia's compound Latanoprost is in development
for the possible treatment of glaucoma, the largest indication in ophthalmology.
Latanoprost reduces intraocular pressure by means of a new mechanism of action.
Pharmacia has finalized phase III clinical trials for Latanoprost and has
submitted an application for registration in Europe and the U.S. and expects to
submit an application in Japan during late 1995. A line extension program is
ongoing. The development program for latanoprost will be further expanded with
combination therapy and new formulations. Pharmacia is also pursuing several
projects relating to cataract surgery and state-of-the-art soft intraocular
lenses are being launched in Europe during the autumn of 1995.
Central Nervous System Disorders. In the CNS area, Pharmacia has two
potential products in late stage clinical development: cabergoline and
reboxetine.
Cabergoline is a new potent and long-lasting dopamine agonist recently
launched in most European countries for the treatment of hyperprolactinemia. The
compound is also in late development worldwide as a potential treatment for
Parkinson's Disease, a relatively frequent and progressively disabling illness
of the advanced age, where Cabergoline may be particularly useful for its longer
duration of action and more convenient administration compared with other
similar drugs. A registration dossier has been filed in major European countries
and phase III studies are in progress in the United States and Japan (for filing
projected in 1996/97). Continued studies with Cabergoline aim at documenting the
product as a first line treatment for Parkinson's disease, especially for
patients with early onset of disease.
Reboxetine is an antidepressant agent which has a different side effect
profile compared with other drugs due to a different mechanism of action.
Clinical phase III studies have been completed in Europe where applications are
expected to be submitted in the first quarter of 1996.
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Oncology. This area represents a major research commitment for Pharmacia
with discovery and development efforts directed and focused to finding effective
treatments for various forms of tumors, particularly those which respond poorly,
or are resistant, to currently available therapy.
This research is conducted primarily in Nerviano/Milan, Italy and in new
laboratories in Lund, Sweden, designed and equipped specifically for discovery
research in tumor biology and immunotherapy. The research programs cover
chemotherapy, hormone therapy, immunotherapy of cancer as well as novel
approaches and mechanisms of antitumor action which are being pursued mainly in
discovery phase. Pharmacia's compound Exemestane is a hormonal anticancer agent
that is being tested as a potential treatment for advanced breast cancer. Phase
III studies are being activated in Europe and the US, and phase II clinical
trials are in progress in Japan.
Linomide is an oral immunomodulator which is currently being tested, in
phase III studies, against a form of leukemia. An interim analysis of the
studies is presently ongoing. In preclinical investigations and early phase II
clinical studies, promising activity data have been observed, suggesting that
Linomide may be effective in certain autoimmune diseases, with encouraging early
phase II clinical studies in Multiple Sclerosis, now being expanded.
9-Aminocamptothecin with a novel mechanism of action is being tested in
phase II clinical trials for the treatment of solid tumors (i.e. colon cancer,
lung cancer, etc.) in cooperation with the US National Cancer Institute under a
CRADA (Contract Research and Development Agreement).
Pharmacia had been in phase II studies with Tallimustine in solid tumors
which, however, revealed limited drug activity. The development of this compound
continues and is now focused to evaluate the potential in acute leukemias.
Estramustine L-alanine has been suspended from clinical trials.
Zinecard, the first drug with demonstrated activity in the reduction of
anthracycline induced cardiac toxicity, has been recently approved and launched
in the US and Canada as an adjunct to patients treated with Adriamycin for
advanced breast cancer.
In addition, Pharmacia is actively pursuing new indications for the
anthracycline drugs Epirubicin (in solid tumors) and Idarubicin (in hematologic
malignancies). Idarubicin is the first anthracycline effective when administered
orally and is already approved and marketed, in some European countries, for a
convenient oral use in capsule form.
Bleeding/Bleeding Disorders. Pharmacia's recombinant factor VIII (r-VIII
SQ), currently in phase III clinical trials, is being developed as a substitute
for plasma derived factor VIII for prophylaxis and treatment of hemophilia A
patients. r-VIII SQ is a unique B-domain deleted molecule with potentially less
immunogenic activities and which can be formulated without addition of human
albumin. The high potency of the product may make it possible to supply
administration kits for home treatment.
Antithrombosis. Fragmin, a low molecular weight heparin used mainly for
prevention and treatment of deep venous thrombosis, has recently been approved
in the US for prevention of deep venous thrombosis in patients undergoing
abdominal surgery. An application for an extension of this indication has been
submitted to the FDA and applications for further indications are in
preparation.
In a large clinical study presented recently, Fragmin was also shown to be
effective in patients with unstable angina pectoris or small myocardial
infarctions. The number of patients who had a new myocardial infarction or who
died was less than half in the group treated with Fragmin compared to the group
that did not receive this treatment (placebo group).
Nutrition. A research project centered on structured triglycerides is in
progress in the research area nutrition. The product Structolipid is produced
semisynthetically and has been patented for its unique composition. It contains
medium-long fatty acids which can be administered to the patient safely and
reliably. A wide range of modern IV nutrition compounds is currently under
development. The first amino acid solution
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containing glutamin (Glamin) is in the process of launch in Europe. These
products will provide critically ill patients with new, more specific therapies
putting them on the road to rapid recovery.
Therapeutic nutrition is a growing area where nutritional substrates with
directed action in specific conditions can be developed. GLIO provides glutamine
in a stable form with high bioavailability and appears to have beneficial effect
on gut and immune function in conjunction with chemo and/or radiation therapy.
Anesthesia. The anesthesia research is currently concentrated on a new
intravenous general anesthetic, Eltanolone, which is in the last phase before
approval for registration and launching. Eltanolone is a steroid hormone that
exerts hypnotic action without hormonal effects. It offers advantages over
competing products, among other things milder effects on the circulatory system
and absence of pain at the injection site.
Since 1992 Pharmacia has the European marketing rights for Suprane,
developed by BOC for application in anesthesia.
Urology/Gynecology. A new chemical entity, tolterodine, is in phase III
clinical testing for urinary urge and mixed incontinence. The compound has great
selectivity for the receptors in the urinary bladder, indicating a favorable
side effect profile, and is the first described antimuscarinic agent with
bladder selective effect. Estring is a new delivery system for the local
treatment of symptoms of urogenital estrogen deficiency. It is a vaginal ring
with an inner core containing estradiol. Launches have taken place in the
Scandinavian countries and the UK. The registration file was submitted in the US
in 1994.
Autoimmunity. FA31A is a substance at present entering phase II studies
for treatment of rheumatoid arthritis. It represents a new generation of disease
modifying agents, a group of drugs with substantially increased usage in
autoimmune disorders as rheumatoid arthritis.
Growth/Growth Disorders. Research and development in the area of growth
and growth factors is concentrated on a broader spectrum of indications for
Genotropin including use in adults as hormone replacement therapy (for which
approval has already been received in the major European countries, New Zealand
and China), and for uremia and osteoporosis. In addition, Pharmacia is
researching the further development of convenience products to administer
Genotropin.
Pharmacia also developed a new compound, recombinant IGF-I (Insulin-like
Growth Factor), for the treatment of patients not responding to Genotropin.
Pharmacia is also engaging in research to discover other areas where IGF-I may
have therapeutic effect (i.e., diabetes).
In addition, metabolic disturbances that may be treated by growth hormones
are being researched and long-term research is focused on the mode of action of
growth factors and their receptors.
Infection. Thymoctonan, currently in phase II clinical trials, is an
immunomodulator based on a synthetic octapeptide. The compound is currently
under investigation for the treatment of chronic hepatitis and, as a second
indication, will also be tested in HIV positive patients.
Pharmacia is also pursuing new indications for the antimycobacterial agent
Mycobutin, the first drug approved for the prevention of certain opportunistic
infections in AIDS patients.
Emulsion Technology. Pharmacia has extensive experience in the area of fat
emulsions for IV administration and has developed special expertise in the
formulation and processing of drugs in emulsions. Pharmacia continues to focus
on the development of fat emulsions for IV administration in the field of
nutrition as well as in anesthesia.
Extensive collaboration is ongoing with pharmaceutical companies to provide
material and technological support for their preclinical and clinical studies
and full scale manufacturing of the products.
A new application of this technology is imaging. The CT-emulsion is
developed as a liver specific diagnostic for the imaging of cancer.
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MANUFACTURING AND PRODUCTION
Pharmacia produces its products mainly in Sweden, Italy, Spain, Germany,
the United States and China, and approximately 80% of production costs are
incurred in Sweden and Italy, although a lower proportion of such costs are
incurred in kronor and lira. Since 1991, Pharmacia has decreased its number of
manufacturing facilities from 52 to 43, as six were closed, four were used by
divested businesses and one plant was acquired. This decrease in manufacturing
facilities resulted in a significant reduction in employee positions, although
certain of these employees were reemployed in other areas of Pharmacia.
Despite this reduction in facilities, Pharmacia continues to have excess
manufacturing capacity in certain of its product areas, primarily as a result of
acquisitions made in recent years. In addition to the FICE integration program,
Pharmacia commenced an extensive program to consolidate production facilities
throughout Pharmacia. Pharmacia expects to reduce substantially the number of
manufacturing facilities by consolidating the manufacture of the same product or
product lines in one or a limited number of centers. As part of this
restructuring program, Pharmacia is in the process of reducing its tablet
manufacturing facilities from three to one.
Pharmacia purchases a variety of raw materials for use in its manufacturing
processes. When available, Pharmacia has a policy of maintaining multiple
sources of supply for materials. Pharmacia obtains its supplies of raw materials
from a number of countries. Pharmacia has not experienced any difficulty in
obtaining a sufficient supply of raw materials in recent years and believes that
it will be able to obtain them in sufficient quantities in the future. However,
the price of its raw materials may vary from year to year.
COMPETITION
Pharmacia is subject to competition from alternative therapies or products
of other major international research-based pharmaceutical companies and
research-based biotechnology companies, a number of which have financial,
research and development and marketing resources equal to or greater than those
of Pharmacia. In addition, Pharmacia also competes in certain markets with
manufacturers of generic products who typically do not incur significant
research and development costs and consequently offer generic products at prices
considerably lower than those prevailing when patent protection is available.
The increased influence of managed care groups and the consolidation within the
pharmaceutical market has resulted in research based pharmaceutical companies
facing increased competition in terms of price, generic substitution and access
to customers.
Pharmacia's competitive position depends in part upon its ability to
develop innovative, cost-effective new products, as well as new indications for,
and improvements in, existing products. Its competitive position also depends
upon, among other things, its ability to compete on the basis of price as well
as to maintain a reputation for quality, efficacy and cost-effectiveness with
the specialist doctors and hospital purchasing groups to which its products are
targeted, as well as with the wider group of customers which includes
pharmacies, wholesalers, hospitals and insurers.
In addition, Pharmacia's ability to maintain long-standing and interactive
relationships with specialist doctors and its ability to attract and retain
qualified scientific and other personnel, develop and implement production and
marketing plans, obtain and maintain patent protection for selected products in
its significant markets and secure adequate capital resources are also important
competitive factors.
INDUSTRY REGULATION AND OTHER LEGAL MATTERS
Product Regulation
Like other pharmaceutical companies, Pharmacia is subject to strict
controls on the manufacture, labelling, distribution and marketing of its
products. Further controls exist on the non-clinical and clinical development of
pharmaceutical products. Of particular importance is the requirement to obtain
and maintain regulatory approval for a pharmaceutical product from a country's
national regulatory authority before such product may be marketed in a
particular country.
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The submission of an application to a regulatory authority does not
guarantee that a license to market the product will be granted. Furthermore,
each regulatory authority may impose its own requirements and may refuse to
grant, or may require additional data before granting, an approval even though
the relevant product has been approved in another country. Regulatory
authorities also have administrative powers that include product recalls,
seizure of products and other sanctions.
The United States, Europe, Japan, Australia and Canada have very high
standards for technical appraisal and consequently, in most cases, a lengthy
approval process. The time taken to obtain approval varies by country, but
generally takes from six months to four years from the date of application,
depending upon the quality of the data produced, the degree of control exercised
by the regulatory authority, the efficiency of its review procedure and the
nature of the product. The trend in recent years has been towards lengthening
regulatory reviews, greater regulation and higher standards with higher levels
of standardization among jurisdictions.
In Europe, the European Agency for the Evaluation of Medicinal Products
(the "Medicinal Products Agency") was created in July 1993 and opened on January
1, 1995. Based in London, the Medicinal Products Agency will give opinions on
medicinal products by using two new procedures, a centralized community
procedure and a decentralized procedure, the latter being based on the principle
of mutual recognition of assessments.
Pricing
In addition to the normal competitive forces that affect the level of
prices, a further constraint exists in the form of price controls in most
countries in which Pharmacia sells its products. These controls arise either by
law or because the government or other health care providers in a particular
jurisdiction are the principal purchasers of the product or reimburse purchasers
for the cost of the product. Price control mechanisms operate differently from
jurisdiction to jurisdiction and can result in large price differentials between
markets, which may be aggravated by currency fluctuations. These price
differentials are exploited by traders (parallel importers) who purchase branded
products in lower-priced markets for resale in higher-priced markets.
Europe. The German government controls the price of many multisource
products by providing full reimbursement only for these products at or below a
reference price which tends to be set near the price of the generic product. In
1993, Germany introduced a second phase in the reference price system and now
offers a class price for a product in a specified therapy class, irrespective of
patent protection. Germany's health care reform in 1989 and changes in the
organization of the health care sector in 1993 continue to have a great effect
on the pharmaceutical industry in that country. The Netherlands and Sweden have
adopted the German system and similar or other systems to reduce prices. Such
systems are also being introduced in France, Italy, and Spain.
In Italy, 1994 was a year of upheaval for the pharmaceutical industry. The
efforts of health care authorities to reduce the cost of pharmaceuticals
continued against a backdrop of a radical restructuring of the system of
subsidies and the introduction of new pricing regulations. The system of
subsidization of pharmaceuticals that took effect in January 1994 classified all
drugs into three categories, each carrying a 0 percent, 50 percent or 100
percent discount. The number of drugs for which the patient must bear the entire
cost rose substantially. Sales of these products fell to significantly lower
levels than in previous years. A new pricing system was also adopted in Italy in
August 1994, resulting in prices for a number of products being among the lowest
in Europe. At the beginning of 1995, a further price reduction was implemented
for all products with decreased reimbursement levels.
In addition, in late 1993, the Italian Treasury Ministry challenged the
method used by the pharmaceutical industry in Italy for calculating the sales
price to state-operated hospitals. The Treasury Ministry claims that all Italian
drug manufacturers have been overcharging hospitals for the past ten years. No
formal claims for refunds have been filed to date by the government of Italy,
nor has the law governing price calculation of drugs sold to the hospitals been
changed or modified. Pharmacia believes that it has calculated prices properly
and plans to defend its position vigorously.
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In France in 1994, government authorities took additional measures to hold
back health care costs. Reimbursement levels were lowered, an overall reduction
was made in the number of prescriptions issued and further pressure was applied
to an already highly competitive hospital sector. In Spain, health authorities
effected a price agreement, in effect resulting in average price cuts of three
percent. The elimination of discounts also limited the rate of increase.
In the EU, parallel importing is made easier by the fact that price levels
for particular products vary widely from country to country, while the Treaty of
Rome provides for freedom of movement of goods, enabling importers to take
advantage of price differentials by moving products from lower-priced to higher-
priced member states.
United States. In the United States, the world's largest pharmaceutical
market, political pressure to reduce pharmaceutical prices has increased. In
1990, federal legislation was enacted that requires drug manufacturers to pay
prescribed rebates to the states on certain drugs to enable them to be eligible
for reimbursement under Medicaid, a federally funded health care program.
Several states have since enacted similar legislation in respect of state
entitlement programs (i.e., requiring rebates in exchange for eligibility for
reimbursement by such programs). Also, although the Clinton Administration's
proposed set of legislative and regulatory reforms was rejected, other reforms
may be proposed which could impose additional pricing, profitability or other
restrictions on companies operating in the U.S. pharmaceutical industry.
Although Pharmacia cannot predict whether any reform proposals will be adopted
or the effects such proposals will have on its business, the adoption of such
proposals may have a significant adverse effect on participants in the
pharmaceutical industry generally.
Japan. In Japan, drug prices are reviewed by the Ministry of Health every
two years, and the 1994 review generally led to modest price reductions. The
extent of individual drug price reductions relates to the level of discount at
which that drug is currently being sold in the Japanese market. Innovative
products are usually discounted less than other products. With regards to sales
in Japan of Fragmin, Pharmacia's eighth largest selling product in 1994, were
negatively affected by changes in the Japanese reimbursement system which
substantially limited the scope for reimbursement of Fragmin in dialysis.
Partially offsetting these negative price trends in the case of
research-based pharmaceutical companies with their own research and development
capabilities is that public authorities and health care providers have generally
allowed a high price on innovative pharmaceuticals, whereas the prices of older
products have fallen in real money terms.
Intellectual Property
Pharmacia attaches great importance to patents, trademarks, copyrights and
product designs in order to protect its investment in research and development,
manufacturing and marketing. Pharmacia's policy is to seek the widest possible
protection for significant product developments in its major markets. Pharmacia
also actively seeks patent protection, where practicable, for new processes,
formulations and uses in respect of existing and new products.
A number of Pharmacia's more important products, including Salazopyrin and
Intralipid, have not been covered by patents for many years. While Pharmacia
considers that, in the aggregate, its patents are important to the operation of
its business, it does not consider any one of its patents or any related group
of them to be of such importance that expiration thereof will materially affect
business.
In most developed countries, patent coverage is available for new active
ingredients and related formulations, as well as for their uses and processes
for their manufacture. Most of Pharmacia's patents and patent applications are
for such coverage. Pharmacia monitors competitor activity and vigorously
enforces or defends its patent rights against infringement.
To compensate for the prolonged development time and regulatory delays
associated with obtaining pharmaceutical patents, restoration or extension of
the term of pharmaceutical patents has now been made possible by legislation in
several countries. Extension of the normal patent term for pharmaceutical
products by up to five years has been available in the United States and Japan
for some years. A similar system was
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introduced throughout the European Union in 1993 and in Sweden in 1994. Wherever
appropriate, Pharmacia will seek to take advantage of legislation to prolong the
patent protection of its products.
Pharmacia also seeks to register trademarks extensively as a means of
protecting the brand names of its products, which brand names become more
important once the corresponding patents have expired. Pharmacia protects its
trademarks vigorously against infringements. In addition, Pharmacia seeks
registered design protection where appropriate. Among the most important
registered trademarks held by Pharmacia in various countries are the following,
some of which may not be registered in all jurisdictions:
<TABLE>
<S> <C> <C>
-Adriamycin -Gammonativ -Nutritwin
-Adriblastina -Genomix -Octonativ-M
-Ansatipine -Genotropin/Genotonorm -Oxigard
-ALF -Healon -Pharmacia CAP System
-ATenativ -Healonid -Ready-To-Go
-Auto CAP -Idamycin -RESOURCE
-Azulfidine -Igef -Rinil
-Bafucin -ImmunoCAP -RoboCAP
-BIAcore -Intralipid -Salazopyrin
-BIAlite -Ipren -Sermion
-CDTect -Kabikinase -SMART
-Cetiprin -KabiMix -Somatonorm
-Cyklokapron -KabiPen -Sorbangil
-Diazemuls -KabiQuick -SOURCE
-Dipentum -KabiVial -Spherex
-Dostinex -Linomide -STREAMLINE
-Emcyt -Magnecyl -To Life
-Estracyt -MasterCAP -Travello
-Estradurin -Mycobutin -Treo
-Estring/Oestring -Nanotiv -Vamin
-Farmorubicin -Nicorette -Vitrimix
-Fragmin -Nicotrol -Zavedos
</TABLE>
Environmental Regulation
Pharmacia is subject to an increasing number of environment-related laws
and regulations, some of which are stringent, particularly in the United States
and Europe where its main production facilities and operations are located.
Pharmacia continues to invest in plants and equipment to enable it to
comply with its obligations under environmental laws and regulations and will
continue to incur costs in future years in complying with environmental laws and
regulations. Pharmacia cannot reasonably estimate the cost of future compliance
or remedial work or further investment necessitated by environmental laws and
regulations or by accidental leaks or spills or other causes of contamination,
including those occurring prior to the introduction of such laws and regulations
or prior to or subsequent to the property in question being owned or occupied by
Pharmacia. The level of such costs will be dependent upon, among other things,
the nature and extent of current and future environmental laws and regulations,
the timing and nature of required remedial work, the extent of contamination, if
any, the technology available to meet the required standards, the determination
of Pharmacia's liabilities in proportion to those of other parties and the
extent to which costs are recoverable from insurance and third parties. Based on
internal environmental reviews and the level of costs incurred to
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date, Pharmacia believes that such costs will not be likely to have a material
adverse effect on Pharmacia's financial position.
Product Liability
Product liability is a significant commercial risk for Pharmacia.
Substantial damage awards have been made in certain jurisdictions, such as the
United States, against certain pharmaceutical companies in past years based upon
claims for injuries allegedly caused by the use of their products. With
increasing frequency, particularly in the United States, patients or their
families seek redress through litigation, or other means, against medical
practitioners, hospitals and drug manufacturers where treatment has allegedly
caused injury or death. Pharmacia believes, based on its past experience, that
the level and scope of its insurance coverage are appropriate, although there
can be no assurance that such insurance will provide adequate cover against all
potential claims.
EMPLOYEES AND LABOR
Set forth below for the periods shown are certain employee data with
respect to Pharmacia's employees.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED ----------------------------
JUNE 30, 1995 1994 1993 1992
---------------- ------ ------ ------
<S> <C> <C> <C> <C>
Average number of employees(1).................. 17,809 18,622 17,843 13,540
Average number of employees in Sweden(1)........ 6,007 6,415 6,361 6,103
</TABLE>
---------------
(1) See Note 28 of Notes to Consolidated Financial Statements of Pharmacia.
The majority of Pharmacia's labor force in Sweden and approximately
one-third of Pharmacia's employees in Italy are unionized. The principal unions
to which employees belong are, in Sweden, the Swedish Industrial Union, the
Swedish Factory Workers' Union, the Swedish Metal Workers' Union, the Swedish
Foremen and Supervisors' Association and the Swedish Confederation of
Professionals' Association and, in Italy, CGIL (Confederazione Generale Italiana
Del Lavoro), CISL (Confederazione Italiana Sindicato Dei Lavoratori) and UIL
(Unione Italiana Del Lavoro).
In Italy and Sweden, wages and general working conditions are generally the
subject of centrally negotiated collective bargaining agreements. Within the
limits established by these agreements, Pharmacia negotiates directly with the
unions representing the employees. Pharmacia considers its labor relations to be
good and has not experienced any major strike or other significant labor dispute
for many years.
Under Italian as well as Swedish law, Pharmacia is required to negotiate
with the unions representing its employees concerning important changes in
operations and working and employment conditions. Although these negotiations
may from time to time affect the timing with which certain management decisions
are made and carried out, Pharmacia's experience is that such negotiations
contribute to good labor relations.
PROPERTY
Pharmacia's principal executive offices are located in Stockholm, Sweden.
Its various businesses operate through a number of offices, research
laboratories and production facilities. Pharmacia's Uppsala facilities, which
previously had been leased, were purchased by Pharmacia during 1993. Other
important Pharmacia facilities include those located in Stockholm and
Helsingborg in Sweden and Milan, Italy. Pharmacia believes its properties to be
adequately maintained and suitable for their intended use and its production
facilities to have a capacity adequate for its current needs.
LEGAL PROCEEDINGS
Pharmacia experiences a number of legal proceedings incidental to the
normal conduct of its businesses. Pharmacia does not believe that liabilities
related to such proceedings are likely to be, in the aggregate,
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material to the financial condition of Pharmacia. In addition, Pharmacia is not
aware of any other pending material legal proceeding.
DIRECTORS AND EXECUTIVE OFFICERS
Certain information regarding the current Directors and Executive Officers
of Pharmacia is set out below.
DIRECTORS
Soren Gyll, age 54, Chairman of the Board. Mr. Gyll was appointed to the
Pharmacia Board in 1984 and has been Chairman of Pharmacia since 1992. He has
previously served as Pharmacia's President and Chief Executive Officer. Mr. Gyll
is President and Chief Executive Officer of AB Volvo. He is a member of the
boards of directors of AB Catena, AB Custos, Svensk Interkontinental Lufttrafik,
AB Volvo, the Federation of Swedish Industries and the Swedish Employers'
Confederation. Mr. Gyll is also a member of the Royal Swedish Academy of
Engineering Sciences, the Central Board of the Association of Swedish
Engineering Industries and the board of Swedish Engineering Employers'
Association. Mr. Gyll owns 6,000 Pharmacia Class A Common Shares.
Olof Lund, age 64, Vice Chairman of the Pharmacia Board. Mr. Lund was
appointed to the Pharmacia Board in 1992. He is the President and Chief
Executive Officer of Celsius AB. He is also the Chairman of AssiDoman AB. Mr.
Lund is also a member of the boards of directors of the Federation of Swedish
Industries and the Swedish Pension Guarantee Mutual Insurance Company
(FPG)/Labor Market Insurance (AMF). Mr. Lund owns 280 Pharmacia Class A Common
Shares and 95 Pharmacia Class B Common Shares.
Jan Ekberg, age 59, President and Chief Executive Officer. Mr. Ekberg was
appointed to the Pharmacia Board in 1992. He has been the President and Chief
Executive Officer of Pharmacia since 1992. From 1990 to 1992, Mr. Ekberg served
as President of Kabi Pharmacia. He is also Chairman of Pharmacia Biotech AB and
Pharmacia Biosensor AB. From 1986 to 1990, Mr. Ekberg served as President of
KabiVitrum and, from 1987 to 1990, he served as Executive Vice President of
Procordia. He is a member of the boards of directors of Oy Partek AB, AB Volvo
Personvagnar AB, Nobelpharma AB and the Federation of Swedish Industries. He is
a member of the Royal Swedish Academy of Engineering Sciences and the
Supervisory Board of Huhtamaki. Mr. Ekberg owns 3,490 Pharmacia Class A Common
Shares and 1,060 Pharmacia Class B Common Shares.
Kurth Augustson, age 51, Director. Mr. Augustson was appointed to the
Pharmacia Board in 1993. He is a member of the boards of directors of Skandia
and Dansk Tyggegummi Fabrik A/S (Stimorol) and was formerly President and Chief
Executive Officer of Freia Marabou AS and Procordia Food and Beverages. Mr.
Augustson owns 2,000 Pharmacia Class B Common Shares.
Gustaf Douglas, M.B.A. Harvard, age 57, Director. Mr. Douglas was appointed
to the Pharmacia Board in 1992. He is the Chairman and principal owner of
Investment AB Latour. He is Vice Chairman of Securitas AB and Sveriges
Television AB and a member of the boards of directors of Assa Abloy AB,
Hagstromer & Qviberg, Munksjo and Stiftelsen Svenska Dagbladet. Mr. Douglas owns
250 Pharmacia Class A Common Shares and, through Investment AB Latour, owns
120,000 Pharmacia Class A Common Shares and 40,000 Pharmacia Class B Common
Shares.
Gustav von Hertzen, Honorary Industrial Councillor, Ph.D. (Hon.), age 65,
Director. Mr. von Hertzen was appointed to the Pharmacia Board in 1989. He is
also a member of the boards of directors of Instrumentarium Oy and Lithells AB.
Mr. von Hertzen is also Chairman of HUCS Institute and a member of the
Supervisory Board of the Aamulehti Group. Mr. von Hertzen formerly was an
officer of Helsinki Selance Park Ltd. He is a member of the Royal Swedish
Academy of Engineering. Mr. von Hertzen owns 250 Pharmacia Class A Common
Shares.
Goran Linden, age 51, Director. Mr. Linden was appointed to the Pharmacia
Board at the Annual General Meeting held on June 1, 1994. He is the President
and Chief Executive Officer of AB Fortos. He is Chairman of Partena AB, Retriva
AB, Procordia Fastigheter AB and Swedish Match AB. He is also a board member of
Alfred Berg Holding AB, Cultor AB, Lithells AB and Monark Stiga AB. Mr. Linden
owns 240 Pharmacia Class A Common Shares and 60 Pharmacia Class B Common Shares.
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Berthold Lindqvist, age 57, Director. Mr. Lindqvist was appointed to the
Pharmacia Board at the Annual General Meeting held on June 1, 1994. He is
President and Chief Executive Officer of Gambro AB. He is also a board member of
Gambro AB, Besam AB, PLM AB, Volvo Lastvagnar AB, Inductus AB and Securitas AB.
Mr. Lindqvist owns 250 Pharmacia Class B Common Shares.
Ulla Reinius, M.B.A., age 57, Director. Ms. Reinius was appointed to the
Pharmacia Board in 1992. She is the President of Finansfakta AB. She is also a
member of the boards of directors of Uppsala University/Division of Capital and
Property Administration and the Swedish Association for Share Promotion. Ms.
Reinius owns 250 Pharmacia Class A Common Shares.
Bengt Samuelsson, M.D., age 61, Professor of Medical and Physiological
Chemistry, Director. Dr. Samuelsson was appointed to the Pharmacia Board in
1990. He was the Nobel laureate in Physiology of Medicine in 1982. He is the
Chairman of The Nobel Foundation. He is also a member of the boards of directors
of Svenska Handelsbanken and the Liposome Company, Princeton, N.J. Dr.
Samuelsson is a member of the Royal Swedish Academy of Sciences, the American
Academy of Arts and Sciences, the Association of American Physicians, Academie
des Sciences, Paris, the U.S. National Academy of Sciences and the Royal
Society, London.
(++)Ake Hammarstrom, age 60, Director. Mr. Hammarstrom was originally
appointed to the Pharmacia Board as a Deputy Board member representing Company
employees affiliated with the Federation of Salaried Employees in Industry and
Services (PTK) in 1991. He is an Officer of the local of the Swedish Union of
Clerical and Technical Employees in Industry (SIF) at Pharmacia Biotech.
Joseph Jenadri, age 45, Director. Mr. Jenadri was originally appointed to
the Pharmacia Board as a Deputy Board member representing Company employees
affiliated with the Swedish Trade Union Confederation (LO) in 1990. Mr. Jenadri
is also Shop Steward for the trade-union local at Pharmacia Stockholm and the
employee representative of Pharmacia employees affiliated with LO.
Ingela Sander, age 45, Director. Ms. Sander was originally appointed to the
Pharmacia Board as a Deputy Board member representing Company employees
affiliated with the Federation of Salaried Employees in Industry and Services
(PTK) in 1993. She is also Shop Steward for the local of the Swedish Union of
Clerical and Technical Employees in Industry (SIF) at Pharmacia Stockholm. Ms.
Sander owns 474 Pharmacia Class A Common Shares and 26 Pharmacia Class B Common
Shares.
Lennart G. Persson, age 48, Deputy Director. Mr. Persson was appointed to
the Pharmacia Board as a Deputy Board member representing Company employees
affiliated with the Federation of Salaried Employees in Industry and Services
(PTK) in 1993. Mr. Persson owns 280 Pharmacia Class B Common Shares.
Britta Kaul, age 52, Deputy Director. Ms. Kaul was appointed to the
Pharmacia Board as a Deputy Board member representing Company employees
affiliated with the Federation of Salaried Employees in Industry and Services
(PTK) in 1993. Ms. Kaul owns 1,734 Pharmacia Class A Common Shares.
Roland Hakansson, age 50, Deputy Director. Mr. Hakansson was appointed to
the Pharmacia Board as a Deputy Board member representing Company employees
affiliated with the Swedish Trade Union Confederation (LO) in 1993. Mr.
Hakansson owns 30 Pharmacia Class A Common Shares.
EXECUTIVE OFFICERS
In addition to Mr. Ekberg, the following currently are the executive
officers of Pharmacia:
Goran A. Ando, M.D., age 46, Executive Vice President and Deputy Chief
Executive Officer. Dr. Ando joined Pharmacia in February 1995 from Glaxo
Holdings p.l.c. He is responsible for Corporate Research and Development,
Operations, Strategies, Business Development, Quality and Environmental/Risk
Management. Dr. Ando owns 1,000 Pharmacia Class A Common Shares.
Jan Blomberg, age 56, Executive Vice President, Chief Financial Officer.
Mr. Blomberg is Head of Corporate Financial Management (Finance, Accounting &
Taxes, Business Control, Information Technology and Legal). Since 1985 Mr.
Blomberg has served as Executive Vice President and Chief Financial Officer of
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<PAGE> 164
Pharmacia. Mr. Blomberg owns 815 Pharmacia Class A Common Shares and 60
Pharmacia Class B Common Shares.
Lars Lindegren, age 58, Executive Vice President. Mr. Lindegren serves as
President of Business Area Pharmaceuticals Milan. Between 1989 and 1993 Mr.
Lindegren served as President of Business Area Hospital Care. Mr. Lindegren owns
250 Pharmacia Class A Common Shares.
Gilles Pajot, age 46, Executive Vice President. Mr. Pajot serves as
President of Market Area Europe. From 1974 to 1990 Mr. Pajot was employed by
Pharmacia France S.A., from 1979 as President. From 1991 to 1992 he served as
President of Pharmacia Biosystems. From 1992 to 1993, Mr. Pajot served as
Executive Vice President of Kabi Pharmacia. Mr. Pajot owns 250 Pharmacia Class A
Common Shares.
Lamberto Andreotti, age 45, Group Vice President. Mr. Andreotti serves as
President of Market Area Americas and Market Company Italy. Mr. Andreotti joined
Pharmacia upon its acquisition of FICE, where from 1990 to 1993 he served as
Vice President Italian Activities and Corporate Operations, then Chief Executive
Officer of Farmitalia Carlo Erba S.r.1. Since 1993 he has served as Group Vice
President of Pharmacia. Mr. Andreotti owns 250 Pharmacia Class A Common Shares.
Hakan Astrom, age 48, Group Vice President. Mr. Astrom is Head of Corporate
Strategic Planning. From 1988 to 1990 Mr. Astrom was Executive Vice President of
KabiVitrum. From 1990 to 1992 he served as Vice President of Kabi Pharmacia and
President of Kabi Pharmacia Biopharma. From 1992 to 1993 Mr. Astrom served as
President and Chief Executive Officer of Kabi Pharmacia. Since 1993 he has
served as Group Vice President of Pharmacia. Mr. Astrom owns 492 Pharmacia Class
A Common Shares.
Peter Benson, age 40, Group Vice President. Mr. Benson serves as President
of Business Area Hospital Care. He has been employed by Pharmacia since 1988.
Hans Carlson, age 44, Senior Vice President, Human Resources & Management
Development. Mr. Carlson was employed by Kabi Pharmacia and its predecessors
from 1977 to 1982 and has been employed by Pharmacia since 1986. From 1990 to
1992 Mr. Carlson served as Senior Vice President Human Resources of Kabi
Pharmacia. Since 1993 he has served as Senior Vice President Human Resources and
Management Development of Pharmacia. Mr. Carlson owns 490 Pharmacia Class A
Common Shares and 60 Pharmacia Class B Common Shares.
Arne Forsell, age 53, President, Pharmacia Biotech AB. Mr. Forsell joined
Pharmacia in 1990 as President of Pharmacia LKB Biotechnology and in 1991 was
appointed Executive Vice President of Pharmacia Biosystems AB. Since 1992, he
has served as President of Pharmacia Biotech AB, and as Chairman of Pharmacia
Biotech Inc. Mr. Forsell owns 250 Pharmacia Class B Common Shares.
Anders Harfstrand, MD, age 39, Senior Vice President. Dr. Harfstrand is
Head of Corporate Communications and Investor Relations. He has been employed by
Pharmacia since 1988. Dr. Harfstrand owns 250 Pharmacia Class A Common Shares.
Lars Ingelmark, age 46, Group Vice President. Mr. Ingelmark serves as
President of Market Area Asia-Pacific. From 1987 to 1990 Mr. Ingelmark was
employed by KabiVitrum serving as Executive Vice President. From 1990 to 1993 he
was employed by Kabi Pharmacia, first serving as Managing Director of Nordic
Pharmaceutical AB, and later as Executive Vice President of Kabi Pharmacia.
Since 1993 Mr. Ingelmark has served as Group Vice President of Pharmacia. Mr.
Ingelmark owns 490 Pharmacia Class A Common Shares and 60 Pharmacia Class B
Common Shares.
Jorgen Johnsson, age 47, Group Vice President. Mr. Johnsson serves as
President of Business Area Consumer Pharma. He has been employed by Pharmacia
since 1986. Mr. Johnsson owns 99 Pharmacia Class A Common Shares.
Mats Lidgard, age 40, General Counsel. He is Head of Legal Affairs
(including legal, patents and trademarks) and serves as Secretary to the Board
and the Corporate Management Group. He has been employed by Pharmacia since
1984. Mr. Lidgard owns 790 Pharmacia Class A Common Shares and 60 Pharmacia
Class B Common Shares.
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<PAGE> 165
Goran Pettersson, age 50, Group Vice President. Mr. Pettersson serves as
President of Business Area Pharmaceuticals Uppsala. He has been employed by
Pharmacia since 1987 when he joined KabiVitrum as Market Company President in
the U.K. Since 1991, Mr. Pettersson has served as President for various business
areas. Mr. Pettersson owns 250 Pharmacia Class A Common Shares.
Mats Pettersson, age 49, Group Vice President. Mr. Pettersson is Head of
Corporate Business Development. He started, after a career as an independent
auditor, as Vice President in the French subsidiary and served as Chief
Financial Officer of Kabi from 1981 to 1988. During 1988-1992 he was Head of
Business Development in Europe and has been in his present position since 1993.
Mr. Pettersson owns 350 Pharmacia Class A Common Shares and 500 Pharmacia Class
B Common Shares.
Toni Weitzberg, age 44, Group Vice President. Mr. Weitzberg serves as
President of Business Area Biopharmaceuticals. He has been employed by Pharmacia
since 1983. Mr. Weitzberg owns 250 Pharmacia Class A Common Shares.
Jan Wurtz, age 48, Group Vice President. Mr. Wurtz serves as President of
Business Area Diagnostics. He has been employed by Pharmacia since 1987. Mr.
Wurtz owns 100 Pharmacia Class B Common Shares.
BENEFICIAL OWNERSHIP OF PHARMACIA COMMON SHARES
The Shares of Pharmacia currently are divided into two classes, A Shares
and B Shares. Each A Share confers one vote per share and each B Share confers
one-tenth of one vote per share.
The following table sets forth information as of September 8, 1995, with
respect to all stockholders known by Pharmacia to be owners of more than 3% of
Pharmacia Securities and the total amount of Pharmacia's share capital owned as
of August 18, 1995, by all directors and officers as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE PERCENTAGE
SHARES OWNED OF CLASS PERCENTAGE OF TOTAL
IDENTITY OR PERSON ------------------------- ------------- OF TOTAL VOTING
OR GROUP A B A B CAPITAL RIGHTS
------------------------------ ---------- ---------- ---- ---- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Stattum....................... 18,779,017 16,987,265 11.4% 19.1% 14.1% 11.8%
Volvo......................... 45,902,847 23,862,919 27.9% 26.8% 27.5% 27.8%
SPP (Swedish Pension Fund).... 2,623,683 6,346,972 * * 3.5% 1.9%
LK AP Fund (Swedish Pension
Fund)....................... 3,365,324 4,886,462 * * 3.2% 2.2%
Directors and officers (as a
group)...................... 139,024 44,861 * * * *
</TABLE>
---------------
* Less than 0.1%
The number of Pharmacia Shares currently owned by Stattum and Volvo,
respectively, and the division of such Shares between Pharmacia Class A Common
Shares and Pharmacia Class B Common Shares, as set forth above, followed a
series of agreements between the two stockholders after Volvo acquired a
significant ownership interest in Procordia, Pharmacia's predecessor, in
connection with the 1990 merger of Procordia, Old Pharmacia and Provendor. Since
1991, at least three of the directors of Pharmacia elected by its stockholders
have been nominated by AB Volvo and four of these directors have been nominated
by Stattum.
In connection with the BCP demerger, Stattum and Volvo agreed to exchange
all of Stattum's shares in BCP for 25,452,701 Pharmacia Class A Common Shares
and 4,882,254 Pharmacia Class B Common Shares held by Volvo, thereby increasing
Stattum's ownership interest in Pharmacia to 57.6% of the voting rights and
46.1% of the share capital and reducing Volvo's ownership interest in Pharmacia
to 27.8% of the voting rights and 27.5% of the share capital.
Stattum reduced its shareholding in Pharmacia to 11.8% of the voting rights
and 14.1% of the share capital following its June 1994 public offering of
Pharmacia's Securities.
In connection with the Swedish State's Offer in May 1994 of shares in
Pharmacia, Volvo undertook not to sell before December 31, 1995, any of its
shares or any other securities that are convertible into or exchangeable for, or
otherwise represent a right to acquire, shares without the prior written consent
of
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<PAGE> 166
Enskilda, Goldman Sachs International and S.G Warburg Securities Ltd, such
consent not to be unreasonably withheld. In addition, the Swedish State agreed
that it will not, without the prior written consent of Enskilda, Goldman Sachs
International and S.G Warburg Securities Ltd, before July 1, 1996, offer, sell,
contract to sell or otherwise dispose of any shares or any other securities that
are substantially similar to or that are convertible into or exchangeable for,
or otherwise represent a right to acquire, shares or securities that are
substantially similar to the shares, other than Pharmacia Class A Common Shares
offered in May 1994.
Enskilda, Goldman Sachs International and S.G Warburg Securities Ltd have
indicated that they will give their written consent for Volvo and Stattum to
accept the Offer.
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<PAGE> 167
PHARMACIA SELECTED FINANCIAL DATA
The following selected financial data have been derived from Pharmacia's
Consolidated Financial Statements. The data should be read in conjunction with
"Pharmacia Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Pharmacia's Consolidated Financial Statements and
Notes thereto included elsewhere herein and are qualified in their entirety by
reference to the Consolidated Financial Statements and such Notes. The following
selected financial data treat the branded consumer products operations, BCP,
which were demerged effective July 1, 1993, as discontinued operations for all
periods presented. Results of FICE are included in the Consolidated Financial
Statements of Pharmacia from May 1, 1993, the effective date of its acquisition
by Pharmacia. The Consolidated Financial Statements have been prepared in
accordance with Swedish GAAP, which differ in certain significant respects from
U.S. GAAP. See Note 25 to the Pharmacia Consolidated Financial Statements
contained elsewhere herein for a description of the significant differences
between Swedish GAAP and U.S. GAAP affecting Pharmacia's consolidated net income
and stockholders' equity.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------
1995 1994
------ ------
1995 (SEK) (SEK) YEAR ENDED DECEMBER 31,
----- ---------------------------------------------
1994
($)(2) -----
($)(2) 1994
------
(SEK) 1993(1)
------
(SEK) 1992
------
(SEK) 1991
------
(SEK)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN MILLIONS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA
AMOUNTS IN ACCORDANCE WITH SWEDISH
GAAP:
Sales................................ 1,821 13,272 13,679 3,628 26,450 24,708 15,448 13,652
Operating income from continuing
operations......................... 354 2,578 2,760 740 5,398 3,327 2,153 1,680
Financial income and expenses, net... 16 120 (96) (10) (76) (6) 391 7
Income from continuing operations
before income taxes and minority
interests.......................... 370 2,698 2,664 730 5,322 3,321 2,544 1,687
Income taxes on continuing
operations......................... (133) (970) (1,083) (280) (2,041) (1,148) (961) (293)
Minority interests................... -- -- (1) -- (2) (5) 16 (1)
Net income from continuing
operations......................... 237 1,728 1,580 450 3,279 2,168 1,599 1,393
Net income from continuing operations
per Share/ADS...................... .93 6.78 6.23 1.77 12.92 8.55 6.31 5.49
AMOUNTS IN ACCORDANCE WITH U.S. GAAP:
Net income from continuing
operations......................... 194 1,411 1,475 364 2,656 1,281 1,029 492
Net income from continuing operations
per Share/ADS...................... .76 5.54 5.82 1.44 10.47 5.05 4.06 1.94
</TABLE>
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<PAGE> 168
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
-------------------- ---------------------------------------------
1995 1994 1994 1993(1) 1992 1991
------ ----- ------ ------ ------ ------
1995 (SEK) ($)(2) (SEK) (SEK) (SEK) (SEK)
-----
($)(2)(IN MILLIONS, EXCEPT PERCENTAGES AND NUMBER OF EMPLOYEES)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
AMOUNTS IN ACCORDANCE WITH SWEDISH GAAP:
Liquid assets........................... 700 5,104 549 4,004 3,099 7,934 5,352
Total current assets.................... 2,285 16,656 2,089 15,227 14,492 15,157 10,897
Total fixed assets...................... 2,361 17,214 2,370 17,278 19,083 6,772 5,872
Net assets of discontinued
operations(3)......................... -- -- -- -- -- 9,533 8,480
Total assets............................ 4,646 33,870 4,459 32,505 33,575 31,462 25,249
Total current liabilities............... 1,352 9,859 1,227 8,942 13,266 7,301 4,036
Long-term borrowings.................... 85 621 161 1,174 1,235 428 437
Stockholders' equity.................... 2,660 19,394 2,487 18,132 15,697 20,609 18,195
AMOUNTS IN ACCORDANCE WITH U.S. GAAP:
Stockholders' equity.................... 3,448 25,136 3,317 24,181 22,420 31,002 --
OTHER DATA
AMOUNTS IN ACCORDANCE WITH SWEDISH GAAP:
Capital expenditures.................... 100 729 218 1,591 2,975 1,089 1,086
Net cash flow from operating
activities............................ -- -- 595 4,340 4,105 3,281 2,250
Research and development expenses(4).... -- -- 516 3,758 3,131 2,064 1,826
Research and development expenses as a
percent of sales...................... -- -- 14.2% 14.2% 12.7% 13.4% 13.4%
Number of employees (average)(5)........ -- 17,809 -- 18,622 17,843 13,540 13,120
</TABLE>
---------------
NOTES TO SELECTED FINANCIAL DATA
(1) The results of FICE are included in the consolidated income statement of
Pharmacia from May 1, 1993, and FICE balance sheet information is included
in Pharmacia's balance sheet as of December 31, 1993. For a discussion of
the FICE acquisition and its impact on Pharmacia, see "Pharmacia
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(2) Solely for convenience of the reader, the 1995 and 1994 financial
information as of and for the six months ended June 30, 1995 and as of and
for the year ended December 31, 1994 has been translated using the June 30,
1995 Noon Buying Rate of $1.00 = SEK 7.2900.
(3) Effective July 1, 1993, BCP was demerged, and its operations have been
reflected as discontinued operations for all periods presented. See Note 8
of Notes to Consolidated Financial Statements of Pharmacia. It is not
practicable to present financial data other than sales and operating income
separately from continuing operations for 1990.
(4) The research and development expenses provided have been calculated
according to the criteria adopted by The Association of the Swedish
Pharmaceutical Industry and The Swedish Central Bureau of Statistics, which
differ from the method of calculation of research and development expenses
for financial statement purposes under Swedish GAAP. See "Description of
Pharmacia -- Research and Development" and Note 3 of Notes to Consolidated
Financial Statements of Pharmacia.
(5) Calculated as the total number of hours worked divided by the number of
working hours constituting a full-time working year. See Note 28 of Notes to
Consolidated Financial Statements of Pharmacia.
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<PAGE> 169
<TABLE>
<CAPTION>
KEY RATIOS 95Q2 94Q2 1994 1993 1992 1991
-------------------------------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Equity to assets, %......................... 57.3% 50.4% 55.8% 46.8% 50.6% 58.0%
Interest-bearing liabilities/stockholders'
equity, %................................. 24.0% 40.0% 24.6% 49.5% 21.0% 13.8%
Times interest earned....................... 13.8 8.7 9.8 3.8 4.6 3.3
Operating margin............................ 19.4% 20.2% 20.4% 13.5% 13.9% 12.3%
Return on average capital employed, %....... 22.3% 21.3% 23.2% 15.7% 13.6% 10.8%
Return on average stockholders' equity, %... 19.0% 18.7% 19.4% 13.8% 8.2% 8.1%
PER-SHARE DATA
Stockholders' equity, SEK................... 76 66 71 62 81 72
Dividend, SEK............................... -- -- 2.60 2.20 3.55 3.15
Yield, %.................................... -- -- 2.2 1.7 1.8 1.6
Cash flow, SEK.............................. -- -- 17.1 16.2 12.9 8.9
Average number of shares, thousands......... 254,702 253,640 253,645 253,375 253,562 253,562
</TABLE>
DEFINITIONS
EQUITY TO ASSETS RATIO
Reported stockholders' equity and minority interests, in relation to total
assets.
INTEREST-BEARING LIABILITIES/STOCKHOLDERS' EQUITY.
Interest-bearing liabilities, divided by stockholders equity.
TIMES INTEREST EARNED
Income before interest expense, divided by interest expense.
RETURN ON AVERAGE CAPITAL EMPLOYED
Operating income plus financial income, in relation to average total capital
less noninterest-bearing operating liabilities. Average capital is the mean of
opening capital and closing capital. 1993 is calculated on the average of June
closing capital and December closing capital. June closing 1994 the capital
employed is calculated on the average opening balance capital 1994 and June
closing capital 1994.
RETURN ON AVERAGE STOCKHOLDERS' EQUITY
Net income for the year after tax in relation to average stockholders' equity
1993 is calculated on closing stockholders equity.
OPERATING MARGIN
Operating income from continuing operations divided by sales.
PER-SHARE DATA
STOCKHOLDERS' EQUITY
Reported stockholders' equity divided by the number of shares at the close of
the accounting period.
YIELD
Dividend divided by the market value at the close of the accounting period.
CASH FLOW
Total cash flow from continuing operations for the accounting period divided by
the average number of shares.
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<PAGE> 170
PHARMACIA MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
In June 1993, Procordia's two principal owners, Volvo and the Swedish
state, announced their agreement to seek the separation of Procordia's
operations into two parts: a pharmaceuticals and biotechnology group and a
branded consumer products group. The assets and liabilities associated with the
branded consumer products operations of Procordia were transferred to BCP. In
November 1993, Procordia demerged its entire interest in BCP with effect from
July 1, 1993 by distributing to Pharmacia's stockholders one BCP share in
respect of each Procordia share. At the same time, Procordia changed its name to
Pharmacia AB. To reflect the BCP demerger, BCP's operations have been reflected
as discontinued operations in Pharmacia's financial statements for all periods
discussed below. See Note 8 of Notes to Consolidated Financial Statements of
Pharmacia.
In 1993, Pharmacia acquired almost all of FICE for approximately MSEK 6,800
in cash. Pharmacia also agreed to make supplemental payments based on sales for
specified periods of certain products. See "Description of
Pharmacia -- Acquisition of FICE." Pharmacia's financial results reflect the
financial results of FICE from May 1, 1993.
RESULTS OF CONTINUING OPERATIONS
Pharmacia's operating results are affected by a number of factors, in
particular the performance of existing and new products and product extensions,
competition from other products and the regulatory environment. Pharmacia's
results have also been affected by restructuring measures undertaken by
Pharmacia in recent years relating to the integration of the FICE operations and
the consolidation of production facilities.
In addition to the effects of the FICE acquisition, Pharmacia's 1993
results have, as more fully discussed below, been particularly influenced by the
depreciation of the kronor relative to a number of currencies after the November
1992 decision by the Swedish government to discontinue pegging the kronor to the
European Currency Unit ("ECU") and permit the kronor to float relative to other
currencies. The subsequent depreciation of the kronor has had a positive effect
on Pharmacia's sales denominated in foreign currencies when translated into
kronor. Conversely, a relative strengthening of the kronor would have a negative
effect on such sales. See "-- Impact of Currency Fluctuations and Inflation." In
1994, Pharmacia's results were not materially affected by currency fluctuations.
Another important factor affecting results has been the pressure to contain
health care expenditures in a number of countries, including several of
Pharmacia's largest markets, as governments and other bodies increasingly seek
to control health care costs. See "Description of
Pharmacia -- Competition -- Pricing."
Although the results of FICE are not included in Pharmacia's financial
statements before May 1, 1993, the sales information provided below for
individual products acquired by Pharmacia as part of the FICE acquisition is
based on the pro forma combined sales of FICE and Pharmacia for 1993, for the
particular product, as if FICE had been acquired on January 1, 1993 and on
FICE's historical sales results for 1992 and the first quarter of 1993 for such
product. Lira-denominated sales have been translated into kronor using average
exchange rates of SEK 4.9555 = Lit. 1,000 in 1993 and SEK 4.7409 = Lit. 1,000 in
1992. Because future sales of such products will be affected by a number of
factors, including those described above, such information is provided for
comparative purposes only and may not be indicative of future sales trends.
In 1994 and the six month period ended June 30, 1995, Pharmacia's ten
largest selling products or product groups generated 44% and 48%, respectively,
of sales. Set forth below for the periods shown are reported and pro forma sales
for each of the 10 largest selling products or product groups of Pharmacia in
1992 and 1993 and reported sales for 1994 and the six month period ended June
30, 1995. Pro forma sales include
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<PAGE> 171
sales of the relevant FICE products prior to Pharmacia's acquisition of FICE.
Except as indicated, all product sales figures under "-- 1993 Compared to 1992"
below are stated on a pro forma basis.
<TABLE>
<CAPTION>
SIX MONTHS REPORTED PRO FORMA
ENDED YEAR ENDED YEAR ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
---------------- -------------------------- -----------------
1995 1994 1994 1993(1) 1992 1993(3) 1992(2)
------ ------ ------ ------ ------ ------ -------
(MSEK) (MSEK)
<S> <C> <C> <C> <C> <C> <C> <C>
PRODUCT (BUSINESS AREA)
Genotropin (Biopharmaceuticals)............ 1,411 1,317 2,565 2,611 2,148 2,611 2,148
Healon (Pharmaceuticals Uppsala)........... 806 797 1,591 1,667 1,238 1,667 1,238
Farmorubicin (Pharmaceuticals Milan)(4).... 780 747 1,466 883 -- 1,346 970
Allergy Diagnostic Products
(Diagnostics)............................ 883 705 1,341 1,270 920 1,270 920
Adriamycin (Pharmaceuticals Milan)(4)...... 514 551 1,076 714 -- 1,038 860
Sermion (Pharmaceuticals Milan)(4)......... 438 417 803 610 -- 850 692
Nicorette (Consumer Pharma)................ 431 390 802 811 681 811 681
Fragmin (Biopharmaceuticals)............... 387 454 763 860 553 860 553
Intralipid (Hospital Care)................. 349 338 675 687 560 687 560
Salazopyrin (Pharmaceuticals Uppsala)...... 355 298 643 610 494 610 494
------ ------ ------ ------ -----
6,354 6,014 11,725 10,723 6,594 11,750 9,116
Other products............................. 6,918 7,665 14,725 13,985 8,854 15,665
------ ------ ------ ------ -----
Total...................................... 13,272 13,679 26,450 24,708 15,448 27,415
====== ====== ====== ====== =====
</TABLE>
---------------
(1) Sales attributable to FICE products are included from May 1, 1993.
(2) Reflects sales figures for Pharmacia's ten largest selling products or
product lines on a pro forma basis, derived from the consolidated financial
statements of Pharmacia or FICE, as appropriate, for 1992.
(3) Reflects sales figures from the pro forma combined results of Pharmacia and
FICE for 1993.
(4) Product acquired as part of FICE.
SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO SIX MONTHS ENDED JUNE 30, 1994
Sales
Pharmacia's reported sales decreased from MSEK 13,679 to MSEK 13,272 for
the first half of 1995. Excluding divested business with MSEK 775 of sales in
the first half of 1994 sales increased by 3% for the first half of 1995.
Divested businesses included primarily Deltec and products in the
Pharmaceuticals Milan Business Area. Deltec was sold in July 1994.
Pharmacia's 10 largest selling products generated 48% of sales during the
six months ended June 30, 1995 compared to 44% in the six months ended June 30,
1994. This change was primarily due to the divesting of products.
Genotropin sales increased by 7% (+3% price/volume and +4% currency). The
current market for pediatric treatment has levelled out although some markets,
including Germany, the Far East and Latin America are still growing.
Sales of in vitro allergy diagnostic testing products increased by 25% to
MSEK 883 (price/volume +19%, currency +6%). The greatest increases were in
Japan, Germany and Sweden. Japan, due to an extreme pollen season, increased by
55%.
Sales of Healon, a viscoelastic substance used primarily in cataract
surgery, increased from MSEK 797 to MSEK 806 primarily due to the currency
effect (price/volume -1%, currency +2%). A volume decrease in the US was
partially offset by a volume increase in Japan.
Combined sales of Farmorubicin and Adriamycin, cytostatic agents for use in
cancer treatment, were on a level consistent with the same period a year ago.
Sales of Farmorubicin were up 4% (price/volume +3%,
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<PAGE> 172
currency +1%) over the previous year. Sales of Adriamycin fell by 7%
(price/volume -4%, currency -3%) as a result of lower sales in the United States
due to increased competition.
Sales of Sermion, an agent used to treat disturbances in connection with
senile dementia, amounted to MSEK 438, an increase of 5% (price/volume +3%,
currency +2%). This was mainly due to favorable growth in volume in Germany and
Italy.
Sales of Nicorette, the Company's line of smoking cessation products, were
MSEK 431, an increase of 11% (price/volume +8%, currency +3%). Sales increased
in France, the U.K. and the United States while sales in Germany decreased.
Sales of Fragmin, an agent used primarily for the prevention and treatment
of thrombosis and during hemodialysis, increased by 3% in markets other than
Japan. Overall it fell by 15% to MSEK 387. In Japan, sales decreased
significantly due to limitations on subsidies for renal dialysis treatment
imposed by Japanese authorities in Spring 1994.
Sales of Intralipid, a fat emulsion for intravenous nutrient delivery,
amounted to MSEK 349, an increase of 3%, mainly due to increased sales in Sweden
and France.
Sales of Salazopyrin, including Salazopyrin EN-tabs, a preparation used to
treat certain autoimmune diseases, increased by 19% to MSEK 355 (price/volume
+16%, currency +3%). Strong sales were reported in Japan, Germany and in the
U.K.
Excluding sales of the ten largest selling products or product groups and
divested product lines, reported sales in the first six months of 1995 were on
the same level as 1994.
Operating Expenses
Operating expenses decreased in the first six months of 1995 to MSEK 9,780
from MSEK 10,137 in the first six months of 1994, a decline of 4%. Pharmacia's
cost of goods sold, which was MSEK 3,580 in the first six months of 1995 and
MSEK 3,740 in the first six months of 1994, represented 27% of sales for both
six month periods.
Selling and administrative expenses were MSEK 4,268 in the first six months
of 1995 and MSEK 4,691 in the first six months of 1994. As a percentage of
sales, selling and administrative expenses decreased from 34.3% in the first six
months of 1994 to 32.2% in the first six months of 1995. The decrease was due
primarily to the effects of rationalization of marketing activities following
the FICE acquisition in combination with the divestiture of Deltec, which had a
higher percentage of costs compared to Pharmacia.
Research and development expenses, calculated in accordance with Swedish
GAAP increased to MSEK 1,932 in the first six months of 1995 from MSEK 1,706 in
the first six months of 1994. As a percentage of sales, research and development
expenses thereby increased from 12.5% to 14.6%. The increase reflects primarily
Pharmacia's intensified focus on a number of clinical stage III products.
Depreciation and amortization for the first six months of 1995 was MSEK
965, essentially the same level as during the first six months of 1994.
Operating Income from Continuing Operations
Pharmacia's operating income from continuing operations in the first six
months of 1995 was MSEK 2,578 compared to MSEK 2,760 for the first six months of
1994. Operating income from continuing operations for the first six months of
1995 has been impacted by a loss of MSEK 13 from associated companies compared
to a loss of MSEK 1 for the first six months of 1994 and by income from
non-recurring items of MSEK 64 for the first six months of 1995 compared to MSEK
184 during the first six months of 1994.
Financial Income and Expense, Net
Net financial income for the six months ended June 1995 was MSEK 120
compared to net financial expense of MSEK 96 for the first six months of 1994.
The change from a net expense position to a net income position is from the
proceeds of the sale of Deltec in July 1994 and favorable cash flow from
operations.
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Net Income
Pharmacia recorded net income of MSEK 1,728 in the first six months of 1995
after income taxes of MSEK 970 representing a tax rate of 36% as compared to net
income of MSEK 1,580 and an effective tax rate of 41% for the corresponding
period of 1994. Pharmacia's effective tax rate is higher than the Swedish
statutory rate of 28% due mainly to nondeductible amortization of goodwill and
the higher statutory tax rate in Italy of 53% where Pharmacia derives a
substantial portion of its net income.
Liquidity, Capital Resources and Investments
Capital expenditure on property, plant and equipment for the first six
months of 1995 was MSEK 729. This represents an increase of MSEK 101 from the
first six months of 1994. In 1995, Pharmacia began construction of a production
plant in Uppsala, Sweden. The total cost of the plant is expected to be MSEK 800
and it is scheduled to be completed in 1997. In addition, Pharmacia has begun an
expansion of a research laboratory in Lund, Sweden.
Liquid assets in the form of cash and bank deposits and short-term
investments in interest-bearing securities at June 30, 1995 were MSEK 5,104
compared with MSEK 4,004 at December 31, 1994.
Interest-bearing debt increased by MSEK 417 exclusive of the convertible
debenture loan of MSEK 217 which was converted into 2,099,792 Class B shares
during the first six months of 1995. The increase in short term debt is due to
the increased utilization of the commercial paper programs that were established
in 1994. The Company has available two U.S. $500 million commercial paper
programs established in the U.S. and Europe of which MSEK 1,174 was utilized at
June 30, 1995 compared to MSEK 639 at December 31, 1994. The programs are rated
A-1 by Standard & Poor's and P-1 by Moody's. In addition, Pharmacia established
a stand-by revolving credit facility with an international bank syndicate with a
five-year term in an amount of U.S. $500 million, none of which was utilized at
June 30, 1995.
Pharmacia currently expects to meet its foreseeable cash requirements
through internal cash generation from operations, existing liquidity and
existing credit lines.
1994 COMPARED TO 1993
Sales
Pharmacia reported sales of MSEK 26,450 in 1994, an increase of 7% over
1993 reported sales of MSEK 24,708. The increase was primarily due to the
inclusion of FICE's results for the full year. Sales to customers outside of
Sweden, which are generally invoiced in currencies other than the kronor,
represented 92.4% of Pharmacia's reported sales in 1994, which is unchanged from
1993.
Pro Forma sales, as adjusted for product lines divested in 1993 and 1994,
grew by 1%. Currency effects on 1994 sales were insignificant. Divested product
lines, amounting to approximately 4% of 1993 sales, consisted primarily of the
Deltec business area sold in June 1994 and certain smaller product lines.
Sales of Genotropin, a human growth hormone produced by recombinant DNA
technology, decreased by 2% to MSEK 2,565 from MSEK 2,611 in 1993. The decrease
was primarily due to decreased unit volumes in Spain and Australia due
principally to cost containment measures in those countries and lower sales to
distributors in Japan which had built up inventories in 1993 in anticipation of
new injection devices. However, the United Kingdom and Germany showed continued
unit volume growth.
Sales of Healon, a viscoelastic substance used primarily in cataract
surgery, decreased by MSEK 76 or 5% to MSEK 1,591 from MSEK 1,667 in 1993. Sales
unit volume increases in Japan, Germany, Italy and the United Kingdom did not
offset unit volume decreases and unfavorable price developments in the United
States, where there is an ongoing decline in the number of cataract operations
performed and competition is intensifying. Sales of Healon were also adversely
affected by two competing products, Provisc and Opelead, whose manufacturers
primarily compete in the United States and Japan, respectively.
Sales of Farmorubicin and Adriamycin, cytostatic agents for use in cancer
treatment that were acquired by Pharmacia as part of FICE, increased by 9% and
4%, respectively, to MSEK 1,466 and 1,076, from pro
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forma MSEK 1,346 and 1,038, respectively, in 1993, due principally to sales
volume growth for Farmorubicin in Japan and for Adriamycin in the United States.
Usage of both products increased as doctors became increasingly able to limit
the products' side effects by using them in combination with other drugs.
Farmorubicin is a second generation cytostatic which is generally replacing
Adriamycin, a first generation cytostatic, in the larger markets for oncology
pharmaceuticals.
Sales of in vitro allergy diagnostic testing products continued to grow
with sales totalling MSEK 1,341 in 1994, or 6% higher than total sales of MSEK
1,270 in 1993. Continued volume growth in Japan and Germany offset decreased
volume sales in Italy, France, Spain and the United States. Sales growth of in
vitro allergy diagnostic products partially depends on pollen levels, as high
pollen counts increase demand for allergy testing and therefore allergy testing
products.
Sales of Sermion, an agent used to treat disturbances in connection with
senile dementia, amounted to MSEK 803, a decrease from pro forma 1993 sales of
MSEK 850 or 6%. This decrease is primarily due to changes in the reimbursement
system in Italy, where reimbursements were eliminated, partially offset by
increased sales volumes in Germany and Japan.
Sales of Nicorette, Pharmacia's line of smoking cessation products, were
MSEK 802, a 1% decrease compared with 1993 sales of MSEK 811. The decline is
attributable to lower unit sales in the United Kingdom than in 1993 when the
Nicorette patch was launched there. This decline was partially offset by
increased sales in Germany and the launch of the product in Japan during the
second half of 1994.
Sales of Fragmin, an agent used primarily for the prevention of thrombosis
in connection with surgery and during hemodialysis (the removal of waste
substances by circulating blood through an artificial kidney), decreased by 11%
to MSEK 763 compared to MSEK 860 in 1993. This decrease was due to the decision
by the Japanese health authorities to limit subsidies for renal dialysis
treatment. As a result, only patients who run a high risk of bleeding are
treated with Fragmin, substantially reducing market demand in Japan.
Sales of Intralipid (including related mixed products), a fat emulsion for
intravenous nutrient delivery, amounted to MSEK 675 in 1994, almost unchanged
from 1993 sales of MSEK 687.
Sales of Salazopyrin, including Salazopyrin EN-tabs, a preparation used to
treat IBD, and, to an increasing degree, rheumatoid arthritis, were MSEK 643 in
1994, an increase of 5% compared to 1993 sales of MSEK 610. Strong sales were
reported in Germany, Sweden and the United Kingdom. Generic competition in the
United States partially offset this increase.
Excluding sales of the ten largest selling products or product groups and
Pharmacia Biotech, reported sales in 1994 decreased to MSEK 11,907 from pro
forma sales of MSEK 12,963 in 1993. This decrease was entirely due to divested
products and product lines. Sales excluding the top ten selling products and
Pharmacia Biotech consists of products primarily in the Biopharmaceuticals,
Pharmaceuticals Uppsala and Consumer Pharma business areas, and local products,
many of which have been available for a number of years. For such products,
growth is dependent primarily upon changes in the local markets in which they
are sold. In addition to its mature product portfolio, sales of newer products
that are not among Pharmacia's ten largest selling products are included in the
sales figures discussed in this paragraph. These new products include Mycobutin,
which is sold primarily in the United States and France and is the only approved
therapy for the prevention of Mycobacterium Avium Complex, a common cause of
death in HIV-positive individuals, and Estring, an intravaginal ring designed
for local hormone replacement therapy for post-menopausal women. These products
were both launched in 1993.
Pharmacia Biotech's sales were MSEK 2,818 in 1994, an increase of 4% over
1993 sales. This increase was primarily due to growth in the process media
product area in Japan.
Operating Expenses
Operating expenses increased in 1994 to MSEK 19,951 from MSEK 19,190 in
1993. Pharmacia's cost of goods sold, which was MSEK 7,541 in 1994 and MSEK
7,656 in 1993, represented 29% of sales in 1994 compared to 31% in 1993.
Pharmacia's cost of goods sold is dependent upon a number of external factors,
including fluctuations in the exchange rates of currencies of countries in which
Pharmacia's production facilities are located (principally the kronor and the
lira), improvements in manufacturing technology and
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changes in the costs of raw materials. Most of Pharmacia's costs are denominated
in either kronor or lira and the majority of its sales are denominated in
currencies other than kronor and lira.
Selling and administrative expenses were MSEK 8,922 in 1994 and MSEK 8,722
in 1993. As a percentage of sales, selling and administrative expenses decreased
from 35.3% in 1993 to 33.7% in 1994. The decrease was due primarily to the
effects of rationalization of marketing activities following the FICE
acquisition and to continued restructuring of Pharmacia's operations, in
combination with divestitures of products and product lines.
Research and development expenses, calculated in accordance with Swedish
GAAP, increased to MSEK 3,488 in 1994 from MSEK 2,812 in 1993. As a percentage
of sales, research and development expenses increased from 11.4% in 1993 to
13.2% in 1994. See Note 3 of Notes to Consolidated Financial Statements of
Pharmacia. The increase is partially due to including FICE for the full year
1994 compared to eight months in 1993. Historically, FICE reported higher
research and development expenses as a percent of sales than Pharmacia. The
increase also reflects Pharmacia's intensified focus on commencing Phase III
clinical trials during 1994 for a number of potential products.
Depreciation and amortization increased from MSEK 1,705 in 1993 to MSEK
1,914 in 1994 due primarily to the inclusion of a full year of amortization of
goodwill from the FICE acquisition.
Operating Income from Continuing Operations
Pharmacia's operating income from continuing operations in 1994 was MSEK
5,398, an increase of MSEK 2,071 or 62% over the MSEK 3,327 recorded in 1993.
Excluding significant non-recurring items, the increase in operating income was
20%. The improvement is primarily attributable to productivity improvements
achieved through rationalization and restructuring after the acquisition of
FICE. A gross margin increase of 2% of sales also contributed to the increase in
operating income. Gains from non-recurring items were MSEK 820 in 1994 compared
to non-recurring charges of MSEK 501 in 1993. The gain from non-recurring items
relates mainly to the sales of Deltec and of distribution rights of the smoking
cessation product Nicorette in the United States to McNeil Consumer Products
Company. The 1993 non-recurring charges relate primarily to the early settlement
of a lease obligation. See Note 4 of Notes to Consolidated Financial Statements
of Pharmacia.
Financial Income and Expense, Net
Net financial expense was MSEK 6 in 1993 as compared to MSEK 76 in 1994.
Interest income decreased from MSEK 1,214 in 1993 to MSEK 509 in 1994 due to a
higher cash position during the first four months of 1993 prior to the FICE
acquisition. Interest expense decreased from MSEK 1,196 in 1993 to MSEK 607 in
1994 as a result of reduced average debt levels in 1994.
Net Income
Pharmacia recorded net income of MSEK 3,279 in 1994, after income taxes of
MSEK 2,041, representing an effective tax rate of 38%. Pharmacia's effective tax
rate is higher than the Swedish statutory rate of 28% due mainly to the
nondeductibility of the goodwill amortization expense from the FICE acquisition,
a change in tax laws in Sweden that had the one-time effect of taxing in 1994
the prior reversal into income of the tax equalization reserve and the higher
statutory tax rate of 52% in Italy, where Pharmacia derives a substantial
portion of its net income. See "-- 1993 Compared to 1992 -- Taxes" and Note 7 of
Notes to Consolidated Financial Statements of Pharmacia.
Net Income per Share from Continuing Operations
Net Income per share from continuing operations increased from SEK 8.55 in
1993 to SEK 12.92 due to the factors discussed above.
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1993 COMPARED TO 1992
Sales
Pharmacia reported sales of MSEK 24,708 in 1993, an increase of 60% over
1992 reported sales of MSEK 15,448. Approximately two-thirds of the increase is
due to the inclusion in the Pharmacia financial statements of the results of
FICE beginning May 1, 1993 and the remaining one-third is due largely to the
depreciation of the kronor. Sales to customers outside of Sweden, which are
generally invoiced in currencies other than the kronor, represented 92% of
Pharmacia's total reported sales in 1993, compared with 87% in 1992, the
increase being attributable principally to the FICE acquisition. Although each
of the Pharmacia business areas experienced increased sales in 1993, overall
reported sales, excluding both the effects of currency fluctuations and the
acquisition of FICE, did not change significantly from 1992 to 1993. Growth in
the Japanese market, particularly for products in the Peptide Hormones,
Ophthalmics, Diagnostics and Pharmacia Biotech business areas, as well as for
Fragmin and Salazopyrin, was offset by decreased unit volume due to the general
decline in the German pharmaceutical market in 1993 as well as decreased sales
of Healon in the United States and the termination of certain products and
product lines contributing approximately 3.6% of 1992 sales.
As described above, Pharmacia's 1993 sales relative to 1992 have been
significantly affected by the fluctuation in exchange rates. The following table
sets forth the percentage change from 1992 to 1993 of pro forma sales for each
of Pharmacia's ten largest products or product groups, on an overall basis and
as adjusted to exclude the effect of fluctuations in exchange rates.
<TABLE>
<CAPTION>
PRO FORMA
-------------------
YEAR ENDED
DECEMBER 31,
------------------- OVERALL CURRENCY PRICE/VOLUME
1993(2) 1992(1) CHANGE EFFECT(3) EFFECT
------- ------- ------- --------- ------------
(MSEK) (%) (%) (%)
<S> <C> <C> <C> <C> <C>
Genotropin....................... 2,611 2,148 22 24 (2)
Healon........................... 1,667 1,238 35 34 1
Farmorubicin..................... 1,346 970 39 26 13
Allergy Diagnostics.............. 1,270 920 38 27 11
Adriamycin....................... 1,038 860 21 24 (3)
Fragmin.......................... 860 553 56 33 23
Sermion.......................... 850 692 23 26 (3)
Nicorette........................ 811 681 19 11 8
Intralipid....................... 687 560 23 15 8
Salazopyrin...................... 610 494 23 23 --
-- -- --
------- -------
11,750 9,116 29 25 4
======= ====== ===== ======= ==========
</TABLE>
---------------
(1) Reflects sales figures from the consolidated financial statements of
Pharmacia or FICE, as appropriate, for 1992.
(2) Reflects sales figures from the pro forma combined results of Pharmacia and
FICE for 1993.
(3) Represents the percentage change from 1992 pro forma sales to 1993 pro forma
sales where pro forma sales for both years are translated into kronor at
average exchange rates for 1992.
Sales of Genotropin increased by MSEK 463, or 22%, to MSEK 2,611 from MSEK
2,148 in 1992. Excluding the effect of currency fluctuations, sales of
Genotropin decreased by approximately 2% from 1992 to 1993. Unit sales increased
by 12% in Japan, Genotropin's single largest market, due to general growth in
the overall market and the introduction in 1992 of KabiPen, a product which
simplifies the administration of Genotropin. However, this increase and
increased sales in Germany were slightly more than offset elsewhere,
particularly by declines of unit volumes in Spain and Italy and by a price
reduction and a slight volume decrease in Australia. In each of these latter
three countries, governments had recently introduced cost containment measures
and/or changes in reimbursement policies.
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Sales of Healon increased by MSEK 429, or 35%, to MSEK 1,667 in 1993 from
MSEK 1,238 in 1992, primarily because of kronor depreciation. Excluding the
effect of currency fluctuations, Healon sales increased approximately 1% from
1992 to 1993. Volume increases in Japan, Germany, Italy and the United Kingdom
were offset by volume decreases in the United States, where the number of
cataract operations is declining, in France, where competitive pressures
increased, and in Spain, where government policies further limited reimbursement
for certain health care products.
Total sales of Farmorubicin and Adriamycin were MSEK 2,384 in 1993 and MSEK
1,830 in 1992. Excluding the effect of currency fluctuations, Farmorubicin and
Adriamycin sales in the aggregate increased 5% from 1992 to 1993. Sales of
Farmorubicin amounted to MSEK 1,346 in 1993, an increase of 13% over 1992 sales,
excluding the effect of currency fluctuations. The increase was due primarily to
increased volume, much of which resulted from health care providers switching
from Adriamycin to Farmorubicin. Sales of Adriamycin amounted to MSEK 1,038, a
decrease of 3% over 1992 sales, excluding the effect of currency fluctuations,
as sales volumes in the aggregate declined in part because of increased sales of
Farmorubicin. Sales volume of Adriamycin in its single largest market, the
United States, decreased marginally, but the decrease was partially offset by
small increases in its sales volumes in Canada and Germany.
Sales of in vitro allergy diagnostic testing products showed continued
growth, with sales totalling MSEK 1,270 in 1993, a 38% increase over 1992 sales.
Excluding the effect of currency fluctuations, these products recorded sales
growth of 11% from 1992 to 1993, due primarily to increased sales volumes,
particularly in Japan, but also in Sweden, Norway and Spain.
Sales of Fragmin increased to MSEK 860 in 1993, a 23% increase over 1992
sales, excluding the effect of currency fluctuations. The primary reason for the
increase was unit volume growth in Japan, where Fragmin was launched in the
autumn of 1992 for hemodialysis, and increased sales volume in the product's
single largest market, France.
Sales of Sermion were MSEK 850 for 1993, a 3% decrease compared to 1992
sales of the product by FICE, excluding the effect of currency fluctuations.
Sales volume in Japan showed strong growth but this was offset by decreased
sales in Italy, due to health authority measures to disallow reimbursement for
certain indications, and in the German market, mainly due to uncertainty
regarding new rules relating to prescriptions.
Sales of Nicorette were MSEK 811 in 1993, an increase of 8% over 1992
sales, excluding the effect of currency fluctuations. This increase was due
primarily to volume growth in Sweden, the United Kingdom, Denmark, France and
Norway offset in part by decreased volume sales of the smoking cessation patch
in the United States. The increase in sales volume has resulted from the
broadening of the Nicorette product line to include the Nicorette patch in
addition to Nicorette chewing gum. Pharmacia also reacquired the distribution
rights for Nicorette in a number of European countries, which, to a certain
extent, has enabled Pharmacia to increase and intensify its European marketing
focus.
Sales of Intralipid amounted to MSEK 687 in 1993, an increase of 8% over
1992 sales, excluding the effect of currency fluctuations. The increase was due
primarily to increased sales volume in Europe of Vitrimix, a combination package
containing Intralipid and Vamin. Vitrimix alleviates the need for the hospital
to mix Intralipid with an amino acid mixture. Price decreases for Intralipid
marginally offset volume growth. China, where Pharmacia has marketed Intralipid
for a decade, is the largest single market for Intralipid and sales there
continue to increase due to general improvements in the Chinese health care
system.
Sales of Salazopyrin, including Salazopyrin EN-tabs, were MSEK 610 in 1993
and essentially flat compared to 1992, excluding the effect of currency
fluctuations. Volume growth in Japan was offset by very small volume decreases
in Pharmacia's two largest markets for Salazopyrin, the United States and
Germany.
Excluding sales of the 10 largest selling products or product groups, which
are described above, and Pharmacia Biotech, reported sales increased by 63% from
MSEK 6,937 in 1992 to MSEK 11,283 in 1993, due primarily to the inclusion since
May 1993 of the acquired FICE products, to kronor depreciation and to volume
increases for certain Pharmacia products. Sales attributable to Deltec are also
included in the above sales figures in each period. Sales for each period have
been restated as Pharmacia reclassified certain products formerly included in
sales figures for Intralipid.
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Pharmacia Biotech's sales were MSEK 2,702 in 1993, an increase of 8% over
1992 sales, excluding the effect of currency fluctuations, the growth being
attributable primarily to an increase in sales volume of bulk/laboratory media
and reagents.
Operating Expenses
Pharmacia's cost of goods sold, which was MSEK 7,656 in 1993 and MSEK 4,749
in 1992, represented 31% of total reported sales in each year. Most of
Pharmacia's costs are denominated in either kronor or lira and the majority of
its sales are denominated in currencies other than kronor and lira. Accordingly,
given exchange rate fluctuations between 1992 and 1993, currency translation
effects led to a slightly higher relative increase in sales than in cost of
sales. However, the resulting improvement in operating margin was largely offset
by increased cost of goods sold due to higher manufacturing costs in local
currencies.
Since 1991, Pharmacia has decreased its number of manufacturing facilities
from 52 to 43 with a resulting significant reduction in employee positions,
although certain of these employees were reemployed in other areas of Pharmacia.
Selling and administrative expenses were MSEK 8,722 in 1993 and MSEK 5,550
in 1992. As a percentage of total reported sales, selling and administrative
expenses fell from 35.9% in 1992 to 35.3% in 1993. The decrease was due
primarily to the rationalization of marketing entities as a result of the FICE
acquisition. Costs related to this rationalization were treated as a component
of FICE's purchase price and did not affect Pharmacia's selling and
administrative expenses in 1993.
Research and development expenses increased to MSEK 2,812 in 1993 from MSEK
1,859 in 1992. As a percentage of sales, research and development expenses fell
to 11.4% in 1993 from 12.0% in 1992, mainly as a result of greater concentration
of Pharmacia's research and development efforts on fewer projects. The overall
increase in research and development expenses is due mainly to the acquisition
of FICE, but it also reflects Pharmacia's introduction of a number of potential
products into Phase III clinical trials during the year.
Operating Income from Continuing Operations
Pharmacia's operating income from continuing operations in 1993 was MSEK
3,327, an increase of MSEK 1,174, or 55%, compared to MSEK 2,153 in 1992. The
inclusion of FICE's operating income from May 1, 1993 through the end of the
year accounted for slightly more than half the increase. Nearly all of the
remaining increase is due to the effects of kronor depreciation. Pharmacia
conducts a significant proportion of its manufacturing in Sweden and most of its
sales are derived from customers outside Sweden. When the depreciation of the
kronor against many other world currencies occurred beginning in November 1992,
the kronor value of Pharmacia's sales in foreign currency increased, while its
kronor-denominated expenses were unaffected, which had an overall positive
effect on operating income in 1993. See "-- Impact of Currency Fluctuations and
Inflation." Higher margins in the Japanese market also contributed to the growth
in operating income. Operating income from continuing operations has also been
affected by non-recurring items amounting to MSEK 501 in 1993 compared to MSEK
141 during 1992. Of the 1993 non-recurring items, MSEK 433 relates to an early
payment in settlement of a lease obligation. See Note 22 of Notes to
Consolidated Financial Statements of Pharmacia.
Depreciation and amortization increased from MSEK 999 in 1992 to MSEK 1,705
in 1993 due to the inclusion of depreciation on FICE machinery and equipment and
buildings as well as amortization of goodwill relating to the FICE acquisition.
See Note 2 of Notes to Consolidated Financial Statements of Pharmacia.
Financial Income and Expense, Net
Net financial income decreased from MSEK 391 in 1992 to a net expense of
MSEK 6 in 1993. The main reason for the decrease was the acquisition of FICE,
which resulted in the inclusion of FICE net financial expense from May 1, 1993
as well as in financing costs on temporary short-term debt incurred to finance
the acquisition, accrued from May 1, 1993, and the loss of interest on cash used
in the acquisition. Pharmacia's average short-term debt during 1993 was MSEK
5,054, compared to MSEK 1,608 in 1992. Following the
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FICE acquisition, Pharmacia's highest balance of short-term debt during 1993 was
MSEK 7,932, and short-term loans increased from MSEK 2,265 at December 31, 1992
to MSEK 4,826 at December 31, 1993. Interest-earning liquid assets declined from
MSEK 7,934 at year-end 1992 to MSEK 3,099 at year-end 1993.
Taxes
Income taxes on continuing operations increased from MSEK 961 in 1992 to
MSEK 1,148 in 1993. Pharmacia's effective income tax rate from continuing
operations was 38% in 1992 and 35% in 1993. The 1992 rate was adversely affected
by income taxes charged to Pharmacia related to inter-company transactions with
divested businesses, principally BCP, partially offset by timing differences for
which deferred taxes were not previously provided. The 1993 effective rate was
favorably affected by changes in Swedish tax laws enacted in 1993. Excluding the
non-recurring nature of the changes in Swedish tax laws, the 1993 effective tax
rate would have been approximately 50%. See Note 7 of Notes to Consolidated
Financial Statements of Pharmacia.
Net Income per Share from Continuing Operations
Net Income per share from continuing operations increased from SEK 6.31 in
1992 to SEK 8.55 in 1993 due to the factors discussed above.
LIQUIDITY, CAPITAL RESOURCES AND INVESTMENTS
Capital expenditure for property, plant and equipment in 1994 amounted to
MSEK 1,591, compared with MSEK 2,975 in 1993 and MSEK 1,089 in 1992. Capital
expenditure increased in 1993 primarily due to the payment of MSEK 1,494 for the
repurchase of certain office and industrial properties previously leased.
Pharmacia expects capital expenditures in 1995 to be at a somewhat higher level
than in 1994. Pharmacia has decided to build a plant for production of
intravenous nutrition solutions and fat emulsion-based products in Uppsala. The
total investment will amount to nearly MSEK 800 and is expected to be completed
in 1997. In addition, a decision was made to expand Pharmacia's cancer research
laboratory in Lund, Sweden, at a cost of MSEK 220.
The original 1993 accrual for restructuring and integration costs related
to the acquisition of FICE was MSEK 1,200 which was recorded as additional
purchase price under Swedish GAAP. These costs related to the planned reduction
of approximately 1,100 marketing and administrative employee positions, the
closing of certain duplicate facilities and other related integration costs. The
original liability for these FICE restructuring charges was reduced by cash
payments of MSEK 398 in 1993 and MSEK 536 in 1994 resulting in a remaining
liability of MSEK 266 at December 31, 1994. The liability at December 31, 1994
relates primarily to leases and is expected to be utilized during 1995 and 1996.
Net cash provided by operating activities during 1994 increased to MSEK
4,340, compared with MSEK 4,105 in 1993 and MSEK 3,281 in 1992 principally due
to higher net income from continuing operations, before significant
non-recurring items.
Net cash flow from investing activities during 1994 amounted to MSEK 582
compared with net cash flow used in investing activities of MSEK 7,550 in 1993
and MSEK 911 in 1992. The 1994 increase was principally due to the sale of
Deltec and product distribution rights in 1994, compared with the acquisition of
FICE in 1993 (MSEK 6,674, net of cash acquired), the repurchase in 1993 of
certain office and industrial properties previously leased (MSEK 1,494) and an
MSEK 900 investment in 1993 in shares of Huhtamaki. The 1993 outflows were
partially offset by a cash inflow of MSEK 3,253 which was received from BCP in
1993.
Net cash flow used in financing activities amounted to MSEK 3,933 in 1994,
compared with MSEK 1,424 in 1993 and net cash proceeds of MSEK 148 in 1992, due
principally to repayment of short-term loans.
Cash and bank deposits and short-term investments in interest-bearing
securities amounted to MSEK 4,004 at December 31, 1994 compared to MSEK 3,099 at
December 31, 1993. On December 31, 1994, Pharmacia had drawn down MSEK 1,453 in
short-term loans. Pharmacia has two U.S.$500 million commercial paper programs
established in the U.S. and Europe of which an aggregate MSEK 639 was utilized
at December 31, 1994. The programs are rated A-1 by Standard & Poor's and P-1 by
Moody's. In addition,
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Pharmacia established a standby revolving credit facility with an international
bank syndicate with a five year term in an amount of U.S.$500 million, none of
which was utilized at December 31, 1994.
RECONCILIATION TO U.S. GAAP
Pharmacia prepares its Consolidated Financial Statements in accordance with
Swedish GAAP, which differs in certain significant respects from U.S. GAAP.
Under U.S. GAAP, net income from continuing operations for the six month periods
ended June 30, 1995 and 1994 and for the years ended December 31, 1994, 1993 and
1992 were MSEK 1,411, MSEK 1475, MSEK 2,656, MSEK 1,281 and MSEK 1,029,
respectively, compared with MSEK 1,728, MSEK 1,580, MSEK 3,279, MSEK 2,168 and
MSEK 1,599 under Swedish GAAP. Net income per share from continuing operations
for the six month periods ended June 30, 1995 and 1994 and for the years ended
December 31, 1994, 1993 and 1992 was SEK 5.54, SEK 5.82, SEK 10.47, SEK 5.05 and
SEK 4.06 under U.S. GAAP, respectively, compared with SEK 6.78, SEK 6.23, SEK
12.92, SEK 8.55 and SEK 6.31 under Swedish GAAP. Stockholders' equity at June
30, 1995 and at December 31, 1994, 1993 and 1992 under U.S. GAAP were MSEK
25,136, MSEK 24,181, MSEK 22,420 and MSEK 31,002, respectively, compared with
MSEK 19,394, MSEK 18,132, MSEK 15,697 and MSEK 20,609 under Swedish GAAP.
The differences between net income from continuing operations and
stockholders' equity under U.S. GAAP and Swedish GAAP result primarily from
differing accounting treatments for business combinations and goodwill, income
taxes, investments and certain foreign exchange gains and losses. See Note 25 of
Notes to Consolidated Financial Statements of Pharmacia for a reconciliation of
net income from continuing operations and stockholders' equity in accordance
with Swedish GAAP to net income from continuing operations and stockholders'
equity in accordance with U.S. GAAP and for a discussion of the differences
between U.S. GAAP and Swedish GAAP.
In March 1995, the U.S. Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" ("SFAS
121"). SFAS No. 121 establishes accounting standards for the recognition and
measurement of impairment of long-lived assets, certain identifiable intangibles
and goodwill related to those assets to be held and used, and for long-lived
assets and certain intangibles to be disposed of. Pharmacia would be required to
first comply with the requirements of SFAS No. 121 in its 1996 Consolidated
Financial Statements. Pharmacia believes that FASB 121 would not have had a
significant impact on the financial position and results of operations had FASB
121 been adopted in the 1994 financial statements.
IMPACT OF CURRENCY FLUCTUATIONS AND INFLATION
Pharmacia has significant export sales from Sweden that are invoiced in
currencies other than kronor and has a substantial amount of assets and
liabilities denominated in currencies other than kronor. Markets outside of
Sweden accounted for MSEK 24,452, or 92%, of Pharmacia's sales in 1994.
Pharmacia also has many suppliers outside of Sweden from which it imports, among
other things, various raw materials that may be invoiced in currencies other
than kronor. Accordingly, Pharmacia's sales and operating income, expressed in
kronor, may be affected by fluctuations in the exchange rates between the kronor
and the denomination of the currencies in which Pharmacia invoices, is invoiced
or has assets or liabilities.
Prior to November 1992, the kronor was pegged to the ECU. On November 19,
1992, the Swedish Riksbank decided to discontinue pegging the kronor to the ECU
and permitted the kronor to float against other currencies. By the end of 1992,
the value of the kronor had fallen by approximately 15% against the ECU. Because
of such depreciation in the value of the kronor relative to other currencies,
Pharmacia's reported sales in kronor do not necessarily represent improved sales
volumes or increasing prices in local currencies.
Pharmacia continually assesses its currency risks and enters into currency
exchange contracts in order to manage the impact of fluctuations in exchange
rates on the value of Pharmacia's sales and purchases in foreign currencies and
certain financial assets and liabilities (transaction exposure), as well as on
its investment in foreign subsidiaries' net assets (translation exposure). At
June 30, 1995, Pharmacia had
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contracts of MSEK 3,897 outstanding to cover future transaction exposure (of
which MSEK 488 was to cover U.S. dollar exposure and MSEK 1,565 was to cover
Japanese yen exposure). Pharmacia also had currency exchange contracts
outstanding at June 30, 1995 of MSEK 6,038 to cover translation exposure and
MSEK 5,266 to cover Company lending and net borrowings. The substantial majority
of contracts that hedge future exposures are due in 1995. The corresponding
amounts at December 31, 1994 were MSEK 3,970 of contracts to cover future
transaction exposure, MSEK 5,986 to cover translation exposure and MSEK 6,985 to
cover lending and net borrowing, respectively.
Pharmacia defines its currency exposure per currency as the projected net
exposure for the coming twelve months, and this reflects Pharmacia's level of
activity in the respective territory. The effects of entering into forward
currency exchange contracts are accounted for in the period the contract and the
underlying (hedged) transaction is completed. At June 30, 1995, unrealized
losses in forward currency exchange contracts in order to cover transaction
exposure exceeded unrealized gains. Pharmacia hedges its net assets denominated
in currencies other than kronor. At June 30, 1995, such hedging covered
approximately 48% of Pharmacia's net asset value. Financing needs of Pharmacia's
foreign subsidiaries are coordinated by currency to balance the currency risk
and interest level for the group.
The effects of inflation on Pharmacia's operations have not been
significant in recent years.
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DESCRIPTION OF CAPITAL STOCK AND
CHARTER DOCUMENTS OF THE COMPANY
The summary of the terms of the capital stock of the Company set forth
below does not purport to be complete and is subject to and qualified in its
entirety by reference to the forms of the Company Certificate and Company
By-laws, which have been filed as Exhibits to the Registration Statement. The
Company Certificate and the Company By-laws will be effective as of the
Effective Time.
AUTHORIZED CAPITAL STOCK
Under the Company Certificate, the total number of shares of all classes of
stock that the Company has authority to issue is 1,600,000,000 shares, of which
1,500,000,000 will be shares of New Common Stock, and of which 100,000,000 will
be shares of preferred stock of the Company, of which 7,500 will be designated
New Preferred Stock.
The additional shares of authorized stock available for issuance by the
Company might be issued at such times and under such circumstances as to have a
dilutive effect on earnings per share and on the equity ownership of the holders
of New Common Stock. The ability of the Company Board to issue additional shares
of stock could enhance the Company Board's ability to negotiate on behalf of the
Stockholders in a takeover situation and also could be used by the Company Board
to make a change in control more difficult, thereby denying stockholders the
potential to sell their shares at a premium and entrenching current management.
COMMON STOCK
Subject to any preferential rights of the New Preferred Stock or any other
series of the Company's preferred stock, holders of shares of New Common Stock
will be entitled to receive dividends on such stock out of the assets or funds
of the Company legally available for the payment of dividends when, as and if
authorized and declared by the Company Board and to share ratably in the assets
of the Company legally available for distribution to the Stockholders in the
event of its liquidation, dissolution or winding-up. The Company will not be
able to pay any dividend or make any distribution of assets on shares of New
Common Stock until dividends on shares of the New Preferred Stock and on any
other series of the Company's preferred stock then outstanding with dividend or
distribution rights senior to the New Common Stock have been paid.
Holders of shares of New Common Stock will be entitled to one vote per
share on all matters voted on generally by the Stockholders, including the
election of Directors, and except as otherwise required by law or except as
provided with respect to the New Preferred Stock or any other series of the
Company's preferred stock, the holders of such shares will possess all voting
power. See "-- New Preferred Stock -- Voting Rights." The Company Certificate
does not provide for cumulative voting for the election of Directors.
The shares of New Common Stock, when issued to holders of outstanding
shares of Upjohn Common Stock or Pharmacia Class A Common Shares, Pharmacia
Class B Common Shares or ADSs in connection with the Merger or the Offer, or
when issued upon conversion of the New Preferred Stock, will be validly issued,
fully paid and nonassessable.
Holders of New Common Stock will have no preferences or preemptive,
conversion or exchange rights.
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NEW PREFERRED STOCK
Designation and Amount
The New Preferred Stock will have a par value of $.01 per share and a
stated value and a liquidation preference of $40,300.00 per share, plus accrued
and unpaid dividends. The authorized number of shares of New Preferred Stock
will be 7,500. The terms of the New Preferred Stock are essentially the same as
those of the Upjohn Preferred Stock issued to the Trustee of the Plan, except
that the Conversion Ratio (as defined in the Company Certificate) has been
changed to reflect the Exchange Ratio.
Rank
With respect to dividend rights and rights on liquidation, dissolution and
winding-up, the New Preferred Stock will rank senior to all classes of stock of
the Company except those classes of preferred stock expressly designated as
ranking senior or on a parity with the New Preferred Stock.
Dividends
The holders of New Preferred Stock will be entitled to receive, when, as
and if declared by the Company Board out of funds legally available therefor,
cash dividends in an amount per share not to exceed $2,518.75 per annum, payable
quarterly in arrears. No interest shall accrue on accumulated but unpaid
dividends. Holders of shares of New Preferred Stock are not entitled to any
other dividends.
Redemption
(a) Upon the giving of specified notice, on or after July 20, 1999, the
Company, at its option, will be entitled to redeem any or all shares of New
Preferred Stock, at a redemption price of $40,300.00 per share, plus an amount
equal to all accrued and unpaid dividends thereon to and including the date of
redemption (the "Redemption Price").
(b) The Company must redeem all shares of New Preferred Stock at the
following redemption prices in the event that the Plan is terminated or the
Company Employee Stock Ownership Plan is terminated or eliminated from the Plan
in accordance with the terms of the Plan, plus an amount equal to all accrued
and unpaid dividends thereon to and including the date of redemption:
<TABLE>
<CAPTION>
DURING THE TWELVE-MONTH
PERIOD BEGINNING JULY 20, PRICE PER SHARE
---------------------------------------------------------- ---------------
<S> <C>
1995...................................................... $41,307.500
1996...................................................... 41,055.625
1997...................................................... 40,803.750
1998...................................................... 40,551.875
</TABLE>
In addition, the Company must redeem the New Preferred Stock at a Redemption
Price of $40,300.00 per share plus accrued and unpaid dividends thereon to the
date fixed for redemption if the following events occur: (i) when and to the
extent necessary for such holder to make any payments of principal, interest or
premium due and payable under the Note (as defined in the Company Certificate)
from the Trustee to the Company or any indebtedness, expenses or costs incurred
by the holder for the benefit of the Plan, or (ii) in the event that the Plan is
not initially determined by the Internal Revenue Service to be qualified.
(c) In lieu of paying the Redemption Price in cash, the Company may, at its
sole option, make payment of the Redemption Price in shares of New Common Stock,
or in a combination of New Common Stock and cash, with any such shares of New
Common Stock to be valued at the Fair Market Value (as defined in the Company
Certificate) of the New Common Stock on the date as of which the New Preferred
Stock is to be redeemed.
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Conversion Rights
The holders of shares of New Preferred Stock will have the right, at their
option, to convert any or all of such shares into shares of New Common Stock
initially at a conversion price (the "Conversion Price") equal to $27.79 per
share of New Common Stock, with each share of New Preferred Stock being valued
at $40,300 for such purpose. The Conversion Price will be subject to
antidilution adjustments, as described in the next paragraph.
Antidilution Provisions
The number of shares of New Common Stock into which each share of New
Preferred Stock will be convertible will be subject to certain antidilution
adjustments upon the occurrence of certain events such as (i) payment of a
dividend or distribution in respect of the New Common Stock in shares of New
Common Stock, (ii) subdivision of the outstanding shares of New Common Stock,
(iii) combination of the outstanding shares of New Common Stock into a smaller
number of shares, in each case whether by reclassification of shares,
recapitalization of the Company or otherwise, (iv) issuance to holders of New
Common Stock as a dividend or distribution of any right or warrant to purchase
shares of New Common Stock at a purchase price per share less than the Fair
Market Value of a share of New Common Stock on the date of issuance of such
right or warrant, (v) issuance, sale or exchange of shares of New Common Stock
(other than pursuant to any right or warrant to purchase or acquire shares of
New Common Stock and other than pursuant to any employee or director incentive
or benefit plan or arrangement of the Company or any subsidiary of the Company)
for a consideration having a Fair Market Value, on the date of such issuance,
less than the Fair Market Value of such shares on the date of issuance, sale or
exchange, and (vi) the declaration of an Extraordinary Distribution (as defined
in the Company Certificate) in respect of the New Common Stock.
Voting Rights
Each share of New Preferred Stock has voting rights equal to the number of
shares of New Common Stock into which such New Preferred Stock could be
converted on the record date for determining the stockholders entitled to vote,
rounded to the nearest one one-hundredth of a vote, subject to adjustment to
prevent dilution, voting together with the holders of shares of New Common Stock
as one class.
The vote of at least 66 2/3% of the outstanding New Preferred Stock, voting
separately as a series, is required to adopt any alteration, amendment or repeal
of any provision of the Company Certificate, if such amendment, alteration or
repeal would alter or change the powers, preferences or special rights of the
New Preferred Stock so as to affect them adversely.
Liquidation Rights
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
the Company (collectively, a "Liquidation"), the holders of New Preferred Stock
will be entitled to receive liquidating distributions in the amount of $40,300
per share, plus an amount equal to all accrued and unpaid dividends thereon to
the date fixed for distribution, before any distribution or payment is made to
holders of New Common Stock or on any other class of the Company stock ranking
junior as to dividends or assets distributable upon liquidation to the holders
of shares of New Preferred Stock. After the payment to the holders of the New
Preferred Stock of the full preferential amounts described above, the holders of
the New Preferred Stock will not be entitled to any further participation in any
distribution or payment by the Company.
Consolidation, Merger
In the event the Company consummates any consolidation or merger or similar
business combination, pursuant to which the outstanding shares of New Common
Stock are exchanged solely for or changed, reclassified or converted solely into
stock of any successor or resulting corporation that constitutes "qualifying
employer securities" with respect to a holder of New Preferred Stock within the
meaning of Section 409(1) of the Code and Section 407(d)(5) of Employee
Retirement Income Security Act of 1979, as amended, or any successor provisions
of law, the New Preferred Stock of such holder will be assumed by and will
become
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preferred stock of such successor or resulting corporation, having in respect of
such corporation the same powers, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations or
restrictions that the New Preferred Stock had immediately prior to such
transaction.
In the event the Company consummates any business combination of the type
described in the preceding paragraph pursuant to which the outstanding shares of
New Common Stock are exchanged for consideration that does not constitute
"qualifying employer securities", the outstanding shares of New Preferred Stock
shall be automatically converted into the number of shares of New Common Stock
into which such shares of New Preferred Stock could have been converted at such
time, subject, however, to the right of the holder of any such share of New
Preferred Stock to elect instead to receive from the Company cash equal to the
amount payable in respect of New Preferred Stock upon liquidation of the
Company.
Certain Potential Antitakeover Effects of the New Preferred Stock
Although the issuance of shares of New Preferred Stock in connection with
the Merger is not intended as an antitakeover device, it should be noted that
such issuance, and the issuance of New Common Stock or other securities into
which the New Preferred Stock is convertible or exchangeable, may have certain
antitakeover effects. It may discourage or render more difficult a merger,
tender offer or proxy contest involving the Company or deter a third party from
seeking to acquire control of the Company.
The shares of New Preferred Stock, when issued to the holders of the
outstanding shares of Upjohn Preferred Stock in connection with the Merger, will
be validly issued, fully paid and nonassessable.
OTHER SERIES OF PREFERRED STOCK
The Company Board is authorized to issue shares of the Company's preferred
stock, in one or more series, and to fix for each such series the designations
and relative powers, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption, as are permitted by the DGCL. The Company Board could
authorize the issuance of shares of preferred stock with terms and conditions
which could discourage a takeover or other transaction that holders of some or a
majority of shares of New Common Stock might believe to be in their best
interests or in which such holders might receive a premium for their shares of
stock over the then market price of such shares. Currently, the Company
Certificate does not provide for any other series of the Company's preferred
stock, other than the shares of New Preferred Stock.
PREEMPTIVE RIGHTS
No holder of any shares of any class of stock of the Company will have any
preemptive or preferential right to acquire or subscribe for any unissued shares
of any class of stock or any authorized securities convertible into or carrying
any right, option or warrant to subscribe for or acquire shares of any class of
stock.
TRANSFER AGENT AND REGISTRAR
The principal transfer agent and registrar for New Common Stock will be
Harris Trust and Savings Bank.
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CERTAIN CHANGES IN RIGHTS OF STOCKHOLDERS
RESULTING FROM THE COMBINATION
CHANGES IN RIGHTS OF UPJOHN STOCKHOLDERS
As a result of the Merger, holders of shares of Upjohn Common Stock will
own shares of New Common Stock and holders of Upjohn Preferred Stock will own
shares of New Preferred Stock. Both Upjohn and the Company are corporations
incorporated under the laws of the State of Delaware. The DGCL is the statute
which governs Delaware corporations. The following is a summary of certain
significant differences between the rights of holders of shares of Upjohn Common
Stock and Upjohn Preferred Stock and holders of shares of New Common Stock and
New Preferred Stock. These differences arise from differences between Upjohn's
Certificate of Incorporation and Upjohn By-laws and the Company Certificate and
Company By-laws, the governing instruments of the two companies. See
"Description of Capital Stock and Charter Documents of the Company." This
discussion is not and does not purport to be complete or to identify all
differences that may, under given fact situations, be material to stockholders.
The summaries set forth herein are qualified in their entirety by reference to
the forms of the Company Certificate and Company By-laws, which have been filed
as Exhibits to the Registration Statement.
SIZE AND CLASSIFICATION OF BOARD OF DIRECTORS
The Company
The Company Certificate and Company By-laws provide that the Company Board
shall be comprised of not less than eight nor more than 16 members, which number
may be increased or decreased within such parameters by the Company Board. The
Company By-laws provide that until the annual meeting of Stockholders at which
Directors are elected in 2001, (i) the Chairman of the Company Board and the
President and Chief Executive Officer of the Company may not both be citizens of
the United States or Canada or nationals of Sweden or other European Union
member states, and (ii) one-half of the Directors shall be citizens of the
United States or Canada and one-half shall be nationals of Sweden or other
European Union member states. The Company By-laws also provide that the Chairman
of the Company Board and the President and Chief Executive Officer of the
Company may not be the same person unless otherwise approved by a Director
Supermajority Vote or a Stockholder Supermajority Vote. The Company By-laws
provide that at least half of the Directors shall be independent directors as
such term is used in Rule 303 of the rules of the NYSE. The Company will have,
as of the Effective Time, 16 Directors. See "Description of the Company --
Directors and Executive Officers." As permitted under the DGCL, the Company
Board is classified into three classes which are to be as nearly equal in number
as is possible. Directors in each class will serve for a term of three years,
with the exception that members of the first class will initially be elected for
a term of one year after which members of such class will then be elected for a
term of three years, and members of the second class will initially be elected
for a term of two years, after which members of such class will then be elected
for a term of three years. Elections are staggered such that one class is
elected each year.
Upjohn
The Upjohn By-laws provide that the Upjohn Board shall consist of not fewer
than three nor more than 16 directors, with the number fixed from time to time
by resolution of the Upjohn Board. Upjohn currently has 13 Directors. The Upjohn
Board is classified into three classes. The Upjohn Board may designate either
the Chairman of the Board, Vice Chairman of the Board, or President as Chief
Executive Officer.
MEETINGS OF STOCKHOLDERS
The Company
Under the Company By-laws, the 1996 annual meeting of Stockholders will be
held in either Sweden or the United States and the location of the annual
meetings held in each year thereafter will alternate between Sweden and the
United States. Only business which has been brought before the meeting by or at
the direction of the Company Board or by any Stockholder entitled to vote
thereat who complies with the
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procedures set forth in Section 2.02 of the Company By-laws, including those
with respect to advance notice, may be conducted at annual meetings. Under the
Company By-laws, special meetings of Stockholders may be called only by the
Chairman of the Board, the President and Chief Executive Officer or a majority
of all of the Directors.
Upjohn
The Upjohn By-laws provide that the annual meeting of stockholders shall be
held in the County of Kalamazoo, Michigan. Elections of directors and officers
and any other proper business may be transacted at the annual meeting. Under
Upjohn's Certificate of Incorporation, special meetings of the Upjohn
stockholders may be called only by the Chairman of the Board, the Vice Chairman
of the Board, the President, or a majority of the Upjohn Board.
AMENDMENT OF CHARTER DOCUMENTS
The Company
The Company Certificate requires that (A) resolutions to amend, alter,
change or repeal (i) the name of the Corporation, or (ii) the provisions of the
Company Certificate relating to certain Business Combinations(as defined in the
Company Certificate) must be approved by a Director Supermajority Vote and a
Stockholder Supermajority Vote; and (B) resolutions to amend, alter, change or
repeal (i) the classification of the Company Board or (ii) the provision in the
Company Certificate which requires a Director Supermajority Vote in order to
amend provisions of the Company By-laws whose amendment, alteration or repeal
requires a Director Supermajority Vote or a Stockholder Supermajority Vote must
be approved by a Director Supermajority Vote.
The Company By-laws may be amended or repealed or new By-laws adopted by
approval of the record holders of a majority of the shares entitled to vote at
any regular or special meeting of the Stockholders at which a quorum is present
or by a majority of the Directors at a board meeting at which a quorum is
present, except that (A) a Director Supermajority Vote is required to approve
any amendment, alteration, change or repeal of the provisions of the Company
By-laws relating to (i) the location of the global corporate management center
of the Company or the Company's operational headquarters, (ii) the number,
qualifications and terms of office of Directors, (iii) the qualifications of the
Chairman of the Board and the duties and powers of the Chairman of the Board,
and (iv) the composition and terms of committees of the Company Board, (v)
certain arrangements relating to dividend payments, (vi) the maintenance of the
Swedish Depositary Share program, and (vii) the requirement that communications
to stockholders be made in both the English and Swedish languages; and (B) a
Director Supermajority Vote is required to approve any amendment, alteration,
change or repeal of the provisions of the Company By-laws relating to the
location of the annual meetings of Stockholders unless the number of persons
that are residents in or nationals of Sweden holding shares, whether directly or
as SDSs, falls below 5% of the total number of persons holding Voting Stock or
such persons cease to beneficially own at least 5% of the Voting Stock
(including shares held by the Depositary), in which case such an amendment,
alteration, change or repeal may be approved by the affirmative vote of a
majority of the Directors or the affirmative vote of the holders of a majority
of the Voting Stock.
Upjohn
Upjohn reserves the right to amend, alter, change or repeal its Certificate
of Incorporation in accordance with the DGCL, provided, however, that the Upjohn
stockholders may not amend, change, alter, or repeal, or make any provision
inconsistent with, Articles Fifth (composition and structure of Board of
Directors) or Seventh (voting requirements for Business Combination) of Upjohn's
Certificate of Incorporation without the affirmative vote of the holders of a
majority of Voting Stock, excluding any Related Person (as defined in Upjohn's
Certificate of Incorporation) or approval by a majority of the Continuing
Directors (as defined in Upjohn's Certificate of Incorporation).
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Upjohn's By-laws may be amended, repealed, or altered, in whole or in part,
by a majority vote of the outstanding shares of voting stock of Upjohn, at any
regular meeting of the stockholders or at any special meeting where such action
has been announced in the call and notice of such meeting. The Upjohn Board may
amend the Upjohn By-laws but may not repeal any By-laws adopted by the
stockholders.
NEW PREFERRED STOCK
The Company
Conversion Rights. Under the Company Certificate, a holder of New
Preferred Stock is entitled, at any time prior to the close of business on the
date fixed for redemption of such shares, to cause any or all such shares to be
converted into shares of New Common Stock, initially at a conversion price equal
to $27.79 per share of New Common Stock, with each share of New Preferred Stock
being valued at $40,300 for such purpose, which is subject to adjustment,
provided, however, that in no event shall the conversion price be less than
$1.00.
Upjohn
Under the Upjohn Certificate of Incorporation, the conversion price for
conversion of shares of Upjohn Preferred Stock to shares of Upjohn Common Stock
is initially $43.00. In all other respects the Upjohn Preferred Stock is
substantially similar to the New Preferred Stock.
CHANGES IN RIGHTS OF PHARMACIA STOCKHOLDERS
Upon consummation of the Offer, holders of Pharmacia Securities who tender
such shares into the Offer will own shares of New Common Stock or SDSs, each
representing one share of New Common Stock. Pharmacia is a corporation organized
under the laws of the Kingdom of Sweden and the Company is a corporation
incorporated under the laws of the State of Delaware. The DGCL is the statute
which governs Delaware corporations and the Companies Act governs Swedish
companies. The following is a summary of certain significant differences between
the rights of holders of Pharmacia Securities and holders of New Common Stock.
These differences arise from differences between the corporate laws of the
Kingdom of Sweden and the State of Delaware as well as from differences between
Pharmacia's Articles of Association ("Pharmacia Articles") and the Company
Certificate and the Company By-laws, the governing instruments of the two
companies. See "Description of Capital Stock and Charter Documents of the
Company." This discussion is not and does not purport to be complete or to
identify all differences that may, under given fact situations, be material to
stockholders. The summaries set forth herein are qualified in their entirety by
reference to the forms of Company Certificate and Company By-laws, which have
been filed as Exhibits to the Registration Statement.
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SIZE AND CLASSIFICATION OF THE BOARD OF DIRECTORS
The Company
The Company Certificate and Company By-laws provide that the Company Board
shall be comprised of not less than eight nor more than 16 members, which number
may be increased or decreased within such parameters by the Company Board. The
Company By-laws provide that until the annual meeting of Stockholders at which
Directors are elected in 2001, (i) the Chairman of the Board and the President
and Chief Executive Officer may not both be citizens of the United States or
Canada or nationals of Sweden or other European Union member states, and (ii)
one-half of the Directors shall be citizens of the United States or Canada and
one-half shall be nationals of Sweden or other European Union member states. The
Company By-laws also provide that the Chairman of the Board and the President
and Chief Executive Officer may not be the same person unless otherwise approved
by a Director Supermajority Vote or a Stockholder Supermajority Vote. The
Company By-laws provide that at least half of the Directors shall be independent
directors as such term is used in Rule 303 of the rules of the NYSE. The Company
will have, as of the Effective Time, 16 Directors. See "Description of the
Company -- Directors and Executive Officers." As permitted under the DGCL, the
Company Board is classified into three classes which are to be as nearly equal
in number as is possible. Directors in each class will serve for a term of three
years, with the exception that members of the first class will initially be
elected for a term of one year after which members of such class will then be
elected for a term of three years, and members of the second class will
initially be elected for a term of two years, after which members of such class
will then be elected for a term of three years. Elections are staggered such
that one class is elected each year.
Pharmacia
The Pharmacia Articles provide that the Pharmacia Board shall consist of
not fewer than eight and not more than 11 directors with not more than four
deputy directors. Swedish law provides for the appointment of three additional
directors (two directors if the company is active in only one industry) and
three deputy directors by the unions representing the company's employees. Under
Swedish law the managing director and at least half of the board members must be
resident in a European Economic Area unless the Swedish government or an
authority appointed by the government in a particular case grants an exception.
The term of office of a director is one year, but a director may serve any
number of consecutive terms. Pharmacia currently has 13 directors and three
deputy directors. The directors and deputy directors (excluding those appointed
by the unions) are elected at the Annual General Meeting of Pharmacia
stockholders for a term expiring at the end of the next Annual General Meeting.
The Chairman of the Pharmacia Board is appointed by stockholders at the Annual
General Meeting.
REMOVAL OF DIRECTORS
The Company
The Company By-laws provide that a Director or Directors may be removed
only for due cause, by the affirmative vote of the record holders of a majority
of the Voting Stock. Vacancies of the Company Board may be filled by the
affirmative vote of a majority of the remaining Directors.
Pharmacia
Under Swedish law directors may be removed from office by a general meeting
of stockholders at any time, and vacancies in the Board, except when filled by a
Deputy Director, may only be filled by stockholder resolution and except where
statute or the Articles of Association prescribe otherwise.
MEETINGS OF STOCKHOLDERS
The Company
Under the Company By-laws, the 1996 annual meeting of Stockholders will be
held in either Sweden or the United States and the location of the annual
meetings held in each year thereafter will alternate between
183
<PAGE> 190
Sweden and the United States. Only business which has been brought before the
meeting by or at the direction of the Company Board or by any Stockholder
entitled to vote thereat who complies with the procedures set forth in Section
2.02 of the Company By-laws, including those with respect to advance notice, may
be conducted at annual meetings. Under the Company By-laws, a special meeting of
the Stockholders may be called only by the Chairman of the Board, the President
and the Chief Executive Officer or a majority of all of the Directors.
Pharmacia
Notice of a general meeting of stockholders is to be given not less than
two nor more than four weeks prior to the meeting. In order to be entitled to
attend and vote at a general meeting of stockholders, a stockholder must be
registered in the register of stockholders on the tenth day prior to the date of
the meeting. The Pharmacia Articles provide that a stockholder must give notice
to Pharmacia of his or her intention to attend the meeting not later than the
date specified in the notice convening the meeting (a date not being a Sunday,
nor any other general holiday, Saturday, Midsummer Eve, Christmas Eve or New
Year's Eve, and it must not be earlier than the fifth day preceding the
meeting). A stockholder may attend and vote at the meeting in person or by
proxy. A person designated on the register as a nominee ("forvaltare") is not
entitled to vote at a general meeting; nor is a beneficial owner whose share is
registered in the name of a nominee entitled to vote at a general meeting,
unless the beneficial owner first arranges to have such owner's own name entered
into the register of stockholders. The Pharmacia Articles permit each
stockholder to cast the full number of votes represented by such stockholder's
shares. A voting list of those present or represented is prepared at the general
meeting.
STOCKHOLDER VOTE REQUIRED FOR MERGERS OR CONSOLIDATIONS
The Company
The DGCL requires that before a merger can be approved by the stockholders,
a resolution approving the merger must be adopted by the corporation's board of
directors. After approval by the board of directors, the merger agreement must
be submitted to the stockholders for adoption. Pursuant to the DGCL, a merger
must be approved by the affirmative vote of at least a majority of the
outstanding shares entitled to vote thereon.
Notwithstanding the foregoing, the Company Certificate provides that a
Business Combination (as defined in the Company Certificate) with a person who
holds at least 15% of the stock of the Company requires a Stockholder
Supermajority Vote unless it is approved by a majority of the Directors who were
Directors before such person acquired 15% of the stock of the Company and such
person satisfies certain "fair price" provisions as set forth in the Company
Certificate.
Pharmacia
Under the Companies Act, resolutions are normally passed by a simple
majority of votes cast unless otherwise specified in Pharmacia's Articles. There
are generally no quorum requirements. However, certain resolutions require
special quorums and majorities, including a resolution to disapply shareholders'
preemptive rights in connection with an issue of shares or to reduce share
capital or to approve a merger, which requires a majority of at least two-thirds
of the votes cast as well as at least two-thirds of the shares represented at
the meeting. However, if a resolution to reduce the share capital or to approve
a merger alters the legal relationship between shares, the unanimous approval of
the stockholders present at the meeting and representing at least 90% of all
shares issued is normally required. The same approval is required in order to
pass a resolution under which a public company is to merge with a private
company and be dissolved.
BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS
The Company
Section 203 of the DGCL prohibits a corporation which has securities traded
on a national securities exchange, designated on the NASDAQ or held of record by
more than 2,000 stockholders from engaging in certain business combinations,
including a merger, sale of substantial assets, loan or substantial issuance of
stock,
184
<PAGE> 191
with an interested stockholder, or an interested stockholder's affiliates or
associates, for a three-year period beginning on the date the interested
stockholder acquires 15% or more of the outstanding voting stock of the
corporation. The restrictions on business combinations do not apply if (i) the
board of directors gives prior approval to the transaction in which the 15%
ownership level is exceeded, (ii) the interested stockholder acquires at one
time 85% of the corporation's stock (excluding those shares owned by persons who
are directors and also officers as well as employee stock plans in which
employees do not have a confidential right to vote) or (iii) the business
combination is approved by the board of directors and authorized at a meeting of
stockholders by the holders of at least two-thirds of the outstanding voting
stock, excluding shares owned by the interested stockholder. Although a Delaware
corporation may elect, pursuant to its certificate or by-laws, not to be
governed by this provision, the Company Certificate and the Company By-laws
contain no such election.
Pharmacia
The Companies Act does not have provisions similar to those outlined above
with respect to business combinations with interested stockholders.
DISSENTERS' RIGHTS
The Company
Under the DGCL, dissenters' rights of appraisal are limited. Rights of
appraisal are available to a stockholder of a corporation only in connection
with certain mergers or consolidations involving such corporation, amendments to
the certificate of incorporation of such corporation (if so provided in the
certificate of incorporation) or sales of all or substantially all of the assets
of such corporation. However, appraisal rights are not available under the DGCL
if the corporation's stock is (prior to the applicable transaction) listed on a
national securities exchange or designated on NASDAQ or held of record by more
than 2,000 stockholders; provided that appraisal rights will be available if the
merger or consolidation requires stockholders to exchange their stock for
anything other than shares of the surviving corporation, shares of another
corporation that will be listed on a national securities exchange, designated on
NASDAQ or held of record by more than 2,000 stockholders, cash in lieu of
fractional shares of any such corporation, or a combination of such shares and
such cash.
Pharmacia
Under the Companies Act, when a person alone or together with one or more
subsidiaries owns more than nine-tenths of all the share capital in a company
and these shares represent more than 90% of the votes entitled to be cast at a
meeting of stockholders, that person is entitled to purchase the remaining
shares of such company. A person whose shares are subject to a right of purchase
may require the 90% owner to purchase its shares. Absent an agreement regarding
the price, an arbitral tribunal will determine a reasonable price, which, in the
case of a compulsory acquisition following an offer to a substantial number of
persons pursuant to which more than the majority of the outstanding shares were
acquired by such owner (or its affiliate), will, as a general matter, be the
same as the price paid in such offer.
DIVIDENDS
The Company
The Company By-laws provide that dividends may be declared at the
discretion of the Company Board only out of any assets or funds of the Company
legally available for the payment of dividends. The Company By-laws provide that
dividends shall be paid to holders of the shares of stock of the Company in U.S.
dollars and that the Company shall make such arrangements as are necessary or
appropriate to ensure that all dividends payable to holders of SDSs are paid in
Swedish kronor.
Pharmacia
Under the Companies Act, only a general meeting of stockholders may
authorize the payment of dividends, which may not exceed the amount recommended
by the Pharmacia Board (except to a limited
185
<PAGE> 192
extent in the event of a demand by holders of at least 10% of the total number
of shares outstanding) and which may be paid only from funds available for
dividends. Under Swedish law, no interim dividends may be paid in respect of a
financial period as to which audited financial statements have not been adopted
by the Annual General Meeting of stockholders. The normal practice in Sweden is
for dividends to be paid only annually. Shares issued after the date when the
Directors have decided on the recommendation generally do not entitle the
holders thereof to the dividends in question. It is the current practice of
Pharmacia's Board of Directors to decide upon their recommendations in respect
of the next preceding fiscal year in March of each year, and the decision is
made public at the same time. The recommendation of the Pharmacia Board is
considered at Pharmacia's Annual General Meeting, which is usually held in May
of the year following the year with respect to which the dividend is paid.
PREEMPTIVE RIGHTS
The Company
The Company Certificate and the Company By-laws do not provide for
preemptive rights. In addition, the DCGL does not provide for preemptive rights
unless specifically provided for in the certificate of incorporation of a
corporation.
Pharmacia
Under Swedish law, stockholders must approve each issue of additional
shares. Existing stockholders have preferential rights to subscribe for cash for
issues of shares and debt instruments, convertible into shares in proportion to
their stockholdings, unless the resolution for the issue itself or the company's
articles of association provide otherwise. Under the Pharmacia Articles, a
resolution to issue, approve or authorize the issuance of new shares,
convertible debt instruments or debt instruments with a right (or option) to
subscribe for new shares, the issuance of which is not subject to the preemptive
rights of existing stockholders, requires the affirmative vote of two-thirds of
the votes cast as well as two-thirds of all of the shares represented at the
meeting.
The Pharmacia Class A Common Shares rank pari passu with the Pharmacia
Class B Common Shares as regards rights of participation in Pharmacia's assets
and profits. However, it may be permissible in the case of a rights issue or a
bonus issue for Pharmacia, subject to stockholder approval, to distinguish
between the classes of Pharmacia's shares by issuing one class of shares by way
of rights to holders of both Pharmacia Class A Common Shares and Pharmacia Class
B Common Shares instead of issuing further Pharmacia Class A Common Shares to
the holders of the Pharmacia Class A Common Shares and further Pharmacia Class B
Common Shares to the holders of Pharmacia Class B Common Shares.
AMENDMENT OF CHARTER DOCUMENTS
The Company
The Company Certificate requires that (A) resolutions to amend, alter,
change or repeal (i) the name of the Corporation, or (ii) the provisions of the
Company Certificate relating to certain Business Combinations (as defined in the
Company Certificate) must be approved by a Director Supermajority Vote and a
Stockholder Supermajority Vote; and (B) resolutions to amend, alter, change or
repeal (i) the classification of the Company Board or (ii) the provision in the
Company Certificate which requires a Director Supermajority Vote in order to
amend provisions of the Company By-laws whose amendment, alteration or repeal
requires a Director Supermajority Vote or a Stockholder Supermajority Vote must
be approved by a Director Supermajority Vote.
The Company By-laws may be amended or repealed or new By-laws adopted by
approval of the record holders of a majority of the shares entitled to vote at
any regular or special meeting of the Stockholders at which a quorum is present
or by a majority of the Directors at a board meeting at which a quorum is
present, except that (A) a Director Supermajority Vote or Stockholder
Supermajority Vote is required to approve any amendment, alteration, change or
repeal of the provisions of the Company By-laws relating to (i) the location of
the global corporate management center of the Company or the Company's regional
headquarters, (ii) the number, qualifications and terms of office of Directors,
(iii) the qualifications of the Chairman of the Board
186
<PAGE> 193
and the duties and powers of the Chairman of the Board, (iv) the composition and
terms of committees of the Company Board, (v) certain arrangements relating to
dividend payments, (vi) the maintenance of the Swedish Depositary Share program,
and (vii) the requirement that communications to stockholders be made in both
the English and Swedish languages; and (B) a Director Supermajority Vote or
Stockholder Supermajority Vote is required to approve any amendment, alteration,
change or repeal of the provisions of the Company By-laws relating to the
location of the annual meetings of Stockholders unless the number of persons
that are residents in or nationals of Sweden holding shares, whether directly or
as SDSs, falls below 5% of the total number of persons holding Voting Stock or
such persons cease to beneficially own at least 5% of the Voting Stock
(including shares held by the Depositary), in which case such an amendment,
alteration, change or repeal may be approved by the affirmative vote of a
majority of the Directors or the affirmative vote of the holders of a majority
of the Voting Stock.
Pharmacia
The Companies Act provides that the affirmative vote of the holders of
two-thirds of the votes cast as well as two-thirds of all shares represented at
the meeting is required to amend provisions of a company's Articles of
Association. Resolutions to amend the Pharmacia Articles which reduce any
stockholder's rights to profits or assets, restrict the transferability of
shares or alter the legal relationship between shares normally require the
unanimous approval of the stockholders present at the meeting representing 90%
of all issued shares; and a resolution to amend the Pharmacia Articles for the
purpose of limiting the number of shares which a stockholder may vote at a
general meeting or requiring the retention of a larger amount of the net profit
than required by the Companies Act or amending the stockholder's rights in a
liquidation or dissolution normally requires the approval of the stockholders
representing two-thirds of the votes cast and 90% of the shares represented at
the meeting.
VALIDITY OF SHARES
The validity of the New Common Stock offered hereby will be passed upon by
Sullivan & Cromwell and Shearman & Sterling, each of New York, New York.
EXPERTS
The Company's balance sheet, as of August 21, 1995 included in this
Prospectus, has been included herein in reliance on the report of Coopers &
Lybrand L.L.P. and KPMG Peat Marwick LLP, independent accountants, and upon the
authority of those firms as experts in accounting and auditing. It is expected
that either Coopers & Lybrand L.L.P. or KPMG Peat Marwick LLP will be appointed
as the auditors of the Company.
The consolidated balance sheets of Upjohn as of December 31, 1994 and 1993,
and the consolidated statements of income, retained earnings and cash flows for
each of the three years in the period ended December 31, 1994, which have been
included in this Prospectus, have been included herein in reliance on the report
of Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in auditing and accounting. With respect to the Upjohn
unaudited interim financial information for the periods ended June 30, 1995 and
1994, included in this Prospectus, the independent accountants have reported
that they have applied limited procedures in accordance with professional
standards for a review of such information. However, their separate report
included in the Upjohn quarterly report on Form 10-Q for the quarter ended June
30, 1995, and incorporated by reference herein, states that they did not audit
and they do not express an opinion on that interim financial information.
Accordingly, the degree of reliance on their report on such information should
be restricted in light of the limited nature of the review procedures applied.
The accountants are not subject to the liability provisions of Section 11 of the
Securities Act for their report on the Upjohn unaudited interim financial
information because that report is not a "report" or a "part" of the
registration statement prepared or certified by the accountants within the
meaning of Sections 7 and 11 of the Securities Act.
187
<PAGE> 194
The consolidated financial statements of Pharmacia as of December 31, 1994,
1993 and 1992, and for each of the years in the three year period ended December
31, 1994, have been included herein and in the Registration Statement in
reliance upon the report of Hans Karlsson, KPMG Bohlins AB, member of KPMG
International, and Goran Tidstrom, Ohrlings Coopers & Lybrand AB, member of
Coopers & Lybrand International, joint independent accountants, appearing
elsewhere herein, and upon the authority of such firms as experts in accounting
and auditing.
188
<PAGE> 195
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
UPJOHN
Report of Coopers & Lybrand L.L.P. ................................................. F-2
Consolidated Balance Sheets as of December 31, 1994 and 1993........................ F-3
Consolidated Statements of Earnings for the years ended December 31, 1994, 1993
and 1992......................................................................... F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31,
1994, 1993 and 1992.............................................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993
and 1992......................................................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
Consolidated Balance Sheets as of June 30, 1995 (unaudited) and December 31, 1994... F-25
Consolidated Statements of Earnings for the six months ended June 30, 1995
(unaudited) and 1994 (unaudited)................................................. F-26
Condensed Consolidated Statements of Cash Flows for the six months ended June 30,
1995 (unaudited) and 1994 (unaudited)............................................ F-27
Notes to Consolidated Financial Statements.......................................... F-28
PHARMACIA
Report of KPMG Bohlins AB and Ohrlings Reveko AB.................................... F-31
Consolidated Income Statements for the years ended December 31, 1994, 1993 and
1992............................................................................. F-32
Consolidated Balance Sheets as of December 31, 1994, 1993 and 1992.................. F-33
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993
and 1992......................................................................... F-34
Notes to Consolidated Financial Statements for the years ended December 31, 1994,
1993 and 1992.................................................................... F-35
Consolidated Income Statements for the six months ended June 30, 1995 (unaudited)
and June 30, 1994 (unaudited).................................................... F-66
Consolidated Balance Sheets as of June 30, 1995 (unaudited) and December 31, 1994... F-67
Notes to Consolidated Financial Statements -- Unaudited............................. F-68
PHARMACIA & UPJOHN, INC.
Report of Coopers & Lybrand L.L.P. and KPMG Peat Marwick LLP ....................... F-73
Consolidated Balance Sheet as of August 21, 1995.................................... F-74
Notes to Consolidated Balance Sheet................................................. F-75
</TABLE>
F-1
<PAGE> 196
THE UPJOHN COMPANY
REPORT OF INDEPENDENT ACCOUNTANTS
To The Shareholders and Board of Directors
The Upjohn Company
We have audited the consolidated balance sheets of The Upjohn Company and
Subsidiaries as of December 31, 1994 and 1993, and the related consolidated
statements of earnings, shareholders' equity, and cash flows for the years 1994,
1993 and 1992. These financial statements are the responsibility of The Upjohn
Company management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
(pages F-3 to F-23) present fairly, in all material respects, the consolidated
financial position of The Upjohn Company and Subsidiaries as of December 31,
1994 and 1993, and the consolidated results of their operations and their cash
flows for the years 1994, 1993 and 1992, in conformity with generally accepted
accounting principles.
As discussed in Notes D and T to the consolidated financial statements, the
company changed its practice of reporting certain majority-owned subsidiaries
from a fiscal year ending November 30 to a calendar year ending December 31 and
its method of accounting for postemployment benefits during 1993. As discussed
in Note D, in 1992, the company changed its method of accounting for income
taxes and other postretirement benefits.
/s/ COOPERS & LYBRAND L.L.P.
Chicago, Illinois
January 26, 1995
F-2
<PAGE> 197
UPJOHN
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1993
----------- -----------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................................. $ 502,346 $ 281,132
Trade accounts receivable, less allowance of $36,088 (1993: $40,902)...... 650,522 653,543
Inventories............................................................... 458,676 412,626
Deferred income taxes..................................................... 151,783 161,569
Other..................................................................... 367,111 162,746
----------- -----------
Total current assets...................................................... 2,130,438 1,671,616
----------- -----------
Net assets of discontinued operations..................................... 278,344
Investments............................................................... 647,092 634,431
PROPERTY, PLANT AND EQUIPMENT AT COST:
Land...................................................................... 45,955 42,974
Buildings and leasehold improvements...................................... 1,230,926 1,100,715
Equipment................................................................. 1,526,620 1,369,342
Construction in process................................................... 276,036 328,972
----------- -----------
3,079,537 2,842,003
Less allowance for depreciation........................................... (1,280,866) (1,141,127)
----------- -----------
Net property, plant and equipment......................................... 1,798,671 1,700,876
Other noncurrent assets................................................... 586,260 526,654
----------- -----------
Total assets.............................................................. $ 5,162,461 $ 4,811,921
=========== ===========
CURRENT LIABILITIES:
Short-term debt, including current maturities of long-term debt........... $ 42,090 $ 35,628
Accounts payable.......................................................... 179,802 122,220
Compensation and vacations................................................ 110,699 78,155
Dividends payable......................................................... 64,060 64,170
Income taxes payable...................................................... 189,015 176,356
Other..................................................................... 533,274 516,594
----------- -----------
Total current liabilities................................................. 1,118,940 993,123
----------- -----------
Long-term debt............................................................ 520,977 526,837
Guarantee of ESOP debt.................................................... 274,800 275,000
Postretirement benefit cost............................................... 369,217 382,123
Other noncurrent liabilities.............................................. 391,654 404,950
Deferred income taxes..................................................... 99,238 91,624
Minority equity in subsidiaries........................................... 5,017 52,614
SHAREHOLDERS' EQUITY:
Preferred stock, one dollar par value; authorized 12,000,000 shares,
issued Series B convertible 7,322 shares at stated value (1993: 7,379
shares)................................................................. 295,079 297,387
Common stock, one dollar par value; authorized 600,000,000 shares, issued
190,589,607 shares...................................................... 190,590 190,590
Capital in excess of par value............................................ 64,636 66,406
Retained earnings......................................................... 2,757,260 2,535,010
Note receivable from ESOP Trust (ESOT).................................... (33,520) (31,548)
ESOP deferred compensation................................................ (243,962) (251,301)
Currency translation adjustments.......................................... (33,057) (114,198)
Treasury stock at cost, 17,447,880 shares (1993: 17,157,689 shares)....... (614,408) (606,696)
----------- -----------
Total shareholders' equity................................................ 2,382,618 2,085,650
----------- -----------
Total liabilities and shareholders' equity................................ $ 5,162,461 $ 4,811,921
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 198
UPJOHN
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
1994 1993 1992
---------- ---------- ----------
(DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
OPERATING REVENUE:
Net sales.............................................. $3,274,996 $3,339,957 $3,256,188
Other revenue.......................................... 69,542 40,579 28,560
---------- ---------- ----------
3,344,538 3,380,536 3,284,748
---------- ---------- ----------
OPERATING COSTS AND EXPENSES:
Cost of products sold.................................. 843,152 783,590 754,483
Research and development............................... 607,187 612,490 553,297
Marketing and administrative........................... 1,294,752 1,316,138 1,292,204
Restructuring.......................................... 208,789 22,055
---------- ---------- ----------
2,745,091 2,921,007 2,622,039
---------- ---------- ----------
Operating income....................................... 599,447 459,529 662,709
Interest income........................................ 59,624 50,789 50,054
Interest expense....................................... (24,600) (31,496) (31,253)
Foreign exchange losses................................ (1,087) (4,556) (3,397)
All other, net......................................... 9,912 5,771 (6,210)
---------- ---------- ----------
Earnings from continuing operations before income taxes
and minority equity.................................. 643,296 480,037 671,903
Provision for income taxes............................. 154,400 84,201 145,900
Minority equity in losses.............................. (192) (535) (987)
---------- ---------- ----------
Earnings from continuing operations.................... 489,088 396,371 526,990
DISCONTINUED OPERATIONS:
Earnings from operations (net of tax)................ 2,672 10,006 20,227
(Loss) gain on disposal of discontinued operations
(net of tax)...................................... (997) 4,926
---------- ---------- ----------
Earnings before cumulative effect of accounting
changes.............................................. 490,763 411,303 547,217
Cumulative effect of accounting changes (net of tax)... (18,906) (222,895)
---------- ---------- ----------
Net earnings........................................... 490,763 392,397 324,322
Dividends on preferred stock (net of tax).............. 12,291 12,125 12,084
---------- ---------- ----------
Net earnings on common stock........................... $ 478,472 $ 380,272 $ 312,238
========== ========== ==========
EARNINGS PER COMMON SHARE:
Primary
-- Earnings from continuing operations before
accounting changes................................ $ 2.75 $ 2.20 $ 2.92
-- Discontinued operations........................... .01 .09 .12
-- Cumulative effect of accounting changes........... (.11) (1.26)
---------- ---------- ----------
-- Net earnings...................................... $ 2.76 $ 2.18 $ 1.78
========== ========== ==========
Fully diluted
-- Earnings from continuing operations before
accounting changes................................ $ 2.67 $ 2.15 $ 2.84
-- Discontinued operations........................... .01 .08 .11
-- Cumulative effect of accounting changes........... (.10) (1.21)
---------- ---------- ----------
-- Net earnings...................................... $ 2.68 $ 2.13 $ 1.74
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 199
UPJOHN
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
1994 1993 1992
---------- ---------- ----------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
PREFERRED STOCK:
Balance at beginning of year........................... $ 297,387 $ 298,224 $ 299,523
Redemptions and conversions............................ (2,308) (837) (1,299)
---------- ---------- ----------
Balance at end of year................................. 295,079 297,387 298,224
---------- ---------- ----------
COMMON STOCK:
Balance at beginning of year........................... 190,590 190,590 190,592
Stock option, incentive and dividend reinvestment
plans................................................ (2)
---------- ---------- ----------
Balance at end of year................................. 190,590 190,590 190,590
---------- ---------- ----------
CAPITAL IN EXCESS OF PAR VALUE:
Balance at beginning of year........................... 66,406 66,668 68,400
Stock option, incentive and dividend reinvestment
plans................................................ (1,770) (262) (1,732)
---------- ---------- ----------
Balance at end of year................................. 64,636 66,406 66,668
---------- ---------- ----------
RETAINED EARNINGS:
Balance at beginning of year........................... 2,535,010 2,412,028 2,348,318
Net earnings........................................... 490,763 392,397 324,322
Cash dividends declared................................ (256,222) (257,290) (248,528)
Dividends on preferred stock (net of tax).............. (12,291) (12,125) (12,084)
---------- ---------- ----------
Balance at end of year................................. 2,757,260 2,535,010 2,412,028
---------- ---------- ----------
NOTE RECEIVABLE FROM ESOP TRUST (ESOT):
Balance at beginning of year........................... (31,548) (29,697) (27,946)
Rollover of accumulated interest....................... (1,972) (1,851) (1,751)
---------- ---------- ----------
Balance at end of year................................. (33,520) (31,548) (29,697)
---------- ---------- ----------
ESOP DEFERRED COMPENSATION:
Balance at beginning of year........................... (251,301) (258,254) (263,230)
ESOP expense recognized in excess of cash
contributions........................................ 7,339 6,953 4,976
---------- ---------- ----------
Balance at end of year................................. (243,962) (251,301) (258,254)
---------- ---------- ----------
CURRENCY TRANSLATION ADJUSTMENTS:
Balance at beginning of year........................... (114,198) (89,145) (57,323)
Translation adjustments................................ 81,141 (25,053) (31,823)
Income taxes........................................... 1
---------- ---------- ----------
Balance at end of year................................. (33,057) (114,198) (89,145)
---------- ---------- ----------
TREASURY STOCK:
Balance at beginning of year........................... (606,696) (574,871) (553,182)
Stock option, incentive and dividend reinvestment
plans................................................ 24,133 22,264 27,498
Purchases of treasury stock............................ (31,845) (54,089) (49,187)
---------- ---------- ----------
Balance at end of year................................. (614,408) (606,696) (574,871)
---------- ---------- ----------
TOTAL SHAREHOLDERS' EQUITY............................. $2,382,618 $2,085,650 $2,015,543
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 200
UPJOHN
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1994 1993 1992
--------- --------- ---------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net earnings.......................................... $ 490,763 $ 392,397 $ 324,322
Adjustments to reconcile net earnings to net cash
provided (required) by operations:
Depreciation....................................... 163,370 162,559 152,596
Amortization of intangibles........................ 11,795 10,941 12,985
Deferred income taxes.............................. 23,179 (82,407) 23,001
Restructuring...................................... 216,000 23,956
Cumulative effect of accounting changes (net of
tax)............................................. 18,906 222,895
Other.............................................. (15,825) 4,609 (15,312)
Changes in:
Accounts receivable................................ 6,263 31,167 (100,035)
Inventory.......................................... (20,808) (53,344) (28,382)
Payables and accruals.............................. 63,176 (52,007) 9,779
Income taxes payable............................... 11,417 1,279 (69,032)
Other current and noncurrent assets................ (38,274) 36,613 (13,884)
Other current and noncurrent liabilities........... 15,086 93,717 54,180
--------- --------- ---------
Net cash provided by operations......................... 710,142 780,430 597,069
--------- --------- ---------
CASH FLOWS PROVIDED (REQUIRED) BY INVESTMENT ACTIVITIES:
Property, plant and equipment additions............... (252,224) (323,510) (295,399)
Proceeds from sale of property, plant and equipment... 28,188 17,732 5,956
Proceeds from sale of investments..................... 282,608 184,154 226,824
Purchase of investments............................... (569,219) (249,664) (436,910)
Proceeds from the sale of discontinued operations..... 307,843 31,000
Other................................................. (1,061) (1,079) 3,187
--------- --------- ---------
Net cash required by investment activities.............. (203,865) (341,367) (496,342)
--------- --------- ---------
CASH FLOWS PROVIDED (REQUIRED) BY FINANCING ACTIVITIES:
Proceeds from issuance of debt........................ 14,946 340,166 121,867
Repayment of debt..................................... (45,924) (215,720) (16,247)
Debt maturing in three months or less................. 4,475 (191,238) 133,333
Dividends paid to shareholders........................ (263,661) (265,337) (252,028)
Purchase of treasury stock............................ (31,845) (54,089) (49,187)
Other................................................. 12,425 8,984 15,394
--------- --------- ---------
Net cash required by financing activities............... (309,584) (377,234) (46,868)
Effect of exchange rate changes on cash................. 24,521 (9,592) (2,464)
--------- --------- ---------
Net change in cash and cash equivalents................. 221,214 52,237 51,395
Cash and cash equivalents, beginning of year............ 281,132 226,359 168,610
Net cash of discontinued operations..................... 2,536 6,354
--------- --------- ---------
Cash and cash equivalents, end of year.................. $ 502,346 $ 281,132 $ 226,359
========= ========= =========
CASH PAID DURING THE YEAR FOR:
Interest (net of capitalized)......................... $ 29,525 $ 34,599 $ 44,219
Income taxes.......................................... $ 127,239 $ 154,984 $ 124,249
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 201
UPJOHN
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of the company and all majority-owned subsidiaries.
Effective January 1, 1993, the subsidiaries with fiscal years ended November 30
changed to a calendar-year basis (see Note D).
FOREIGN EXCHANGE -- Results of operations for foreign subsidiaries, other
than those located in highly inflationary countries, are translated using the
average exchange rates during the period, while assets and liabilities are
translated into U.S. dollars using current 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
earnings statement.
INVENTORIES -- Inventories are valued at the lower of cost or market. Cost
is determined by the last-in, first-out (LIFO) method for substantially all
domestic inventories and the first-in, first-out (FIFO) method, for foreign
inventories.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are carried
at cost. Depreciation is computed principally on the straight-line method for
financial reporting, while accelerated methods are used for income tax purposes.
Maintenance and repair costs are charged to earnings as incurred. Costs of
renewals and improvements are capitalized. Upon retirement or other disposition
of property, any gain or loss is included in earnings.
INCOME TAXES -- In accordance with SFAS No. 109, 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 year in which the
differences are expected to reverse. The company provides deferred income taxes
on subsidiaries' earnings that are not considered to be permanently invested in
those subsidiaries.
CASH EQUIVALENTS -- The company considers all highly liquid debt
instruments with an original maturity of three months or less to be cash
equivalents.
STATEMENTS OF CASH FLOWS -- The company does not restate the Statements of
Cash Flows for operations that have been discontinued.
INVESTMENTS -- The company has investments in short- and long-term debt
securities that have been classified under the provisions of SFAS No. 115 as
held-to-maturity. Accordingly, these investments are measured at amortized cost,
and temporary unrealized gains or losses are not recognized.
DERIVATIVE FINANCIAL INSTRUMENTS -- Forward exchange contracts are used to
hedge net transaction exposures and are marked-to-market with the resulting
gains and losses recognized in earnings. Purchased foreign currency options are
used to hedge anticipated transactions and realized and unrealized gains and
losses are deferred and included as a component of the related transaction. The
carrying values of derivative financial instruments are generally reported with
other current assets or other current liabilities.
OTHER -- Certain reclassifications have been made to conform prior years'
data to the current presentation including certain deferred income tax balances.
B. DISCONTINUED OPERATIONS
In December 1994, the company sold its interests in the Asgrow Seed
Company. The sale represents complete divestiture of all operations in the
agronomic and vegetable seed businesses. A loss of $997, after provisions for
tax, was realized on the sale, including accruals for certain retained
liabilities.
F-7
<PAGE> 202
UPJOHN
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Dollar amounts in thousands, except per share data)
In December 1993, the company sold the assets of Asgrow Florida Company.
The sale represented complete divestiture of the company's operations in the
agricultural chemical business. The gain on the sale, amounting to $4,926 after
provisions for tax, included accruals for certain retained liabilities.
Operating results for the discontinued vegetable and agronomic seed and
agricultural chemical operations were:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Operating revenue:
Agronomic and vegetable seeds.................. $221,393 $274,215 $295,718
Agricultural chemicals......................... 84,517 90,355
-------- -------- --------
Total.................................. $221,393 $358,732 $386,073
======== ======== ========
Earnings before taxes and minority equity:
Agronomic and vegetable seeds.................. $ 5,498 $ 10,385 $ 24,804
Agricultural chemicals......................... 6,294 3,476
Income taxes:
Agronomic and vegetable seeds.................. (2,500) (4,800) (7,400)
Agricultural chemicals......................... (2,400) (700)
Minority equity in earnings (losses):
Agronomic and vegetable seeds.................. 326 (527) (47)
-------- -------- --------
Earnings from operations......................... $ 2,672 $ 10,006 $ 20,227
======== ======== ========
Earnings per common share -- primary............. $ .01 $ .09 $ .12
======== ======== ========
</TABLE>
C. RESTRUCTURING
The company incurred restructuring charges in both 1993 and 1992. In the
third quarter of 1993, restructuring charges of $208,789 ($154,566 after tax)
were recorded to reflect the costs associated with a worldwide work-force
reduction of approximately 1,500 employees ($136,109); elimination or reduction
of excess manufacturing capacity in 14 plants worldwide over the next several
years ($31,631); the writedown of certain intangibles ($19,000); facilities and
equipment ($17,095); and other ($4,954).
As of December 31, 1994, approximately 1,100 employees have left the
company under the 1993 restructuring program. Of the original accrual,
approximately $30,885 remains as a current liability. There have been no
adjustments to the liabilities originally accrued for work-force reduction.
In 1992, net restructuring charges of $22,055 ($13,387 after tax) were
incurred for a special voluntary early retirement program for employees in the
U.S. and Puerto Rico and for staff reductions in various international
locations. As of December 31, 1993, over 500 employees had terminated under the
1992 restructuring program and all amounts originally accrued have been paid to
participants.
F-8
<PAGE> 203
UPJOHN
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Dollar amounts in thousands, except per share data)
D. ACCOUNTING CHANGES
During 1993 and 1992, the company adopted three accounting statements and
made one other accounting change. The effects of these changes on prior years
were reported as the cumulative effect of accounting changes (net of tax). The
changes were as follows:
<TABLE>
<CAPTION>
1993 1992
------- --------
<S> <C> <C>
Change in subsidiary reporting year..................... $ 7,791
Adoption of: SFAS No. 112............................... 11,115
SFAS No. 106.............................. $235,677
SFAS No. 109.............................. (12,782)
------- --------
Cumulative effect of accounting changes................. $18,906 $222,895
======= ========
</TABLE>
Effective January 1, 1993, the company's subsidiaries that previously
reported on a fiscal year ending November 30 changed their reporting period to a
calendar-year basis. The change was made to accomplish more timely reporting and
to increase operating and planning efficiency. The results of operations of
these subsidiaries for the period December 1 through December 31, 1992
constituted the accounting change that reduced after-tax earnings per share by
$.04. The cash flows of these subsidiaries for the thirteen-month period ended
December 31, 1993 are reflected in the Consolidated Statements of Cash Flows.
The company also adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," which pertains to benefits provided to former or
inactive employees after employment but before retirement. This change became
effective January 1, 1993. The cumulative effect of this change reduced
after-tax earnings per share by $.07.
Effective January 1, 1992, the company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," which requires
accrual accounting for these benefits rather than cash-basis accounting. The
cumulative effect of this change reduced after-tax earnings per share by $1.33
(see Note T).
Also effective January 1, 1992, the company adopted SFAS No. 109,
"Accounting for Income Taxes," which had the cumulative effect of increasing
after-tax earnings per share by $.07 (see Note E).
E. INCOME TAXES
Earnings from continuing operations before income taxes and minority equity
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Domestic........................................... $533,096 $497,718 $624,595
Foreign............................................ 110,200 (17,681) 47,308
-------- -------- --------
$643,296 $480,037 $671,903
======== ======== ========
</TABLE>
F-9
<PAGE> 204
UPJOHN
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Dollar amounts in thousands, except per share data)
Income taxes on continuing operations consisted of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Currently payable:
Domestic........................................... $ 92,500 $106,901 $ 70,100
Foreign............................................ 38,500 44,400 31,900
State.............................................. 5,500 15,400 9,100
-------- -------- --------
136,500 166,701 111,100
-------- -------- --------
Deferred:
Domestic........................................... 600 (49,600) 41,500
Foreign............................................ 15,400 (25,900) (4,500)
State.............................................. 1,900 (7,000) (2,200)
-------- -------- --------
17,900 (82,500) 34,800
-------- -------- --------
$154,400 $ 84,201 $145,900
======== ======== ========
</TABLE>
Components of net deferred tax assets were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1994 1993
-------- --------
<S> <C> <C>
Taxed profit on intercompany transfers......................... $ 32,628 $ 33,092
Employee benefit plans......................................... 47,627 47,833
Postretirement and postemployment benefits other than
pensions..................................................... 148,685 154,031
Environmental and product accruals............................. 105,034 105,889
Restructuring.................................................. 15,496 38,935
Alternative minimum tax........................................ 41,645 23,307
All other...................................................... 87,795 75,254
-------- --------
Total deferred tax assets (net of valuation allowances)........ 478,910 478,341
-------- --------
Property, plant and equipment.................................. 156,927 150,589
Withholding taxes.............................................. 73,189 69,689
Pension plans.................................................. 57,784 47,583
All other...................................................... 13,651 14,067
-------- --------
Total deferred tax liabilities................................. 301,551 281,928
-------- --------
Net deferred tax assets........................................ $177,359 $196,413
======== ========
</TABLE>
Deferred income taxes are included in the Consolidated Balance Sheets as
follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
1994 1993
-------- --------
<S> <C> <C>
Current assets................................................. $151,783 $161,569
Noncurrent assets.............................................. 124,814 126,468
Noncurrent liabilities......................................... (99,238) (91,624)
-------- --------
Net deferred tax assets........................................ $177,359 $196,413
======== ========
</TABLE>
F-10
<PAGE> 205
UPJOHN
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Dollar amounts in thousands, except per share data)
Valuation allowances of $32,413 at December 31, 1994, and $28,239 at
December 31, 1993, were provided for deferred tax assets which are not likely to
be realized. They result primarily from the third-quarter 1993 restructuring and
other deferred tax assets at foreign locations.
Differences between the effective income tax rate and the U.S. statutory
tax rate as a percentage of pretax income were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Statutory tax rate.......................................... 35.0% 35.0% 34.0%
Benefit of tax exemptions in Puerto Rico.................... (13.1) (22.5) (11.4)
Foreign earnings taxed at a different effective rate........ 1.6 3.0 (1.3)
All other, net.............................................. 0.5 2.0 0.4
----- ----- -----
Effective tax rate.......................................... 24.0% 17.5% 21.7%
===== ===== =====
</TABLE>
The effective tax rate for 1993 was 22.0 percent, excluding the favorable
tax effect resulting from the third-quarter restructuring charges and other
unusual items.
A manufacturing subsidiary operates in Puerto Rico under a tax exemption
grant, expiring in 2009, which provides for partial exemption from Puerto Rico
income and property taxes. The grant, together with Internal Revenue Code
Section 936, reduced income taxes by approximately $84,300 ($.49 per share) in
1994; $108,000 ($.62 per share) in 1993; and $76,400 ($.43 per share) in 1992.
Deferred withholding taxes have been provided on accumulated earnings in Puerto
Rico. These taxes range from 3.5 percent to 10 percent and are payable when
dividends are remitted.
At December 31, 1994, undistributed earnings of foreign subsidiaries
considered permanently invested, for which deferred income taxes have not been
provided, were $377,352.
F. EARNINGS PER COMMON SHARE
Primary earnings per share are computed by dividing net earnings available
to holders of common stock by the sum of the weighted average number of shares
of common stock outstanding plus common share equivalents principally in the
form of employee stock option awards. Fully diluted earnings per share have been
computed assuming that all of the convertible preferred stock is converted into
common shares. Under this assumption, the weighted average number of common
shares outstanding is increased accordingly, and net earnings is reduced by the
amount of an incremental Employee Stock Ownership Plan (ESOP) contribution. This
incremental contribution is the net-of-tax difference between the income the
ESOP would have received on the preferred stock and the assumed dividend yield
to be earned on the common shares.
The number of shares used for computing primary and fully diluted earnings
per share was as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Primary............................................... 173,646 174,372 175,864
Fully diluted......................................... 181,111 181,775 183,285
</TABLE>
F-11
<PAGE> 206
UPJOHN
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Dollar amounts in thousands, except per share data)
G. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
1994 1993
-------- --------
<S> <C> <C>
Estimated replacement cost (FIFO basis):
Pharmaceutical and other finished products..................... $216,165 $174,615
Raw materials, supplies and work in process.................... 382,501 369,071
-------- --------
598,666 543,686
Less reduction to LIFO cost.................................... (139,990) (131,060)
-------- --------
Inventories.................................................... $458,676 $412,626
======== ========
</TABLE>
Inventories valued on the LIFO method had an estimated replacement cost
(FIFO basis) of $360,124 at December 31, 1994, and $310,906 at December 31,
1993.
H. INVESTMENTS
Short- and long-term investments in debt securities held-to-maturity,
essentially all of which are held by a subsidiary operating in Puerto Rico, were
as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1994 1993
-------- -------
<S> <C> <C>
Obligations of the Commonwealth of Puerto Rico.................. $ 56,475 $ 7,500
Bank certificates of deposit.................................... 122,500 25,000
Corporate commercial paper...................................... 14,000
Repurchase agreements........................................... 13,000
Obligations of corporations..................................... 10,000
Other........................................................... 1,650 17
-------- -------
Total short-term investments.................................... $217,625 $32,517
======== =======
</TABLE>
All short-term investments are reported on the Consolidated Balance Sheets
as "other current assets"; and since maturities of these instruments are within
one year, the carrying amount approximates fair value.
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------------
1994 1993
--------------------------------------- --------------------
AMORTIZED UNREALIZED FAIR AMORTIZED FAIR
COST GAINS LOSSES VALUE COST VALUE
--------- ------ ------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Guaranteed by the U.S. Government..... $ 328,777 $1,965 $21,750 $308,992 $ 308,750 $320,696
Obligations of the Commonwealth of
Puerto Rico......................... 93,028 32 2,099 90,961 80,394 83,587
Obligations guaranteed by various
banks:
Notes and other securities.......... 65,000 34 2,520 62,514 35,000 35,657
Certificates of deposit............. 160,287 533 3,564 157,256 200,287 210,412
Obligations of corporations......... 10,000 10,673
-------- ------- ------- -------- -------- --------
Total long-term investments........... $ 647,092 $2,564 $29,933 $619,723 $ 634,431 $661,025
======== ======= ======= ======== ======== ========
</TABLE>
The unrealized losses at December 31, 1994 are considered temporary, as all
amounts are considered collectable upon maturity.
F-12
<PAGE> 207
UPJOHN
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Dollar amounts in thousands, except per share data)
Scheduled maturities for the long-term securities held at December 31, 1994
were as follows:
<TABLE>
<CAPTION>
AMORTIZED COST FAIR VALUE
-------------- ----------
<S> <C> <C>
Long-term securities mature in:
One to five years.................................. $275,734 $ 269,965
Six to ten years................................... 127,575 119,848
After ten years.................................... 10,858 10,122
-------- --------
414,167 399,935
Mortgage-backed securities......................... 232,925 219,788
-------- --------
Total long-term investments........................ $647,092 $ 619,723
======== ========
</TABLE>
There were no sales of or transfers from securities classified as
held-to-maturity during the years ended December 31, 1994 or 1993.
I. LINES OF CREDIT AND LONG-TERM DEBT
The company completed a three-year revolving line of credit with six banks
during the year to support commercial paper borrowings and other corporate
purposes. All available domestic bank credit facilities at December 31, 1994,
totaling $150,000, were unused. These lines of credit do not require
compensating balances but are subject to various fees.
Total credit facilities available to various foreign subsidiaries at
December 31, 1994 were $137,477, of which $99,172 were unused. The facilities
are subject to various fee and compensating balance arrangements.
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
1994 1993
-------- --------
<S> <C> <C>
7.5% Industrial Revenue Bonds due 2023................. $ 40,000 $ 40,000
5.35-7.95% Medium-Term Notes due 1997-1999............. 266,000 266,000
5.875% Notes due 2000.................................. 200,000 200,000
Other.................................................. 18,103 24,083
Current maturities..................................... (3,126) (3,246)
-------- --------
Total long-term debt................................... $520,977 $526,837
======== ========
</TABLE>
The Medium-Term Notes were issued under 1993 and 1991 shelf registrations
filed with the Securities and Exchange Commission. Pursuant to these
registrations, the company may from time to time issue notes with varying
maturities, interest rates, and amounts up to an aggregate total of $400,000
($100,000 under the 1993 registration and $300,000 under the 1991 registration).
At December 31, 1994, $34,000 remained available for issuance under the 1991
registration and $100,000 under the 1993 registration.
Annual aggregate maturities of long-term debt during the four years
subsequent to 1995 are: 1996 -- $5,278; 1997 -- $29,579; 1998 -- $158,465; and
1999 -- $82,288.
The company has guaranteed $275,000 of ESOP 9.79% notes due in 2004.
Principal payments begin in 1995, at which time they will constitute
compensation expense (see Note P). Annual aggregate maturities of guaranteed
debt during the five years subsequent to 1994 are: 1995 -- $200; 1996 -- $7,600;
1997 -- $11,500; 1998 -- $16,000; and 1999 -- $22,000.
F-13
<PAGE> 208
UPJOHN
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Dollar amounts in thousands, except per share data)
J. COMMITMENTS AND OTHER CONTINGENT LIABILITIES
Future minimum payments under noncancellable operating leases at December
31, 1994, approximately 70 percent real estate and 30 percent equipment, are:
1995 -- $29,520; 1996 -- $15,699; 1997 -- $6,053; 1998 -- $2,771;
1999 -- $1,653; and later years -- $13,245.
Capital asset spending approved for construction and equipment but
unexpended at December 31, 1994 was approximately $179,800.
The company has committed to make a series of investments, as certain
progress goals are met, in a company that intends to manufacture a
hemoglobin-based oxygen carrier. These investments could aggregate $179,000 over
a period of years. As of December 31, 1994, the company has invested
approximately $70,000. Also, pursuant to the agreement, the company has
committed to conduct clinical development.
The Consolidated Balance Sheets also include accruals for estimated product
and environmental liabilities. The latter includes exposures related to
discontinued operations, including the industrial chemical facility at North
Haven, Conn., and several "Superfund" sites (see Note K).
Among the sites on the U.S. Environmental Protection Agency's (EPA)
National Priorities List, in connection with which the company has been
identified as a potentially responsible party, is the West KL Avenue Landfill
located in Kalamazoo County, Mich. The company has assumed lead responsibility
for remedial action. The costs of remediation may exceed a current estimate of
approximately $40,000 (in current dollars), of which other viable settling
parties are expected to contribute more than half. Necessary accruals have been
made for the company's share of estimated costs. Portions of the company's
payments could extend over the next 30 years.
K. LITIGATION
There are various legal proceedings against the company, including a
substantial number of product liability suits claiming damages as a result of
the use of the company's products including approximately 100 cases involving
HALCION.
A shareholder class action complaint against the company and certain of its
officers and directors is pending in the Federal District Court for the Western
District of Michigan claiming damages resulting from alleged misrepresentations
and omissions of information by the company concerning HALCION. The court
recently denied plaintif f 's motion to certify the action as a class action.
Another action makes a derivative claim that certain directors breached their
fiduciary duty by allegedly failing to prevent improper practices during the
clinical testing of HALCION. Some portion of the liabilities and expenses
associated with the foregoing product liability actions may be covered by
insurance, although such matters are currently in litigation.
Another pharmaceutical company has sued the company for patent infringement
regarding the marketing of a nonprescription ibuprofen/pseudoephedrine
combination product, seeking an injunction against further sales and treble
damages.
The company is also involved in several administrative and judicial
proceedings relating to environmental matters, including actions brought by the
U.S. EPA and state environmental agencies for cleanup at approximately 40
"Superfund" or comparable sites.
The company's estimate of the ultimate cost to be incurred in connection
with these environmental situations could change due to cleanup procedures to be
employed, if any; the cost of cleanup; and the company's share of a site's cost.
F-14
<PAGE> 209
UPJOHN
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Dollar amounts in thousands, except per share data)
The company is a party, along with approximately 30 other defendant
manufacturers and wholesalers, in numerous state and federal civil antitrust
lawsuits brought by retail pharmacies. In the main, this series of actions seeks
treble damages and injunctive relief based on allegations of price
discrimination and price fixing with respect to the level of discounts and
rebates provided to certain favored customers but denied to the plaintiffs. It
is possible that additional cases making similar claims will be filed naming the
company as a defendant. The federal cases have been consolidated by and
transferred to the federal court for the Northern District of Illinois for
pre-trial proceedings. Various defense motions to dismiss and for summary
judgment have been denied. Discovery is in process.
Based on information currently available and the company's experience with
lawsuits of the nature of those currently filed or anticipated to be filed which
have resulted from business activities to date, the amounts accrued for product
and environmental liabilities arising from the litigation and proceedings
referred to above are considered to be adequate. Although the company cannot
predict the outcome of individual lawsuits, the ultimate liability should not
have a material effect on consolidated financial position; and unless there is a
significant deviation from the historical pattern of resolution of such issues,
the ultimate liability should not have a material adverse effect on the
company's results of operations or liquidity.
Studies directed toward a determination of a final remediation plan for the
site of the company's discontinued industrial chemical operations in North
Haven, Conn. are in process. Issues related to removal of a sludge pile located
on the site due to zoning violations have been resolved with the town. The final
plan of remediation of the pile will be worked out among the company, the
Connecticut Department of Environmental Protection, and the U.S. EPA with input
from the public. The company cannot at the present time predict the final
resolution of the sludge pile issue. Because the company believes in-place
closure of the sludge pile is the most responsible course of action and the
Connecticut Department of Environmental Protection and the U.S. EPA have earlier
approved the company's plan for in-place closure of the sludge pile, which is
substantially less expensive than removal, the company has not established any
reserves for the cost of off-site disposal. The company believes that it has
established sufficient reserves to cover the costs of other remedial activities
that may be required.
L. DERIVATIVE FINANCIAL INSTRUMENTS
The company utilizes derivative financial instruments in conjunction with
its foreign currency risk management programs and does not use such instruments
for trading purposes. These programs include the creation of designated hedges
of the net foreign currency transaction exposures of certain significant
international subsidiary operations. There were no hedges of anticipated
transactions at December 31, 1994.
The company's program to hedge net foreign currency transaction exposures
is designed to protect operating results and cash flows from potential adverse
effects of foreign currency fluctuations related to intercompany and selected
third-party transactions. The hedging activities seek to limit this risk by
offsetting the gains and losses on the underlying exposures with losses and
gains on the instruments utilized to create the hedge. This program utilizes
over-the-counter forward exchange contracts with terms consistent with the
underlying exposures. These contracts generally have maturities that do not
exceed 12 months and require the company to exchange currencies at agreed-upon
rates at maturity.
At December 31, 1994, the notional amount of the company's outstanding
foreign exchange forward contracts held related to the net transaction exposure
hedging program was $171,318. Of these contracts, approximately 54 percent was
denominated in European currencies, 8 percent denominated in Australian dollars,
and 6 percent denominated in Japanese yen, all against the U.S. dollar; and 32
percent denominated in Japanese yen against various European currencies.
Maturities on these contracts extend through November 1995.
F-15
<PAGE> 210
UPJOHN
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Dollar amounts in thousands, except per share data)
The counterparties to these contracts consist of a limited number of major
international financial institutions. The company does not expect any losses
from credit exposure due to review and control procedures established by
corporate policy.
M. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of the company's financial
instruments were as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------
1994 1993
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial assets:
Short-term investments and current
maturities of long-term
investments........................ $217,625 $217,625 $ 32,517 $ 32,517
Foreign exchange forward contracts.... 1,095 1,095 162 162
Long-term investments................. 647,092 619,723 634,431 661,025
Financial liabilities:
Short-term debt....................... 42,090 42,090 35,628 35,628
Long-term debt........................ 520,977 490,000 526,837 542,000
Guaranteed debt....................... 274,800 293,000 275,000 333,000
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
CASH, CASH EQUIVALENTS AND ACCOUNTS RECEIVABLE -- The carrying value
approximates fair value.
SHORT-TERM INVESTMENTS AND CURRENT MATURITIES OF LONG-TERM
INVESTMENTS -- The carrying values of instruments maturing within one year are
considered to approximate fair value because of the short maturities of those
instruments. These instruments are reported with other current assets.
FOREIGN EXCHANGE FORWARD CONTRACTS -- The fair value was estimated
utilizing an externally developed software module which incorporates foreign
exchange rates obtained from a quotation service. These contracts are reported
with other current assets.
LONG-TERM INVESTMENTS -- The fair value of long-term investments is based
on estimates received from brokers, by reference to a quotation service, and by
computations based on future cash flows that were applied individually to the
instruments as applicable.
SHORT-TERM DEBT AND ACCOUNTS PAYABLE -- The carrying value approximates
fair value.
LONG-TERM AND GUARANTEED DEBT -- The fair value was estimated by reference
to the public exchange market for the traded long- and medium-term securities of
the company. Estimates of fair value were utilized for other long-term debt.
N. CONCENTRATIONS OF CREDIT RISK
The company invests excess cash in deposits with major banks throughout the
world and in high quality short-term liquid instruments. Such investments are
made only in instruments issued or enhanced by high quality financial
institutions (investment grade or better). Amounts invested in a single
institution are limited to minimize risk. The company has not incurred 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
F-16
<PAGE> 211
UPJOHN
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Dollar amounts in thousands, except per share data)
wholesale customers. Credit limits, ongoing credit evaluation, and account
monitoring procedures are utilized to minimize the risk of loss. Collateral is
generally not required.
O. SHAREHOLDERS' EQUITY
PREFERRED STOCK -- The Series B Convertible Perpetual Preferred Stock is
held by The Upjohn Company Employee Stock Ownership Trust (ESOT). The per share
stated value is $40,300, 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 1,000 shares of the company's common stock and has
voting rights equal to 1,000 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 per share. Dividends, at the rate of 6.25 percent,
are cumulative, paid quarterly and charged against retained earnings.
COMMON STOCK -- The number of common shares outstanding at December 31 was:
1994 -- 173,141,727; 1993 -- 173,431,918; and 1992 -- 174,580,928. The number of
treasury shares acquired, net of shares issued for stock option, dividend
reinvestment, and employee benefit plans was: 1994 -- 290,191;
1993 -- 1,149,010; and 1992 -- 632,213.
On a per-share basis, dividends were declared on common stock at the rate
of $1.48 in both 1994 and 1993 and $1.42 in 1992. Dividends payable were $64,060
and $64,170 at December 31, 1994 and 1993, respectively.
NOTE RECEIVABLE FROM ESOT -- The note matures on February 1, 2005; bears
interest at 6.25 percent; and may be repaid, in whole or in part, at any time.
Accrued interest at the end of any calendar year shall be added to the note
principal.
ESOP DEFERRED COMPENSATION -- Upon recognition of the company's guarantee
of the debt of the ESOT, an offsetting charge was made to shareholders' equity
referred to as "ESOP deferred compensation." To the extent the company
recognizes expense more rapidly than the corresponding cash contributions are
made, this balance will be reduced. The balance will also diminish to the extent
the company's ESOT debt guarantee commitment is reduced beginning in 1995 (see
Notes I and P).
P. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
The ESOP is a funding vehicle for the Upjohn Employee Savings Plan that
covers substantially all U.S. employees. As the ESOT 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, 1994, 974.8 preferred shares had been released and allocated; 280.8
shares were released but unallocated; and 6,066.4 shares remained unreleased, of
which 73.4 shares are committed to be released.
Under the agreement whereby the company has guaranteed the $275,000 of
third-party debt of the ESOT, the company is obligated to contribute sufficient
cash annually to the ESOT 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 plus cash
contributions. The company has fully and unconditionally guaranteed the ESOT'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 ESOT except in the event that the ESOT 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 ESOT. At
December 31, 1994, assets of the ESOT consisted primarily of $295,079 of Upjohn
Company Series B Convertible Perpetual Preferred Stock.
F-17
<PAGE> 212
UPJOHN
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Dollar amounts in thousands, except per share data)
Company expense is determined pursuant to the consensus position of the
Emerging Issues Task Force (Issue No. 89-8). A portion of future debt principal
payments is attributed to each year of the plan based on the number of shares
allocated during the period. This accelerated principal amount is combined with
debt interest and factored by 80 percent. From this formula-driven amount, the
company deducts interest earned on the note receivable from the ESOT and
dividends paid on all preferred stock held by the ESOT to arrive at net ESOP
expense.
Key measures of the ESOP were:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Interest expense of ESOT.............................. $28,895 $28,779 $28,669
Dividend income of ESOT............................... 18,489 18,606 18,686
Company contribution to ESOT.......................... 8,001 7,870 7,511
Company ESOP expense (net)............................ 13,368 12,344 11,972
</TABLE>
Q. EMPLOYEE STOCK OPTIONS
Employee stock options have a 10-year duration and are exercisable after
one year of employment following the grant date. At December 31, 1994, 808
current and former employees held options for 9,860,994 shares, of which
8,090,464 were exercisable. Options for 3,502,184 shares, 5,343,311 shares and
7,270,754 shares were available for future grants at December 31, 1994, 1993 and
1992, respectively.
Under the plan, upon the stock-for-stock exercise of any nonqualified or
incentive stock options granted in 1991 or thereafter, an active employee will
receive a new, nonqualified "reloaded" stock option at then-current market price
for the number of shares surrendered to exercise an option. The "reloaded" stock
option will have an exercise term equal to the time remaining of the original
exercised option. Officers subject to SEC Section 16(b) have a four-year period
before their shares become exercisable, while other participants have a
six-month waiting period.
Changes in outstanding options were as follows:
<TABLE>
<CAPTION>
OPTION PRICE NUMBER
Per SHARE OF SHARES
--------------- ---------
<S> <C> <C>
Balance outstanding, January 1, 1992...................... $ 7.88 - 46.13 5,863,407
Granted................................................... 30.00 - 45.19 1,901,929
Exercised................................................. 7.88 - 46.13 (319,237)
Canceled.................................................. 30.88 - 45.19 (287,938)
--------------- ---------
Balance outstanding, December 31, 1992.................... $ 8.92 - 46.13 7,158,161
Granted................................................... 28.19 - 32.25 2,127,443
Exercised................................................. 8.92 - 31.75 (48,221)
Canceled.................................................. 9.44 - 46.13 (486,955)
--------------- ---------
Balance outstanding, December 31, 1993.................... $ 9.44 - 46.13 8,750,428
Granted................................................... 28.63 - 35.94 1,927,721
Exercised................................................. 9.44 - 35.13 (275,693)
Canceled.................................................. 9.44 - 46.13 (541,462)
--------------- ---------
Balance outstanding, December 31, 1994.................... $ 12.33 - 46.13 9,860,994
=============== =========
</TABLE>
F-18
<PAGE> 213
UPJOHN
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Dollar amounts in thousands, except per share data)
R. SHAREHOLDER RIGHTS PLAN
Pursuant to the company's shareholder rights plan, each share of the
company's common stock includes one-third of a right. Each full right, which
becomes exercisable 10 days after a shareholder has acquired 20 percent or more
or commenced a tender offer for 30 percent or more of the company's stock, will
entitle the holder to purchase stock at an exercise price of $400 having a
market value of $800. In lieu of cash payment, the company has the option to
exchange common stock for the rights. The rights are redeemable for $.05 per
right during a period up to 30 days after 20 percent or more of the company's
stock has been acquired. The rights will expire on June 26, 1996, unless
redeemed earlier by the company.
S. RETIREMENT BENEFITS
The company and its subsidiaries have various pension plans covering
substantially all employees. The following table summarizes the funded status of
these plans:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------
1994 1993
-------- ----------
<S> <C> <C>
Vested benefit obligation.................................... $508,660 $ 564,599
-------- --------
Accumulated benefit obligation............................... 575,444 637,179
-------- --------
Projected benefit obligation................................. 816,316 904,122
Plan assets at fair value.................................... 940,133 1,016,045
-------- --------
Plan assets in excess of projected benefit obligation........ 123,817 111,923
Unrecognized net losses...................................... 78,456 64,856
Unamortized net asset at adoption............................ (85,579) (96,753)
Unrecognized prior service cost.............................. 44,250 52,843
-------- --------
Prepaid pension cost......................................... $160,944 $ 132,869
======== ========
</TABLE>
The U.S. plans comprise the majority of the amounts reflected above. The
1993 early retirement inducement caused a higher-than-normal payout of lump-sum
benefits in 1994, diminishing the projected benefit obligation as well as plan
assets. Further reducing the projected benefit obligation was the increase at
year end of the discount rate in the U.S. to 8.5 percent from 7.5 percent. The
assets of the domestic plans are invested approximately two-thirds in equity
securities. Fair value is determined principally by reference to publicly quoted
year-end prices. Accrued unfunded foreign separation pay plans not reflected in
the funded status summary above totaled $14,300 and $14,000 at December 31, 1994
and 1993, respectively.
The consolidated net pension expense amounts reflected below are for
continuing operations and are exclusive of the added costs associated with early
retirement inducements offered in 1993 and 1992. These incremental charges of
$15,000 before tax in 1993 and $7,000 before tax, net of a settlement gain, in
1992 are included in restructuring costs. Also, as a result of the company's
divestiture of the Asgrow Seed Company in 1994, it recognized a $3,050 gain
related to the curtailment of the Asgrow Pension Plan. This curtailment gain
F-19
<PAGE> 214
UPJOHN
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Dollar amounts in thousands, except per share data)
is reflected in the Consolidated Statements of Earnings as a component of the
loss on disposal of discontinued operations rather than in Note T.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
-------- --------- --------
<S> <C> <C> <C>
Service cost -- benefits earned during the year........... $ 43,362 $ 38,638 $ 35,011
Interest cost on projected benefit obligation............. 61,565 58,749 55,916
Actual return on plan assets.............................. 10,623 (135,040) (57,925)
Net amortization and deferral............................. (93,121) 57,082 (22,202)
-------- --------- --------
Net pension expense....................................... $ 22,429 $ 19,429 $ 10,800
======== ========= ========
</TABLE>
Assumptions used for net pension expense (U.S.):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Discount rate.............................................. 7.50% 8.25% 8.25%
Salary growth rate......................................... 4.75% 5.50% 5.50%
Return on plan assets...................................... 9.50% 9.50% 9.50%
</TABLE>
T. OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The company provides nonpension benefits to eligible retirees and their
dependents, primarily in the form of medical and dental benefits.
The following table summarizes the funded status of these plans:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------
1994 1993
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligation:
Retirees..................................................... $ 140,978 $ 168,468
Fully eligible active participants........................... 10,250 10,832
Other active participants.................................... 158,006 167,292
--------- ---------
Accumulated postretirement benefit obligation................ 309,234 346,592
Plan assets at fair value.................................... 73,312 56,037
--------- ---------
Accumulated postretirement benefit obligation
in excess of plan assets................................... (235,922) (290,555)
Unrecognized net gains....................................... (81,079) (31,682)
Unrecognized prior service cost.............................. (52,216) (59,886)
--------- ---------
Accrued postretirement benefit cost.......................... $(369,217) $(382,123)
========= =========
</TABLE>
The accumulated postretirement benefit obligation declined at December 31,
1994, due principally to an increase in the discount rate to 8.5 percent from
7.5 percent at December 31, 1993.
A Voluntary Employee Benefit Association (VEBA) or 501(c)(9) trust has been
established for the purpose of partially funding the company's obligations under
the plans. The funds are presently invested in long-term securities. The fair
value of plan assets was established by the trustee of the fund. Future
contributions are at the discretion of the company.
F-20
<PAGE> 215
UPJOHN
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Dollar amounts in thousands, except per share data)
The composition of expense for the postretirement benefit plan is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
Service cost......................................... $ 11,305 $14,085 $14,605
Interest cost........................................ 24,585 30,825 30,607
Actual return on plan assets......................... 766 (2,914) 1,369
Net amortization and deferral........................ (10,064) (324) (2,469)
-------- ------- -------
26,592 41,672 44,112
Portion attributable to discontinued operations...... (1,435) (2,294) (2,333)
-------- ------- -------
Net postretirement benefit cost, continuing
operations......................................... $ 25,157 $39,378 $41,779
======== ======= =======
</TABLE>
The assumptions used to develop the net postretirement benefit cost are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1993 1992
---- ----- -----
<S> <C> <C> <C>
Discount rate............................................ 7.50% 8.25% 8.25%
Return on plan assets.................................... 9.50% 9.50% 9.50%
Weighted average health care cost trend rates:
Initially.............................................. 7.70% 10.60% 11.10%
Trending down to....................................... 5.50% 6.00% 6.00%
</TABLE>
The health care cost trend rate has a significant effect on the amounts
reported. For example, increasing the rate by one percentage point in each year
would increase the accumulated postretirement benefit obligation as of December
31, 1994, by approximately $40,000 and the total of service and interest cost
components of net postretirement benefit cost for the year then ended by
approximately $5,600.
As a result of the company's divestiture of the Asgrow Seed Company in
1994, it recognized a $7,750 gain related to the curtailment of its
postretirement benefit plan. This curtailment gain is reflected in the
Consolidated Statements of Earnings as a component of the loss on disposal of
discontinued operations.
The company adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," effective January 1, 1993. The cumulative effect on earnings of this
change in accounting was a one-time charge of $18,000 or $11,115 after tax ($.07
per share). The incremental expense recognized for these benefits in 1993 and
1994 has not been material.
U. SEGMENT OPERATIONS
The company operates in one industry, Pharmaceutical Products, which
includes prescription and nonprescription products for both humans and animals.
No single customer accounts for 10 percent or more of the company's consolidated
sales.
The table below shows the company's operations by geographic area. All the
sales are shown by the originating area. U.S. exports to third-party customers
are less than 10 percent. Sales to affiliates between geographic areas are
priced to reflect consideration of economic circumstances and the regulations of
countries
F-21
<PAGE> 216
UPJOHN
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Dollar amounts in thousands, except per share data)
in which the transferring entities are located. These transfers, which are
primarily human-use products from the U.S., are eliminated in consolidation.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Sales to unaffiliated customers (includes exports):
United States.......................................... $1,948,215 $2,150,778 $2,092,131
Europe................................................. 638,733 571,112 597,984
Japan and Pacific...................................... 425,790 394,741 353,919
Other foreign.......................................... 262,258 223,326 212,154
Interarea sales to affiliates from:
United States.......................................... 400,761 354,528 356,297
Europe................................................. 119,254 117,142 110,590
Japan and Pacific...................................... 2,245 2,559 1,201
Other foreign.......................................... 12,715 10,627 10,205
Eliminations........................................... (534,975) (484,856) (478,293)
---------- ---------- ----------
$3,274,996 $3,339,957 $3,256,188
========== ========== ==========
</TABLE>
<TABLE>
<S> <C> <C> <C>
Earnings from continuing operations before income taxes
and minority equity:
United States.......................................... $ 533,096 $ 497,718 $ 624,595
Europe................................................. 43,705 (38,842) 10,757
Japan and Pacific...................................... 22,666 24,065 5,478
Other foreign.......................................... 43,829 (2,904) 31,073
---------- ---------- ----------
$ 643,296 $ 480,037 $ 671,903
========== ========== ==========
Identifiable assets, December 31:
United States.......................................... $3,867,905 $3,387,980 $3,085,793
Europe................................................. 650,193 570,723 617,199
Japan and Pacific...................................... 485,049 427,395 380,592
Other foreign.......................................... 159,314 147,479 150,357
Discontinued operations (net).......................... -- 278,344 279,158
---------- ---------- ----------
$5,162,461 $4,811,921 $4,513,099
========== ========== ==========
</TABLE>
V. FOREIGN OPERATIONS
The consolidated financial statements include amounts related to foreign
operations as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
1994 1993
-------- --------
<S> <C> <C>
Working capital................................................ $490,618 $457,054
Net property and other assets.................................. 468,591 447,835
Noncurrent liabilities......................................... (97,507) (91,671)
Minority equity................................................ (5,017) (52,614)
-------- --------
Equity in foreign net assets................................... $856,685 $760,604
======== ========
</TABLE>
F-22
<PAGE> 217
UPJOHN
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Dollar amounts in thousands, except per share data)
The reported value of and, potentially, the cash flow from foreign working
capital and net investments are subject to fluctuations in the value of the U.S.
dollar relative to the respective foreign currencies in which the net assets are
denominated.
Foreign exchange losses included in earnings, net of minority equity and
taxes, were ($29) in 1994; ($2,226) in 1993; and ($838) in 1992.
W. OTHER INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Interest cost incurred........................................ $ 36,703 $ 47,195 $ 42,261
Less: Capitalized on construction............................. 12,103 15,699 11,008
------- ------- -------
Interest expense.............................................. $ 24,600 $ 31,496 $ 31,253
======= ======= =======
Weighted average interest rate on short-term borrowings at end
of period
Domestic...................................................... -- -- 3.6%
International................................................. 6.65% 8.4% 11.2%
</TABLE>
F-23
<PAGE> 218
UPJOHN
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Dollar amounts in thousands, except per share data)
X. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
1994 1993
---------------------------------------- ----------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................................. $ 800.7 $ 818.7 $ 809.2 $ 846.5 $ 800.7 $ 831.4 $ 852.6 $ 855.4
Other revenue............................. 10.3 14.2 19.5 25.5 6.0 9.1 9.6 15.8
------ ------ ------ ------ ------ ------ ------ ------
Operating revenue......................... 811.0 832.9 828.7 872.0 806.7 840.5 862.2 871.2
------ ------ ------ ------ ------ ------ ------ ------
Cost of products sold..................... 202.7 217.8 214.3 208.3 187.6 195.3 195.2 205.6
Research and development.................. 154.8 148.3 146.7 157.4 142.8 158.1 158.8 152.8
Marketing and administrative.............. 301.5 316.5 302.0 374.8 313.6 324.2 343.2 335.1
Restructuring............................. -- -- -- -- -- -- 208.8 --
------ ------ ------ ------ ------ ------ ------ ------
Operating income (loss)................... 152.0 150.3 165.7 131.5 162.7 162.9 (43.8) 177.7
Interest income........................... 13.2 14.1 15.1 17.2 12.2 12.4 13.1 13.1
Interest expense.......................... (6.4) (6.3) (6.6) (5.3) (8.7) (9.4) (7.6) (5.8)
Foreign exchange (losses) gains........... (1.7) (.4) 1.1 (.1) (1.9) (.3) (2.0) (.4)
All other, net............................ .1 (.7) 10.1 .4 12.2 (2.6) (4.3) .5
------ ------ ------ ------ ------ ------ ------ ------
Earnings (losses) from continuing
operations before income taxes and
minority equity......................... 157.2 157.0 185.4 143.7 176.5 163.0 (44.6) 185.1
Provision benefit for income taxes........ 35.5 37.0 45.8 36.1 38.2 39.8 (22.6) 28.7
Minority equity in (losses) earnings...... (2.2) 1.9 (.3) .4 (.7) (.3) (.4) .9
------ ------ ------ ------ ------ ------ ------ ------
Earnings (loss) from continuing
operations.............................. 123.9 118.1 139.9 107.2 139.0 123.5 (21.6) 155.5
Earnings (loss) from discontinued
operations
(net of tax)............................ 10.9 2.0 (5.7) (5.5) 13.4 1.8 (8.5) 8.2
------ ------ ------ ------ ------ ------ ------ ------
Earnings (loss) before cumulative
effect of accounting changes............ 134.8 120.1 134.2 101.7 152.4 125.3 (30.1) 163.7
Cumulative effect of accounting changes
(net of tax)............................ -- -- -- -- (18.9) -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Net earnings (loss)....................... 134.8 120.1 134.2 101.7 133.5 125.3 (30.1) 163.7
Dividends on preferred stock (net of
tax).................................... 3.0 3.1 3.0 3.2 3.0 3.1 3.0 3.0
------ ------ ------ ------ ------ ------ ------ ------
Net earnings (loss) on common stock....... $ 131.8 $ 117.0 $ 131.2 $ 98.5 $ 130.5 $ 122.2 $ (33.1) $ 160.7
------ ------ ------ ------ ------ ------ ------ ------
Net earnings per common share:
Primary -- Earnings (loss) before
accounting
changes................................. $ .70 $ .66 $ .79 $ .60 $ .78 $ .69 $ (.14) $ .87
-- Discontinued operations........ .06 .01 (.03) (.03) .08 .01 (.05) .05
-- Cumulative effect of accounting
changes................................. -- -- -- -- (.11) -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Primary -- Net earnings (loss)............ $ .76 $ .67 $ .76 $ .57 $ .75 $ .70 $ (.19) $ .92
====== ====== ====== ====== ====== ====== ====== ======
Fully diluted:
-- Earnings (loss) before accounting
changes............................... $ .68 $ .64 $ .76 $ .59 $ .75 $ .67 $ (.14) $ .85
-- Discontinued operations.............. .06 .01 (.03) (.03) .08 .01 (.05) .04
-- Cumulative effect of accounting
changes............................... -- -- -- -- (.10) -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Fully diluted -- Net earnings (loss)...... $ .74 $ .65 $ .73 $ .56 $ .73 $ .68 $ (.19) $ .89
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
F-24
<PAGE> 219
UPJOHN
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1994
JUNE 30, 1995 -----------------
-------------
(UNAUDITED)
<S> <C> <C>
(DOLLAR AMOUNTS IN THOUSANDS)
CURRENT ASSETS:
Cash and cash equivalents...................................... $ 303,914 $ 502,346
Trade accounts receivable, less allowances of $35,538 and
$36,088...................................................... 671,767 650,522
Inventories.................................................... 502,172 458,676
Deferred income taxes.......................................... 157,397 151,783
Other.......................................................... 506,630 367,111
----------- -----------
Total current assets........................................... 2,141,880 2,130,438
----------- -----------
Investments, at cost........................................... 598,254 647,092
----------- -----------
Property, plant and equipment, at cost......................... 3,203,532 3,079,537
Less: Allowance for depreciation............................... (1,351,189) (1,280,866)
----------- -----------
Net property, plant and equipment.............................. 1,852,343 1,798,671
Other noncurrent assets........................................ 651,109 586,260
----------- -----------
Total assets................................................... $ 5,243,586 $ 5,162,461
=========== ===========
CURRENT LIABILITIES:
Short-term debt, including current maturities of long-term
debt......................................................... $ 60,285 $ 42,090
Accounts payable............................................... 131,703 179,802
Compensation and vacations..................................... 102,016 110,699
Dividends payable.............................................. 63,400 64,060
Income taxes payable........................................... 226,702 189,015
Other.......................................................... 494,967 533,274
----------- -----------
Total current liabilities...................................... 1,079,073 1,118,940
----------- -----------
Long-term debt................................................. 515,005 520,977
----------- -----------
Guarantee of ESOP debt......................................... 267,200 274,800
----------- -----------
Postretirement benefit cost.................................... 374,607 369,217
----------- -----------
Other non-current liabilities.................................. 403,443 391,654
----------- -----------
Deferred income taxes.......................................... 101,879 99,238
----------- -----------
Minority equity in subsidiaries................................ -- 5,017
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock, one dollar par value; authorized 12,000,000
shares; issued Series B convertible 7,263 shares (1994: 7,322
shares) at
stated value................................................. 292,719 295,079
Common stock, one dollar par value; authorized 600,000,000
shares, issued 190,589,607 shares............................ 190,590 190,590
Capital in excess of par value................................. 62,828 64,636
Retained earnings.............................................. 2,891,048 2,757,260
Note receivable from ESOP Trust (ESOT)......................... (33,520) (33,520)
ESOP deferred compensation..................................... (239,910) (243,962)
Currency translation adjustments............................... 34,463 (33,057)
Less treasury stock at cost 19,575,507 shares (1994: 17,447,880
shares)...................................................... (695,839) (614,408)
----------- -----------
Total shareholders' equity..................................... 2,502,379 2,382,618
----------- -----------
Total liabilities and shareholders' equity..................... $ 5,243,586 $ 5,162,461
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-25
<PAGE> 220
UPJOHN
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
1994
-----------
1995 (UNAUDITED)
-----------
(UNAUDITED)
<S> <C> <C>
(DOLLAR AMOUNTS IN
THOUSANDS, EXCEPT PER SHARE
DATA)
OPERATING REVENUE:
Net sales........................................................... $ 1,643,446 $ 1,619,350
Other revenue....................................................... 74,123 24,507
---------- ----------
1,717,569 1,643,857
---------- ----------
OPERATING COSTS AND EXPENSES:
Cost of products sold............................................... 446,828 420,558
Research & development.............................................. 290,809 303,091
Marketing & administrative.......................................... 628,153 617,982
---------- ----------
Operating income.................................................... 351,779 302,226
---------- ----------
Interest income..................................................... 40,690 27,356
Interest expense.................................................... (12,988) (12,671)
Foreign exchange losses............................................. (1,147) (2,079)
All other, net...................................................... (1,557) (374)
---------- ----------
Earnings from continuing operations before income taxes............. 376,777 314,458
Provision for income taxes.......................................... 109,300 72,500
---------- ----------
Earnings from continuing operations................................. 267,477 241,958
DISCONTINUED OPERATIONS:
Earnings from discontinued operations (net of tax).................. -- 12,880
---------- ----------
Net earnings........................................................ 267,477 254,838
Dividends on preferred stock (net of tax)........................... 6,186 6,126
---------- ----------
Net earnings on common stock........................................ $ 261,291 $ 248,712
========== ==========
EARNINGS PER COMMON SHARE:
Primary
-- Earnings from continuing operations............................ $ 1.51 $ 1.36
-- Discontinued operation......................................... -- .07
---------- ----------
-- Net earnings................................................... $ 1.51 $ 1.43
========== ==========
Fully diluted
-- Earnings from continuing operations............................ $ 1.46 $ 1.32
-- Discontinued operation......................................... -- .07
---------- ----------
-- Net earnings................................................... $ 1.46 $ 1.39
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-26
<PAGE> 221
UPJOHN
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1994
-----------
(UNAUDITED)
1995
-----------
(UNAUDITED)
(DOLLAR AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Net cash provided by operations...................................... $ 252,639 $ 311,471
--------- ---------
CASH PROVIDED (REQUIRED) BY INVESTMENT ACTIVITIES:
Property, plant and equipment additions............................ (96,651) (113,920)
Proceeds from sale of property, plant and equipment................ 5,230 25,479
Proceeds from sale of investments.................................. 158,888 78,304
Purchase of investments............................................ (293,870) (189,850)
Proceeds from sale of discontinued operations...................... -- 7,943
Other.............................................................. 6,038 (5,476)
--------- ---------
Net cash required by investment activities........................... (220,365) (197,520)
--------- ---------
CASH PROVIDED (REQUIRED) BY FINANCING ACTIVITIES:
Proceeds from issuance of debt..................................... 11,693 6,367
Repayment of debt.................................................. (13,447) (13,566)
Debt maturing in three months or less.............................. (21,669) 3,814
Purchase of treasury stock......................................... (102,599) (23,021)
Dividends paid to shareholders..................................... (131,855) (131,839)
Other.............................................................. 12,546 1,582
--------- ---------
Net cash required by financing activities............................ (245,331) (156,663)
--------- ---------
Effect of exchange rate changes on cash.............................. 14,625 2,167
--------- ---------
Net change in cash and cash equivalents.............................. (198,432) (40,545)
Cash and cash equivalents, beginning of year......................... 502,346 291,750
--------- ---------
Cash and cash equivalents, end of period............................. $ 303,914 $ 251,205
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-27
<PAGE> 222
UPJOHN
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED
(Dollar amounts in thousands, except per share data)
A. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial information presented herein is unaudited. The
interim financial statements and notes thereto do not include all disclosures
required by generally accepted accounting principles and should be read in
conjunction with the financial statements and notes thereto included in the
company's latest annual report on Form 10-K.
In the opinion of management, the interim financial statements reflect all
adjustments of a normal recurring nature necessary for a fair statement of
results for interim periods. The current period's results of operations are not
necessarily indicative of results that ultimately may be achieved for the year.
Reclassification of certain deferred income tax balances has been made on
the balance sheet to conform prior year's data to the current year presentation.
In December 1994, the company sold its interest in the Asgrow Seed Company.
Where appropriate, these financial statements have been restated to reflect this
sale as a discontinued operation.
B. EARNINGS PER COMMON SHARE
Earnings per share are computed by dividing net earnings available to the
common shareholder by the sum of the weighted average number of shares of common
stock outstanding plus common stock equivalents principally in the form of
employee stock option awards and, in the case of fully diluted earnings per
share, the number of common shares into which the preferred stock would be
assumed to be converted. Also in the fully diluted computation, net earnings are
adjusted by the difference between dividend on preferred and common stock under
the if-converted assumption.
C. INVENTORIES
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
--------- ------------
<S> <C> <C>
Estimated replacement cost (FIFO basis):
Pharmaceutical finished products.................... $ 226,570 $ 216,165
Raw materials, supplies and work in process......... 420,344 382,501
--------- ---------
646,914 598,666
Less reduction to LIFO cost......................... (144,742) (139,990)
--------- ---------
$ 502,172 $ 458,676
========= =========
</TABLE>
Inventories valued on the LIFO method has an estimated replacement cost
(FIFO basis) of $375,873 at June 30, 1995, and $360,124 at December 31, 1994.
F-28
<PAGE> 223
UPJOHN
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED -- (CONTINUED)
(Dollar amounts in thousands, except per share data)
D. DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
-------- ------------
<S> <C> <C>
7.5% Industrial Revenue Bonds due 2023......................... $ 40,000 $ 40,000
5.35-7.95% Medium-Term Notes due 1997-1999..................... 266,000 266,000
5.875% Notes due 2000.......................................... 200,000 200,000
Other.......................................................... 13,207 18,103
Current maturities............................................. (4,202) (3,126)
-------- --------
$515,005 $520,977
======== ========
</TABLE>
The Medium-Term Notes were issued under 1993 and 1991 shelf registrations
filed with the Securities and Exchange Commission. At June 30, 1995, $134,000
remained available for issuance under these registrations.
E. CONTINGENT LIABILITIES
The consolidated balance sheets include accruals for estimated product and
environmental liabilities. The latter includes exposures related to discontinued
operations, including the industrial chemical facility at North Haven,
Connecticut, and environmental exposures at several "Superfund" or comparable
sites.
The company has committed to make a series of investments, as certain
progress goals are met, in a company that intends to manufacture a
hemoglobin-based oxygen carrier. These investments could aggregate $179,000 over
a period of years. As of June 30, 1995, the company has invested $96,000. Also
pursuant to the agreement, the company has committed to conduct clinical
development.
F. LITIGATION
There are various legal proceedings against the company, including a
substantial number of product liability suits claiming damages as a result of
the use of the company's products including approximately 100 cases involving
HALCION.
The company is also involved in several administrative and judicial
proceedings relating to environmental matters, including actions brought by the
U.S. EPA and state environmental agencies for cleanup at approximately 40
"Superfund" or comparable sites. The company's estimate of the ultimate cost to
be incurred in connection with these environmental situations could change due
to cleanup procedures to be employed, if any; the cost of cleanup; and the
company's share of a site's cost.
The company is a party, along with approximately 30 other defendant
manufacturers and wholesalers, in numerous state and federal civil antitrust
lawsuits brought by retail pharmacies and retail pharmacy chains and
supermarkets. In the main, this series of actions seeks treble damages and
injunctive relief based on allegations of price discrimination and antitrust
violations with respect to discounts and rebates provided to certain customers
but denied to the plaintiffs. Federal cases have been consolidated for trial on
certain antitrust issues in the Federal District Court for the Northern District
of Illinois. That court has certified a class of retail pharmacy plaintiffs in a
class action. It is possible that additional cases making similar claims will be
filed naming the company as a defendant.
Based on information currently available and the company's experience with
lawsuits of the nature of those currently filed or anticipated to be filed which
have resulted from business activities to date, the amounts accrued for product
and environmental liabilities arising from the litigation and proceedings
referred to above
F-29
<PAGE> 224
UPJOHN
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED -- (CONTINUED)
(Dollar amounts in thousands, except per share data)
are considered to be adequate. Although the company cannot predict the outcome
of individual lawsuits, at this time the company believes the ultimate liability
should not have a material effect on consolidated financial position; and unless
there is a significant deviation from the historical pattern of resolution of
such issues, the ultimate liability should not have a material adverse effect on
the company's results of operations or liquidity.
For several years, the company has been in the process of evaluating
existing environmental conditions at the North Haven, Connecticut facility. This
evaluation, conducted in compliance with a corrective action order issued by the
U.S. EPA on September 29, 1989, is largely complete. The U.S. EPA and the
company have entered into an Administrative Order on Consent (effective as of
June 18, 1994) under which the company will conduct a Corrective Measures Study
and will implement interim measures appropriate for site stabilization pending
final remedial work as may be necessary.
G. DERIVATIVE FINANCIAL INSTRUMENTS
The company utilizes derivative financial instruments in conjunction with
its foreign currency risk management programs and does not use such instruments
for trading purposes. These programs include the creation of designated hedges
of the net foreign currency transaction exposures of certain significant
international subsidiary operations. There were no hedges of anticipated
transactions at June 30, 1995.
The company's program to hedge net foreign currency transaction exposures
is designed to protect operating results and cash flows from potential adverse
effects of foreign currency fluctuations related to intercompany and selected
third-party transactions. The hedging activities seek to limit this risk by
offsetting the gains and losses on the underlying exposures with losses and
gains on the instruments utilized to create the hedge. This program utilizes
over-the-counter forward exchange contracts with terms consistent with the
underlying exposures. These contracts generally have maturities that do not
exceed twelve months and require the company to exchange currencies at
agreed-upon rates at maturity.
At June 30, 1995, the notional amounts of the company's outstanding foreign
exchange forward contracts held related to the net transaction exposure hedging
program was $151,332.
The counterparties to these contracts consist of a limited number of major
international financial institutions. The company does not expect any losses
from credit exposure due to review and control procedures established by
corporate policy.
H. RESTRUCTURING
The company accrued restructuring charges as of September 30, 1993, that
included costs of $136,109 related to a worldwide work-force reduction of
approximately 1,500 employees. The majority of these employees were employed in
marketing, administrative, and manufacturing functions. As of June 30, 1995,
approximately 1,300 employees had been terminated under this restructuring
program. Of the amount originally accrued for work-force reduction,
approximately $8,600 remains as current and noncurrent liabilities of the
company. There have been no adjustments made to increase or decrease the
liabilities originally accrued for the purpose of work-force reduction.
F-30
<PAGE> 225
PHARMACIA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
PHARMACIA AB
We have audited the consolidated balance sheets of Pharmacia AB and
subsidiaries as of December 31, 1994, 1993 and 1992 and the related consolidated
statements of income and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's Board of Directors.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Sweden which, in all material respects, conform to generally
accepted auditing standards in the United States. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Pharmacia AB
and subsidiaries as of December 31, 1994, 1993 and 1992 and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles in Sweden.
Generally accepted accounting principles in Sweden vary in certain
significant respects from generally accepted accounting principles in the United
States. Application of generally accepted accounting principles in the United
States would have affected net income for each of the years in the three-year
period ended December 31, 1994 and stockholder's equity as of December 31, 1994,
1993 and 1992, to the extent summarized in Note 25 to the consolidated financial
statements.
Stockholm, Sweden
March 20, 1995
<TABLE>
<S> <C>
/s/ HANS KARLSSON /s/ GORAN TIDSTROM
------------------------------------------ ------------------------------------------
Hans Karlsson Goran Tidstrom
Authorized Public Accountant Authorized Public Accountant
KPMG Bohlins AB Ohrlings Reveko AB
Member of KPMG International Member of Coopers & Lybrand International
</TABLE>
F-31
<PAGE> 226
PHARMACIA
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------
1992 1993 1994 1994
------- ------- ------- -------------
NOTES SEK SEK SEK $
-----
<S> <C> <C> <C> <C> <C>
(UNAUDITED --
NOTE 1)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE
AMOUNTS)
Sales........................................ 23 15,448 24,708 26,450 3,628
Operating expenses........................... 3 (12,158) (19,190) (19,951) (2,736)
Significant non-recurring items.............. 4 (141) (501) 820 112
Depreciation and amortization................ 5 (999) (1,705) (1,914) (263)
Share in earnings (losses) of associated
companies, net............................. 3 15 (7) (1)
------- ------- ------- -------
OPERATING INCOME FROM CONTINUING
OPERATIONS................................. 2,153 3,327 5,398 740
------- ------- ------- -------
Dividends received........................... 3 2 16 2
Interest income.............................. 1,118 1,214 509 70
Interest expense............................. 3 (719) (1,196) (607) (83)
Foreign exchange gains (losses), net......... 6 (12) (47) 56 8
Other financial income and expenses, net..... 1 21 (50) (7)
------- ------- ------- -------
FINANCIAL INCOME AND EXPENSES,
NET........................................ 391 (6) (76) (10)
------- ------- ------- -------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND MINORITY INTERESTS........ 2,544 3,321 5,322 730
Income taxes on continuing operations........ 7 (961) (1,148) (2,041) (280)
Minority interests........................... 16 (5) (2) --
------- ------- ------- -------
NET INCOME FROM CONTINUING OPERATIONS........ 1,599 2,168 3,279 450
NET INCOME FROM DISCONTINUED OPERATIONS...... 8 1,834 499 -- --
------- ------- ------- -------
NET INCOME................................... 3,433 2,667 3,279 450
======= ======= ======= =======
NET INCOME PER SHARE FROM CONTINUING
OPERATIONS................................. 6.31 8.55 12.92 1.77
NET INCOME PER SHARE FROM DISCONTINUED
OPERATIONS................................. 7.23 1.97 -- --
------- ------- ------- -------
NET INCOME PER SHARE......................... 13.54 10.52 12.92 1.77
======= ======= ======= =======
WEIGHTED AVERAGE NUMBER OF SHARES (IN
THOUSANDS)................................. 253,562 253,575 253,645 253,645
======= ======= ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-32
<PAGE> 227
PHARMACIA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------
1994
1992 1993 1994 -----------
NOTES ------ ------ ------ $
----- SEK SEK SEK (UNAUDITED--
NOTE 1)
<S> <C> <C> <C> <C> <C>
(IN MILLIONS)
ASSETS
CURRENT ASSETS
Liquid assets................................... 9 7,934 3,099 4,004 549
Trade accounts receivable....................... 10 4,050 6,354 6,196 850
Other receivables............................... 11 785 1,532 1,825 251
Inventories..................................... 12 2,388 3,507 3,202 439
----- ------ ------ ------ -----------
Total current assets............................ 15,157 14,492 15,227 2,089
----- ------ ------ ------ -----------
FIXED ASSETS
Shares and participations....................... 13 109 1,108 1,101 151
Long-term receivables and other investments..... 233 681 633 87
Intangible assets, net.......................... 14 1,414 7,293 6,152 844
Property, plant and equipment, net.............. 15 5,016 10,001 9,392 1,288
----- ------ ------ ------ -----------
Total fixed assets.............................. 6,772 19,083 17,278 2,370
----- ------ ------ ------ -----------
Net assets of discontinued operations........... 1,8 9,533 -- -- --
----- ------ ------ ------ -----------
TOTAL ASSETS.................................... 31,462 33,575 32,505 4,459
==== ====== ====== ====== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable.......................... 1,114 2,157 2,289 314
Income taxes payable............................ 582 1,415 1,437 197
Short-term loans................................ 16 2,265 4,826 1,453 200
Other current liabilities....................... 17 3,340 4,868 3,763 516
----- ------ ------ ------ -----------
Total current liabilities....................... 7,301 13,266 8,942 1,227
----- ------ ------ ------ -----------
LONG-TERM LIABILITIES
Convertible debenture loans..................... 18 231 219 217 30
Bond loan....................................... 19 106 46 101 14
Other long-term loans........................... 19 91 970 856 117
Pension obligation.............................. 20 1,639 1,715 1,831 251
Deferred income taxes........................... 7 1,394 867 1,306 179
Other liabilities............................... 72 785 1,120 154
----- ------ ------ ------ -----------
Total long-term liabilities..................... 3,533 4,602 5,431 745
----- ------ ------ ------ -----------
MINORITY INTERESTS.............................. 19 10 0 0
STOCKHOLDERS' EQUITY............................ 21
Capital stock................................... 6,339 6,341 6,341 870
Restricted reserves............................. 5,684 4,873 6,114 838
----- ------ ------ ------ -----------
Total restricted stockholders' equity........... 12,023 11,214 12,455 1,708
----- ------ ------ ------ -----------
Unrestricted reserves........................... 5,153 1,816 2,398 329
Net income...................................... 3,433 2,667 3,279 450
----- ------ ------ ------ -----------
Total unrestricted stockholders' equity......... 8,586 4,483 5,677 779
----- ------ ------ ------ -----------
Total stockholders' equity...................... 20,609 15,697 18,132 2,487
----- ------ ------ ------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...... 31,462 33,575 32,505 4,459
==== ====== ====== ====== ==========
PLEDGED ASSETS AND CONTINGENT LIABILITIES....... 22
Pledged assets.................................. 1,298 1,492 1,092 150
Contingent liabilities.......................... 846 1,099 765 105
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-33
<PAGE> 228
PHARMACIA
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------
1994
1993 1994 ------------
------ ------ $
1992 SEK SEK (UNAUDITED --
------ NOTE 1)
SEK
<S> <C> <C> <C> <C>
(IN MILLIONS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income from continuing operations................ 1,599 2,168 3,279 450
Adjustments to reconcile net income from continuing
operations to net cash provided from operating
activities:
Depreciation and amortization...................... 999 1,705 1,914 263
Net (gain) loss on sales of fixed assets........... 29 14 (300) (41)
Net (gain) on sale of subsidiary................... -- -- (596) (82)
Restructuring and merger costs..................... (46) -- -- --
Write-off of fixed assets and intangibles.......... 88 -- 90 12
Change in minority interests in net income of
associated companies............................ 16 (5) 2 --
Undistributed earnings of associated companies..... (8) (2) 6 1
Change in assets and liabilities, net of effects from
acquisitions and dispositions of businesses
Current receivables................................ (820) 299 (295) (40)
Inventories........................................ (125) 70 129 18
Current liabilities................................ 1,127 66 (773) (106)
Change in deferred taxes........................... 326 (280) 439 60
Change in pension obligation....................... 202 76 116 16
Change in other long-term liabilities.............. (97) (31) 335 46
Other.............................................. (9) 25 (6) (1)
------ ------ ------ ------
Net cash provided from operating activities.......... 3,281 4,105 4,340 596
------ ------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchases of subsidiaries, net of cash
required........................................... (719) (6,674) (145) (20)
Proceeds from sale of subsidiary..................... -- -- 1,111 152
Investments in shares and participations............. (9) (952) (17) (2)
Proceeds from sales of shares and participations..... -- 4 42 6
Investments in other fixed assets.................... (1,245) (3,176) (1,742) (239)
Proceeds from sales of other fixed assets............ 177 502 881 121
Discontinued operations.............................. 781 3,253 -- --
Change in long-term receivables...................... 499 70 38 5
Other................................................ (395) (577) 414 57
------ ------ ------ ------
Net cash provided from (used in) investing
activities......................................... (911) (7,550) 582 80
------ ------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings, net........................... 1,091 332 (3,372) (463)
Principal payments on long-term debt................. (115) (793) (58) (8)
Dividends paid....................................... (799) (900) (558) (77)
Other................................................ (29) (63) 55 8
------ ------ ------ ------
Net cash provided from (used in) financing
activities......................................... 148 (1,424) (3,933) (540)
------ ------ ------ ------
Effect of exchange rate changes on liquid assets..... 64 34 (84) (12)
NET INCREASE (DECREASE) IN LIQUID ASSETS............. 2,582 (4,835) 905 124
LIQUID ASSETS AT BEGINNING OF YEAR................... 5,352 7,934 3,099 425
------ ------ ------ ------
LIQUID ASSETS AT END OF YEAR......................... 7,934 3,099 4,004 549
====== ====== ====== ==========
</TABLE>
See additional information in Note 27.
See accompanying Notes to Consolidated Financial Statements.
F-34
<PAGE> 229
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 1 ACCOUNTING POLICIES
The accompanying Consolidated Financial Statements have been prepared in
accordance with accounting principles generally accepted in Sweden (Swedish
GAAP). These accounting principles differ in certain significant respects from
accounting principles generally accepted in the United States (U.S. GAAP). See
Note 25 for a discussion of the principal differences between Swedish GAAP and
U.S. GAAP affecting Pharmacia's net income and stockholders' equity.
The accounting principles stated below are consistent for all years
presented except for the changes effective January 1, 1993 in the method of
accounting for postretirement benefits and reporting of goodwill in local
currency. (See Note 1C).
Solely for the convenience of the reader, the 1994 consolidated financial
statements have been translated into United States Dollars ($) using the June
30, 1995 Noon Buying Rate of the Federal Reserve Bank of New York of $1 = SEK
7.29.
A. CHANGE IN GROUP COMPOSITION
On June 30, 1994, Pharmacia sold Deltec, a U.S.-based subsidiary that
manufactured and marketed ambulatory pumps and ports for continuous drug
delivery. Pharmacia has retained the rights to sell Deltec products in Europe,
excluding U.K., Germany and France. The sale of Deltec generated a tax free
capital gain of MSEK 596.
On May 5, 1993, Pharmacia acquired certain of the pharmaceutical businesses
of Erbamont N.V. included in Farmitalia Carlo Erba S.r.1. of Italy and Erbamont
Inc. of the United States and their respective subsidiaries from Montedison
S.p.A. ("Montedison"). The pharmaceutical businesses acquired from Montedison
are hereafter referred to as "FICE" in these Consolidated Financial Statements
(see Note 2).
In June 1993, the two principal owners of Procordia AB (predecessor of
Pharmacia AB), Volvo AB and the Kingdom of Sweden (the "State") announced their
agreement to separate Procordia's operations into two parts: a pharmaceuticals
and biotechnology group and a food and consumer products group. The assets and
liabilities associated with the food and consumer products portion of Procordia
were transferred to BCP Branded Consumer Products AB ("BCP"), a wholly-owned
subsidiary of Procordia. In November 1993, Procordia's stockholders voted to
divest Procordia's entire interest in BCP by distributing one BCP share in
respect of each Procordia share held by each stockholder on November 16, 1993.
Although the distribution was made in November 1993, these financial statements
give effect to the distribution as if it were made on July 1, 1993. Procordia's
stockholders also voted to change Procordia's name to Pharmacia AB ("Pharmacia"
or the "Group").
The operations of BCP businesses have been presented in the Consolidated
Financial Statements for 1993 and 1992 as discontinued operations. The results
of operations of these businesses through June 30, 1993 have been included in
the Consolidated Income Statement as "Net Income of discontinued operations" and
the net assets are presented in the Consolidated Balance Sheet as "Net assets of
discontinued operations". The distribution of BCP shares has been reflected in
stockholders' equity as a dividend.
Subsequent to the Annual Stockholders' Meeting and distribution of the BCP
shares in November 1993, the State transferred all of its BCP shares to Volvo in
exchange for Pharmacia shares. After this exchange of shares, the Swedish State
owned a 46.1 percent interest in Pharmacia, representing 57.6 percent of
stockholders' votes.
In June 1994, the Swedish State sold most of its holding of Pharmacia to
the general public and Swedish and foreign institutions. In connection with the
sale, Pharmacia's stock was listed on Nasdaq in the U.S. The
F-35
<PAGE> 230
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 1 ACCOUNTING POLICIES -- (CONTINUED)
Swedish State, through Forvaltningsaktiebolaget Stattum, owns 14.1 percent of
the capital and 11.8 percent of the votes in Pharmacia after the sale.
B. PRINCIPLES OF CONSOLIDATION
The Consolidated Financial Statements include the parent company, Pharmacia
AB, and all companies in which Pharmacia AB directly or indirectly holds more
than 50 percent of the voting rights on an other than temporary basis. All
significant intercompany transactions have been eliminated in the Consolidated
Financial Statements.
In 1990, Procordia merged with the pharmaceutical company then known as
Pharmacia AB ("Old Pharmacia") and the food company Provendor AB. The merger
with Old Pharmacia and Provendor AB was reported in the Consolidated Financial
Statements according to the pooling method under Swedish GAAP as of January 1,
1990. The assigned acquisition cost was equal to the historical book values and
there was no resulting goodwill. Except for this merger, acquisitions are
generally accounted for under the purchase method of accounting.
For associated companies in which Pharmacia holds between 20 percent and 50
percent of the voting rights, Pharmacia includes its share of the associated
company's pretax income after amortization of related goodwill in the income
statement as operating income. Pharmacia's share of taxes in associated
companies is reported as income tax expense. The increase in the carrying value
of associated companies resulting from Pharmacia's recognition of its share of
associated companies' profit is recorded in restricted reserves. Reduction of
the carrying value of associated companies as a result of losses reduces
consolidated unrestricted reserves.
Companies in which Pharmacia owns less than 20 percent of the voting rights
are recorded at cost. If the value of an individual investment is, in the view
of management, deemed permanently impaired, the investment is written down to
the appropriate value.
Minority interests in Pharmacia subsidiaries are reported separately in the
Consolidated Balance Sheets and the Consolidated Income Statements.
Operating results of companies acquired during the year are included in the
Consolidated Income Statements from the date of acquisition. The results of
operations of divested companies are included in the Consolidated Income
Statements through the date of divestment.
C. CHANGES IN ACCOUNTING PRINCIPLES
As of January 1, 1993, Pharmacia's U.S. subsidiaries began providing for
postretirement benefits other than pensions on an accrual basis. The method of
determining the provision for postretirement benefits was based on Statement of
Financial Accounting Standards No. 106 "Employer's Accounting for Postretirement
Benefits Other Than Pensions" ("SFAS 106"). The unfunded and unrecognized costs
of earned benefits at January 1, 1993 of MSEK 123 have been charged to Group
stockholders' equity. (See Note 21). The majority of this amount related to BCP.
As of January 1, 1993, goodwill related to foreign acquisitions is reported
in the functional currencies of the entities acquired. Prior to January 1, 1993,
Pharmacia recorded goodwill arising from acquisitions of foreign entities in
Pharmacia's reporting currency, the Swedish kronor. The carrying values of
goodwill from functional currencies resulted in an increase in stockholders'
equity of MSEK 158 for the cumulative effect of this change in accounting
principle.
F-36
<PAGE> 231
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 1 ACCOUNTING POLICIES -- (CONTINUED)
D. DEFERRED TAXES
Tax legislation in Sweden and certain other countries offers companies the
opportunity to defer their current tax liability by making tax-deductible
allocations to untaxed reserves. Thus companies are able, to a certain extent,
to reduce taxable income in such a way that earnings remain in the business
without being currently taxable. The Consolidated Financial Statements reflect
deferred tax accounting for such untaxed reserves and other deferred tax
liabilities using the liability method.
Deferred tax assets are recognized for temporary differences that will
result in deductible amounts in future years and tax benefits of net operating
losses are recognized only when actually realized.
E. TRANSLATION OF FINANCIAL STATEMENTS OF FOREIGN SUBSIDIARIES
The balance sheets of foreign subsidiaries, with the exception of those in
highly inflationary economies, are translated according to the current rate
method which provides that assets and liabilities are translated at period-end
rates. Income statements are translated at the average rate for the period.
Translation differences arising from translation of income statements and
balance sheets are recorded directly to stockholders' equity.
Subsidiaries in highly inflationary economies are translated according to
the monetary-non-monetary method which requires the translation of monetary
balance sheet items at the period-end rate and non-monetary items at the rate
prevailing on the investment date. Income statements are translated at the
average rate, with the exception of depreciation and of certain elements of
costs of goods sold, which are translated at the applicable historical rate. The
resulting differences are reported in the Consolidated Income Statements.
F. RECEIVABLES AND LIABILITIES IN FOREIGN CURRENCIES
Receivables and liabilities denominated in foreign currencies have been
translated at period-end exchange rates. Unrealized exchange gains and losses
are reported in the Consolidated Income Statements.
Exchange differences on loans or other financial instruments which are
designated as, and are effective as, hedges of a net investment in a foreign
subsidiary are recorded directly to stockholders' equity in the Consolidated
Balance Sheets, after giving effect to related deferred taxes.
Gains and losses on financial instruments designated to hedge future
transactions are recorded to the income statement when the underlying
transaction is recorded. Premiums and discounts on forward contracts are
amortized over the life of the contract.
Financial instruments that are not designated to hedge future transactions
are reported at the lower of cost or market, which means that unrealized losses
are charged against income while unrealized gains are not recorded in the
Consolidated Financial Statements.
G. INVENTORIES
The inventories of each subsidiary are valued at the lower of cost or net
realizable value after provision for obsolescence and are accounted for in
accordance with the first-in, first-out method (FIFO).
H. FIXED ASSETS
Fixed assets are valued at acquisition cost less accumulated depreciation.
The values of certain fixed assets are written down when, in the view of
management, there has been permanent impairment in value.
F-37
<PAGE> 232
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 1 ACCOUNTING POLICIES -- (CONTINUED)
I. DEPRECIATION AND AMORTIZATION
Depreciation is calculated on the basis of acquisition cost and estimates
of economic life.
Buildings and land improvements are generally depreciated by the maximum
amount permitted by tax regulations (over periods ranging from 20-50 years),
machinery by 5-10 percent each year, equipment by 15-20 percent each year, and
vehicles by 20 percent each year. Intangible assets other than goodwill are
depreciated by 10-20 percent each year.
Goodwill is amortized over periods of 5 to 20 years depending on the type
of business acquired. In the case of knowledge-intensive business consisting of
systems or specially qualified personnel, goodwill is amortized over 5 years. In
the case of well-established companies with 15 to 20 years of historical
activity as of the date of acquisition and with activities on a similar level
for the 5 years prior to the acquisition, goodwill is amortized over a period of
15 years. In the case of large companies with more than 20 years of historical
activity as of the date of acquisition and with well-known trademarks and a
strong market position, goodwill is amortized over a 20-year period. For other
acquired businesses, goodwill is amortized over 10 years. If the earnings
capacity of an acquired company deteriorates substantially, the amortization
period may be shortened or goodwill may be written off in its entirety.
Plant and equipment acquired during the year is normally depreciated from
the date the assets are put in service. However, in the case of acquisitions of
small plant or equipment, depreciation is calculated from the beginning of the
year it is put in service.
J. RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
K. REVENUE RECOGNITION
Sales are recognized upon shipment of products.
NOTE 2 SIGNIFICANT ACQUISITIONS AND DISPOSITIONS
FICE
On May 5, 1993, Pharmacia acquired 51 percent of FICE, for SEK 3.1 billion.
(See Note 1A). Pharmacia had an option to acquire, and an obligation to acquire
on demand by the seller, nearly all of the remaining 49 percent of FICE prior to
May 1995. Pharmacia began to integrate the FICE businesses into its existing
businesses immediately upon acquisition. In the Consolidated Financial
Statements, FICE was consolidated as a wholly-owned subsidiary effective May
1993 and the remaining purchase price was discounted to current values and
recorded as a liability. In December 1993, Pharmacia acquired nearly all of the
remaining 49 percent of FICE for SEK 3.7 billion in cash. As part of the FICE
acquisition agreement, certain properties retained by Montedison will continue
to manufacture and supply certain products to Pharmacia over a maximum period of
five years at substantially the same costs as previously borne by FICE.
In connection with the acquisition, the excess of the purchase price and
related costs incurred as a result of the acquisition over the fair values of
the assets acquired and liabilities assumed was recorded as goodwill and is
being amortized over 20 years. Also, Montedison has agreed to indemnify
Pharmacia for potential losses from specified preacquisition contingencies,
including certain disputed tax liabilities. (See Note 7).
F-38
<PAGE> 233
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 2 SIGNIFICANT ACQUISITIONS AND DISPOSITIONS -- (CONTINUED)
Pharmacia received certain notes from Montedison amounting to MSEK 400 in
exchange for specific receivables of the FICE businesses. The majority of these
notes bear interest at 9% and are due in 1996 through 1999.
A supplemental purchase price is payable quarterly to Montedison based on
Montedison's approximately 24.4% participation in the net sales of Mycobutin
(through 1996) and certain other products under development (through 1997 and
1998). The total amount of this supplementary purchase price cannot be estimated
and will be recorded as an adjustment to goodwill as it is paid and will be
amortized over the remaining life of the goodwill resulting from the FICE
acquisition. During 1994, MSEK 89 of the additional purchase price was paid. As
of December 31, 1994, the total goodwill resulting from the acquisition of FICE
amounted to approximately MSEK 4,814.
PIERREL S.P.A.
Effective January 1, 1992, Pharmacia acquired 71 percent of the shares (86
percent of the voting rights) in the listed Italian pharmaceutical company
Pierrel S.p.A. for a price of MSEK 513. Pursuant to an offer made to the
minority stockholders during 1992, Pharmacia now holds 98.9 percent of the
shares and 99.3 percent of the voting rights of Pierrel. This acquisition was
accounted for under the purchase method and resulted in total goodwill of MSEK
463, which is being amortized over a 20-year period.
During 1994, Fournier Dijon took over Pierrel's Pharma division, which
primarily marketed outpatient-care products such as antibiotics and
pharmaceuticals for treatment of diseases of the central nervous system. In
addition, the Dutch pharmaceutical company Gist-Brocades N.V. took over
Pierrel's fine-chemical plant for production of pharmaceutical raw materials.
Prior to these transactions, Pierrel's core businesses, including growth
hormones and hospital care products, were integrated into Pharmacia's Italian
organization. Through these divestitures, Pierrel's various businesses have
essentially been transferred to other parts of the organization or other
ownership. Gains resulting from the above transactions were recorded as
reductions of goodwill. As of December 31, 1994, the remaining goodwill balance
is MSEK 264.
NOTE 3 OPERATING EXPENSES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER
31,
----------------------------
1992 1993 1994
------ ------ ------
<S> <C> <C> <C>
Cost of goods sold....................................... 4,749 7,656 7,541
Selling and administrative expenses...................... 5,550 8,722 8,922
Research and development expenses........................ 1,859 2,812 3,488
------ ------ ------
Total.......................................... 12,158 19,190 19,951
====== ====== ======
</TABLE>
Pension costs included in operating expenses above do not include interest
on the Swedish pension liability (FPG/PRI) amounting to MSEK 100, MSEK 76 and
MSEK 115, in 1992, 1993 and 1994 respectively, which are included in interest
expense. The research and development costs above do not include depreciation on
plant and equipment used in research and development activities and include only
certain direct overheads. Research and development expenses, calculated on the
basis of criteria adopted by the Association of the Swedish Pharmaceutical
Industry (LIF), amounted to MSEK 2,064, MSEK 3,131 and MSEK 3,758 in 1992, 1993
and 1994, respectively. Such amounts include depreciation on plant and equipment
used for research and development activities, interest expense for such
equipment, patent costs and a portion of general and administrative costs.
F-39
<PAGE> 234
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 4 SIGNIFICANT NON-RECURRING ITEMS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
---------------------
1992 1993 1994
---- ---- ---
<S> <C> <C> <C>
Write down of property......................................... -- (50) --
Capital gain on sale of subsidiary -- Deltec................... -- -- 596
Write-down of goodwill -- Sensor............................... (89) -- --
Restructuring costs
-- Pierrel................................................... (52) -- --
-- Oncology operations, USA.................................. -- -- (54)
-- Ophthalmology operations, USA............................. -- -- (99)
Settlement to Rockwool International........................... -- (47) --
Settlement of lease (see Note 22).............................. -- (433) --
Corporate Identity Project..................................... -- (70) --
Compensation for sale of distribution rights................... -- 99 377
---- ---- ---
Total................................................ (141) (501) 820
==== ==== ===
</TABLE>
NOTE 5 DEPRECIATION AND AMORTIZATION
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------
1992 1993 1994
---- ---- -----
<S> <C> <C> <C>
Patents, product rights and trademarks....................... 121 170 254
Goodwill..................................................... 71 327 396
Machinery and equipment...................................... 737 1,047 1,100
Buildings.................................................... 68 158 162
Land improvements............................................ 2 3 2
--- ----- -----
Total.............................................. 999 1,705 1,914
=== ===== =====
</TABLE>
NOTE 6 FOREIGN EXCHANGE GAINS (LOSSES), NET
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
---------------------
1992 1993 1994
---- ---- ---
<S> <C> <C> <C>
Foreign exchange gains......................................... 224 201 71
Foreign exchange losses........................................ (228) (232) (15)
Translation differences in highly inflationary economies....... (8) (16) --
---- ---- ---
Foreign exchange gains (losses), net........................... (12) (47) 56
==== ==== ===
</TABLE>
F-40
<PAGE> 235
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 7 INCOME TAXES ON CONTINUING OPERATIONS
Income from continuing operations before income taxes and minority
interests was distributed geographically as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------
1992 1993 1994
----- ----- -----
<S> <C> <C> <C>
Sweden.............................................. 1,777 2,324 2,769
Rest of world....................................... 767 997 2,553
----- ----- -----
Total..................................... 2,544 3,321 5,322
===== ===== =====
</TABLE>
Income tax expense on continuing operations was distributed geographically
as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------
1992 1993 1994
---- ----- -----
<S> <C> <C> <C>
Current income tax expense
Sweden............................................. 330 893 684
Rest of world...................................... 146 275 808
--- ----- -----
Total...................................... 476 1,168 1,492
=== ===== =====
Deferred income tax expense
Sweden............................................. 492 (566) 503
Rest of world...................................... (7 ) 539 40
--- ----- -----
Total...................................... 485 (27) 543
=== ===== =====
Tax in associated companies.......................... -- 7 6
--- ----- -----
Income taxes on continuing operations................ 961 1,148 2,041
=== ===== =====
</TABLE>
The principal reasons for the difference between the statutory income tax
rate in Sweden and the effective tax rate in relation to income from continuing
operations before income taxes are set forth below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------
1993 1994
--- ----
1992 % %
---
%
<S> <C> <C> <C>
Statutory income tax rate....................................... 30 30 28
Differences for foreign tax rates............................... 2 4 7
Utilization of tax loss carryforwards........................... (5) (2) (3)
Losses not currently utilized................................... 3 3 1
Temporary differences for which deferred taxes are not
provided...................................................... (12) 2 --
Tax exempt income............................................... (7) (5) (5)
Expenses not deductible, including write-off of goodwill........ 3 12 5
Change in Swedish tax laws(1)................................... -- (15) 6
Tax for transactions with divested businesses(2)................ 22 3 --
Other........................................................... 2 3 (1)
--
--- ---
Effective income tax rate....................................... 38 35 38
=== === ==
</TABLE>
---------------
(1) The effect in 1994 is a result of new tax laws for reversal of the tax
equalization reserve. The effect in 1993 pertains to the reduction in the
Swedish corporate income tax rate from 30 percent to 28 percent, and tax
laws introduced during that year which allowed reversal of the tax
equalization reserve without taxation.
(2) Refers to tax on items attributable to previous Group companies.
F-41
<PAGE> 236
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 7 INCOME TAXES ON CONTINUING OPERATIONS -- (CONTINUED)
A Spanish subsidiary that was included in the acquisition of FICE, together
with a Spanish subsidiary of Montedison, is the subject of a lawsuit by the tax
authorities, who are claiming a sum of approximately MSEK 500. The claim relates
to the period prior to the acquisition of FICE by Pharmacia. In the view of
management, Pharmacia has been adequately indemnified by the previous owner for
losses that may result from this claim.
Pharmacia has not recognized a deferred tax liability on unremitted
earnings of foreign subsidiaries and associated companies because Pharmacia does
not expect those amounts to be remitted in the foreseeable future, and in the
case of associated companies, the taxes would not be material.
Deferred income taxes reflect the impact of temporary differences between
the basis of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws. The tax effects of temporary differences that
give rise to significant portions of the deferred tax assets and liabilities are
presented below:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
------------------------
1992 1993 1994
----- ---- -----
<S> <C> <C> <C>
DEFERRED TAX ASSETS:
Employee-related benefits, including medical............... 27 111 92
Foreign tax loss carryforwards............................. 75 180 182
Intercompany profits....................................... 230 534 561
Tax capitalization of research and development costs....... 32 156 74
Restructuring and merger costs............................. -- 176 413
Inventories and accounts receivables....................... 21 76 67
Other...................................................... 171 306 327
Deferred tax assets not recognized......................... (314) (699) (868)
----- ---- -----
Net deferred tax assets.................................... 242 840 848
----- ---- -----
DEFERRED TAX LIABILITIES:
Sweden:
Accumulated excess depreciation............................ 446 362 460
Tax equalization reserve................................... 928 425 676
Tax allocation reserve..................................... -- -- 244
Other...................................................... 145 71 22
----- ---- -----
Total Swedish deferred tax liability....................... 1,519 858 1,402
----- ---- -----
Rest of the world:
Fixed assets, including accumulated excess depreciation.... 15 462 503
Other...................................................... 102 387 249
----- ---- -----
Total deferred tax liabilities outside Sweden.............. 117 849 752
----- ---- -----
Net deferred tax assets.................................... (242) (840) (848)
----- ---- -----
Net deferred tax liabilities............................... 1,394 867 1,306
===== ==== =====
</TABLE>
NOTE 8 DISCONTINUED OPERATIONS
As discussed in Note 1A, the operations of BCP have been treated as
discontinued operations through June 30, 1993 and for all prior periods.
Presented below is certain summary financial information from those
F-42
<PAGE> 237
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 8 DISCONTINUED OPERATIONS -- (CONTINUED)
discontinued businesses. The net assets of the discontinued businesses have been
separately identified in the Consolidated Balance Sheet and the composition of
these net assets is shown below.
In order to effect the demerger of BCP, during 1993 the Group changed its
fiscal year end from December 31 to June 30. Subsequent to the distribution of
BCP shares, Pharmacia then changed its fiscal year end back to December 31.
Accordingly, the Group has issued separate audited reports for Swedish statutory
purposes for each of the fiscal six month periods ended June 30, 1993 and
December 31, 1993.
SUMMARY INCOME STATEMENT OF DISCONTINUED OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1992 1993
------------------ ------------------
<S> <C> <C>
Sales..................................... 24,769 10,893
Operating expenses........................ (21,755) (9,750)
Restructuring costs and significant
non-recurring items..................... 135 700
Depreciation and amortization............. (941) (479)
Share in earnings (losses) of associated
companies, net.......................... (76) (286)
------ ------
Operating income.......................... 2,132 1,078
Financial income and expenses, net........ 189 (26)
------ ------
Income before income taxes and minority
interests............................... 2,321 1,052
Income taxes.............................. (484) (561)
Minority interests........................ (3) 8
------ ------
Net income from discontinued operations... 1,834 499
====== ======
</TABLE>
SUMMARY BALANCE SHEET INFORMATION OF DISCONTINUED OPERATIONS
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, JUNE 30,
1992 1993
------------ --------
<S> <C> <C>
Liquid assets........................................ 2,681 281
Other current assets................................. 6,730 7,541
Shares and financial receivables..................... 1,597 1,603
Other fixed assets................................... 8,493 8,578
------ ------
Total assets......................................... 19,501 18,003
------ ------
Current liabilities.................................. 4,882 6,033
Interest bearing liabilities (including pension
provision obligation).............................. 3,343 3,503
Other long-term liabilities.......................... 1,674 1,703
Minority interests................................... 69 37
------ ------
Net assets of discontinued operations................ 9,533 6,727
====== ======
</TABLE>
F-43
<PAGE> 238
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 8 DISCONTINUED OPERATIONS -- (CONTINUED)
Pursuant to the agreement between Procordia's principal owners, a sum of
MSEK 2,225 was agreed to be paid by BCP to Pharmacia effective the date of
distribution of BCP. This amount was subsequently paid by BCP to Pharmacia in
November 1993. In determining the net assets from discontinued operations as of
December 31, 1992 this amount was not included, nor was any interest expense
associated with this amount included in the determination of net income from
discontinued operations.
Income tax expense has been allocated between BCP and Pharmacia on the
basis of the statutory tax charge incurred by each company which takes into
account taxable transfers between BCP and Pharmacia companies which are
allowable under Swedish tax laws.
NOTE 9 LIQUID ASSETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------
1992 1993 1994
----- ----- -----
<S> <C> <C> <C>
Cash and bank deposits........................................ 764 666 632
Short-term investments........................................ 7,170 2,433 3,372
----- ----- -----
Total......................................................... 7,934 3,099 4,004
===== ===== =====
</TABLE>
Short-term investments consist primarily of highly liquid interest-bearing
securities and are valued at the lower of acquisition cost or market value.
Short-term investments fall into the following categories:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------
1992 1993 1994
----- ----- -----
<S> <C> <C> <C>
Swedish government treasury bills........................... 3,734 1,173 2,094
Swedish government treasury bonds........................... 150 50 43
Commercial paper............................................ 683 255 276
Bonds of Swedish mortgage institutions...................... 442 303 165
Time deposits............................................... 18 -- --
Other short-term investments................................ 2,143 652 794
----- ----- -----
Total....................................................... 7,170 2,433 3,372
===== ===== =====
</TABLE>
As of December 31, 1992, 1993 and 1994, short-term investments amounting to
MSEK 1,010, MSEK 1,290 and MSEK 3,953, related to certain transactions with
matching maturities, were netted against short-term loans and thus did not
affect balance sheet totals.
NOTE 10 TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable are presented net of allowances for doubtful
accounts as follows for the years ended December 31, 1992, 1993 and 1994,
respectively.
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHANGE IN BALANCE
BEGINNING COSTS AND GROUP ADDITIONS OR AT END OF
OF PERIOD EXPENSES COMPOSITION DEDUCTIONS PERIOD
---------- ---------- ----------- ------------ ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
1992............................ (178) (38) (49) 12 (253)
1993............................ (253) (59) (120) 3 (429)
1994............................ (429) (62) 4 37 (450)
</TABLE>
F-44
<PAGE> 239
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 11 OTHER RECEIVABLES
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------
1992 1993 1994
--- ----- -----
<S> <C> <C> <C>
Prepaid expenses and accrued income........................... 380 389 586
Other operating receivables................................... 405 1,143 1,239
--- ----- -----
Total......................................................... 785 1,532 1,825
=== ===== =====
</TABLE>
NOTE 12 INVENTORIES
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------
1992 1993 1994
----- ----- -----
<S> <C> <C> <C>
Raw materials............................................... 1,028 1,542 1,488
Work-in-progress............................................ 145 425 304
Finished products........................................... 1,215 1,540 1,410
----- ----- -----
Total....................................................... 2,388 3,507 3,202
===== ===== =====
</TABLE>
F-45
<PAGE> 240
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 13 SHARES AND PARTICIPATIONS
<TABLE>
<CAPTION>
BOOK VALUE AS OF
DECEMBER 31,
PERCENT OF ------------------------
VOTING RIGHT 1992 1993 1994
------------ ---- ----- -----
<S> <C> <C> <C> <C>
LISTED INVESTMENTS
Huhtamaki Oy............................................. 10.9 -- 900 900
--- ----- -----
Subtotal................................................. -- 900 900
=== ===== =====
SHARES AND PARTICIPATIONS IN NON-ASSOCIATED COMPANIES
American Equine Products Inc............................. -- 11 -- --
Amrad Corp Ltd........................................... 1.8 -- 7 7
Arris Pharmaceutical Corporation......................... 10.0 -- 41 36
CW Research & Development Fund LP........................ -- 8 5 --
Domain Partners.......................................... 2.5 15 22 24
Harvest Technology....................................... 7.5 7 8 7
Imclone System Inc....................................... -- -- 28 25
Market Corp. Venture Association......................... 2.5 4 3 3
PDT Inc.................................................. 9.6 -- -- 8
P.T. Pfrimmer Infusol.................................... 10.0 -- -- 3
Somatogen................................................ -- 7 8 8
Tecnogen SpA............................................. 10.0 -- 3 3
Tullis Dickerson Capital................................. 5.8 9 10 11
Unigene Laboratories Inc................................. -- -- 5 2
Other.................................................... -- 18 27 20
--- ----- -----
Total shares and participations in non-associated
companies.............................................. 79 167 157
=== ===== =====
SHARES AND PARTICIPATION IN ASSOCIATED COMPANIES
Biomed Consortile S.p.A.................................. 35.0 -- 6 5
Fastighets AB Spiggen.................................... 50.0 5 5 6
Kennel Ra++a++hojden HB.................................. 30.0 5 5 5
Konsortiet for Svensk Lakemedelsindustri HB.............. 49.0 4 4 4
Pfrimmer Nutricia GmbH & Co KG........................... 40.0 6 2 7
Pharmacia Health Care, South Africa...................... 50.0 -- -- 4
Pharmacia Leiras AB...................................... 50.0 -- -- 3
Stedim S.A............................................... -- 8 2 --
Other.................................................... -- 2 17 10
--- ----- -----
Total shares and participations in associated
companies.............................................. 30 41 44
--- ----- -----
Total shares and participations.......................... 109 1,108 1,101
=== ===== =====
</TABLE>
The market value as of December 31, 1994 of Pharmacia's shares in Huhtamaki
Oy was MSEK 741. No write-down has been made of the shares in Huhtamaki Oy,
since the decline in value is judged as temporary.
NOTE 14 INTANGIBLE ASSETS, NET
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------
1992 1993 1994
----- ------ ------
<S> <C> <C> <C>
Acquisition cost.................................................... 2,116 9,968 9,005
Less accumulated amortization....................................... (702) (2,675) (2,853)
----- ------ ------
Intangible assets, net.............................................. 1,414 7,293 6,152
===== ====== ======
</TABLE>
F-46
<PAGE> 241
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 14 INTANGIBLE ASSETS, NET -- (CONTINUED)
Of the total net intangible assets as of December 31, 1992, 1993 and 1994,
goodwill accounted for MSEK 938, MSEK 6,553 and MSEK 5,614, respectively. The
remainder consists primarily of acquired product rights, patents and trademarks.
NOTE 15 PROPERTY, PLANT AND EQUIPMENT, NET
<TABLE>
<CAPTION>
ACCUMULATED
ACQUISITION COST DEPRECIATION BOOK VALUE
AS OF DECEMBER 31, AS OF DECEMBER 31, AS OF DECEMBER 31,
----------------------- --------------------- -----------------------
1992 1993 1994 1992 1993 1994 1992 1993 1994
----- ------ ------ ----- ----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Construction in progress...... 420 910 1,128 -- -- -- 420 910 1,128
Machinery and equipment....... 6,778 10,776 10,163 4,009 6,132 6,057 2,769 4,644 4,106
Buildings..................... 2,063 4,662 4,408 499 793 812 1,564 3,869 3,596
Land and land improvements.... 270 591 577 7 13 15 263 578 562
----- ------ ------ ----- ----- ----- ----- ------ -----
Total......................... 9,531 16,939 16,276 4,515 6,938 6,884 5,016 10,001 9,392
===== ====== ====== ===== ===== ===== ===== ====== =====
</TABLE>
Capital expenditures for property, plant and equipment amounted to MSEK
1,089, MSEK 2,975 and MSEK 1,591 in 1992, 1993 and 1994, respectively.
NOTE 16 SHORT-TERM LOANS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------
1992 1993 1994
----- ----- -----
<S> <C> <C> <C>
Utilized bank credit lines.................................... 1,597 1,172 315
Other short-term borrowings................................... 567 2,974 854
Current portion of long-term loans............................ 101 680 284
----- ----- -----
Total......................................................... 2,265 4,826 1,453
===== ===== =====
</TABLE>
The Company has available two U.S.$500 million commercial paper programs
established in the US and Europe of which MSEK 639 was utilized at December 31,
1994. The programs are rated A-1 from Standard & Poor's and P-1 from Moody's. In
addition, Pharmacia established a stand-by revolving credit facility with an
international bank syndicate with a five-year term in an amount of U.S.$500
million, none of which was utilized at December 31, 1994. Included with other
short-term borrowings are certain operating capital loans in the foreign
subsidiaries.
As of December 31, 1992, 1993, and 1994, short-term investments amounting
to MSEK 1,010, MSEK 1,290 and MSEK 3,953, respectively, related to certain
transactions with matching maturities were netted against short-term loans and
thus did not affect balance sheet totals.
The weighted average interest rates on short-term borrowings at December
31, 1992, 1993 and 1994 were 10.58%, 8.05% and 6.62%.
F-47
<PAGE> 242
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 17 OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------
1992 1993 1994
----- ----- -----
<S> <C> <C> <C>
Wages, salaries and other remuneration........................ 790 1,392 1,326
Restructuring costs........................................... -- 802 --
Value-added taxes............................................. 104 175 175
Accrued royalties............................................. 86 137 219
Other......................................................... 2,360 2,362 2,043
----- ----- -----
Total......................................................... 3,340 4,868 3,763
===== ===== =====
</TABLE>
NOTE 18 CONVERTIBLE DEBENTURE LOAN
The original convertible debenture loan in the amount of MSEK 231 is
convertible into new Class B Shares during the period April 1, 1992 through
April 1, 1995. The convertible debentures carry an annual interest rate of
STIBOR less 1 percent fixed annually on March 15. From June 12, 1990 such rates
were to 12.7 percent, 11.2 percent from March 15, 1991, 10.75 percent from March
15, 1992, 8.275 percent from March 15, 1993 and 6.04 percent from March 15,
1994.
The original terms of conversion at SEK 160 were by a resolution at the
Annual General meeting on November 10, 1993 adjusted downward to SEK 103.10 in
connection with the distribution of BCP.
Upon full conversion of these convertible debentures, the number of Class B
Shares would increase by 2,106,520. (See Note 21.) The dilutive effect of the
convertible debentures is not significant for purposes of earnings per share.
NOTE 19 BOND LOANS AND OTHER LONG-TERM LOANS
As of December 31, 1992, 1993 and 1994, the Group's long-term debt
consisted of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------
1992 1993 1994
---- ----- ----
<S> <C> <C> <C>
Bond loan...................................................... 106 46 101
Other long-term loans.......................................... 91 970 856
--- ----- ---
Total.......................................................... 197 1,016 957
=== ===== ===
</TABLE>
The bond loans have interest rates of 5.85 and 5.375 percent, and mature in
2008 and 2009. Other long-term loans consist primarily of long-term credit
facilities and bear interest at rates from 2.2 percent to 15.0 percent with
maturities through 2002.
Repayment of bond loans and other long-term loans is planned according to
the following schedule:
<TABLE>
<S> <C>
1996........................................................................... 363
1997........................................................................... 155
1998........................................................................... 118
1999........................................................................... 86
2000........................................................................... 68
2001 and thereafter............................................................ 167
---
Total.......................................................................... 957
===
</TABLE>
F-48
<PAGE> 243
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 20 PENSION OBLIGATIONS
Below is a summary of the pension obligations in accordance with Swedish
GAAP:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------
1992 1993 1994
----- ----- -----
<S> <C> <C> <C>
FPG/PRI pensions............................................ 1,281 1,346 1,460
Other plans................................................. 358 369 371
----- ----- -----
Total....................................................... 1,639 1,715 1,831
===== ===== =====
</TABLE>
The Group participates in several defined benefit pension plans
(non-contributory for employees) which cover essentially all employees in its
Swedish operations. These plans (Swedish FPG/PRI pensions) form part of a
Swedish secured multiemployer pension plan which is centrally administered. The
level of benefits and actuarial assumptions are established jointly for all
plans, and cannot unilaterally be changed by the Group. A prerequisite for
joining the FPG/PRI system is that a company reports the actuarially calculated
pension obligation as a liability in its balance sheet. Most international
subsidiaries also have retirement plans. Benefits provided under the defined
benefit pension plans are primarily based on years of service and the employee's
compensation.
For the significant international subsidiaries with defined benefit pension
plans (United States, Germany and the United Kingdom), the Group determines the
value of accumulated plan benefits and records pension expense in accordance
with local requirements. In Sweden and Germany, the pension liabilities are
generally not funded. In the U.S., contributions are made in an annual amount
based upon actuarial and economic assumptions designed to achieve adequate
funding of projected benefit obligations. In other countries, the pension
liability is generally funded by payments to pension insurance organizations.
Pension costs for the year, including the interest on unfunded costs,
amounted to approximately MSEK 244, MSEK 258 and MSEK 326 for the years ended
December 31, 1992, 1993 and 1994, respectively. Interest on the Swedish pension
liability (FPG/PRI) amounting to MSEK 100, MSEK 76 and MSEK 115, respectively,
was classified in interest expense.
The accounting for pension plans in accordance with Swedish GAAP is
different from the accounting and disclosure requirements of U.S. GAAP Statement
of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions"
("SFAS 87").
Since a majority of the plans are unfunded, the accumulated and projected
benefit obligations exceed plan assets. A summary of the funded status of the
significant plans in accordance with SFAS 87 as of December 31, 1993 and 1994
follows.
F-49
<PAGE> 244
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 20 PENSION OBLIGATIONS -- (CONTINUED)
<TABLE>
<CAPTION>
ABO PLAN ASSETS ABO PLAN ASSETS
EXCEEDS EXCEED EXCEEDS EXCEED
PLAN ASSETS ABO PLAN ASSETS ABO
1993 1993 1994 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Accumulated benefit obligation (ABO) and vested
benefit obligation............................... 1,045 284 910 325
Projected benefit obligation....................... 1,194 402 994 443
Plan assets at fair value.......................... (70) (368) -- (453)
----- ----- ----- -----
Projected benefit obligation in excess of plan
assets........................................... 1,124 34 994 (10)
Unrecognized net gain.............................. 15 39 112 29
Effect of retroactive plan amendments.............. -- (4) -- 6
Transition asset, net of amortization.............. 25 4 28 14
----- ----- ----- -----
Total liability.................................... 1,164 73 1,134 39
===== ===== ===== =====
Liabilities for other plans, primarily
non-Swedish...................................... 369 371
===== =====
</TABLE>
Pension cost calculated under U.S. GAAP includes the following:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------------
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Service cost benefits earned during the year.......... 43 62 76
Interest cost on projected benefit obligation......... 114 132 122
Actual return on plan assets.......................... (8) (22) (36)
Net amortization and deferral......................... (4) (8) (3)
---- ---- ----
----- ---- - ---- -
Net pension cost for defined benefit plans............ 145 164 159
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Assumptions used for the defined benefit plans were:
Weighted average discount rates....................... 8.5-10% 7.3-8.0% 7.0-9.0%
Rates of increase in compensation levels.............. 6.0-7.0% 3.5-5.5% 3.3-6.5%
Expected long-term rates of return on assets.......... 8.5-9.0% 8.0-8.5% 8.0-8.5%
</TABLE>
Plan assets consist of cash, debt securities and equity securities.
Employee termination benefits are also accrued for each Italian employee
based on vested amounts due and payable upon termination of employment
determined in accordance with the Italian Civil Code. Such amounts principally
relate to FICE. At December 31, 1993 and 1994, the amounts accrued for such
benefits approximated MSEK 513 and MSEK 488 and are recorded in "Other
Liabilities" in the Consolidated Balance Sheet. The amounts charged to expense
during 1993 and 1994 for such benefits approximated MSEK 51 and MSEK 80.
As a result of the sale of Deltec in the U.S., Pharmacia recorded a gain
from curtailment and a loss from settlement according to the requirements of
SFAS 88, "Employer's Accounting for a Settlement or a Curtailment of its Defined
Benefit Pension Plan".
F-50
<PAGE> 245
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 21 STOCKHOLDERS' EQUITY
The share capital of Pharmacia AB is divided into two classes: Class A
shares and Class B shares. Both classes have the same rights except that Class A
stockholders are entitled to one vote per share while Class B stockholders are
entitled to one-tenth of a vote per share.
As of December 31, 1993 and 1994, the share capital (par value SEK 25)
consisted of the following:
<TABLE>
<CAPTION>
1993 1994
----------------------------- -----------------------------
PAR VALUE PAR VALUE
TOTAL (IN MILLIONS) TOTAL (IN MILLIONS)
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Class A Shares................. 164,724,715 4,118 164,724,715 4,118
Class B Shares................. 88,913,507 2,223 88,927,606 2,223
----------- ----- ----------- -----
Total.......................... 253,638,222 6,341 253,652,321 6,341
=========== ===== =========== =====
</TABLE>
As of December 31, 1993 and 1994 there were 444,000,000 shares authorized.
Upon full conversion of the convertible debenture loan issued during 1990,
the number of Class B shares would increase by 2,106,520. See Note 18.
The distribution of dividends is limited to the lesser of the unrestricted
stockholders' equity (unrestricted reserves and current period net income)
included in either the consolidated or the Pharmacia AB parent company balance
sheet after proposed appropriations to restricted stockholders' equity (capital
stock and restricted reserves). As of December 31, 1994, the amount available
for payment of dividends to stockholders of Pharmacia was MSEK 4,462.
Restricted reserves are not available for distribution but are required to
be held to meet statutory requirements in Sweden and other countries where Group
companies operate.
F-51
<PAGE> 246
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 21 STOCKHOLDERS' EQUITY -- (CONTINUED)
CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
CAPITAL RESTRICTED UNRESTRICTED STOCKHOLDERS'
STOCK RESERVES RESERVES EQUITY
------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Balance December 31, 1991....................... 6,339 4,878 6,978 18,195
Transfer between restricted and unrestricted
reserves...................................... -- 806 (806) --
Translation differences......................... -- -- (220) (220)
Dividends....................................... -- -- (799) (799)
Net income...................................... -- -- 3,433 3,433
----- ----- ----- -----
Balance, December 31, 1992...................... 6,339 5,684 8,586 20,609
Transfer between restricted and unrestricted
reserves...................................... -- (821) 821 --
Translation differences......................... -- -- 1 1
Dividends....................................... -- -- (900) (900)
Distribution of BCP............................. -- -- (6,727) (6,727)
Net income...................................... -- -- 2,667 2,667
Changes in accounting principles (Note 1):
Functional currency of goodwill............... -- -- 158 158
Postretirement benefits (SFAS 106)............ -- -- (123) (123)
Issuance of shares in exchange of convertible
debentures.................................... 2 10 -- 12
----- ----- ----- -----
Balance, December 31, 1993...................... 6,341 4,873 4,483 15,697
Transfer between restricted and unrestricted
reserves...................................... -- 1,239 (1,239) --
Translation differences......................... -- -- (288) (288)
Dividends....................................... -- -- (558) (558)
Issuance of shares in exchange of convertible
debentures.................................... -- 2 -- 2
Net income...................................... -- -- 3,279 3,279
----- ----- ----- -----
Balance, December 31, 1994...................... 6,341 6,114 5,677 18,132
===== ===== ===== =====
</TABLE>
The dividends paid per share were SEK 3.15, SEK 3.55 and SEK 2.20 in 1992,
1993 and 1994, respectively. A dividend of SEK 2.60 has been approved and was
paid on May 22, 1995.
NOTE 22 PLEDGED ASSETS AND CONTINGENT LIABILITIES
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------
1992 1993 1994
----- ----- -----
<S> <C> <C> <C>
PLEDGED ASSETS
Property mortgages.............................................. 297 982 632
Chattel mortgages............................................... 6 -- --
Short-term investments pledged.................................. 970 4 4
Other assets pledged............................................ 25 506 456
----- ----- -----
Total........................................................... 1,298 1,492 1,092
===== ===== =====
</TABLE>
F-52
<PAGE> 247
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 22 PLEDGED ASSETS AND CONTINGENT LIABILITIES -- (CONTINUED)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1992 1993 1994
---- ----- ----
<S> <C> <C> <C>
CONTINGENT LIABILITIES
Discounted bills................................................... 12 79 --
Conditional liability to Swedish state............................. 65 65 65
Guarantees and other contingent liabilities........................ 769 955 700
--- ----- ---
Total.............................................................. 846 1,099 765
=== ===== ===
</TABLE>
Contingent liabilities do not include commitments that have been guaranteed
by BCP. Such contingent liabilities of Pharmacia amounted to MSEK 190 at
December 31, 1994.
In late 1993, the Italian Treasury Ministry challenged the method used by
the pharmaceutical industry in Italy for calculating the sales price to
state-operated hospitals. The Treasury Ministry claims that all Italian drug
manufacturers have been overcharging hospitals for the past ten years. To date,
no formal claims for refunds have been filed by the government of Italy, nor has
the law governing price calculation of drugs sold to the hospitals been changed
or modified. The Company still believes that it has calculated prices properly
and plans to defend its position vigorously.
The Group is subject to legal proceedings and claims which have arisen in
the ordinary course of its business. These actions, when ultimately concluded
and determined, will not, in the opinion of management, have a material adverse
effect upon the financial position of the Group.
Expenses for rented and leased assets, including real estate, amounted to
MSEK 406, MSEK 471 and MSEK 518 for 1992, 1993 and 1994, respectively.
Future leasing commitments under non-cancellable lease contracts as of
December 31, 1994 are as follows:
<TABLE>
<S> <C>
1995................................................................. 473
1996................................................................. 424
1997................................................................. 350
1998................................................................. 319
1999................................................................. 283
2000 and thereafter.................................................. 378
-----
Total................................................................ 2,227
=====
</TABLE>
In February 1993, Pharmacia entered into two related transactions with FR
FastighetsRenting AB (FR). First, a lease was settled early by means of a
payment of MSEK 433 which was charged to income. (See Note 4.) The lease related
to a number of office and industrial properties in Uppsala, Umea and
Helsingborg. Second, Pharmacia exercised an option to repurchase such properties
for MSEK 1,494. The payment for settlement of the lease was based on agreed
compensation to FR for exchange losses incurred by FR in financing the
properties assigned by Pharmacia. These losses would otherwise have affected
rental charges during the remaining period of the lease from 1993 through 2002.
F-53
<PAGE> 248
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 23 SEGMENT INFORMATION
Total revenues to unaffiliated customers and transfers between affiliated
companies and other data by geographic area are presented below.
<TABLE>
<CAPTION>
NORDIC AREA OTHER OTHER
EXCLUDING EUROPEAN NORTH PRIMARILY
SWEDEN SWEDEN ITALY COUNTRIES AMERICA ASIA ELIMINATIONS CONSOLIDATED
------ ----------- ----- -------- ------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1992
Total revenues:
Unaffiliated customers.......... 4,473 524 1,457 5,330 2,356 1,308 -- 15,448
Interarea transfers............. 4,862 268 1 506 178 -- (5,815) --
------ ----- ----- ----- ----- ----- ------- ------
Total........................... 9,335 792 1,458 5,836 2,534 1,308 (5,815) 15,448
====== ===== ===== ===== ===== ===== ======= ======
Income from continuing
operations before income taxes
and minority interests........ 1,777 139 (47) 481 110 84 -- 2,544
====== ===== ===== ===== ===== ===== ======= ======
Total assets excluding net
assets of discontinued
operations.................... 12,487 855 600 5,101 1,951 935 -- 21,929
====== ===== ===== ===== ===== ===== ======= ======
Net assets of discontinued
operations.................... 9,533
======
Total assets (at year end)...... 31,462
======
YEAR ENDED DECEMBER 31, 1993
Total revenues:
Unaffiliated customers.......... 5,112 662 3,414 8,243 3,868 3,409 -- 24,708
Interarea transfers............. 5,893 378 1,884 712 765 132 (9,764) --
------ ----- ----- ----- ----- ----- ------- ------
Total........................... 11,005 1,040 5,298 8,955 4,633 3,541 (9,764) 24,708
====== ===== ===== ===== ===== ===== ======= ======
Income (loss) from continuing
operations before income taxes
and minority interests........ 2,324 (72) 137 493 94 345 -- 3,321
------ ----- ----- ----- ----- ----- ------- ------
Total assets (at year end)...... 12,519 406 9,132 5,171 3,752 2,595 -- 33,575
====== ===== ===== ===== ===== ===== ======= ======
YEAR ENDED DECEMBER 31, 1994
Total revenues:
Unaffiliated customers.......... 4,653 921 3,546 8,952 4,054 4,324 -- 26,450
Interarea transfers............. 6,604 346 2,174 924 723 141 (10,912) --
------ ----- ----- ----- ----- ----- ------- ------
Total:.......................... 11,257 1,267 5,720 9,876 4,777 4,465 (10,912) 26,450
====== ===== ===== ===== ===== ===== ======= ======
Income from continuing
operations before income taxes
and minority interests........ 2,769 133 553 1,212 354 301 -- 5,322
====== ===== ===== ===== ===== ===== ======= ======
Total assets (at year end)...... 13,936 617 9,796 3,240 2,915 2,001 -- 32,505
====== ===== ===== ===== ===== ===== ======= ======
</TABLE>
F-54
<PAGE> 249
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 23 SEGMENT INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------
1992 1993 1994
----- ----- -----
<S> <C> <C> <C>
EXPORT SALES FROM SWEDEN TO:
Nordic area excluding Sweden................................ 628 772 702
Italy....................................................... 353 356 358
Other European Countries.................................... 3,022 3,457 3,671
North America............................................... 1,341 1,421 1,297
Asia........................................................ 1,437 2,482 2,586
Other....................................................... 444 464 434
----- ----- -----
Total export sales from Sweden.............................. 7,225 8,952 9,048
===== ===== =====
</TABLE>
NOTE 24 FINANCIAL INSTRUMENTS
Pharmacia's sales to customers outside Sweden exceed 90 percent of total
sales. Selling operations are conducted through Pharmacia's own market companies
in a large number of countries, while Group production is largely carried out in
Sweden and Italy. Some production also takes place in other countries.
Substantial costs of clinical trials and marketing activities are incurred by
companies outside Sweden. Because of the high proportion of international
activity, Pharmacia's income is exposed to exchange-rate fluctuations to a
significant extent. Risks of two kinds arise as a result: a transaction risk,
that is, the risk that currency fluctuations will have a negative effect on the
value of the Group's commercial cash flows in various currencies, and a
translation risk, that is, the risk of adverse currency fluctuations in the
translation of foreign operations and foreign assets and liabilities into kronor
for Pharmacia's consolidated financial statements.
The following information is presented in accordance with SFAS 119,
"Disclosure about Derivative Financial Instruments and Fair Value of Financial
Instruments", SFAS 105, "Disclosure of Information about Financial Instruments
with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of
Credit Risk", and SFAS 107, "Disclosures about Fair Value of Financial
Instruments". These statements require disclosure about derivative financial
instruments and estimated fair values for all financial instruments.
F-55
<PAGE> 250
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 24 FINANCIAL INSTRUMENTS -- (CONTINUED)
The following estimated fair value amounts have been determined using
available market information and appropriate valuation methodologies.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1993 AS OF DECEMBER 31, 1994
-------------------------- --------------------------
CARRYING ESTIMATED FAIR CARRYING ESTIMATED FAIR
VALUE VALUE VALUE VALUE
-------- -------------- -------- --------------
<S> <C> <C> <C> <C>
ASSETS
Liquid assets.................................... 3,099 3,133 4,004 4,006
Accounts receivable.............................. 6,354 6,354 6,196 6,196
Other current assets............................. 1,532 1,532 1,825 1,825
Long-term receivables and other.................. 681 666 633 618
Shares and participations (excluding equity
method investments)............................ 1,067 951 1,057 904
LIABILITIES
Accounts payable................................. 2,157 2,157 2,289 2,289
Other current liabilities........................ 4,868 4,868 3,763 3,763
Short-term loans................................. 4,826 4,826 1,453 1,453
Convertible debenture loan....................... 219 219 217 217
Bond loans and other long-term loans............. 1,016 897 957 946
DERIVATIVE FINANCIAL INSTRUMENTS HELD OR ISSUED
FOR PURPOSES OTHER THAN TRADING:
Forward exchange contracts (Unrealized gains
(losses) net).................................. (22) (51) 88 221
</TABLE>
For certain financial instruments, including trade accounts receivable and
payable, other current assets and liabilities and short-term loans, the carrying
amounts approximate fair value because of their short maturity. The methods and
assumptions used to estimate the fair values of other financial instruments are
summarized below:
The fair value of short-term investments included in liquid assets was
estimated using quoted market prices or dealer quotes for actively traded
securities. The fair value of shares and participations have been based
primarily on quoted market price.
Interest on Pharmacia's convertible debenture loan is based on market rates
set annually. The fair value of bond loans and other long-term loans has been
estimated by discounting anticipated cash flows using rates at which similar
loans currently would have been made to similar borrowers.
As of December 31, 1993 and 1994, short-term investments amounting to MSEK
1,290 and 3,953, respectively, related to certain transactions with matching
maturities, were offset against short-term loans and thus do not affect the
balance sheet totals. The fair values of these financial instruments do not
differ from such amounts.
Pharmacia's hedging strategy for managing the potential foreign currency
exposure of net assets denominated in a foreign currency is essentially to match
long-term debt in the same currency.
Pharmacia also enters into forward foreign exchange contracts in managing
its foreign exchange risk. At December 31, 1993 and 1994, the notional amounts
of these contracts were MSEK 15,492 and MSEK 16,941, respectively.
F-56
<PAGE> 251
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 24 FINANCIAL INSTRUMENTS -- (CONTINUED)
SFAS 119 requires certain disclosures about derivative financial
instruments held or issued for trading purposes or for purposes other than
trading. Pharmacia generally utilizes derivative financial instruments only for
purposes other than trading.
In order to reduce the risk of adverse currency effects on the net payment
flow, future cash flows are hedged with forward exchange contracts. Gains and
losses on forward contracts designated to protect such future transactions are
reported in operating income for the period intended to be covered by the hedged
transactions. At December 31, 1994, an unrealized gain of MSEK 94 was deferred
(1993 MSEK -- 29).
The table below summarizes by the kronor equivalent of major currencies the
contractual amounts that have been sold forward through forward exchange
contracts at December 31, 1993 and 1994 to hedge future transactions.
<TABLE>
<CAPTION>
1993 1994
----- -----
<S> <C> <C>
JPY.......................................................... 1,329 1,636
USD.......................................................... 630 676
ITL.......................................................... 25 101
DEM.......................................................... 389 424
FRF.......................................................... 279 239
ESP.......................................................... 54 138
GBP.......................................................... 228 154
Other........................................................ 385 602
----- -----
Total........................................................ 3,319 3,970
===== =====
</TABLE>
Of the total of MSEK 3,970, MSEK 3,772 is due in 1995 and the remainder is
due in 1996.
Pharmacia also hedges certain financial assets and liabilities through
forward exchange contracts, in order to manage the impact of fluctuations in
exchange rates. Forward contracts intended to protect Group lending and
borrowing amount to MSEK 6,985 at December 31, 1994. These forward exchange
contracts are valued at the spot rate prevailing at the balance sheet date and
the premiums or discounts are amortized over the lifetime of the contract.
Unrealized gains and losses on forward exchange contracts that are designated
as, and are effective as, hedges of recorded assets and liabilities valued at
the spot rate, are netted out against the corresponding unrealized gain or loss
on the underlying asset or liability.
In addition, investments in foreign subsidiaries' net assets are partly
hedged through forward exchange contracts. Stockholders' equity denominated in
currencies other than Swedish kronor amounts to MSEK 9,337. Of that amount, MSEK
4,331 is hedged. The premiums or discounts of these contracts are amortized over
the lifetime of the contract. Any exchange gains or losses on forward exchange
contracts that hedge a net investment in a foreign subsidiary are recorded
directly to stockholders' equity as a translation adjustment.
F-57
<PAGE> 252
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 25 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES
Application of U.S. GAAP would have the following approximate effect on the
consolidated net income and stockholders' equity of Pharmacia.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31
----------------------------------
1992 1993 1994 1994
----- ------ ----- ---
<S> <C> <C> <C> <C>
(SEK) (SEK) (SEK) $
(IN MILLIONS, EXCEPT PER SHARE
AMOUNTS)
Swedish GAAP net income from continuing operations.......... 1,599 2,168 3,279 450
Adjustments:
Accounting for business combination and goodwill............ (445) (1,537) (383) (53)
Deferred income taxes....................................... 237 127 (72) (10)
Foreign exchange gains and losses, net...................... (542) 498 123 17
Disposal of subsidiary...................................... -- -- (361) (50)
Other adjustments........................................... 25 41 143 20
Income tax effect of U.S. GAAP adjustments.................. 155 (16) (73) (10)
----- ------ ----- ----
Approximate U.S. GAAP net income from continuing
operations................................................ 1,029 1,281 2,656 364
----- ------ ----- ----
Approximate U.S. GAAP net income from discontinued
operations................................................ (871) 243 -- --
----- ------ ----- ----
Approximate U.S. GAAP net income............................ 158 1,524 2,656 364
===== ====== ===== ====
Approximate U.S. GAAP per share amounts:
Net income per share from continuing operations............. 4.06 5.05 10.47 1.44
Net income per share from discontinued operations........... (3.44) 0.96 -- --
----- ------ ----- ----
Net income per share/ADS.................................... .62 6.01 10.47 1.44
===== ====== ===== ====
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------
1992 1993 1994 1994
------ ------ ------ -----
<S> <C> <C> <C> <C>
(SEK) (SEK) (SEK) $
Swedish GAAP stockholders' equity........................ 20,609 15,697 18,132 2,487
Adjustments:
Accounting for business combination and goodwill......... 7,886 6,495 5,755 790
Deferred income taxes.................................... 220 85 36 5
Foreign exchange gains and losses, net................... (527) (29) 94 13
Investments.............................................. -- -- (151) (21)
Discontinued operations.................................. 2,529 -- -- --
Other adjustments........................................ 285 172 315 43
------ ------ ------ -----
Approximate U.S. GAAP stockholders' equity............... 31,002 22,420 24,181 3,317
====== ====== ====== =====
</TABLE>
---------------
(1) Solely for the convenience of the reader, financial information has been
translated to U.S. dollars using the June 30, 1995 Noon Buying Rate of
$1.00 = SEK 7.29.
Accounting for Business Combination and Goodwill
ACQUISITIONS OF OLD PHARMACIA AND PROVENDOR
Pharmacia accounted for the acquisitions of Old Pharmacia and Provendor
(included in the BCP business) during 1990 as a combination of historical
carrying values in accordance with the pooling method of accounting in Sweden
with effect from January 1, 1990. Under U.S. GAAP, these acquisitions would have
F-58
<PAGE> 253
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 25 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN
THE UNITED STATES -- (CONTINUED)
been accounted for using the purchase method as of the acquisition date in June
1990. Under the purchase method, goodwill representing the excess of the
purchase price over the fair values of the net assets acquired was capitalized
and amortized over its estimated useful life of 20 years for Old Pharmacia and
40 years for Provendor.
The adjustments resulting from the Old Pharmacia acquisition have been
included in the reconciliation of approximate U.S. GAAP net income from
continuing operations. Adjustments resulting from the Provendor acquisition have
been included in the calculation of U.S. GAAP net income from discontinued
operations.
FICE
Certain costs incurred by Pharmacia in connection with the 1993 acquisition
and integration of the FICE business relating to the termination of Pharmacia
employees and closing of Pharmacia facilities have been considered a component
of the purchase price of FICE under Swedish GAAP. Such costs of the acquiring
entity would be recorded as an expense under U.S. GAAP. In addition, U.S. GAAP
requires that excess purchase price allocated to acquired in-process research
and development activities be immediately expensed at the date of acquisition.
No such allocation of purchase price to acquired in-process research and
development activities was made for Swedish GAAP. As a result of these
differences, U.S. GAAP pretax income in 1993 was reduced by MSEK 1,125
consisting primarily of MSEK 708 for acquired in-process research and
development activities, MSEK 291 for severance related payments for Pharmacia
employees that were terminated in connection with the FICE acquisition, and MSEK
126 for the closing or abandonment of duplicate facilities of Pharmacia.
The original accrual for costs related to the integration of the FICE
businesses was MSEK 1,200 which was recorded as additional purchase price under
Swedish GAAP. These costs related to the planned termination of approximately
1,100 marketing and administrative employees, the closing of certain duplicate
facilities and other related integration costs. The original liability for FICE
restructuring charges was reduced by cash payments of MSEK 398 in 1993 and MSEK
536 in 1994 resulting in a remaining liability of MSEK 266 at December 31, 1994.
INCOME TAXES
Under U.S. GAAP, deferred taxes on all temporary differences between book
and tax basis of assets and liabilities have been considered in accordance with
SFAS No. 109. Under Swedish GAAP the deferred tax liability component in untaxed
reserves and other deferred tax liabilities have been recorded. However, not all
deferred tax assets are recognized. Also, Pharmacia does not recognize tax
benefits on net operating losses even if deferred tax liabilities exist but
rather only recognizes the benefits of such net operating losses when realized.
The post acquisition utilization of acquired tax loss carryforwards from
the acquisition of FICE which under Swedish GAAP reduces tax expense, were
credited against goodwill, and accordingly did not affect income under U.S.
GAAP.
Under Swedish GAAP, income taxes were allocated between BCP and Pharmacia
on the basis of the statutory tax charge incurred by each company, which takes
into account taxable transfers of reserves between BCP and Pharmacia. Such
taxable transfers of reserves were eliminated for financial reporting of pretax
income amounts. For U.S. GAAP purposes, income tax expense for income from
continuing operations has
F-59
<PAGE> 254
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 25 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN
THE UNITED STATES -- (CONTINUED)
been adjusted to give effect to income tax expense Pharmacia would have incurred
on a stand alone basis, excluding BCP.
FOREIGN EXCHANGE GAINS AND LOSSES, NET
Under Swedish GAAP, gains and losses on forward foreign exchange contracts
designated to hedge anticipated transactions are generally recorded as income or
expense when the underlying transaction is recorded. For financial instruments
which are not designated to cover a specified cash flow, unrealized losses are
charged against income while unrealized gains are deferred. Under U.S. GAAP,
both unrealized gains and losses would be recorded in the income statement
currently based on the period end market values on forward exchange contracts
used to cover anticipated transactions and on financial instruments which are
not used to cover a specified cash flow.
GAIN ON SALE OF SUBSIDIARY
The company sold Deltec, a U.S. company, in 1994 and realized a tax-free
capital gain of approximately MSEK 596 under Swedish GAAP. Deltec was acquired
in connection with the purchase of Old Pharmacia which was accounted for as a
purchase under U.S. GAAP, as described above. Accordingly, the gain on the
disposal of Deltec differs on a U.S. GAAP basis primarily due to the allocation
of a portion of Old Pharmacia goodwill to the book basis of Deltec resulting in
a gain of MSEK 235 under U.S. GAAP.
INVESTMENTS
Effective January 1, 1994, the company adopted SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" for U.S. GAAP purposes.
The company has classified its investment securities as "available for sale" and
accordingly, SFAS 115 requires that all investments in such debt securities and
equity securities with a readily determinable fair value must be recorded at
their fair value with unrealized gains and losses included directly in
stockholders' equity. The cumulative effect of the adoption of SFAS 115 at
January 1, 1994 was a decrease in stockholders' equity of MSEK 59, which was net
of applicable deferred taxes of MSEK 23. The effect of accounting for
investments under SFAS 115 at December 31, 1994 was a decrease in stockholders'
equity of MSEK 109, which was net of applicable deferred taxes of MSEK 42.
OTHER ADJUSTMENTS
These adjustments pertain primarily to capitalized interest on construction
in progress and accounting for pensions. Under Swedish GAAP Pharmacia provides
for its pension obligations based on actuarial calculations. Under U.S. GAAP,
the determination of pension costs and pension obligations are also based on
actuarial calculations, but the methods and assumptions are more prescriptive
under SFAS 87.
DISCONTINUED OPERATIONS
The most significant adjustment reflected in the reconciliation of
approximate U.S. GAAP net income from discontinued operations is the accounting
for business combination and goodwill discussed above as it pertains to the
acquisition of Provendor in 1990. A significant amount of the goodwill
recognized in this acquisition for U.S. GAAP purposes only (MSEK 2,042) was
written off during 1992 in connection with calculating the loss on disposition
of two companies previously included in the Provendor group. Other adjustments
relate primarily to the difference in the allocation of income taxes between
continuing and discontinued operations discussed under income taxes above with
the remaining adjustments attributable to
F-60
<PAGE> 255
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 25 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN
THE UNITED STATES -- (CONTINUED)
differences in accounting for pensions and post retirement benefits, assets
revaluations and certain lease transactions.
For Swedish GAAP purposes, the effective disposal date of BCP was July 1,
1993. Although for U.S. GAAP purposes, the actual distribution date of the BCP
shares of November 16, 1993 would have been used, there would have been no
effect on net income from continuing operations or on shareholders' equity. Had
November 16, 1993 been used for the distribution date, income from discontinued
operations would have increased or decreased for the operating results for the
period from July 1, 1993 to November 16, 1993, and the distribution of BCP
shares reflected as dividend would have changed by the same amount.
CLASSIFICATIONS
The interest costs associated with the Swedish pension liability recorded
as interest expense under Swedish GAAP would be included in operating expenses
under U.S. GAAP as a component of pension expense.
Certain deferred tax assets as shown in Note 7 and the short-term
investments and loans as described in Notes 9 and 16, respectively, have been
offset under Swedish GAAP. Such assets and liabilities would have been shown
gross as assets and liabilities under U.S. GAAP.
The Consolidated Statements of Cash Flows has been reconciled to liquid
assets which consist of cash, bank deposits and short-term investments. Under
U.S. GAAP, cash flows would have been reconciled to cash and cash equivalents
and only cash and bank deposits would have been included in this definition. The
movements in short-term investments would have been included as a component of
cash flows from investing activities under U.S. GAAP.
ACCOUNTING FOR OTHER POSTRETIREMENT BENEFIT PLANS
In the U.S., Pharmacia provides certain medical and life insurance benefits
to retired employees through postretirement benefit plans. Effective January 1,
1993, Pharmacia adopted the Statement of Financial Accounting Standards No. 106
"Employers Accounting for Postretirement Benefits other than Pensions".
Pharmacia elected immediate recognition of the transition obligation by reducing
stockholders' equity by an amount of MSEK 123, as a cumulative effect
adjustment. Substantially all of this amount related to BCP and this cumulative
effect adjustment has been included in the determination of income from
discontinued operations for the period under U.S. GAAP.
Postretirement benefit costs during 1993 and 1994 were MSEK 13 and MSEK 11
and the accumulated postretirement benefit obligation (APBO) at December 31,
1993 and 1994 was MSEK 136 and MSEK 81. As of December 31, 1993 and 1994, the
valuation of the APBO was based on assumed discount rates of 7.25% and 8.5%. No
further disclosures are considered necessary as these amounts are not material
to the Consolidated Financial Statements of Pharmacia.
NEW U.S. ACCOUNTING STANDARDS NOT YET ADOPTED
In March 1995, the U.S. Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ".
SFAS No. 121 establishes accounting standards for the recognition and
measurement of impairment of long-lived assets, certain identifiable intangibles
and goodwill related to those assets to be held and used, and for long-lived
assets and certain intangibles to be disposed of. The
F-61
<PAGE> 256
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 25 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN
THE UNITED STATES -- (CONTINUED)
company is required to first comply with the requirements of SFAS No. 121 in its
1996 Consolidated Financial Statements. The company believes that FASB 121 would
not have had a significant impact on the financial position and results of
operations had FASB 121 been adopted in the 1994 financial statements.
NOTE 26 RELATED PARTY TRANSACTIONS
In the ordinary course of business the Group has various transactions with
the State. Transactions with the State include investments in the government and
governmental agency security and sales of pharmaceuticals and health care
products to the pharmacies (Apotek) controlled by the State. Sales to the Apotek
pharmacies amounted to MSEK 1,811, MSEK 1,727 and MSEK 1,780 in 1992, 1993 and
1994. As of December 31, 1993 and 1994, Pharmacia had MSEK 98 and MSEK 182,
respectively, due from the Apotek pharmacies.
NOTE 27 SUPPLEMENTAL CASH FLOW INFORMATION
In connection with Pharmacia's acquisition of FICE in 1993 and Pierrel in
1992, the fair values of assets acquired and liabilities assumed were as
follows:
<TABLE>
<CAPTION>
1992 1993
----- ------
<S> <C> <C>
Fair value of assets acquired, including goodwill..................... 1,761 15,330
Liabilities assumed................................................... 1,042 8,656
----- ------
Total cash paid for the net assets acquired........................... 719 6,674
===== ======
</TABLE>
There were no significant non-cash financing and investing activities
during 1994.
Cash paid for interest and taxes was as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------
1992 1993 1994
---- ----- -----
<S> <C> <C> <C>
Interest......................................................... 318 1,187 410
Income taxes..................................................... 162 866 1,626
</TABLE>
NOTE 28 PERSONNEL
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------
1992 1993 1994
----- ----- -----
<S> <C> <C> <C>
Wages, salaries and other remuneration:
Boards of Directors and management....................... 115 253 380
Other employees.......................................... 3,204 4,863 5,119
Social security costs...................................... 1,198 1,675 1,806
----- ----- -----
Total...................................................... 4,517 6,791 7,305
===== ===== =====
</TABLE>
Wages, salaries and other remuneration include bonuses of MSEK 22, MSEK 13
and MSEK 12 in 1992, 1993 and 1994, respectively.
F-62
<PAGE> 257
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 28 PERSONNEL -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------------
1992 1993 1994
------ ------ ------
<S> <C> <C> <C>
OPERATIONS IN SWEDEN
Average number of employees............................. 6,103 6,361 6,415
Payroll costs........................................... 2,288 2,291 2,481
OPERATIONS OUTSIDE SWEDEN
Average number of employees............................. 7,437 11,482 12,207
Payroll costs........................................... 2,229 4,500 4,824
TOTAL OPERATIONS
Average number of employees............................. 13,540 17,843 18,622
------ ------ ------
Payroll costs........................................... 4,517 6,791 7,305
====== ====== ======
</TABLE>
The average number of employees is calculated as the total number of hours
worked divided by the number of working hours constituting a full-time working
year. For companies acquired and sold during the year, this number is calculated
proportionately. The average number of men employed in the Group in 1994 was
10,448 (3,293 in Sweden) and the average number of women was 8,174 (3,122 in
Sweden).
F-63
<PAGE> 258
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 28 PERSONNEL -- (CONTINUED)
Payroll costs refer to wages, salaries and other remuneration and social
security costs.
<TABLE>
<CAPTION>
1992 1993 1994
----- ------ ------
<S> <C> <C> <C>
Average number of employees outside Sweden, by country:
Australia................................................. 63 113 125
Austria................................................... 118 123 110
Belgium................................................... 149 177 128
Brazil.................................................... 46 275 245
Canada.................................................... 105 110 118
Denmark................................................... 307 256 172
Finland................................................... 65 71 62
France.................................................... 502 617 594
Germany................................................... 977 1,092 1,288
Greece.................................................... 9 72 70
Hong Kong................................................. 48 131 244
Indonesia................................................. 94 243 71
Ireland................................................... 79 89 183
Italy..................................................... 989 2,903 3,634
Japan..................................................... 381 574 647
Mexico.................................................... -- 194 310
Netherlands............................................... 293 311 271
Norway.................................................... 246 283 309
Portugal.................................................. 23 118 76
South Africa.............................................. 1 22 51
Spain..................................................... 475 798 997
Switzerland............................................... 82 84 97
Taiwan.................................................... 24 58 69
Thailand.................................................. 4 50 65
United Kingdom............................................ 476 462 420
United States............................................. 1,841 2,018 1,689
Other countries........................................... 40 238 162
----- ------ ------
Total..................................................... 7,437 11,482 12,207
===== ====== ======
</TABLE>
Information is given below about the benefits payable to the senior
management in accordance with the recommendations of the Swedish Industry and
Stock Exchange Committee.
Soren Gyll, chairman of Pharmacia, received a fee of SEK 250,000 for Board
duties in 1994. This amount forms part of the total fee for Board duties
established, on an annual basis, by the Annual Meeting on June 1, 1994.
Jan Ekberg, president and CEO of Pharmacia, received a total of SEK
3,890,000 in salary and other benefits in 1994. By agreement, a bonus is payable
to him in the form of a special pension supplement at a one-time cost amounting
to a maximum of SEK 1,300,000 for 1994.
Jan Ekberg's retirement age is 60 years. In case of termination of his
employment contract by Pharmacia, he is entitled to one year's notice. He is
subsequently entitled to monthly severance pay equal to his cash monthly salary
until he reaches the retirement age of 60. Jan Ekberg was born in 1936. He
cannot demand
F-64
<PAGE> 259
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 28 PERSONNEL -- (CONTINUED)
severance pay if he gives notice of termination and he forfeits severance pay if
he transfers to competing activities. Pension benefits are payable in accordance
with the company's plan (see below).
Pension benefits for senior managerial staff in Pharmacia are based,
according to the company's plan, on the national pension plan. The retirement
age for senior managers is 60 years. Pension benefit is payable in an amount of
65 percent of the salary portion up to 20 times the so-called base amount and in
an amount of 32.5 percent of the salary portion between 20 and 50 times the base
amount. In addition, customary ITPK (supplementary pension for salaried
employees in industry and commerce) is payable.
In certain cases, a few employees in senior managerial positions have been
granted a guaranteed level of retirement pension whereby they are entitled,
between the ages of 60 and 65 years, to 70 percent of their salary without an
upper salary limit and, from the age of 65, for life, to at least 50 percent of
their salary without an upper salary limit. The precondition for entitlement to
this pension guarantee is that the employee remain in employment up to the age
of 60.
Termination of employment contracts for executives requires six months
notice from either side. If the company serves notice of termination, the
employee is entitled subsequently to severance pay totaling 12 times the monthly
salary. If the employee has reached the age of 55 at the date on which notice is
served, severance pay equal to 18 times the monthly pay is payable. The employee
cannot demand severance pay if he or she gives notice of termination and
forfeits severance pay on transferring to competing activities.
As a result of corporate acquisitions and restructuring operations in the
Group, a few employees are subject to different conditions. These conditions are
currently being readjusted and adapted to established rules.
F-65
<PAGE> 260
PHARMACIA
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
-----------------------------------
1994 1995 1995
------- ------- -------
SEK SEK $
<S> <C> <C> <C>
(UNAUDITED -- NOTE 1)
(IN MILLIONS, EXCEPT SHARE AND PER
SHARE AMOUNTS)
Sales..................................................... 13,679 13,272 1,821
Operating expenses........................................ (10,137) (9,780) (1,341)
Significant non-recurring items........................... 184 64 9
Depreciation and amortization............................. (965) (965) (133)
Share in earnings (losses) of associated companies, net... (1) (13) (2)
------- ------- -------
OPERATING INCOME.......................................... 2,760 2,578 354
------- ------- -------
Dividends received........................................ 16 25 3
Interest income........................................... 230 307 42
Interest expense.......................................... (344) (211) (29)
Foreign exchange gains (losses), net...................... 10 14 2
Other financial income and expenses, net.................. (8) (15) (2)
------- ------- -------
FINANCIAL INCOME AND EXPENSES, NET........................ (96) 120 16
------- ------- -------
INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS......... 2,664 2,698 370
Income taxes.............................................. (1,083) (970) (133)
Minority interests........................................ (1) -- --
------- ------- -------
NET INCOME................................................ 1,580 1,728 237
------- ------- -------
NET INCOME PER SHARE...................................... 6.23 6.78 .93
------- ------- -------
WEIGHTED AVERAGE NUMBER OF SHARES (IN THOUSANDS).......... 253,640 254,702 254,702
======= ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-66
<PAGE> 261
PHARMACIA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, JUNE 30,
1994 1995 1995
------------ -------- --------
SEK SEK $
<S> <C> <C> <C>
(UNAUDITED-NOTE 1)
(IN MILLIONS)
ASSETS
CURRENT ASSETS
Liquid assets................................................ 4,004 5,104 700
Trade accounts receivable.................................... 6,196 6,631 910
Other receivables............................................ 1,825 1,287 177
Inventories.................................................. 3,202 3,634 498
------ ------ -----
Total current assets.................................... 15,227 16,656 2,285
------ ------ -----
FIXED ASSETS
Shares and participations.................................... 1,101 1,109 152
Long-term receivables and other investments.................. 633 621 85
Intangible assets, net....................................... 6,152 6,029 827
Property, plant and equipment, net........................... 9,392 9,455 1,297
------ ------ -----
Total fixed assets...................................... 17,278 17,214 2,361
------ ------ -----
TOTAL ASSETS................................................. 32,505 33,870 4,646
====== ====== =====
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable....................................... 2,289 1,663 228
Income taxes payable......................................... 1,437 1,308 179
Short-term loans............................................. 1,453 2,206 303
Other current liabilities.................................... 3,763 4,682 642
------ ------ -----
Total current liabilities.................................... 8,942 9,859 1,352
------ ------ -----
LONG-TERM LIABILITIES
Convertible debenture loans.................................. 217 -- --
Bond loans................................................... 101 120 16
Other long-term loans........................................ 856 501 69
Pension obligation........................................... 1,831 1,821 250
Deferred income taxes........................................ 1,306 1,331 183
Other liabilities............................................ 1,120 844 116
------ ------ -----
Total long-term liabilities.................................. 5,431 4,617 634
------ ------ -----
STOCKHOLDERS' EQUITY
Capital stock................................................ 6,341 6,394 877
Restricted reserves.......................................... 6,114 6,743 925
------ ------ -----
Total restricted stockholders' equity........................ 12,455 13,137 1,802
------ ------ -----
Unrestricted reserves........................................ 2,398 4,529 621
Net income................................................... 3,279 1,728 237
------ ------ -----
Total unrestricted stockholders' equity...................... 5,677 6,257 858
------ ------ -----
Total stockholders' equity................................... 18,132 19,394 2,660
------ ------ -----
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................... 32,505 33,870 4,646
====== ====== =====
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-67
<PAGE> 262
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 1 INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in Sweden (Swedish
GAAP). These accounting principles differ in certain significant respects from
accounting principles generally accepted in the United States (U.S. GAAP). See
Note 7 for a reconciliation of the principal differences between Swedish GAAP
and U.S. GAAP effecting Pharmacia's net income and stockholders' equity.
In these Notes to the Consolidated Financial Statements, references to the
"Company" are to Pharmacia Aktiebolag and its predecessors and references to
"Pharmacia" or the "Group" are to the Company and its consolidated subsidiaries,
unless the context otherwise requires.
The interim consolidated financial statements have been prepared using the
same principles as in previous years as described in Note 1 to the Notes to the
Consolidated Financial Statements for the years ended and as at December 31,
1992, 1993 and 1994 included in the company's latest annual report on Form 20-F.
The information included in the interim consolidated financial statements
is unaudited. In the opinion of management, the interim financial statements
reflect all adjustments, consisting of normal recurring accruals, which are
necessary for a fair presentation of results for interim periods. Interim
results for the six months ended June 30, 1995 are not necessarily indicative of
the results that may be expected for the fiscal year ended December 31, 1995.
Solely for the convenience of the reader, the June 30, 1995 interim
consolidated financial statements have been translated into United States
Dollars ($) using the June 30, 1995 Noon Buying Rate of the Federal Reserve Bank
of New York of $1 = SEK 7.29.
NOTE 2 INVENTORIES
Inventories are comprised of the following components:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1994 1995
------------ --------
<S> <C> <C>
Raw materials.......................................... 1,488 1,394
Work-in-progress....................................... 304 311
Finished goods......................................... 1,410 1,929
------ --------
Total Inventories...................................... 3,202 3,634
========== ======
</TABLE>
NOTE 3 CONTINGENT LIABILITIES
Contingent liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1994 1995
------------ --------
<S> <C> <C>
Conditional liability to Swedish state................. 65 65
Guarantees and other contingent liabilities............ 700 702
--- ---
Total Contingent Liabilities 765 767
=== ===
</TABLE>
Contingent liabilities do not include commitments that have been guaranteed
by BCP. Such contingent liabilities of Pharmacia amounted to MSEK 150 at June
30, 1995.
In late 1993, the Italian Treasury Ministry challenged the method used by
the pharmaceutical industry in Italy for calculating the sales price to
state-operated hospitals. The Treasury Ministry claims that all Italian
F-68
<PAGE> 263
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 3 CONTINGENT LIABILITIES (CONTINUED)
drug manufacturers have been overcharging hospitals for the past ten years. To
date, no formal claims for refunds have been filed by the government of Italy,
nor has the law governing price calculation of drugs sold to the hospitals been
changed or modified. Management still believes that it has calculated prices
properly and plans to defend its position vigorously.
The Group is subject to legal proceedings and claims which have arisen in
the ordinary course of its business. These actions, when ultimately concluded
and determined, will not, in the opinion of management, have a material adverse
effect upon the financial position of the Group.
NOTE 4 DEBT
SHORT-TERM LOANS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1994 1995
------------ --------
<S> <C> <C>
Utilized bank credit lines..................................... 315 373
Other short-term borrowing..................................... 854 1,335
Current portion of long-term loans............................. 284 498
----- -----
Total.......................................................... 1,453 2,206
===== =====
</TABLE>
The Group has available two U.S.$ 500 million commercial paper programs
established in the U.S. and Europe of which MSEK 1,174 was utilized at June 30,
1995. The programs are rated A-1 from Standard & Poor's and P-1 from Moody's. In
addition, Pharmacia established a stand-by revolving credit facility with an
international bank syndicate with a five-year term in an amount of U.S.$ 500
million, none of which was utilized at June 30, 1995.
As of December 31, 1994 and June 30, 1995, short-term investments amounting
to MSEK 3,953 and MSEK 2,878, respectively, related to certain transactions with
matching maturities were netted against short-term loans and thus did not affect
balance sheet totals.
CONVERTIBLE DEBENTURE LOAN
During the six-month period ending June 30, 1995, the convertible debenture
loan in the amount of MSEK 217 was converted into 2,099,792 Class B Shares. This
resulted in an increase to share capital in the amount of MSEK 53 and an
increase to restricted reserves in the amount of MSEK 164.
BOND LOANS AND OTHER LONG-TERM LOANS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1994 1995
------------ --------
<S> <C> <C>
Bond loans..................................................... 101 120
Other long-term loans.......................................... 856 501
--- ---
Total.......................................................... 957 621
=== ===
</TABLE>
The bond loans have interest rates of 3.90 and 4.21 percent, and mature in
2008 and 2009. Other long-term loans consist primarily of long-term credit
facilities and bear interest at rates from 2.2 percent to 15.0 percent with
maturities through 2002.
F-69
<PAGE> 264
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 5 FINANCIAL INSTRUMENTS
Pharmacia's sales to customers outside Sweden exceed 90 percent of total
sales. Selling operations are conducted through Pharmacia's own market companies
in a large number of countries, while Group production is largely carried out in
Sweden and Italy. Some production also takes place in other countries.
Substantial costs of clinical trials and marketing activities are incurred by
companies outside Sweden. Because of the high proportion of international
activity, Pharmacia's income is exposed to exchange-rate fluctuations to a
significant extent. Risks of two kinds arise as a result: a transaction risk,
that is, the risk that currency fluctuations will have a negative effect on the
value of the Group's commercial cash flows in various currencies, and a
translation risk, that is, the risk of adverse currency fluctuations in the
translation of foreign operations and foreign assets and liabilities into kronor
for Pharmacia's consolidated financial statements.
Pharmacia's hedging strategy for managing the potential foreign currency
exposure of net assets denominated in a foreign currency is essentially to match
long-term debt in the same currency.
Pharmacia also enters into forward foreign exchange contracts in managing
its foreign exchange risk. At December 31, 1994 and June 30, 1995, the notional
amount of these contracts were MSEK 16,941 and MSEK 15,201, respectively.
Pharmacia generally utilizes derivative financial instruments solely for
purposes other than trading.
In order to reduce the risk of adverse currency effects on the net payment
flow, future cash flows are hedged with forward exchange contracts. Gains and
losses on forward contracts designated to protect such future transactions are
reported in operating income for the period intended to be covered by the hedged
transactions. At June 30, 1995, an unrealized loss of MSEK 90 was deferred (June
30, 1994 MSEK 0).
NOTE 6 STOCKHOLDERS' EQUITY
Changes in stockholders' equity are as follows:
<TABLE>
<CAPTION>
TOTAL
CAPITAL RESTRICTED UNRESTRICTED STOCKHOLDERS'
STOCK RESERVES RESERVES EQUITY
------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994...................... 6,341 6,114 5,677 18,132
Transfer between restricted and unrestricted
reserves...................................... -- 465 (465) --
Translation differences......................... -- -- (18) (18)
Dividends....................................... -- -- (665) (665)
Issuance of shares in exchange of convertible
debentures.................................... 53 164 -- 217
Net income...................................... -- -- 1,728 1,728
------- ---------- ------------ -------------
Balance, June 30, 1995.......................... 6,394 6,743 6,257 19,394
===== ======= ========= =========
</TABLE>
F-70
<PAGE> 265
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 7 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES
Application of U.S. GAAP would have the following effect on the
consolidated net income and stockholders' equity of Pharmacia.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30
-------------------------
1994 1995 1995
----- ----- -----
SEK SEK $(1)
<S> <C> <C> <C>
(IN MILLIONS, EXCEPT PER
SHARE AMOUNTS)
Swedish GAAP net income............................................. 1,580 1,728 237
Adjustments:
Accounting for business combinations and goodwill................... (196) (226) (31)
Deferred income taxes............................................... 20 (24) (3)
Foreign exchange gains and losses, net.............................. 29 (184) (25)
Other adjustments................................................... 67 89 12
Income tax effect of U.S. GAAP adjustments.......................... (25) 28 4
----- ----- -----
U.S. GAAP net income................................................ 1,475 1,411 194
===== ===== =====
U.S. GAAP net income per share/ADS.................................. 5.82 5.54 0.76
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
AT DEC. 31, AT JUNE 30,
----------- -----------------
1994 1995 1995
----------- ------ -----
SEK SEK $(1)
<S> <C> <C> <C>
(IN MILLIONS, EXCEPT PER SHARE
AMOUNTS)
Swedish GAAP stockholders' equity.............................. 18,132 19,394 2,660
Adjustments:
Accounting for business combinations and goodwill.............. 5,755 5,541 760
Deferred income taxes.......................................... 36 71 10
Foreign exchange gains and losses, net......................... 94 (90) (12)
Investments.................................................... (151) (184) (25)
Other adjustments.............................................. 315 404 55
------ ------ -----
U.S. GAAP stockholders' equity................................. 24,181 25,136 3,448
====== ====== =====
</TABLE>
---------------
(1) Solely for the convenience of the reader, financial information has been
translated to U.S. dollars using the June 30, 1995 Noon Buying Rate of $1.00
= SEK 7.29.
CLASSIFICATIONS
The interest costs associated with the Swedish pension liability recorded
as interest expense under Swedish GAAP would be included in operating expenses
under U.S. GAAP as a component of pension expense.
Short-term investments and loans with matching maturities as described in
Note 4 have been offset under Swedish GAAP. Such assets and liabilities would
have been shown gross as assets and liabilities under U.S. GAAP.
F-71
<PAGE> 266
PHARMACIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED (CONTINUED)
(Amounts in MSEK, except per share amounts, unless otherwise stated)
NOTE 7 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED
STATES -- (CONTINUED)
Deferred tax assets are netted against deferred tax liabilities and
reported as long-term liabilities under Swedish GAAP. Under U.S. GAAP, deferred
tax assets and liabilities are classified as current or noncurrent based on the
classification of the related asset or liability that gives rise to the
temporary difference. A deferred tax asset or liability that is not related to
an asset or liability for financial reporting, including deferred tax assets
related to carryforwards, shall be classified according to the expected reversal
date of the specific temporary difference.
Liquid assets reported on the Consolidated Balance Sheet consists of cash,
bank deposits and short-term investments under Swedish GAAP. Under U.S. GAAP,
only liquid assets with original maturity dates of three months or less would be
reported as cash and cash equivalents. Short-term investments with original
maturity of greater than three months would be classified as other short-term
investments.
F-72
<PAGE> 267
PHARMACIA & UPJOHN, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of Pharmacia & Upjohn, Inc.
We have audited the accompanying consolidated balance sheet of Pharmacia &
Upjohn, Inc. as of August 21, 1995. This balance sheet is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated balance sheet referred to above presents
fairly, in all material respects, the financial position of Pharmacia & Upjohn,
Inc. as of August 21, 1995, in conformity with generally accepted accounting
principles.
<TABLE>
<S> <C>
/s/ COOPERS & LYBRAND L.L.P. /s/ KPMG PEAT MARWICK LLP
Chicago, Illinois Short Hills, New Jersey
August 21, 1995 August 21, 1995
</TABLE>
F-73
<PAGE> 268
PHARMACIA & UPJOHN, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AUGUST 21, 1995
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash.............................................................................. $10
===
Total assets...................................................................... $10
===
</TABLE>
SHAREHOLDERS' EQUITY
<TABLE>
<S> <C>
Common Stock, $.01 par value; 1,000 shares authorized; 1,000 shares issued and
outstanding.......................................................................... $10
---
---
Total shareholders' equity........................................................ $10
===
</TABLE>
The accompanying notes are an integral part of the consolidated balance sheet.
F-74
<PAGE> 269
PHARMACIA & UPJOHN, INC. AND SUBSIDIARY (THE "COMPANY")
NOTES TO CONSOLIDATED BALANCE SHEET
1. ORGANIZATION
Pharmacia & Upjohn, Inc. (the "Company") was incorporated on August 17,
1995 and has not heretofore conducted any business other than in connection with
the Combination Agreement among the Company, Pharmacia & Upjohn Subsidiary Inc.
("Merger Sub") Pharmacia Aktiebolag ("Pharmacia") and The Upjohn Company
("Upjohn") dated August 20, 1995 (the "Combination Agreement"). Upon
consummation of all of the transactions contemplated by the Combination
Agreement, Upjohn and Pharmacia will become wholly owned subsidiaries of the
Company. Stockholders of Upjohn and Pharmacia will each hold approximately 50
percent of the equity of the Company after completion of the Combination,
assuming full acceptance of the offer by Pharmacia stockholders. The
consummation of the transactions contemplated by the Combination Agreement is
subject to satisfaction of certain conditions, including shareholder and
regulatory approvals.
The consolidated balance sheet includes the accounts of the Company and its
wholly owned subsidiary, Pharmacia & Upjohn Subsidiary, Inc.
2. COMBINATION AGREEMENT
Under the terms of the Combination Agreement, Merger Sub will be merged
with and into Upjohn. Pursuant to the merger, each outstanding share of Upjohn
Common Stock will be converted into the right to receive 1.45 shares of Common
Stock, par value $.01 per share, of the Company. Additionally, each outstanding
share of Upjohn Preferred Stock will be converted into a right to receive one
share of Series A Convertible Perpetual Preferred Stock of the Company. Upon
consummation of the merger, all shares of Upjohn Common Stock and Preferred
Stock will automatically be retired.
Under the terms of the Combination Agreement, the Company will also offer
(the "Offer") to exchange Company Common Stock for Pharmacia Class A and Class B
Common Shares and ADSs. Additional shares of the Company's capital stock will be
authorized as needed to effect the combination. At the Effective Time, the
Company shall assume the Upjohn Stock Option Plans and the Deferred Awards and
all of Upjohn's obligations thereto.
F-75
<PAGE> 270
ANNEX A
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
-------------------------------------------
COMBINATION AGREEMENT
-------------------------------------------
AMONG
PHARMACIA AKTIEBOLAG,
THE UPJOHN COMPANY,
PHARMACIA & UPJOHN, INC.
AND
PHARMACIA & UPJOHN SUBSIDIARY, INC.
DATED AS OF AUGUST 20, 1995
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
A-1
<PAGE> 271
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I
THE MERGER
SECTION 1.01. The Merger............................................................ A-9
SECTION 1.02. Effective Time; Closing............................................... A-9
SECTION 1.03. Effect of the Merger.................................................. A-9
SECTION 1.04. Certificate of Incorporation; By-Laws................................. A-9
SECTION 1.05. Directors and Officers of the Surviving Corporation................... A-9
ARTICLE II
CONVERSION OF SECURITIES IN THE MERGER
SECTION 2.01. Conversion of Capital Stock........................................... A-10
SECTION 2.02. Exchange of Certificates.............................................. A-10
SECTION 2.03. Stock Transfer Books.................................................. A-12
SECTION 2.04. Stock Options and Deferred Awards..................................... A-13
SECTION 2.05. Shares of Dissenting Holders of Upjohn Series B Preferred Stock....... A-13
ARTICLE III
THE PHARMACIA TRANSACTION
SECTION 3.01. The Exchange Offer.................................................... A-14
SECTION 3.02. Depositary............................................................ A-15
SECTION 3.03. Compulsory Acquisition................................................ A-15
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF UPJOHN
SECTION 4.01. Organization and Qualification; Subsidiaries.......................... A-15
SECTION 4.02. Certificate of Incorporation and By-Laws.............................. A-16
SECTION 4.03. Capitalization........................................................ A-16
SECTION 4.04. Authority Relative to This Agreement.................................. A-17
SECTION 4.05. No Conflict; Required Filings and Consents............................ A-17
SECTION 4.06. Permits; Compliance................................................... A-17
SECTION 4.07. SEC Filings; Financial Statements..................................... A-18
SECTION 4.08. Absence of Certain Changes or Events.................................. A-18
SECTION 4.09. Employee Benefit Plans; Labor Matters................................. A-18
SECTION 4.10. Accounting and Tax Matters............................................ A-19
SECTION 4.11. Contracts; Debt Instruments........................................... A-19
SECTION 4.12. Litigation............................................................ A-20
SECTION 4.13. Environmental Matters................................................. A-20
SECTION 4.14. Trademarks, Patents and Copyrights.................................... A-21
SECTION 4.15. Taxes................................................................. A-21
</TABLE>
A-2
<PAGE> 272
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 4.16. Rights Agreement...................................................... A-21
SECTION 4.17. Opinion of Financial Advisor.......................................... A-21
SECTION 4.18. Brokers............................................................... A-22
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PHARMACIA
SECTION 5.01. Organization and Qualification; Subsidiaries.......................... A-22
SECTION 5.02. Corporate Organization Documents...................................... A-22
SECTION 5.03. Capitalization........................................................ A-22
SECTION 5.04. Authority Relative to This Agreement.................................. A-23
SECTION 5.05. No Conflict; Required Filings and Consents............................ A-23
SECTION 5.06. Permits; Compliance................................................... A-23
SECTION 5.07. Stock Exchange and SEC Filings; Financial Statements.................. A-24
SECTION 5.08. Absence of Certain Changes or Events.................................. A-24
SECTION 5.09. Employee Benefit Plans; Labor Matters................................. A-24
SECTION 5.10. Accounting and Tax Matters............................................ A-26
SECTION 5.11. Contracts; Debt Instruments........................................... A-26
SECTION 5.12. Litigation............................................................ A-26
SECTION 5.13. Environmental Matters................................................. A-26
SECTION 5.14. Trademarks, Patents and Copyrights.................................... A-27
SECTION 5.15. Taxes................................................................. A-27
SECTION 5.16. Opinion of Financial Advisor.......................................... A-27
SECTION 5.17. Brokers............................................................... A-27
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF NEWCO AND NEWCO SUB
SECTION 6.01. Organization and Qualification; Subsidiaries.......................... A-27
SECTION 6.02. Certificate of Incorporation and By-Laws.............................. A-28
SECTION 6.03. Capitalization........................................................ A-28
SECTION 6.04. Authority Relative to This Agreement.................................. A-28
SECTION 6.05. No Conflict........................................................... A-29
SECTION 6.06. No Activities......................................................... A-29
ARTICLE VII
COVENANTS
SECTION 7.01. Conduct of Business by Upjohn Pending the Closing..................... A-29
SECTION 7.02. Conduct of Business by Pharmacia Pending the Closing.................. A-30
SECTION 7.03. Cooperation; Steering Committee....................................... A-32
SECTION 7.04. Notices of Certain Events............................................. A-32
SECTION 7.05. Contractual Consents.................................................. A-32
</TABLE>
A-3
<PAGE> 273
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE VIII
ADDITIONAL AGREEMENTS
SECTION 8.01. Registration Statement; Disclosure Documents.......................... A-33
SECTION 8.02. Stockholders' Meeting................................................. A-34
SECTION 8.03. Access to Information; Confidentiality................................ A-34
SECTION 8.04. No Solicitation of Transactions....................................... A-35
SECTION 8.05. Employee Benefits Matters............................................. A-36
SECTION 8.06. Directors' and Officers' Indemnification and Insurance................ A-36
SECTION 8.07. Pooling Affiliates.................................................... A-37
SECTION 8.08. Pooling............................................................... A-37
SECTION 8.09. Letters of Accountants................................................ A-38
SECTION 8.10. Further Action; Consents; Filings..................................... A-38
SECTION 8.11. Upjohn Rights Plan.................................................... A-39
SECTION 8.12. Newco Organization.................................................... A-39
SECTION 8.13. Depositary Facility for Newco Common Stock............................ A-39
SECTION 8.14. Plan of Reorganization................................................ A-39
SECTION 8.15. Public Announcements.................................................. A-40
SECTION 8.16. Obligations of Newco Sub.............................................. A-40
SECTION 8.17. Stock Exchange Listings and De-listings............................... A-40
SECTION 8.18. Maintenance of Certain Facilities..................................... A-40
SECTION 8.19. Cancellation of Newco Common Stock Owned by Pharmacia and Upjohn...... A-40
ARTICLE IX
CONDITIONS TO THE TRANSACTIONS
SECTION 9.01. Conditions to the Obligations of Each Party to Consummate the
Transactions........................................................ A-40
SECTION 9.02. Conditions to the Obligations of Upjohn............................... A-40
SECTION 9.03. Conditions to the Obligations of Pharmacia............................ A-40
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.01. Termination........................................................... A-43
SECTION 10.02. Effect of Termination................................................. A-44
SECTION 10.03. Amendment............................................................. A-44
SECTION 10.04. Waiver................................................................ A-44
SECTION 10.05. Expenses.............................................................. A-45
</TABLE>
A-4
<PAGE> 274
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.01. Non-Survival of Representations, Warranties and Agreements............ A-46
SECTION 11.02. Notices............................................................... A-47
SECTION 11.03. Certain Definitions................................................... A-47
SECTION 11.04. Severability.......................................................... A-48
SECTION 11.05. Assignment; Binding Effect; Benefit................................... A-48
SECTION 11.06. Incorporation of Exhibits............................................. A-48
SECTION 11.07. Specific Performance.................................................. A-49
SECTION 11.08. Governing Law......................................................... A-49
SECTION 11.09. Submission to Jurisdiction; Venue..................................... A-49
SECTION 11.10. Headings.............................................................. A-49
SECTION 11.11. Counterparts.......................................................... A-49
SECTION 11.12. Entire Agreement...................................................... A-49
Annex A Employee Benefits..................................................... A-51
</TABLE>
A-5
<PAGE> 275
GLOSSARY OF DEFINED TERMS
<TABLE>
<S> <C>
ADSs............................... Recitals
affiliate.......................... sec.11.03(a)
Agreement.......................... Preamble
beneficial owner................... sec.11.03(b)
Blue Sky Laws...................... sec.4.05(b)(i)
business day....................... sec.11.03(c)
CEO................................ sec.8.12(a)
CERCLA............................. sec.4.13(d)
Certificate of Merger.............. sec.1.02
Certificates....................... sec.2.02(a)
Chairman........................... sec.8.12(a)
Change of Control.................. sec.10.05(b)
Code............................... Recitals
Combination........................ sec.10.05(b)
Competing Transaction.............. sec.8.04(d)
Confidentiality Agreement.......... sec.8.03(b)
control............................ sec.11.03(d)
controlled by...................... sec.11.03(d)
Costs.............................. sec.8.06(d)
Deferred Award..................... sec.2.04(a)
Depositary......................... sec.3.02
DGCL............................... Recitals
Disclosure Documents............... sec.3.01(b)
Dissenting Upjohn Series B
Preferred Shares................. sec.2.05
Effective Time..................... sec.1.02
Enskilda........................... sec.5.17
Environmental Laws................. sec.4.13(d)
Environmental Permits.............. sec.4.13(d)
ERISA.............................. sec.4.09(a)
Exchange Act....................... sec.4.05(b)(i)
Exchange Agent..................... sec.2.02(a)
Exchange Fund...................... sec.2.02(a)
Exchange Offer..................... Recitals
Exchange Offer Commencement Date... sec.3.01(a)
Exchange Offer Conditions.......... sec.3.01(a)(iii)
Exchange Offer Ratio............... sec.3.01(a)
Exchange Ratio..................... sec.2.01(a)
Executive Management Committee..... sec.8.12(b)
Expenses........................... sec.10.05(a)
Expiration Date.................... sec.3.01(a)
Foreign Benefit Plan............... sec.5.09(c)
FSA................................ sec.3.01(b)
Goldman Sachs...................... sec.4.17
Governmental Entity................ sec.4.05(b)
Hazardous Materials................ sec.4.13(d)
HSR Act............................ sec.4.05(b)(i)
Indemnified Parties................ sec.8.06(d)
IRS................................ sec.4.09(a)(i)
knowledge.......................... sec.11.03(e)
KPMG Bohlins AB.................... sec.8.09(b)
Law................................ sec.4.05(a)(ii)
Merger............................. Recitals
Minimum Condition.................. sec.3.01(a)(i)
Morgan Stanley..................... sec.5.16
NASD............................... sec.8.01(a)
Newco.............................. Preamble
Newco Common Stock................. Recitals
Newco Series A Preferred Stock..... Recitals
Newco Shares....................... Recitals
Newco Sub.......................... Preamble
Newco Sub Common Stock............. sec.6.03(b)
NYSE............................... sec.2.02(e)
Order.............................. sec.8.10(b)(ii)
person............................. sec.11.03(f)
Pharmacia.......................... Preamble
Pharmacia Authorized Agent......... sec.11.09
Pharmacia Benefit Plans............ sec.5.09(a)
Pharmacia Class A Common Shares.... Recitals
Pharmacia Class B Common Shares.... Recitals
Pharmacia Disclosure Schedule...... sec.5.09(d)
Pharmacia Material Adverse
Effect........................... sec.5.01
Pharmacia Material Contract........ sec.5.11
Pharmacia Permits.................. sec.5.06
Pharmacia Reports.................. sec.5.07(a)
Pharmacia Securities............... Recitals
Pharmacia Shares................... Recitals
Pharmacia Subsidiaries............. sec.5.01
Pharmacia Transaction.............. Recitals
Pooling Affiliate.................. sec.8.07(a)
Preferred Certificates............. sec.2.02(b)
Proxy Statement.................... sec.8.01(a)(iii)
Registration Statement............. sec.8.01(a)(ii)
Registration Statement Effective
Date............................. sec.8.01(a)
Regulations........................ Recitals
Representatives.................... sec.8.03(a)(i)
Rights Agreement................... sec.4.16
Schedule 14D-1..................... sec.3.01(b)
Schedule 14D-9..................... sec.3.01(c)
SDSs............................... Recitals
SEAQ............................... sec.8.15
SEC................................ Recitals
Securities Act..................... sec.4.05(b)(i)
SSE................................ sec.3.01(b)
Stattum............................ Recitals
Steering Committee................. sec.7.03(b)
subsidiary(ies).................... sec.11.03(g)
Substitute Option.................. sec.2.04(b)
Surviving Corporation.............. sec.1.01
Swedish Newco...................... sec.3.03(a)
Taxes.............................. sec.4.15
Terminating Upjohn Breach.......... sec.10.01(g)
</TABLE>
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<TABLE>
<S> <C>
Terminating Pharmacia Breach....... sec.10.01(h)
Third Party Provisions............. sec.11.05
Transactions....................... Recitals
under common control with.......... sec.11.03(d)
Upjohn............................. Preamble
Upjohn 1992 Incentive Program...... sec.2.04(a)
Upjohn Benefit Plans............... sec.4.09(a)
Upjohn Common Stock................ Recitals
Upjohn Disclosure Schedule......... sec.4.03
Upjohn Excess Shares............... sec.2.02(e)
Upjohn Incentive Programs.......... sec.2.04(a)
Upjohn Material Adverse Effect..... sec.4.01
Upjohn Material Contract........... sec.4.11
Upjohn Option...................... sec.2.04(a)
Upjohn Permits..................... sec.4.06
Upjohn Plan........................ sec.8.05(b)
Upjohn Series A Preferred Stock.... sec.4.03
Upjohn Series B Preferred Stock.... Recitals
Upjohn SEC Reports................. sec.4.07(a)
Upjohn Shares...................... Recitals
Upjohn Shares Trust................ sec.2.02(e)
Upjohn Stockholder Approval
Condition........................ sec.3.01(a)(ii)
Upjohn Stock Option Plans.......... sec.2.04(a)
Upjohn Stockholders' Meeting....... sec.8.01(a)(i)
Upjohn Subsidiaries................ sec.4.01
Volvo.............................. Recitals
</TABLE>
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COMBINATION AGREEMENT
COMBINATION AGREEMENT, dated as of August 20, 1995 (as amended, this
"Agreement"), by and among PHARMACIA AKTIEBOLAG, a corporation organized under
the laws of the Kingdom of Sweden ("Pharmacia"), THE UPJOHN COMPANY, a Delaware
corporation ("Upjohn"), PHARMACIA & UPJOHN, INC., a Delaware corporation
("Newco"), and PHARMACIA & UPJOHN SUBSIDIARY, INC., a Delaware corporation and a
wholly-owned subsidiary of Newco ("Newco Sub").
WHEREAS, the Boards of Directors of Pharmacia and Upjohn have determined
that it is in the best interests of their respective companies and stockholders
to combine their respective businesses in a "merger of equals" transaction to be
effected as set forth in this Agreement, and the boards of directors of Newco
and Newco Sub have determined that it is also in the respective best interests
of their companies and stockholders to consummate the transactions contemplated
by this Agreement;
WHEREAS, upon the terms and subject to the conditions of this Agreement,
(i) Newco will acquire, pursuant to an exchange offer (the "Exchange Offer")
and, if necessary, through compulsory acquisition proceedings in accordance with
the Swedish Companies Act (collectively, the "Pharmacia Transaction"), all the
issued and outstanding Class A Common Shares, nominal value SEK 25 per share, of
Pharmacia (the "Pharmacia Class A Common Shares"), and Class B Common Shares,
nominal value SEK 25 per share, of Pharmacia (the "Pharmacia Class B Common
Shares", and together with the Pharmacia Class A Common Shares, the "Pharmacia
Shares") and American Depositary Shares, each representing one Pharmacia Class A
Common Share (the "ADSs" and, collectively with the Pharmacia Shares, the
"Pharmacia Securities") and (ii) Newco will acquire, pursuant to the merger (the
"Merger", and together with the Pharmacia Transaction, the "Transactions") of
Newco Sub with and into Upjohn in accordance with the General Corporation Law of
the State of Delaware ("DGCL"), all the issued and outstanding shares of Common
Stock, par value $1 per share, of Upjohn (the "Upjohn Common Stock") and all the
issued and outstanding shares of Series B Convertible Perpetual Preferred Stock,
par value $1 per share, of Upjohn (the "Upjohn Series B Preferred Stock", and
together with the Upjohn Common Stock, the "Upjohn Shares"), as more fully
described below;
WHEREAS, (A) as a result of the Transactions, Pharmacia and Upjohn will
become, directly or indirectly, wholly owned subsidiaries of Newco, (B) the
holders of Pharmacia Securities and Upjohn Common Stock will receive either (i)
newly issued shares of Common Stock, par value $.01 per share, of Newco (the
"Newco Common Stock"), or, (ii) in the case of certain holders of Pharmacia
Shares, Swedish Depositary Shares ("SDSs"), each SDS evidencing one share of
Newco Common Stock, and (C) the holders of Upjohn Series B Preferred Stock will
receive newly issued shares of Series A Convertible Perpetual Preferred Stock,
par value $.01 per share, of Newco (the "Newco Series A Preferred Stock" and,
together with the Newco Common Stock, the "Newco Shares");
WHEREAS, the Board of Directors of Pharmacia has approved the Pharmacia
Transaction and recommended that all the stockholders of Pharmacia tender their
Pharmacia Securities into the Exchange Offer;
WHEREAS, the Board of Directors of Upjohn has approved this Agreement and
recommended that the stockholders of Upjohn vote to adopt this Agreement upon
the terms and subject to the conditions contained herein;
WHEREAS, this Agreement has been approved by the Boards of Directors of
Newco and Newco Sub and adopted by Newco as sole stockholder of Newco Sub in
accordance with the DGCL;
WHEREAS, concurrently with the execution of this Agreement and as an
inducement to Upjohn and Pharmacia to enter into this Agreement, each of AB
Volvo, a company organized under the laws of the Kingdom of Sweden ("Volvo"),
and Forvaltningsaktiebolaget Stattum, a company organized under the laws of the
Kingdom of Sweden ("Stattum"), has indicated its intention to support the
Transactions and has entered, or will enter, into an agreement with Newco,
Upjohn and Pharmacia concerning their Newco Common Stock;
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WHEREAS, for United States federal income tax purposes, the Merger is
intended to qualify as a reorganization under the provisions of Section 368(a)
of the United States Internal Revenue Code of 1986, as amended (the "Code") and
the Treasury Regulations (the "Regulations") thereunder, and the Exchange Offer,
together with the Merger, is intended to qualify as a transfer of property
described in Section 351(a) of the Code and Regulations thereunder, and it is
further intended that, for Swedish income tax purposes, none of Newco, Pharmacia
or the Pharmacia stockholders will recognize taxable income or gain as a result
of the Exchange Offer; and
WHEREAS, the parties intend that the Transactions will be accounted for
under applicable Swedish and U.S. accounting rules and applicable United States
Securities and Exchange Commission ("SEC ") accounting standards as a "pooling
of interests" for financial reporting purposes.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Provided that this Agreement shall not have
been terminated in accordance with Section 10.01, upon the terms and subject to
the conditions set forth in this Agreement, and in accordance with Section 251
of the DGCL, at the Effective Time (as defined in Section 1.02) Newco Sub shall
be merged with and into Upjohn. As a result of the Merger, the separate
corporate existence of Newco Sub shall cease and Upjohn shall be the surviving
corporation of the Merger (the "Surviving Corporation").
SECTION 1.02. Effective Time; Closing. Provided that this Agreement shall
not have been terminated in accordance with Section 10.01, as promptly as
practicable after the satisfaction or, if permissible and effected as provided
in Section 10.04, waiver of the Exchange Offer Conditions (as hereinafter
defined) (or such other date as may be agreed to in writing by Pharmacia and
Upjohn), and substantially contemporaneously with Newco's purchase of Pharmacia
Securities pursuant to the Exchange Offer, the parties hereto shall cause the
Merger to be consummated by filing a certificate of merger (the "Certificate of
Merger") with the Secretary of State of the State of Delaware in such form as
required by, and executed in accordance with Section 251 of the DGCL (the date
and time of such filing, or such later date or time as set forth therein, being
the "Effective Time"). Immediately prior to the filing of the Certificate of
Merger, a closing will be held at the offices of Shearman & Sterling, 199
Bishopsgate, London, England.
SECTION 1.03. Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided 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 Upjohn and Newco Sub shall be
vested in the Surviving Corporation, and all debts, liabilities and duties of
Upjohn and Newco Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
SECTION 1.04. Certificate of Incorporation; By-Laws. At the Effective
Time, (a) the Certificate of Incorporation of the Surviving Corporation shall be
amended and restated in its entirety to read as the Certificate of Incorporation
of Newco Sub as in effect immediately prior to the Effective Time, and (b) the
By-Laws of Newco Sub, as in effect immediately prior to the Effective Time,
shall become the By-Laws of the Surviving Corporation.
SECTION 1.05. Directors and Officers of the Surviving Corporation. (a)
The directors of Newco Sub at the Effective Time shall, from and after the
Effective Time, become the directors of the Surviving Corporation until their
successors shall have been elected or appointed or qualified or until their
earlier death, resignation or removal in accordance with the Surviving
Corporation's Certificate of Incorporation and By-Laws and (b) the officers of
Upjohn at the Effective Time shall, from and after the Effective Time, be the
officers of the Surviving Corporation until their successors shall have been
elected or appointed or qualified or until their earlier death, resignation or
removal in accordance with the Surviving Corporation's Certificate of
Incorporation and By-Laws.
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ARTICLE II
CONVERSION OF SECURITIES IN THE MERGER
SECTION 2.01. Conversion of Capital Stock. At the Effective Time, by
virtue of the Merger and without any action on the part of Upjohn, Newco Sub,
Newco or the holders of any Upjohn Shares:
(a) each share of Upjohn Common Stock issued and outstanding
immediately prior to the Effective Time (other than any shares of Upjohn
Common Stock to be cancelled pursuant to Section 2.01(c)) shall be
converted, subject to Section 2.02(e), into the right to receive 1.45
shares of Newco Common Stock (the "Exchange Ratio");
(b) each share of Upjohn Series B Preferred Stock issued and
outstanding immediately prior to the Effective Time (other than any shares
of Upjohn Series B Preferred Stock to be cancelled pursuant to Section
2.01(c)) shall be converted into the right to receive one share of Newco
Series A Preferred Stock having the designations, preferences, rights and
limitations set forth in the Amended and Restated Certificate of
Incorporation of Newco, the form of which is attached hereto as Exhibit
A-3;
(c) each Upjohn Share held in the treasury of Upjohn and each Upjohn
Share owned by Pharmacia or any direct or indirect wholly owned subsidiary
of Pharmacia or of Upjohn shall be cancelled and extinguished without any
conversion thereof and no payment shall be made with respect thereto; and
(d) each issued and outstanding share of common stock, par value $.01
per share, of Newco Sub will be converted into one validly issued, fully
paid and non-assessable share of common stock of the Surviving Corporation.
SECTION 2.02. Exchange of Certificates. (a) Exchange Agent. Newco shall
deposit, or shall cause to be deposited, promptly after the Effective Time with
a bank trust company designated by Upjohn and reasonably satisfactory to
Pharmacia (the "Exchange Agent"), for the benefit of the holders of certificates
that immediately prior to the Effective Time represented outstanding Upjohn
Common Stock (the "Certificates"), for exchange in accordance with this Article
II through the Exchange Agent, certificates representing the shares of Newco
Common Stock issuable pursuant to Section 2.01(a) (such certificates for shares
of Newco Common Stock, together with any dividends or distributions with respect
thereto, being hereinafter referred to as the "Exchange Fund"). Newco shall give
the Exchange Agent irrevocable instructions to deliver the shares of Newco
Common Stock contemplated to be issued pursuant to Section 2.01 out of the
Exchange Fund as promptly as practicable after the Effective Time. Except as
contemplated by Section 2.02(f) hereof, the Exchange Fund shall not be used for
any other purpose.
(b) Exchange Procedures. As promptly as practicable after the Effective
Time, Newco shall cause the Exchange Agent to mail to each registered holder of
a Certificate (y) a letter of transmittal (which shall be in customary form and
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Exchange Agent) and (z) instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing shares of Newco Common
Stock and cash in lieu of any fractional shares. Upon surrender to the Exchange
Agent of a Certificate for exchange, together with such letter of transmittal,
duly executed and completed in accordance with the instructions thereto, and
such other documents as may be reasonably required pursuant to such
instructions, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing that number of whole shares of
Newco Common Stock that such holder has the right to receive in respect of such
Certificate (after taking into account all Upjohn Common Stock then held by such
holder), cash in lieu of any fractional shares of Newco Common Stock to which
such holder is entitled pursuant to Section 2.02(e) and any dividends or other
distributions to which such holder is entitled pursuant to Section 2.02(c), and
the Certificate so surrendered shall forthwith be cancelled. In the event of a
transfer of ownership of Upjohn Common Stock that is not registered in the
transfer records of Upjohn, a certificate representing the proper number of
shares of Newco Common Stock, cash in lieu of any fractional shares of Newco
Common Stock to which such holder is entitled pursuant to Section 2.02(e) and
any dividends or other distributions to which such holder is entitled pursuant
to Section 2.02(c) may be issued to a transferee if the Certificate representing
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such Upjohn Common Stock is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.02, each Certificate shall be deemed at all times
after the Effective Time to represent only the right to receive upon such
surrender a certificate or certificates representing shares of Newco Common
Stock, cash in lieu of any fractional shares of Newco Common Stock to which such
holder is entitled pursuant to Section 2.02(e) and any dividends or other
distributions to which such holder is entitled pursuant to Section 2.02(c). As
promptly as practicable after the Effective Time, Newco shall cause the holder
of all the issued and outstanding shares of Upjohn Series B Preferred Stock to
surrender to Newco all certificates representing such shares in exchange for
certificates representing shares of Newco Series A Preferred Stock ("Preferred
Certificates") and any dividends or other distributions to which such holder is
entitled pursuant to Section 2.02(c).
(c) Distributions with Respect to Unexchanged Newco Shares. No dividends
or other distributions declared or made after the Effective Time with respect to
the Newco Shares with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Upjohn Certificates or Preferred Certificates
with respect to the Newco Shares represented thereby, and no cash payment in
lieu of any fractional shares shall be paid to any such holder pursuant to
Section 2.02(e), until the holder of such Certificates or Preferred Certificates
shall surrender such Certificates or Preferred Certificates. Subject to the
effect of escheat, tax or other applicable Laws, following surrender of any such
Certificates or Preferred Certificates, there shall be paid to the holder of the
Certificates or Preferred Certificates representing whole Newco Shares issued in
exchange therefor, without interest, (i) promptly, the amount of any cash
payable with respect to a fractional share of Newco Common Stock to which such
holder is entitled pursuant to Section 2.02(e) and the amount of dividends or
other distributions with a record date after the Effective Time and theretofore
declared or made with respect to such whole Newco Shares but unpaid because of
such holder's failure to surrender such Certificates or Preferred Certificates,
and (ii) at the appropriate payment date, the amount of dividends or other
distributions, with a record date after the Effective Time but prior to
surrender and a payment date occurring after surrender, payable with respect to
such whole Newco Shares.
(d) No Further Rights in Upjohn Shares. All Newco Shares issued upon
conversion of the Upjohn Shares in accordance with the terms hereof (and any
cash paid pursuant to Section 2.02(c) or (e)) shall be deemed to have been
issued in full satisfaction of all rights pertaining to such Upjohn Shares.
(e) No Fractional Shares. No certificates or scrip representing fractional
shares of Newco Common Stock shall be issued upon the surrender for exchange of
Certificates, and such fractional share interests will not entitle the owner
thereof to vote or to any other rights of a stockholder of Newco. Each holder of
a fractional share interest shall be paid an amount in cash representing such
holder's proportionate interest in the net proceeds from the sale by the
Exchange Agent on behalf of all such holders of the aggregate of the fractions
of shares of Newco Common Stock that would otherwise be issued to such holders
("Upjohn Excess Shares"). The sale of the Upjohn Excess Shares by the Exchange
Agent shall be executed on the New York Stock Exchange, Inc. (the "NYSE")
through one or more member firms of the NYSE and shall be executed in round lots
to the extent practicable. Until the net proceeds of such sale or sales have
been distributed to the former holders of Upjohn Common Stock, Newco will cause
the Exchange Agent to hold such proceeds in trust for the holders of such
fractional share interests (the "Upjohn Shares Trust"). Newco shall pay all
commissions, transfer taxes and other out-of-pocket transaction costs, including
the expenses and compensation, of the Exchange Agent incurred in connection with
such sale of the Upjohn Excess Shares. The Exchange Agent shall determine the
portion of the Upjohn Shares Trust to which each former holder of Upjohn Common
Stock shall be entitled, if any, by multiplying the amount of the aggregate net
proceeds comprising the Upjohn Shares Trust by a fraction the numerator of which
is the amount of the fractional shares of Newco Common Stock to which such
former holder of Upjohn Common Stock is entitled and the denominator of which is
the aggregate amount of fractional share interests to which all holders of
Upjohn Common Stock are entitled. As soon as practicable after the determination
of the amount of cash, if any, to be paid to former holders of Upjohn Common
Stock in lieu of any fractional shares of Newco Common Stock interests, the
Exchange Agent shall make available such amounts to such former holders of
Upjohn Common Stock without interest.
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(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the former holders of Upjohn Common Stock for three
months after the Effective Time shall be delivered to Newco, upon demand, and
any holders of Certificates shall thereafter look only to Newco for Newco Common
Stock, any cash in lieu of fractional shares of Newco Common Stock to which they
are entitled pursuant to Section 2.02(e) and any dividends or other
distributions with respect to the Newco Common Stock to which they are entitled
pursuant to Section 2.02(c). Any portion of the Exchange Fund remaining
unclaimed by holders of Certificates as of a date which is immediately prior to
such time as such amounts would otherwise escheat to or become property of any
government entity shall, to the extent permitted by applicable Law, become the
property of Newco free and clear of any claims or interest of any person
previously entitled thereto.
(g) Adjustment of Exchange Ratio. (i) In the event of any
reclassification, stock split or stock dividend with respect to the Upjohn
Common Stock, any change or conversion of Upjohn Common Stock into other
securities or any other dividend or distribution with respect thereto, other
than normal quarterly cash dividends in amounts not to exceed $.37 per share
(or, in the case of the quarter ending December 31, 1995 and any quarter ending
thereafter, a quarterly cash dividend in an amount not to exceed $.39 per share)
with respect to the Upjohn Common Stock (or if a record date with respect to any
of the foregoing should occur), prior to the Effective Time, appropriate and
proportionate adjustments, if any, shall be made to the Exchange Ratio, and all
references to the Exchange Ratio in this Agreement shall be deemed to be to such
Exchange Ratio as so adjusted and (ii) in the event of any reclassification,
stock split or stock dividend with respect to the Upjohn Series B Preferred
Stock, any change or conversion of Upjohn Series B Preferred Stock into other
securities or any other dividend or distribution with respect thereto, other
than normal quarterly cash dividends in amounts not to exceed $629.69 per share
with respect to the Upjohn Series B Preferred Stock (or if a record date with
respect to any of the foregoing should occur), prior to the Effective Time,
there shall be appropriate and proportional changes made to the certificate of
designations of the Newco Series A Preferred Stock to reflect any of the
foregoing.
(h) No Liability. Neither Newco nor the Surviving Corporation shall be
liable to any holder of Upjohn Shares for any such Upjohn Shares (or dividends
or distributions with respect thereto), or cash delivered to a public official
pursuant to any abandoned property, escheat or similar Law.
(i) Withholding Rights. Each of the Surviving Corporation and Newco shall
be entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of Upjohn Shares such amounts as it is
required to deduct and withhold with respect to the making of such payment under
the Code, or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by the Surviving Corporation or Newco, 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 Upjohn Shares in respect of
which such deduction and withholding was made by the Surviving Corporation or
Newco, as the case may be.
(j) 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 the
Surviving Corporation, the posting by such person of a bond, in such reasonable
amount as the Surviving Corporation may direct, as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange Agent
will issue in exchange for such lost, stolen or destroyed Certificate the Newco
Common Stock, any cash in lieu of fractional shares of Newco Common Stock to
which the holders thereof are entitled pursuant to Section 2.02(e) and any
dividends or other distributions to which the holders thereof are entitled
pursuant to Section 2.02(c).
SECTION 2.03. Stock Transfer Books. At the Effective Time, the stock
transfer books of Upjohn shall be closed and there shall be no further
registration of transfers of Upjohn Shares thereafter on the records of Upjohn.
From and after the Effective Time, the holders of Certificates and Preferred
Certificates representing Upjohn Shares outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to Upjohn Shares
represented thereby, except as otherwise provided herein or by Law. On or after
the Effective Time, any Certificates and Preferred Certificates presented to the
Exchange Agent or Newco for any reason shall be converted into Newco Shares, any
cash in lieu of fractional shares of Newco Common
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Stock to which the holders thereof are entitled pursuant to Section 2.02(e) and
any dividends or other distributions to which the holders thereof are entitled
pursuant to Section 2.02(c).
SECTION 2.04. Stock Options and Deferred Awards. (a) Prior to the
Effective Time, Upjohn shall effect such amendments or take such other actions
under the Upjohn Stock Option Plans (as defined below) as are necessary to
render inapplicable the provisions, if any, contained in such plans that provide
for the payment of cash by Upjohn in respect of the cancellation of Upjohn
Options resulting from the execution of this Agreement and the consummation of
the Transactions, and Newco and Upjohn shall take all such action as may be
necessary to cause each unexpired and unexercised option to purchase shares of
Upjohn Common Stock (an "Upjohn Option") pursuant to the Stock Option Plans
under Upjohn's (i) Management Incentive Program of 1992 (the "Upjohn 1992
Incentive Program"), (ii) Management Incentive Program of 1987 and (iii)
Management Incentive Program of 1982 (collectively, the "Upjohn Stock Option
Plans"), or otherwise granted by Upjohn other than pursuant to any Upjohn Stock
Option Plan, to be assumed by Newco at the Effective Time on the terms and
conditions set forth in Section 2.04(b). All shares of Upjohn Common Stock
credited to participants in the Upjohn 1992, 1987 and 1982 Management Incentive
Programs (the "Upjohn Incentive Programs") pursuant to a Deferred or Basic
Portion of an Award (as defined in the Upjohn Incentive Programs) (a "Deferred
Award") shall be converted into the number of credited shares of Newco Common
Stock (including fractional shares) obtained by multiplying the credited shares
of Upjohn Common Stock by the Exchange Ratio.
(b) At the Effective Time, assuming that the actions described in Section
2.04(a) have been taken, each Upjohn Option, whether vested or unvested, will be
automatically converted into an option (a "Substitute Option") to purchase a
number of shares of Newco Common Stock equal to the number of shares of Upjohn
Common Stock that could have been purchased immediately prior to the Effective
Time (assuming full vesting) under such Upjohn Option multiplied by the Exchange
Ratio (rounded up or down to the nearest whole number of shares of Newco Common
Stock) at a price per share of Newco Common Stock equal to the per share option
exercise price specified in such Upjohn Option divided by the Exchange Ratio
(rounded up or down to the nearest whole cent). Except as otherwise provided in
this Agreement, each Substitute Option shall provide the option holder with
rights and benefits that are no less favorable to him or her than were provided
under the Upjohn Option. The date of grant of each Substitute Option shall be
the date on which the corresponding Upjohn Option was granted. It is the
intention of the parties that, subject to applicable Law, the Substitute Options
will qualify, following the Effective Time, as incentive stock options, as
defined in section 422 of the Code, to the extent that the corresponding Upjohn
Options qualified as incentive stock options prior to the Effective Time.
Accordingly, the foregoing adjustments shall be effected in a manner consistent
with Section 424(a) of the Code. At the Effective Time, (i) all references in
the Upjohn Stock Option Plans, the applicable stock option or other award
agreements issued thereunder and in any other Upjohn Options to Upjohn shall be
deemed to refer to Newco; (ii) Newco shall assume the Upjohn Stock Option Plans
and the Deferred Awards and all of Upjohn's obligations with respect to the
Upjohn Options and the Deferred Awards, as so amended, and shall take all
actions necessary to reserve for issuance a sufficient number of shares of Newco
Common Stock for delivery under the assumed Upjohn Stock Option Plans and the
Deferred Awards; and (iii) Newco shall issue to each holder of an outstanding
Upjohn Option a document evidencing the foregoing assumption by Newco and
setting forth such holder's rights in respect thereof. As soon as practicable
after the Effective Time, to the extent necessary to provide for registration of
shares of Newco Common Stock subject to Substitute Options or Deferred Awards,
Newco shall file a registration statement on Form S-8 (or any successor form)
with respect to such shares of Newco Common Stock. With respect to individuals
who, subsequent to the Transactions, will be subject to the requirements under
Section 16(a) of the Exchange Act (as hereinafter defined), where applicable,
Newco shall administer the assumed Upjohn Stock Option Plans in a manner that
complies with Rule 16b-3 under the Exchange Act.
SECTION 2.05. Shares of Dissenting Holders of Upjohn Series B Preferred
Stock. Notwithstanding any provision of this Agreement to the contrary, shares
of Upjohn Series B Preferred Stock that are outstanding immediately prior to the
Effective Time and that are held by stockholders who shall not have voted in
favor of the Merger or consented thereto in writing and who shall have demanded
properly in writing appraisal for such shares of Upjohn Series B Preferred Stock
in accordance with Section 262 of the DGCL
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(collectively, the "Dissenting Upjohn Series B Preferred Shares") shall not be
converted into or represent the right to receive shares of Newco Series A
Preferred Stock. Such stockholders shall be entitled to receive payment of the
appraised value of such shares of Upjohn Series B Preferred Stock held by them
in accordance with the provisions of such Section 262, except that all
Dissenting Upjohn Series B Preferred Shares held by stockholders who shall have
failed to perfect or who effectively shall have withdrawn or lost their rights
to appraisal of such Dissenting Upjohn Series B Preferred Shares under such
Section 262 shall thereupon be deemed to have been converted into the right to
receive, and to have become exchangeable for, as of the Effective Time, shares
of Newco Series A Preferred Stock, without any interest thereon, upon surrender,
in the manner provided in Section 2.02 of this Agreement, of the Preferred Stock
Certificate or Certificates that formerly evidenced such shares of Upjohn Series
B Preferred Stock.
ARTICLE III
THE PHARMACIA TRANSACTION
SECTION 3.01. The Exchange Offer. (a) Provided that this Agreement shall
not have been terminated in accordance with Section 10.01, Newco shall commence
the Exchange Offer on or as soon as practicable after the Registration Statement
Effective Date (the "Exchange Offer Commencement Date") as contemplated by the
Disclosure Documents (as hereinafter defined) and otherwise in accordance with
applicable Laws. Pursuant to the Exchange Offer, (i) Newco shall offer to
exchange for each Pharmacia Share, subject to the conditions set forth below,
one share of Newco Common Stock or one SDS and (ii) Newco shall offer to
exchange for each ADS, subject to the conditions set forth below, one share of
Newco Common Stock (the "Exchange Offer Ratio"). The obligation of Newco to
accept for payment and pay for Pharmacia Shares tendered pursuant to the
Exchange Offer shall be subject only to this Agreement not having been
terminated pursuant to Section 10.01 and the satisfaction or waiver, if
permissible and effected as provided in Section 10.04, of (i) the condition that
a number of Pharmacia Shares representing more than 90% of the number of shares
and voting power of the then outstanding Pharmacia Securities shall have been
validly tendered and not withdrawn prior to the expiration of the Exchange Offer
(the "Minimum Condition"), (ii) the condition that this Agreement shall have
been adopted by the requisite affirmative vote of the stockholders of Upjohn in
accordance with the DGCL and Upjohn's Restated Certificate of Incorporation and
By-Laws (the "Upjohn Stockholder Approval Condition") and (iii) the other
conditions set forth in Article IX of this Agreement (together with the Minimum
Condition and the Upjohn Stockholder Approval Condition, the "Exchange Offer
Conditions"). The initial expiration date of the Exchange Offer shall be the
date which is 20 Business Days after the Exchange Offer Commencement Date (such
date, as it may be extended from time to time as hereinafter provided, the
"Expiration Date") and, provided that this Agreement shall not have been
terminated in accordance with Article 10.01, shall be extended by Newco from
time to time thereafter until such time as all of the Exchange Offer Conditions
have been satisfied; provided, however, that after the satisfaction of the
Upjohn Stockholder Approval Condition, with the consent of each of Pharmacia and
Upjohn, Newco may permit the Exchange Offer to expire at the next scheduled
expiration date. Subject only to the conditions set forth above, Newco shall
accept for exchange and shall exchange all Pharmacia Securities validly tendered
and not withdrawn pursuant to the terms of the Exchange Offer at the earliest
practicable time following the Expiration Date.
(b) On the Exchange Offer Commencement Date, Newco, Pharmacia and Upjohn
shall file with the SEC a Tender Offer Statement on Schedule 14D-1 (together
with all amendments and supplements thereto, the "Schedule 14D-1") with respect
to that portion of the Exchange Offer made in the United States. The Schedule
14D-1 shall contain or shall incorporate by reference the Proxy Statement (as
hereinafter defined) and forms of the related letter of transmittal and any
related summary advertisement (the Schedule 14D-1, the Schedule 14D-9 (as
defined below), the Proxy Statement and such other documents, together with all
supplements and amendments thereto, being referred to herein collectively as the
"Disclosure Documents"). Prior to or substantially contemporaneously with the
Exchange Offer Commencement Date, Newco shall also file the Proxy Statement (or
such Swedish language translations or summaries thereof as may be necessary
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and appropriate in Sweden) with the Stockholm Stock Exchange (the "SSE") and
with the Financial Supervisory Authority (the "FSA"), as required by the Laws of
Sweden.
(c) Pharmacia shall file with the SEC, not later than the Exchange Offer
Commencement Date, a Tender Offer Solicitation/Recommendation Statement on
Schedule 14D-9 (together with all amendments and supplements thereto, the
"Schedule 14D-9"), which Schedule 14D-9 shall contain the unconditional and
unanimous recommendation by the Board of Directors of Pharmacia that the holders
of Pharmacia Securities tender their Pharmacia Securities into the Exchange
Offer; provided, however, that the Board of Directors of Pharmacia may, at any
time prior to the Effective Time, withdraw, modify or change any such
recommendation if the Board of Directors of Pharmacia determines in good faith
that failure to so withdraw, modify or change its recommendation would cause the
Board of Directors of Pharmacia to breach its fiduciary duties to Pharmacia's
stockholders or Pharmacia under applicable Laws after receipt of advice to such
effect from independent legal counsel (who may be Pharmacia's regularly engaged
independent legal counsel).
(d) Promptly after the Effective Time, Newco shall designate such number of
individuals, rounded up to the next whole number, on the Board of Directors of
Pharmacia as shall give Newco representation on the Board of Directors of
Pharmacia equal to the product of the total number of non-union directors on the
Board of Directors of Pharmacia (giving effect to the directors elected pursuant
to this sentence) multiplied by the percentage that the aggregate number of
Pharmacia Shares beneficially owned by Newco following the Effective Time bears
to the total number of Pharmacia Shares then outstanding, whom Pharmacia shall,
subject to compliance with applicable Laws and promptly following the Effective
Time and from time to time thereafter, cause to be elected as directors of
Pharmacia.
SECTION 3.02. Depositary. Newco shall appoint a bank or trust company
designated by Pharmacia and reasonably satisfactory to Upjohn to act as
depositary for the Exchange Offer (the "Depositary").
SECTION 3.03. Compulsory Acquisition. (a) As soon as practicable after
the Effective Time, assuming that the Minimum Condition has been satisfied and
not waived, Newco shall, unless the parties mutually agree that there is a more
effective method of achieving the objectives described in this Section 3.03 (in
which case such method shall be used), contribute all of the Pharmacia
Securities owned by it to a newly formed wholly-owned subsidiary organized under
the laws of the Kingdom of Sweden ("Swedish Newco") in exchange for all of the
capital stock of Swedish Newco, and shall cause Swedish Newco to take all
actions necessary and proper under the Swedish Companies Act to commence a
process leading to a compulsory acquisition under Section 14:31 of the Swedish
Companies Act to acquire all the issued and outstanding Pharmacia Securities not
acquired by Newco pursuant to the Exchange Offer. Newco shall, in connection
therewith, cause Swedish Newco to act to obtain advance title to such Pharmacia
Securities upon deposit of appropriate collateral with the statutory
arbitrators, and Newco shall transfer to Swedish Newco cash or other property
sufficient to make such deposit.
(b) In the event of consummation of the Transactions following the waiver
of the Minimum Condition effected as provided in Section 10.04, Newco shall, as
promptly as practicable following the Effective Time, conduct, directly or
indirectly, such other offers (including, without limitation, pursuant to open
market purchases) as are necessary to obtain, when aggregated with the number of
shares and vote of Pharmacia Shares already owned by it, more than 90% of the
number of shares and voting power of the then outstanding Pharmacia Shares.
Thereafter, Newco shall take the actions described in Section 3.03(a).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF UPJOHN
Upjohn hereby represents and warrants to Pharmacia that:
SECTION 4.01. Organization and Qualification; Subsidiaries. Each of
Upjohn and each subsidiary of Upjohn (the "Upjohn Subsidiaries") has been duly
organized, and is validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, as the case may be, and has
the requisite power and authority and all necessary governmental approvals to
own, lease and operate its properties and to
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carry on its business as it is now being conducted, except where the failure to
be so organized, existing or in good standing or to have such power, authority
and governmental approvals would not, individually or in the aggregate, have an
Upjohn Material Adverse Effect (defined below). Each of Upjohn and the Upjohn
Subsidiaries is duly qualified or licensed to do business, and is in good
standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except for such failures to be so qualified or licensed
and in good standing that would not, individually or in the aggregate, have an
Upjohn Material Adverse Effect. For purposes of this Agreement, "Upjohn Material
Adverse Effect" means any change in or effect on the business of Upjohn and the
Upjohn Subsidiaries that is, or is reasonably likely to be, materially adverse
to the business, assets (including intangible assets), liabilities (contingent
or otherwise), condition (financial or otherwise) or results of operations of
Upjohn and the Upjohn Subsidiaries taken as a whole.
SECTION 4.02. Certificate of Incorporation and By-Laws. The copies of
Upjohn's Restated Certificate of Incorporation and By-Laws that are set forth as
exhibits to Upjohn's Form 10-K for the year ended December 31, 1994 are complete
and correct copies thereof. Such Restated Certificate of Incorporation and
By-Laws are in full force and effect. Upjohn is not in violation of any of the
provisions of its Restated Certificate of Incorporation or By-Laws.
SECTION 4.03. Capitalization. The authorized capital stock of Upjohn
consists of (a) 600,000,000 shares of Upjohn Common Stock and (b) 12,000,000
shares of preferred stock, 650,000 shares of which are Series A Participating
Cumulative Preferred Stock (the "Upjohn Series A Preferred Stock") and 7,500
shares of which are the Upjohn Series B Preferred Stock. As of August 17, 1995,
(i) 171,688,135 shares of Upjohn Common Stock were issued and outstanding, all
of which were validly issued and fully paid and nonassessable, (ii) 18,903,388
shares of Upjohn Common Stock were held in the treasury of Upjohn or by the
Upjohn Subsidiaries, (iii) 10,867,250 shares of Upjohn Common Stock were
reserved for issuance upon exercise of current stock options granted pursuant to
the Upjohn Stock Option Plans and 1,771,299 shares of Upjohn Common Stock were
reserved for issuance upon exercise of future grants of stock options, (iv)
650,000 shares of Upjohn Series A Preferred Stock were reserved for issuance
under the Rights Agreement, (v) 7,322 shares of Upjohn Series B Preferred Stock
were issued and outstanding, all of which were held by State Street Bank and
Trust Company, as Trustee and (vi) 7,322,020 shares of Upjohn Common Stock were
reserved for issuance upon the conversion of the Upjohn Series B Preferred
Stock. As of the date of this Agreement, no shares of Upjohn Series A Preferred
Stock are issued and outstanding. Except for the Upjohn Options granted pursuant
to the Upjohn Stock Option Plans, the Upjohn Rights Agreement or pursuant to
agreements or arrangements described in Section 4.03 of the Disclosure Schedule
delivered by Upjohn to Pharmacia prior to the execution of (and forming part of)
this Agreement (the "Upjohn Disclosure Schedule"), there are no options,
warrants or other rights, agreements, arrangements or commitments of any
character to which Upjohn is a party or by which Upjohn is bound relating to the
issued or unissued capital stock of Upjohn or any Upjohn Subsidiary or
obligating Upjohn or any Upjohn Subsidiary to issue or sell any shares of
capital stock of, or other equity interests in, Upjohn or any Upjohn Subsidiary.
All shares of Upjohn Common Stock subject to issuance as aforesaid, upon
issuance prior to the Effective Time on the terms and conditions specified in
the instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable. Except as set forth in Section
4.03 of the Upjohn Disclosure Schedule, there are no outstanding contractual
obligations of Upjohn or any Upjohn Subsidiary to repurchase, redeem or
otherwise acquire any shares of Upjohn Common Stock or any capital stock of any
Upjohn Subsidiary. Each outstanding share of capital stock of each Upjohn
Subsidiary is duly authorized, validly issued, fully paid and nonassessable and
each such share owned by Upjohn or another Upjohn Subsidiary is free and clear
of all security interests, liens, claims, pledges, options, rights of first
refusal, agreements, limitations on Upjohn's or such other Upjohn Subsidiary's
voting rights, charges and other encumbrances of any nature whatsoever, except
where failure to own such shares free and clear would not, individually or in
the aggregate, have an Upjohn Material Adverse Effect. Except as set forth in
Section 4.03 of the Upjohn Disclosure Schedule, there are no material
outstanding contractual obligations of Upjohn or any Upjohn Subsidiary to
provide funds to, or make any investment (in the form of a loan, capital
contribution or otherwise) in, any Upjohn Subsidiary or any other person, other
than guarantees by Upjohn of any indebtedness of any Upjohn Subsidiary.
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SECTION 4.04. Authority Relative to This Agreement. Upjohn has all
necessary corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the transactions
(including, without limitation, the Transactions) contemplated herein to be
consummated by Upjohn. The execution and delivery of this Agreement by Upjohn
and the consummation by Upjohn of such transactions have been duly and validly
authorized by all necessary corporate action and no other corporate proceedings
on the part of Upjohn are necessary to authorize this Agreement or to consummate
such transactions (other than, with respect to the Merger, the adoption of this
Agreement by the requisite affirmative vote of the stockholders of Upjohn as
required by the DGCL). This Agreement has been duly authorized and validly
executed and delivered by Upjohn and constitutes a legal, valid and binding
obligation of Upjohn, enforceable against Upjohn in accordance with its terms.
Upjohn has taken all appropriate actions so that the restrictions on business
combinations contained in Section 203 of the DGCL and Article VII of the Upjohn
Restated Certificate of Incorporation will not apply with respect to or as a
result of the Transactions.
SECTION 4.05. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by Upjohn do not, and the performance
of this Agreement by Upjohn will not, (i) conflict with or violate any provision
of the Restated Certificate of Incorporation or By-Laws of Upjohn or any
equivalent organizational documents of any Upjohn Subsidiary, (ii) assuming that
all consents, approvals, authorizations and other actions described in Section
4.05(b) have been obtained and all filings and obligations described in Section
4.05(b) have been made, conflict with or violate any foreign or domestic law,
statute, ordinance, rule, regulation, order, judgment or decree ("Law")
applicable to Upjohn or any Upjohn Subsidiary or by which any property or asset
of Upjohn or any Upjohn Subsidiary is bound or affected, or (iii), except as set
forth in Section 4.05(a) of the Upjohn Disclosure Schedule, result in any breach
of or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any right of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or other encumbrance on any property or asset of Upjohn or any Upjohn Subsidiary
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation, except, with
respect to clauses (ii) and (iii), for any such conflicts, violations, breaches,
defaults, or other occurrences which would neither, individually or in the
aggregate, (A) have an Upjohn Material Adverse Effect nor (B) prevent or
materially delay the performance of this Agreement by Upjohn.
(b) The execution and delivery of this Agreement by Upjohn do not, and the
performance of this Agreement by Upjohn will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any domestic or
foreign governmental or regulatory authority ("Governmental Entity"), except (i)
for applicable requirements of the Securities Exchange Act of 1934, as amended
(together with the rules and regulations promulgated thereunder, the "Exchange
Act"), the Securities Act of 1933, as amended (together with the rules and
regulations promulgated thereunder, the "Securities Act"), state securities or
"blue sky" laws ("Blue Sky Laws"), the NYSE, state takeover laws, the pre-merger
notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations thereunder (the "HSR Act"), the
filing of a notification with the European Commission under Council Regulation
(EEC) No. 4064/89, applicable requirements of the Investment Canada Act of 1985,
filing and recordation of the Certificate of Merger as required by the DGCL, and
as set forth in Section 4.05(b) of the Upjohn Disclosure Schedule and (ii) where
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not (A) prevent or materially delay
consummation of the Transactions, (B) otherwise prevent Upjohn from performing
its material obligations under this Agreement, and (C) individually or in the
aggregate, have an Upjohn Material Adverse Effect.
SECTION 4.06. Permits; Compliance. Each of Upjohn and the Upjohn
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exceptions, consents, certificates,
approvals and orders of any Governmental Entity necessary for Upjohn or any
Upjohn Subsidiary to own, lease and operate its properties or to carry on its
business as it is now being conducted (the "Upjohn Permits"), except where the
failure to have, or the suspension or cancellation of, any of the Upjohn Permits
would neither, individually or in the aggregate, (A) have an Upjohn Material
Adverse Effect nor (B) prevent or materially delay the performance of this
Agreement by Upjohn, and, as of the date of this Agreement, no suspension or
cancellation of any of the Upjohn Permits is pending or, to the actual knowledge
of the executive
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officers of Upjohn, threatened, except where the failure to have, or the
suspension or cancellation of, any of the Upjohn Permits would neither,
individually or in the aggregate, (A) have an Upjohn Material Adverse Effect nor
(B) prevent or materially delay the performance of this Agreement by Upjohn.
Neither Upjohn nor any Upjohn Subsidiary is in conflict with, or in default or
violation of, (i) any Law applicable to Upjohn or any Upjohn Subsidiary or by
which any property or asset of Upjohn or any Upjohn Subsidiary is bound or
affected or (ii) any Upjohn Permits, except for any such conflicts, defaults or
violations that would neither, individually or in the aggregate, (A) have an
Upjohn Material Adverse Effect nor (B) prevent or materially delay the
performance of this Agreement by Upjohn.
SECTION 4.07. SEC Filings; Financial Statements. (a) Upjohn has filed all
forms, reports and documents required to be filed by it under the Exchange Act
since January 1, 1993 through the date of this
Agreement (collectively, the "Upjohn SEC Reports"). The Upjohn SEC Reports (i)
were prepared in accordance with the requirements of the Exchange Act and (ii)
did not at the time they were filed contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. No Upjohn Subsidiary is subject to
the periodic reporting requirements of the Exchange Act.
(b) Each of the consolidated financial statements (including, in each case,
any notes thereto) contained in the Upjohn SEC Reports was prepared in
accordance with United States generally accepted accounting principles applied
on a consistent basis throughout the periods indicated (except as may be
indicated in the notes thereto) and each presented fairly, in all material
respects, the consolidated financial position of Upjohn and the consolidated
Upjohn Subsidiaries as at the respective dates thereof and for the respective
periods indicated therein, except as otherwise noted therein (subject, in the
case of unaudited statements, to normal and recurring year-end adjustments which
were not and are not expected, individually or in the aggregate, to have an
Upjohn Material Adverse Effect).
(c) Except as and to the extent set forth on the consolidated balance sheet
of Upjohn and the consolidated Upjohn Subsidiaries as of December 31, 1994,
including the notes thereto, neither Upjohn nor
any Upjohn Subsidiary has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) that would be required to be
reflected on a balance sheet or in notes thereto prepared in accordance with
United States generally accepted accounting principles, except for liabilities
or obligations incurred in the ordinary course of business since December 31,
1994 that would neither, individually or in the aggregate, (A) have an Upjohn
Material Adverse Effect nor (B) prevent or materially delay the performance of
this Agreement by Upjohn.
SECTION 4.08. Absence of Certain Changes or Events. Since January 1,
1995, except as contemplated by or as disclosed in this Agreement, as set forth
in Section 4.08 of the Upjohn Disclosure Schedule or as disclosed in any Upjohn
SEC Report filed since January 1, 1995, Upjohn and the Upjohn Subsidiaries have
conducted their businesses only in the ordinary course and in a manner
consistent with past practice and, since such date, there has not been (a) any
Upjohn Material Adverse Effect, (b) any event that could reasonably be expected
to prevent or materially delay the performance of this Agreement by Upjohn, (c)
any material change by Upjohn in its accounting methods, principles or
practices, (d) any declaration, setting aside or payment of any dividend or
distribution in respect of the shares of Upjohn Common Stock or any redemption,
purchase or other acquisition of any of Upjohn's securities other than the
regular quarterly dividend on each share of Upjohn Common Stock of $.37 and the
regular quarterly dividend on each share of Upjohn Series B Preferred Stock of
$629.69, or (e) any increase in the compensation or benefits or establishment of
any bonus, insurance, severance, deferred compensation, pension, retirement,
profit sharing, stock option (including, without limitation, the granting of
stock options, stock appreciation rights, performance awards or restricted stock
awards), stock purchase or other employee benefit plan, or any other increase in
the compensation payable or to become payable to any executive officers of
Upjohn or any Upjohn Subsidiary except in the ordinary course of business
consistent with past practice or except as required by applicable Law.
SECTION 4.09. Employee Benefit Plans; Labor Matters. (a) With respect to
each material employee benefit plan, program, arrangement and contract
(including, without limitation, any "employee benefit plan", as defined in
section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
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("ERISA")), maintained or contributed to by Upjohn or any Upjohn Subsidiary, or
with respect to which Upjohn or any Upjohn Subsidiary could incur material
liability under section 4069, 4212(c) or 4204 of ERISA (the "Upjohn Benefit
Plans"), Upjohn will make available to Pharmacia, promptly after the date
hereof, a true and complete copy of (i) the most recent annual report (Form
5500) filed with the Internal Revenue Service (the "IRS "), (ii) such Upjohn
Benefit Plan, (iii) each trust agreement relating to such
Upjohn Benefit Plan, (iv) the most recent summary plan description for each
Upjohn Benefit Plan for which a summary plan description is required, (v) the
most recent actuarial report or valuation relating to an Upjohn Benefit Plan
subject to Title IV of ERISA and (vi) the most recent determination letter, if
any, issued by the IRS with respect to any Upjohn Benefit Plan qualified under
section 401(a) of the Code.
(b) Except as set forth in Section 4.09(b) of the Upjohn Disclosure
Schedule, with respect to the Upjohn Benefit Plans, no event has occurred and,
to the knowledge of Upjohn, there exists no condition or set of circumstances in
connection with which Upjohn or any Upjohn Subsidiary could be subject to any
liability under the terms of such Upjohn Benefit Plans, ERISA, the Code or any
other applicable Law which would have an Upjohn Material Adverse Effect.
(c) Except as set forth in Section 4.09(c) of the Upjohn Disclosure
Schedule, neither Upjohn nor any Upjohn Subsidiary is a party to any collective
bargaining or other labor union contract applicable to persons employed by
Upjohn or any Upjohn Subsidiary and no collective bargaining agreement or other
labor union contract is being negotiated by Upjohn or any Upjohn Subsidiary. As
of the date of this Agreement, there is no labor dispute, strike or work
stoppage against Upjohn or any Upjohn Subsidiary pending or threatened in
writing which may interfere with the respective business activities of Upjohn or
any Upjohn Subsidiary, except where such dispute, strike or work stoppage would
not have an Upjohn Material Adverse Effect. As of the date of this Agreement, to
the knowledge of Upjohn, none of Upjohn, any Upjohn Subsidiary, or their
respective representatives or employees, has committed any unfair labor
practices in connection with the operation of the respective businesses of
Upjohn or any Upjohn Subsidiary, and there is no charge or complaint against
Upjohn or any Upjohn Subsidiary by the National Labor Relations Board or any
comparable state or foreign agency pending or threatened in writing, except
where such unfair labor practice, charge or complaint would not have an Upjohn
Material Adverse Effect.
(d) Upjohn has made available to Pharmacia true and complete (i) copies of
all severance and employment agreements with officers of Upjohn and each Upjohn
Subsidiary; (ii) copies of all severance programs and policies of Upjohn and
each Upjohn Subsidiary with or relating to its employees; and (iii) copies of
all plans, programs, agreements and other arrangements of Upjohn and each Upjohn
Subsidiary with or relating to its employees which contain change of control
provisions.
(e) Except as provided in Section 4.09 of the Upjohn Disclosure Schedule or
as otherwise required by Law, no Upjohn Benefit Plan provides retiree medical or
retiree life insurance benefits to any person.
SECTION 4.10. Accounting and Tax Matters. Neither Upjohn nor, to the
knowledge of Upjohn, any of its affiliates has taken or agreed to take any
action that would prevent the Merger and the Pharmacia Transaction from
qualifying for "pooling of interests" accounting treatment under applicable U.S.
and Swedish accounting rules including, without limitation, applicable SEC
accounting standards, or would prevent the Merger from constituting a
transaction qualifying under Section 368(a) of the Code or (in conjunction with
the acquisition of Pharmacia Shares pursuant to the Exchange Offer) from
constituting a transaction qualifying under Section 351(a) of the Code, or would
prevent the Exchange Offer (in conjunction with the acquisition of Upjohn Shares
pursuant to the Merger) from constituting a transaction qualifying under Section
351(a) of the Code or a transaction in which, for Swedish income tax purposes,
neither Newco, Pharmacia nor the Pharmacia stockholders will recognize taxable
income or gain. Upjohn is not aware of any agreement, plan or other circumstance
that would prevent the Merger or the Exchange Offer from so qualifying under
Section 368(a) or Section 351(a) of the Code or under applicable Swedish tax
Laws.
SECTION 4.11. Contracts; Debt Instruments. Except as disclosed in the
Upjohn SEC Reports or in Section 4.11 of the Upjohn Disclosure Schedule, there
is no contract or agreement that is material to the business, financial
condition or results of operations of Upjohn and the Upjohn Subsidiaries taken
as a whole (each, an "Upjohn Material Contract"). Neither Upjohn nor any Upjohn
Subsidiary is in violation of or in
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default under (nor does there exist any condition which with the passage of time
or the giving of notice would cause such a violation of or default under) any
loan or credit agreement, note, bond, mortgage, indenture or lease, or any other
contract, agreement, arrangement or understanding to which it is a party or by
which it or any of its properties or assets is bound, except for violations or
defaults that would not, individually or in the aggregate, result in an Upjohn
Material Adverse Effect. Set forth in Section 4.11 of the Upjohn Disclosure
Schedule is a description of any material changes to the amount and terms of the
indebtedness of Upjohn and its subsidiaries as described in the notes to the
financial statements incorporated in Upjohn's Form 10-K for the year ended
December 31, 1994.
SECTION 4.12. Litigation. Except as disclosed in the Upjohn SEC Reports
or in Section 4.12 of the Upjohn Disclosure Schedule, there is no suit, claim,
action, proceeding or investigation pending or threatened in writing against
Upjohn or any Upjohn Subsidiary before any Governmental Entity that,
individually or in the aggregate, is reasonably likely to have an Upjohn
Material Adverse Effect. Except as disclosed in the Upjohn SEC Reports or in
Section 4.12 of the Upjohn Disclosure Schedule, in the case of any suit, claim,
action, proceeding or investigation relating to Halcion or any environmental
matters relating to Upjohn or any Upjohn Subsidiary, there has been no change
since January 1, 1995 in the status of any such matters that would be reasonably
likely to have an Upjohn Material Adverse Effect. Except as disclosed in the
Upjohn SEC Reports or in Section 4.12 of the Upjohn Disclosure Schedule, neither
Upjohn nor any Upjohn Subsidiary is subject to any outstanding Order, writ,
injunction or decree which, insofar as can be reasonably foreseen, individually
or in the aggregate, would have an Upjohn Material Adverse Effect.
SECTION 4.13. Environmental Matters. Except as disclosed in the Upjohn
SEC Reports or in Section 4.13 of the Upjohn Disclosure Schedule or as would
not, individually or in the aggregate, have an Upjohn Material Adverse Effect:
(a) Upjohn and the Upjohn Subsidiaries (i) are in compliance with all
applicable Environmental Laws (defined below), (ii) hold all Environmental
Permits (defined below), and (iii) are in compliance with their respective
Environmental Permits.
(b) Neither Upjohn nor any Upjohn Subsidiary has received any written
request for information, or been notified that it is a potentially
responsible party, under CERCLA (defined below) or any similar state, local
or foreign Law.
(c) Neither Upjohn nor any Upjohn Subsidiary has entered into or
agreed to any consent decree or order or is subject to any judgment, decree
or judicial order relating to compliance with Environmental Laws,
Environmental Permits or the investigation, sampling, monitoring,
treatment, remediation, removal or cleanup of Hazardous Materials (defined
below), and to the best knowledge of Upjohn, no investigation, litigation
or other proceeding is pending or threatened in writing with respect
thereto.
(d) None of the real property owned or leased by Upjohn or any Upjohn
Subsidiary is listed or, to the best knowledge of Upjohn, proposed for
listing on the "National Priorities List" under CERCLA, as updated through
the date hereof, or any similar state or foreign list of sites requiring
investigation or cleanup.
For purposes of this Agreement:
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended as of the date hereof.
"Environmental Laws" means any federal, state, local or foreign statute,
law, ordinance, regulation, rule, code or order and any enforceable judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, relating to pollution or protection of the
environment or natural resources, including, without limitation, those relating
to the use, handling, transportation, treatment, storage, disposal, release or
discharge of Hazardous Materials, as in effect as of the date hereof.
"Environmental Permits" means any permit, approval, identification number,
license and other authorization required under any applicable Environmental Law.
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"Hazardous Materials" means (a) any petroleum, petroleum products,
by-products or breakdown products, radioactive materials, asbestos-containing
materials or polychlorinated biphenyls or (b) any chemical, material or
substance defined or regulated as toxic or hazardous or as a pollutant or
contaminant or waste under any applicable Environmental Law.
SECTION 4.14. Trademarks, Patents and Copyrights. Except as set forth in
Section 4.14 of the Upjohn Disclosure Schedule, or to the extent the inaccuracy
of any of the following (or the circumstances giving rise to such inaccuracy),
individually or in the aggregate, would not have an Upjohn Material Adverse
Effect, Upjohn and each of the Upjohn Subsidiaries own or possess adequate
licenses or other legal rights to use all patents, patent rights, trademarks,
trademark rights, trade names, trade dress, trade name rights, copyrights,
servicemarks, trade secrets, applications for trademarks and for servicemarks,
mask works, know-how and other proprietary rights and information used or held
for use in connection with the business of Upjohn and the Upjohn Subsidiaries as
conducted since December 31, 1992, and as currently conducted or as contemplated
to be conducted, and Upjohn is unaware of any assertion or claim challenging the
validity of any of the foregoing. The conduct of the business of Upjohn and the
Upjohn Subsidiaries as conducted since December 31, 1992, as currently conducted
and as contemplated to be conducted did not, does not and will not infringe in
any way any patent, patent right, license, trademark, trademark right, trade
dress, trade name, trade name right, service mark, mask work or copyright of any
third party that, individually or in the aggregate, could have an Upjohn
Material Adverse Effect. To Upjohn's knowledge, there are no infringements of
any proprietary rights owned by or licensed by or to Upjohn or any Upjohn
Subsidiary that, individually or in the aggregate, could have an Upjohn Material
Adverse Effect.
SECTION 4.15. Taxes. Except for such matters that would not have an
Upjohn Material Adverse Effect, (a) Upjohn and the Upjohn Subsidiaries have
timely filed or will timely file all returns and reports required to be filed by
them with any taxing authority with respect to Taxes for any period ending on or
before the Effective Time, taking into account any extension of time to file
granted to or obtained on behalf of Upjohn and the Upjohn Subsidiaries, (b) all
Taxes shown to be payable on such returns or reports that are due prior to the
Effective Time have been paid or will be paid, (c) as of the date hereof, no
deficiency for any material amount of Tax has been asserted or assessed by a
taxing authority against Upjohn or any of the Upjohn Subsidiaries, and (d)
Upjohn and the Upjohn Subsidiaries have provided adequate reserves in their
financial statements for any Taxes that have not been paid, whether or not shown
as being due on any returns. As used in this Agreement, "Taxes" shall mean any
and all taxes, fees, levies, duties, tariffs, imposts, and other charges of any
kind (together with any and all interest, penalties, additions to tax and
additional amounts imposed with respect thereto) imposed by any government or
taxing authority, including, without limitation: taxes or other charges on or
with respect to income, franchises, windfall or other profits, gross receipts,
property, sales, use, capital stock, payroll, employment, social security,
workers' compensation, unemployment compensation, or net worth; taxes or other
charges in the nature of excise, withholding, ad valorem, stamp, transfer, value
added, or gains taxes; license, registration and documentation fees; and
customers' duties, tariffs, and similar charges.
SECTION 4.16. Rights Agreement. The copy of the Rights Agreement, dated
June 17, 1986, between Upjohn and The Bank of New York, as Rights Agent (the
"Rights Agreement"), including all amendments and exhibits thereto, that is set
forth as an exhibit to Upjohn's Form 10-K for the year ended December 31, 1994
is a complete and correct copy thereof. Upjohn has taken all necessary action to
amend the Rights Agreement, a copy of which amendment is attached hereto as
Exhibit A-2, so that neither the execution of this Agreement nor the
consummation of the Merger will (a) cause the Rights issued pursuant to the
Rights Agreement to become exercisable, (b) cause Volvo, Stattum, Pharmacia,
Newco or Newco Sub to become an Acquiring Person (as such term is defined in the
Rights Agreement) or (c) give rise to a Distribution Date or a Triggering Event
(as each term is defined in the Rights Agreement).
SECTION 4.17. Opinion of Financial Advisor. Goldman, Sachs & Co.
("Goldman Sachs") has delivered to Upjohn its oral opinion to the effect that,
as of the date of this Agreement, the Exchange Ratio is fair to Upjohn's
stockholders, which opinion will be confirmed in writing (and accompanied by an
authorization to include such opinion in the Disclosure Documents) promptly
after the date hereof. Upjohn will, promptly after receipt of such written
opinion, deliver a signed copy of such written opinion to Pharmacia.
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SECTION 4.18. Brokers. No broker, finder or investment banker (other than
Goldman Sachs and The Monitor Company) is entitled to any brokerage, finder's or
other fee or commission in connection with the Transactions based upon
arrangements made by or on behalf of Upjohn. Upjohn has heretofore made
available to Pharmacia a complete and correct copy of all agreements between
Upjohn and Goldman Sachs and between Upjohn and The Monitor Company pursuant to
which such firms would be entitled to any payment relating to the Transactions.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PHARMACIA
Pharmacia hereby represents and warrants to Upjohn that:
SECTION 5.01. Organization and Qualification; Subsidiaries. Each of
Pharmacia and each subsidiary of Pharmacia (the "Pharmacia Subsidiaries") has
been duly organized and is validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization, as the case may be,
and has the requisite power and authority and all necessary governmental
approvals to own, lease and operate its properties and to carry on its business
as it is now being conducted, except where the failure to be so organized,
existing or in good standing or to have such power, authority and governmental
approvals would not, individually or in the aggregate, have a Pharmacia Material
Adverse Effect (defined below). Each of Pharmacia and the Pharmacia Subsidiaries
is duly qualified or licensed to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its business makes such qualification or licensing
necessary, except for such failures to be so qualified or licensed and in good
standing that would not, individually or in the aggregate, have a Pharmacia
Material Adverse Effect. For purposes of this Agreement, "Pharmacia Material
Adverse Effect" means any change in or effect on the business of Pharmacia and
the Pharmacia Subsidiaries that is, or is reasonably likely to be, materially
adverse to the business, assets (including intangible assets), liabilities
(contingent or otherwise), condition (financial or otherwise) or results of
operations of Pharmacia and the Pharmacia Subsidiaries taken as a whole.
SECTION 5.02. Corporate Organization Documents. The copies of Pharmacia's
Articles of Association and all other corporate organization documents that are
set forth as exhibits to Pharmacia's Form 20-F for the year ended December 31,
1994 are complete and correct copies thereof. Such Articles of Association and
all other corporate organization documents are in full force and effect.
Pharmacia is not in violation of any of the provisions of its Articles of
Association or other corporate organization documents.
SECTION 5.03. Capitalization. The authorized share capital of Pharmacia
consists of a minimum of SEK 2,775,000,000 and a maximum of SEK 11,100,000,000
to be issued in Pharmacia Class A Shares and Pharmacia Class B Shares. As of the
date hereof, (i) 164,724,715 Pharmacia Class A Common Shares are issued and
outstanding, all of which are validly issued and fully paid and (ii) 91,027,398
Pharmacia Class B Common Shares are issued and outstanding, all of which are
validly issued and fully paid. There are no warrants or other rights,
arrangements or commitments of any character to which Pharmacia is a party or by
which Pharmacia is bound relating to the issued or unissued capital stock of
Pharmacia or any Pharmacia Subsidiary or obligating Pharmacia or any Pharmacia
Subsidiary to issue or sell any shares of capital stock of, or other equity
interests in, Pharmacia or any Pharmacia Subsidiary. There are no outstanding
contractual obligations of Pharmacia or any Pharmacia Subsidiary to redeem or
otherwise acquire any Pharmacia Shares or any capital stock of any Pharmacia
Subsidiary. Each outstanding share of capital stock of each Pharmacia Subsidiary
is duly authorized, validly issued and fully paid and each such share owned by
Pharmacia or another Pharmacia Subsidiary is free and clear of all security
interests, liens, claims, pledges, options, rights of first refusal, agreements,
limitations on Pharmacia's or such other Pharmacia Subsidiary's voting rights,
charges and other encumbrances of any nature whatsoever, except where failure to
own such shares free and clear would not, individually or in the aggregate, have
a Pharmacia Material Adverse Effect. There are no material outstanding
contractual obligations of Pharmacia or any Pharmacia Subsidiary to provide
funds to, or make any investment (in the form of a loan, capital contribution or
otherwise) in, any Pharmacia Subsidiary or any other person, other than
guarantees by Pharmacia of any indebtedness of any Pharmacia Subsidiary.
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SECTION 5.04. Authority Relative to This Agreement. Pharmacia has all
necessary corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
(including, without limitation, the Transactions) contemplated herein to be
consummated by Pharmacia. The execution and delivery of this Agreement by
Pharmacia and the consummation by Pharmacia of such transactions have been duly
and validly authorized by all necessary corporate action and no other corporate
proceedings on the part of Pharmacia are necessary to authorize this Agreement
or to consummate such transactions. This Agreement has been duly authorized and
validly executed and delivered by Pharmacia and constitutes a legal, valid and
binding obligation of Pharmacia, enforceable against Pharmacia in accordance
with its terms.
SECTION 5.05. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by Pharmacia do not, and the
performance of this Agreement by Pharmacia will not, (i) conflict with or
violate any provision of the Articles of Association or other corporate
organization documents of Pharmacia or any equivalent organizational documents
of any Pharmacia Subsidiary, (ii) assuming that all consents, approvals,
authorizations and other actions described in Section 5.05(b) have been obtained
and all filings and obligations described in Section 5.05(b) have been made,
conflict with or violate any Law applicable to Pharmacia or any Pharmacia
Subsidiary or by which any property or asset of Pharmacia or any Pharmacia
Subsidiary is bound or affected, or (iii) result in any breach of or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of Pharmacia or any Pharmacia Subsidiary
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation, except, with
respect to clauses (ii) and (iii), for any such conflicts, violations, breaches,
defaults, or other occurrences which would neither, individually or in the
aggregate, (A) have a Pharmacia Material Adverse Effect nor (B) prevent or
materially delay the performance of this Agreement by Pharmacia.
(b) The execution and delivery of this Agreement by Pharmacia do not, and
the performance of this Agreement by Pharmacia will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Entity, except (i) for applicable requirements of the SSE, the FSA,
the Exchange Act, the Securities Act, Blue Sky Laws, the NYSE and state takeover
laws, the pre-merger notification requirements of the HSR Act, the filing of a
notification with the European Commission under Council Regulation (EEC) No.
4064/89, the filing of a request with the Stockholm District Court with regard
to the compulsory acquisition described in Section 3.03, applicable requirements
of the Investment Canada Act of 1985 and (ii) where failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not (A) prevent or materially delay consummation of the
Transactions, (B) otherwise prevent Pharmacia from performing its material
obligations under this Agreement, and (C) individually or in the aggregate, have
a Pharmacia Material Adverse Effect.
SECTION 5.06. Permits; Compliance. Each of Pharmacia and the Pharmacia
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exceptions, consents, certificates,
approvals and orders of any Governmental Entity necessary for Pharmacia or any
Pharmacia Subsidiary to own, lease and operate its properties or to carry on its
business as it is now being conducted (the "Pharmacia Permits"), except where
the failure to have, or the suspension or cancellation of, any of the Pharmacia
Permits would neither, individually or in the aggregate, (A) have a Pharmacia
Material Adverse Effect nor (B) prevent or materially delay the performance of
this Agreement by Pharmacia, and, as of the date of this Agreement, no
suspension or cancellation of any of the Pharmacia Permits is pending or, to the
actual knowledge of the executive officers of Pharmacia, threatened, except
where the failure to have, or the suspension or cancellation of, any of the
Pharmacia Permits would neither, individually or in the aggregate, (A) have a
Pharmacia Material Adverse Effect nor (B) prevent or materially delay the
performance of this Agreement by Pharmacia. Neither Pharmacia nor any Pharmacia
Subsidiary is in conflict with, or in default or violation of, (i) any Law
applicable to Pharmacia or any Pharmacia Subsidiary or by which any property or
asset of Pharmacia or any Pharmacia Subsidiary is bound or affected or (ii) any
Pharmacia Permits, except for any such conflicts, defaults or violations that
would neither, individually or in the aggregate, (A) have a
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Pharmacia Material Adverse Effect nor (B) prevent or materially delay the
performance of this Agreement by Pharmacia.
SECTION 5.07. Stock Exchange and SEC Filings; Financial Statements. (a)
Pharmacia has filed all forms, reports and documents required to be filed by it
under the Exchange Act or with the SSE since January 1, 1993 through the date of
this Agreement (collectively, the "Pharmacia Reports"). The Pharmacia Reports
(i) were prepared in accordance with the requirements of the Exchange Act, the
SSE or Swedish Laws or regulations, as the case may be, and (ii) did not at the
time they were filed contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements made therein, in the light of the circumstances under which
they were made, not misleading. No Pharmacia Subsidiary is subject to the
periodic reporting requirements of the Exchange Act or required to file any
form, report or other document with the SEC, the FSA, the SSE or any other
comparable Governmental Entity.
(b) Each of the consolidated financial statements (including, in each case,
any notes thereto) contained in the Pharmacia Reports was prepared in accordance
with Swedish generally accepted accounting principles and, where indicated
therein, was reconciled to U.S. generally accepted accounting principles, in
each case applied on a consistent basis throughout the periods indicated (except
as may be indicated in the notes thereto) and each presented fairly, in all
material respects, the consolidated financial position of Pharmacia and the
consolidated Pharmacia Subsidiaries as at the respective dates thereof and for
the respective periods indicated therein, except as otherwise noted therein
(subject, in the case of unaudited statements, to normal and recurring year-end
adjustments which were not and are not expected, individually or in the
aggregate, to have a Pharmacia Material Adverse Effect).
(c) Except as and to the extent set forth on the consolidated balance sheet
of Pharmacia and the consolidated Pharmacia Subsidiaries as of December 31,
1994, including the notes thereto, neither Pharmacia nor any of the Pharmacia
Subsidiaries has any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) that would be required to be reflected on a
balance sheet or in notes thereto prepared in accordance with Swedish generally
accepted accounting principles, except for liabilities or obligations incurred
in the ordinary course of business since December 31, 1994 that would neither,
individually or in the aggregate, (A) have a Pharmacia Material Adverse Effect
nor (B) prevent or materially delay the performance of this Agreement by
Pharmacia.
SECTION 5.08. Absence of Certain Changes or Events. Since January 1, 1995,
except as contemplated by or as disclosed in this Agreement or as disclosed in
any Pharmacia Report filed since January 1, 1995, Pharmacia and the Pharmacia
Subsidiaries have conducted their businesses only in the ordinary course and in
a manner consistent with past practice and, since such date, there has not been
(a) any Pharmacia Material Adverse Effect, (b) any event that could reasonably
be expected to prevent or materially delay the performance of this Agreement by
Pharmacia, (c) any material change by Pharmacia in its accounting methods,
principles or practices, (d) any declaration, setting aside or payment of any
dividend or distribution in respect of the Pharmacia Shares or any redemption,
purchase or other acquisition of any of Pharmacia's securities other than the
regular annual dividend on each Pharmacia Share of SEK 2.60, or (e) any increase
in the compensation or benefits or establishment of any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing, stock
option (including, without limitation, the granting of stock options, stock
appreciation rights, performance awards or restricted stock awards), or other
employee benefit plan, or any other increase in the compensation payable or to
become payable to any executive officers of Pharmacia or any Pharmacia
Subsidiary except in the ordinary course of business consistent with past
practice or except as required by applicable law.
SECTION 5.09. Employee Benefit Plans; Labor Matters. (a) Pharmacia will
make available to Upjohn, promptly after the date hereof, a true and complete
copy of each employee benefit plan, program, arrangement and contract maintained
by Pharmacia or any Pharmacia Subsidiary for the benefit of any current or
former employee, officer or director of Pharmacia or any Pharmacia Subsidiary or
with respect to which Pharmacia or any Pharmacia Subsidiary could incur material
liability (the "Pharmacia Benefit Plans"), and each material document prepared
in connection with each Pharmacia Benefit Plan. With respect to each
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Pharmacia Benefit Plan maintained for the benefit of employees in the United
States, Pharmacia will make available to Upjohn, promptly after the date hereof,
a true and complete copy of the items listed in Section 4.09(a)(i), (ii), (iii),
(iv), (v) and (vi) hereof.
(b) With respect to the Pharmacia Benefit Plans, no event has occurred and,
to the knowledge of Pharmacia, there exists no condition or set of circumstances
in connection with which Pharmacia or any Pharmacia Subsidiary could be subject
to any liability under the terms of such Pharmacia Benefit Plans or any
applicable Law which would have a Pharmacia Material Adverse Effect.
(c) In addition to the foregoing, and except as would not have a Pharmacia
Material Adverse Effect, with respect to each Pharmacia Benefit Plan that is not
subject to United States Law (a "Foreign Benefit Plan"):
(i) all employer and employee contributions to each Foreign Benefit
Plan required by Law or by the terms of such Foreign Benefit Plan have been
made, or if applicable, accrued in accordance with normal accounting
practices and a pro rata contribution for the period from the date hereof
to and including the Effective Time has been made or accrued in accordance
with normal accounting principles;
(ii) the fair market value of the assets of each funded Foreign
Benefit Plan, the liability of each insurer for any Foreign Benefit Plan
funded through insurance or the book reserve established for any Foreign
Benefit Plan, together with any accrued contributions, is sufficient to
procure or provide for the accrued benefit obligations, as of the Effective
Time, with respect to all current and former participants in such plan
according to the actuarial assumptions and valuations most recently used to
determine employer contributions to such Foreign Benefit Plan and no
transaction contemplated by this Agreement shall cause such assets or
insurance obligations to be less than such benefit obligations; and
(iii) each Foreign Benefit Plan required to be registered has been
registered and has been maintained in good standing with applicable
regulatory authorities.
(d) Except as set forth in Section 5.09(d) of the Disclosure Schedule
delivered by Pharmacia to Upjohn prior to the execution of (and forming part of)
this Agreement (the "Pharmacia Disclosure Schedule"), and except for such
collective bargaining or other labor union contracts applicable to employees of
Pharmacia or any Pharmacia Subsidiary located outside of Sweden (copies of which
Pharmacia undertakes to provide to Upjohn as soon as practicable after the date
hereof), neither Pharmacia nor any Pharmacia Subsidiary is a party to any
collective bargaining or other labor union contract applicable to persons
employed by Pharmacia or any Pharmacia Subsidiary and no collective bargaining
agreement or other labor union contract is being negotiated by Pharmacia or any
Pharmacia Subsidiary. As of the date of this Agreement, there is no labor
dispute, strike or work stoppage against Pharmacia or any Pharmacia Subsidiary
pending or threatened in writing that may interfere with the respective business
activities of Pharmacia or any Pharmacia Subsidiary, except where such dispute,
strike or work stoppage would not have a Pharmacia Material Adverse Effect. As
of the date of this Agreement, to the knowledge of Pharmacia, none of Pharmacia,
any Pharmacia Subsidiary, or their respective representatives or employees, has
committed any unfair labor practices in connection with the operation of the
respective businesses of Pharmacia or any Pharmacia Subsidiary, and there is no
charge or complaint against Pharmacia or any Pharmacia Subsidiary by the
National Labor Relations Board or any comparable state or foreign agency pending
or threatened in writing, except where such unfair labor practice, charge or
complaint would not have a Pharmacia Material Adverse Effect.
(e) Pharmacia will make available to Upjohn, promptly after the date
hereof, true and complete (i) copies of all severance and employment agreements
with the twenty most highly compensated officers of Pharmacia and the Pharmacia
Subsidiaries (taken as a whole); (ii) copies of all severance programs and
policies of Pharmacia with or relating to its twenty most highly compensated
officers and (iii) copies of all plans, programs, agreements and other
arrangements of Pharmacia and the Pharmacia Subsidiaries (taken as a whole) with
or relating to their twenty most highly compensated officers which contain
change of control provisions.
(f) Except as otherwise required by Law, no Pharmacia Benefit Plan provides
retiree medical or retiree life insurance benefits to any person.
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SECTION 5.10. Accounting and Tax Matters. Neither Pharmacia nor, to the
knowledge of Pharmacia, any of its affiliates has taken or agreed to take any
action that would prevent the Merger and the Pharmacia Transaction from
qualifying for "pooling of interests" accounting treatment under applicable U.S.
and Swedish accounting rules including, without limitation, applicable SEC
accounting standards or would prevent the Merger from constituting a transaction
qualifying under Section 368(a) of the Code or (in conjunction with the
acquisition of Pharmacia Shares pursuant to the Exchange Offer) from
constituting a transaction qualifying under Section 351(a) of the Code, or would
prevent the Exchange Offer (in conjunction with the acquisition of Upjohn Shares
pursuant to the Merger) from constituting a transaction qualifying under Section
351(a) of the Code or a transaction in which, for Swedish income tax purposes,
neither Newco, Pharmacia nor the Pharmacia stockholders will recognize taxable
income or gain. Pharmacia is not aware of any agreement, plan or other
circumstance that would prevent the Merger or the Exchange Offer from so
qualifying under Section 368(a) or Section 351(a) of the Code or under
applicable Swedish tax Laws.
SECTION 5.11. Contracts; Debt Instruments. Except as disclosed in the
Pharmacia Reports or in Section 5.11 of the Pharmacia Disclosure Schedule, there
is no contract or agreement that is material to the business, financial
condition or results of operations of Pharmacia and the Pharmacia Subsidiaries
taken as a whole (each, a "Pharmacia Material Contract"). Neither Pharmacia nor
any Pharmacia Subsidiary is in violation of or in default under (nor does there
exist any condition which upon the passage of time or the giving of notice would
cause such a violation of or default under) any loan or credit agreement, note,
bond, mortgage, indenture or lease, or any other contract, agreement,
arrangement or understanding to which it is a party or by which it or any of its
properties or assets is bound, except for violations or defaults that would not,
individually or in the aggregate, result in a Pharmacia Material Adverse Effect.
Set forth in Section 5.11 of the Pharmacia Disclosure Schedule is a description
of any material changes to the amount and terms of the indebtedness of Pharmacia
and its subsidiaries as described in Pharmacia's Form 20-F for the year ended
December 31, 1994.
SECTION 5.12. Litigation. Except as disclosed in Pharmacia Reports or in
Section 5.12 of the Pharmacia Disclosure Schedule, there is no suit, claim,
action, proceeding or investigation pending or threatened in writing against
Pharmacia or any Pharmacia Subsidiary before any Governmental Entity which,
individually or in the aggregate, is reasonably likely to have a Pharmacia
Material Adverse Effect. Except as disclosed in the Pharmacia Reports or in
Section 5.12 of the Pharmacia Disclosure Schedule, in the case of any suit,
claim, action, proceeding or investigation relating to Pharmacia's operations
in, or present or former personnel in, Italy, there has been no change since
December 31, 1994 in the status of any such matters that would be reasonably
likely to have a Pharmacia Material Adverse Effect. Except as disclosed in the
Pharmacia Reports or in Section 5.12 of the Pharmacia Disclosure Schedule,
neither Pharmacia nor any Pharmacia Subsidiary is subject to any outstanding
Order, writ, injunction or decree which, insofar as can be reasonably foreseen,
individually or in the aggregate, would have a Pharmacia Material Adverse
Effect.
SECTION 5.13. Environmental Matters. Except as disclosed in the Pharmacia
Reports or as would not, individually or in the aggregate, have a Pharmacia
Material Adverse Effect:
(a) Pharmacia and the Pharmacia Subsidiaries (i) are in compliance
with all applicable Environmental Laws, (ii) hold all Environmental
Permits, and (iii) are in compliance with its Environmental Permits.
(b) None of Pharmacia or any Pharmacia Subsidiary has received any
written request for information, or been notified that it is a potentially
responsible party, under CERCLA or any similar state, local or foreign Law.
(c) None of Pharmacia or any Pharmacia Subsidiary has entered into or
agreed to any consent decree or order or is subject to any judgment, decree
or judicial order relating to compliance with Environmental Laws,
Environmental Permits or the investigation, sampling, monitoring,
treatment, remediation, removal or cleanup of Hazardous Materials, and to
the best knowledge of Pharmacia, no investigation, litigation or other
proceeding is pending or threatened in writing with respect thereto.
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(d) None of the real property owned or leased by Pharmacia or any
Pharmacia Subsidiary is listed or, to the best knowledge of Pharmacia,
proposed for listing on the "National Priorities List" under CERCLA, as
updated through the date hereof, or any similar state or foreign list of
sites requiring investigation or cleanup.
SECTION 5.14. Trademarks, Patents and Copyrights. Except as set forth in
Section 5.14 of the Pharmacia Disclosure Schedule, or to the extent the
inaccuracy of any of the following (or the conditions giving rise to such
inaccuracy), individually or in the aggregate, would not have a Pharmacia
Material Adverse Effect, Pharmacia and the Pharmacia Subsidiaries own or possess
adequate licenses or other legal rights to use all patents, patent rights,
trademarks, trademark rights, trade names, trade dress, trade name rights,
copyrights, servicemarks, trade secrets, applications for trademarks and for
servicemarks, mask works, know-how and other proprietary rights and information
used or held for use in connection with the business of Pharmacia and the
Pharmacia Subsidiaries as conducted since December 31, 1992, and as currently
conducted or as contemplated to be conducted, and Pharmacia is unaware of any
assertion or claim challenging the validity of any of the foregoing. The conduct
of the business of Pharmacia and the Pharmacia Subsidiaries as conducted since
December 31, 1992, as currently conducted and as contemplated to be conducted
did not, does not and will not infringe in any way any patent, patent right,
license, trademark, trademark right, trade dress, trade name, trade name right,
service mark, mask work or copyright of any third party that, individually or in
the aggregate, could have a Pharmacia Material Adverse Effect. To Pharmacia's
knowledge, there are no infringements of any proprietary rights owned by or
licensed by or to Pharmacia or any Pharmacia Subsidiary that, individually or in
the aggregate, could have a Pharmacia Material Adverse Effect.
SECTION 5.15. Taxes. Except for such matters that would not have a
Pharmacia Material Adverse Effect, (a) Pharmacia and its subsidiaries have
timely filed or will timely file all returns and reports required to be filed by
them with any taxing authority with respect to Taxes for any period ending on or
before the Effective Time, taking into account any extension of time to file
granted to or obtained on behalf of Pharmacia and its subsidiaries, (b) all
Taxes shown to be payable on such returns or reports that are due prior to the
Effective Time have been paid or will be paid, (c) as of the date hereof, no
deficiency for any material amount of Tax has been asserted or assessed by a
taxing authority against Pharmacia or its subsidiaries, and (d) Pharmacia and
its subsidiaries have provided adequate reserves in their financial statements
for any Taxes that have not been paid, whether or not shown as being due on any
returns.
SECTION 5.16. Opinion of Financial Advisor. Morgan Stanley & Co. Limited
("Morgan Stanley") has delivered to Pharmacia its written opinion to the effect
that, as of the date of this Agreement, the Exchange Offer Ratio is fair to
Pharmacia's stockholders from a financial point of view. Morgan Stanley has
authorized the inclusion of its opinion in the Disclosure Documents, and
Pharmacia will promptly, after the date of this Agreement, deliver a signed copy
of such opinion to Upjohn.
SECTION 5.17. Brokers. No broker, finder or investment banker (other than
Morgan Stanley and Enskilda, Skandinaviska Enskilda Banken ("Enskilda")) is
entitled to any brokerage, finder's or other fee or commission in connection
with the Transactions based upon arrangements made by or on behalf of Pharmacia.
Pharmacia has heretofore made available to Upjohn a complete and correct copy of
all agreements between Pharmacia and Morgan Stanley and between Pharmacia and
Enskilda pursuant to which such firms would be entitled to any payment relating
to the Transactions.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF NEWCO AND NEWCO SUB
Newco and Newco Sub hereby jointly and severally represent and warrant to
Pharmacia and Upjohn that:
SECTION 6.01. Organization and Qualification; Subsidiaries. Each of Newco
and Newco Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has the requisite power and
authority and all necessary governmental approvals to own, lease and operate its
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properties and to carry on its business as it is now being conducted. Each of
Newco and Newco Sub is duly qualified or licensed to do business, and is in good
standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary. Neither Newco nor Newco Sub has any subsidiaries other
than, in the case of Newco, Newco Sub.
SECTION 6.02. Certificate of Incorporation and By-Laws. Each of Newco and
Newco Sub has heretofore made available to each of Pharmacia and Upjohn a
complete and correct copy of its Certificate of Incorporation and By-Laws. Such
Certificates of Incorporation and By-Laws are in full force and effect. Neither
Newco nor Newco Sub is in violation of any of the provisions of its Certificate
of Incorporation or By-Laws.
SECTION 6.03. Capitalization. (a) As of the date of this Agreement, (i)
the authorized capital stock of Newco consists of 1,000 shares of Newco Common
Stock, (ii) 1,000 shares of Newco Common Stock are issued and outstanding, all
of which are validly issued, fully paid and nonassessable, and (iii) Pharmacia
and Upjohn each own 500 shares of Newco Common Stock free and clear of all
encumbrances of any kind. No shares of Newco capital stock are held in the
treasury of Newco. On or prior to the Effective Time, the Certificate of
Incorporation of Newco will be amended to provide that the authorized capital
stock of Newco will consist of (i) 1,500,000,000 shares of Newco Common Stock
and (ii) 100,000,000 shares of preferred stock, of which 7,500 shares will be
designated Newco Series A Convertible Perpetual Preferred Stock. As of the
Registration Statement Effective Date, 1,000 shares of Newco Common Stock will
be issued and outstanding, all of which will be validly issued, fully paid and
nonassessable, and no shares of Newco Series A Convertible Perpetual Preferred
Stock will be issued or outstanding. Except as provided in this Agreement, there
are no options, warrants or other rights, agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock of
either of Newco or obligating Newco to issue or sell any shares of capital stock
of, or other equity interests in, Newco. Each share of Newco capital stock is
duly authorized, validly issued, fully paid and nonassessable. The Newco Shares
to be issued in connection with the Transactions, when issued as contemplated
herein, will be duly authorized, validly issued, fully paid and nonassessable
and will not be issued in violation of any preemptive rights. The SDSs to be
issued in connection with the Pharmacia Transaction, when issued as contemplated
herein, will be validly issued. The depositary agreement under which the SDSs
will be issued, when the SDSs are issued as contemplated herein, will have been
duly authorized, executed and delivered by Newco and will constitute a legal,
valid and binding obligation of Newco enforceable against Newco in accordance
with its terms.
(b) The authorized capital stock of Newco Sub consists of 1,000 shares of
common stock, par value $.01 per share, of Newco Sub (the "Newco Sub Common
Stock"). As of the date of this Agreement, 1,000 shares of Newco Sub Common
Stock are issued and outstanding, all of which are validly issued, fully paid
and nonassessable. Each issued and outstanding share of Newco Sub Common Stock
is owned by Newco, free and clear of all encumbrances of any kind. No shares of
Newco Sub Common Stock are held in the treasury of Newco Sub. There are no
options, warrants or other rights, agreements, arrangements or commitments of
any character relating to the issued or unissued capital stock of Newco Sub or
obligating either of them to issue or sell any shares of capital stock of, or
other equity interests in, Newco Sub. As of the Effective Time, all of the
outstanding shares of capital stock of the Surviving Corporation will be duly
authorized, validly issued, fully paid and nonassessable and will be owned by
Newco, free and clear of all encumbrances of any kind.
SECTION 6.04. Authority Relative to This Agreement. Each of Newco and
Newco Sub has all necessary corporate power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and to consummate the
transactions (including, without limitation, the Transactions) contemplated
herein to be consummated by it. The execution and delivery of this Agreement by
each of Newco and Newco Sub and the consummation by each of Newco and Newco Sub
of such transactions have been duly and validly authorized by all necessary
corporate action (including, in the case of Newco Sub, the approval of Newco as
sole stockholder of Newco Sub) and no other corporate proceedings on the part of
either Newco or Newco Sub are necessary to authorize this Agreement or to
consummate such Transactions. This Agreement has been duly authorized and
validly executed and delivered by each of Newco and Newco Sub and constitutes a
legal, valid and binding obligation of each of Newco and Newco Sub, enforceable
against each of Newco and Newco Sub in accordance with its terms.
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SECTION 6.05. No Conflict. The execution and delivery of this Agreement
by each of Newco and Newco Sub do not, and the performance of this Agreement by
each of Newco and Newco Sub will not, conflict with or violate any provision of
the Newco or Newco Sub Certificate of Incorporation or By-laws.
SECTION 6.06. No Activities. Except for obligations or liabilities
incurred in connection with its respective incorporation or organization and the
Transactions, neither Newco nor Newco Sub has incurred, directly or indirectly,
through any subsidiary or affiliate, any obligations or liabilities or engaged
in any business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any person.
ARTICLE VII
COVENANTS
SECTION 7.01. Conduct of Business by Upjohn Pending the Closing. Upjohn
agrees that, between the date of this Agreement and the Effective Time, except
as set forth in Section 7.01 of the Upjohn Disclosure Schedule or as
contemplated by any other provision of this Agreement, unless Pharmacia shall
otherwise agree in writing, which agreement shall not be unreasonably withheld
or delayed, (1) the businesses of Upjohn and the Upjohn Subsidiaries shall be
conducted only in, and Upjohn and the Upjohn Subsidiaries shall not take any
action except in, the ordinary course of business consistent with past practice
and (2) Upjohn shall use its reasonable best efforts to keep available the
services of such of the current officers, significant employees and consultants
of Upjohn and the Upjohn Subsidiaries and to preserve the current relationships
of Upjohn and the Upjohn Subsidiaries with such of the customers, suppliers and
other persons with which Upjohn or any Upjohn Subsidiary has significant
business relations as Upjohn deems reasonably necessary in order to preserve
substantially intact its business organization. By way of amplification and not
limitation, except as set forth in Section 7.01 of the Upjohn Disclosure
Schedule or as contemplated by any other provision of this Agreement, the Board
of Directors of Upjohn shall not (unless required by applicable Laws or stock
exchange regulations) cause or permit Upjohn or any Upjohn Subsidiary to, and
shall neither cause nor permit any of Upjohn's affiliates (over which it
exercises control), or any of their officers, directors, employees and agents
to, between the date of this Agreement and the Effective Time, directly or
indirectly, do, or agree to do, any of the following, without the prior written
consent of Pharmacia, which consent shall not be unreasonably withheld or
delayed:
(a) amend or otherwise change its Restated Certificate of
Incorporation or By-laws or equivalent organizational documents;
(b) issue, sell, pledge, dispose of, grant, transfer, lease, license,
guarantee, encumber, or authorize the issuance, sale, pledge, disposition,
grant, transfer, lease, license, guarantee or encumbrance of, (i) any
shares of capital stock of Upjohn or any Upjohn Subsidiary of any class, or
securities convertible or exchangeable or exercisable for any shares of
such capital stock, or any options, warrants or other rights of any kind to
acquire any shares of such capital stock, or any other ownership interest
(including, without limitation, any phantom interest), of Upjohn or any
Upjohn Subsidiary (except for the issuance of (A) a maximum of 10,867,250
shares of Upjohn Common Stock issuable pursuant to the Upjohn Options
outstanding on the date of this Agreement and the issuance, in the ordinary
course of business and consistent with past practice, of the Upjohn Options
to purchase a maximum of 1,771,299 shares of Upjohn Common Stock pursuant
to the Upjohn Stock Option Plans in effect on the date of this Agreement
and the shares of Upjohn Common Stock issuable pursuant to such Upjohn
Options, in accordance with the terms of the Upjohn Stock Option Plan; (B)
a maximum of 650,000 shares of Upjohn Series A Preferred Stock pursuant to
the Rights Agreement; (C) a maximum of 7,322,020 shares of Upjohn Common
Stock issuable upon conversion of the Upjohn Series A Preferred Stock or
the Upjohn Series B Preferred Stock; (D) subject to Section 7.01(f), any
securities required by virtue of (x) the Upjohn Incentive Programs and (y)
the Upjohn Deferred Compensation Plan for Directors; and (E) a maximum of
6,653,523 rights to purchase shares of Upjohn Series A Preferred Stock
issuable in connection with issuances of Upjohn Common Stock made in
accordance with this Section 7.01(b)); or
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(ii) any property or assets of Upjohn or any Upjohn Subsidiary, except in
the ordinary course of business and in a manner consistent with past
practice;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock, other than (i) any regular quarterly dividend
declared and paid in accordance with past practice and not in excess of
$.37 per share of Upjohn Common Stock for any fiscal quarter ending prior
to September 30, 1995, (ii) a quarterly dividend not in excess of $.39 per
share of Upjohn Common Stock for the fiscal quarter ending December 31,
1995 and any subsequent quarter and (iii) regular quarterly cash dividends
not in excess of $629.69 per share of Upjohn Series B Preferred Stock;
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any interest in any
corporation, partnership, other business organization, person or any
division thereof or any assets, other than acquisitions of assets in the
ordinary course of business consistent with past practice and any other
acquisitions for consideration that are not, in the aggregate, in excess of
$250,000,000; (ii) incur any indebtedness for borrowed money or issue any
debt securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any person for
borrowed money, except for indebtedness for borrowed money incurred in the
ordinary course of business and consistent with past practice or incurred
to refinance outstanding indebtedness for borrowed money existing on the
date of this Agreement or other indebtedness for borrowed money with a
maturity of not more than one year in a principal amount not, in the
aggregate, in excess of $200,000,000; (iii) terminate, cancel or request
any material change in, or agree to any material change in any Upjohn
Material Contract or enter into any contract or agreement material to the
business, results of operations or financial condition of Upjohn and the
Upjohn Subsidiaries taken as a whole, in either case other than in the
ordinary course of business, consistent with past practice; (iv) make or
authorize any capital expenditure, other than capital expenditures that are
not, in the aggregate, in excess of $350,000,000 for Upjohn and the Upjohn
Subsidiaries taken as a whole; or (v) enter into or amend any contract,
agreement, commitment or arrangement that, if fully performed, would not be
permitted under this Section 7.01(e);
(f) increase the compensation payable or to become payable to its
officers or employees, except for increases in accordance with past
practices in salaries or wages of employees of Upjohn or any Upjohn
Subsidiary who are not officers of Upjohn, or grant any rights to severance
or termination pay to, or enter into any employment or severance agreement
with, any director, officer or other employee of Upjohn or any Upjohn
Subsidiary, or establish, adopt, enter into or amend any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any director, officer or employee, except as
contemplated by this Agreement or to the extent required by applicable Law
or the terms of a collective bargaining agreement;
(g) take any action with respect to accounting policies or procedures,
other than actions in the ordinary course of business and consistent with
past practice;
(h) waive, release, assign, settle or compromise any material claims
or litigation;
(i) make any tax election or settle or compromise any material
federal, state, local or foreign income tax liability; or
(j) authorize or enter into any formal or informal agreement or
otherwise make any commitment to do any of the foregoing.
SECTION 7.02. Conduct of Business by Pharmacia Pending the
Closing. Pharmacia agrees that, between the date of this Agreement and the
Effective Time, except as set forth in Section 7.02 of the Pharmacia Disclosure
Schedule or as contemplated by any other provision of this Agreement, unless
Upjohn
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shall otherwise agree in writing, which agreement shall not be unreasonably
withheld or delayed, (1) the business of Pharmacia and the Pharmacia
Subsidiaries shall be conducted only in, and the Pharmacia and the Pharmacia
Subsidiaries shall not take any action except in, the ordinary course of
business consistent with past practice and (2) Pharmacia shall use its
reasonable best efforts to keep available the services of such of the current
officers, significant employees and consultants of Pharmacia and the Pharmacia
Subsidiaries and to preserve the current relationships of Pharmacia and the
Pharmacia Subsidiaries with such of the customers, suppliers and other persons
with which Pharmacia or any Pharmacia Subsidiary has significant business
relations as Pharmacia deems reasonably necessary in order to preserve
substantially intact its business organization. By way of amplification and not
limitation, except as set forth in Section 7.02 of the Pharmacia Disclosure
Schedule or as contemplated by any other provision of this Agreement, the Board
of Directors of Pharmacia shall not (unless required by applicable Laws or stock
exchange regulations) cause or permit Pharmacia or any Pharmacia Subsidiary to,
and shall neither cause nor permit any of Pharmacia's affiliates (over which it
exercises control), or any of their officers, directors, employees and agents
to, between the date of this Agreement and the Effective Time, directly or
indirectly, do, or agree to do, any of the following without the prior written
consent of Upjohn, which consent shall not be unreasonably withheld or delayed:
(a) amend or otherwise change its Articles of Association or
equivalent organizational documents;
(b) issue, sell, pledge, dispose of, grant, transfer, lease, license,
guarantee, encumber, or authorize the issuance, sale, pledge, disposition,
grant, transfer, lease, license, guarantee or encumbrance of, (i) any
shares of capital stock of Pharmacia or any Pharmacia Subsidiary of any
class, or securities convertible or exchangeable or exercisable for any
shares of such capital stock, or any options, warrants or other rights of
any kind to acquire any shares of such capital stock, or any other
ownership interest (including, without limitation, any phantom interest),
of Pharmacia or any Pharmacia Subsidiary or (ii) any property or assets of
Pharmacia or any Pharmacia Subsidiary, except in the ordinary course of
business and in a manner consistent with past practice;
(c) recommend to its stockholders that the stockholders declare, set
aside, make or pay any dividend or other distribution, payable in cash,
stock, property or otherwise, with respect to any of its capital stock,
other than any regular dividends declared and paid in accordance with past
practice and not in excess of SEK 2.60 per Pharmacia Share;
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any interest in any
corporation, partnership, other business organization, person or any
division thereof or any assets, other than acquisitions of assets in the
ordinary course of business consistent with past practice and any other
acquisitions for consideration that are not, in the aggregate, in excess of
$250,000,000; (ii) incur any indebtedness for borrowed money or issue any
debt securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any person for
borrowed money, except for indebtedness for borrowed money incurred in the
ordinary course of business and consistent with past practice or incurred
to refinance outstanding indebtedness for borrowed money existing on the
date of this Agreement or other indebtedness for borrowed money with a
maturity of not more than one year in a principal amount not, in the
aggregate, in excess of $200,000,000; (iii) terminate, cancel or request
any material change in, or agree to any material change in any Pharmacia
Material Contract or enter into any contract or agreement material to the
business, results of operations or financial condition of Pharmacia and the
Pharmacia Subsidiaries taken as a whole, in either case other than in the
ordinary course of business, consistent with past practice; (iv) make or
authorize any capital expenditure, other than capital expenditures that are
not, in the aggregate, in excess of $350,000,000 for Pharmacia and the
Pharmacia Subsidiaries taken as a whole; or (v) enter into or amend any
contract, agreement, commitment or arrangement that, if fully performed,
would not be permitted under this Section 7.02(e);
(f) increase the compensation payable or to become payable to its
officers or employees, except for increases in accordance with past
practices in salaries or wages of employees of Pharmacia or any
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Pharmacia Subsidiary who are not officers of Pharmacia, or grant any rights
to severance or termination pay to, or enter into any employment or
severance agreement with, any director, officer or other employee of
Pharmacia or any Pharmacia Subsidiary, or establish, adopt, enter into or
amend any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any director, officer
or employee, except to the extent required by applicable Law or the terms
of a collective bargaining agreement;
(g) take any action with respect to accounting policies or procedures,
other than actions in the ordinary course of business and consistent with
past practice;
(h) waive, release, assign, settle or compromise any material claims
or litigation;
(i) make any tax election or settle or compromise any material
federal, state, local or foreign income tax liability; or
(j) authorize or enter into any formal or informal agreement or
otherwise make any commitment to do any of the foregoing.
SECTION 7.03. Cooperation; Steering Committee. (a) Pharmacia and Upjohn
shall coordinate and cooperate in connection with (i) the preparation of the
Registration Statement and the Disclosure Documents, (ii) determining whether
any action by or in respect of, or filing with, any Governmental Entity is
required, or any actions, consents, approvals or waivers are required to be
obtained from parties to any Upjohn Material Contracts or Pharmacia Material
Contracts, in connection with the consummation of the Transactions and (iii)
seeking any such actions, consents, approvals or waivers or making any such
filings, furnishing information required in connection therewith or with the
Registration Statement and the Disclosure Documents and timely seeking to obtain
any such actions, consents, approvals or waivers.
(b) Upon the execution and delivery of this Agreement, Pharmacia and Upjohn
will establish a committee (the "Steering Committee") for the purpose of, to the
extent permitted by applicable Laws, facilitating the efficient combination of
the respective businesses of Pharmacia and Upjohn as promptly as practicable
following the Effective Time. The Steering Committee will consist of four
members, two of whom will be designated by Pharmacia (and will initially be Jan
Ekberg and Goran Ando), and two of whom will be designated by Upjohn (and will
initially be John L. Zabriskie and Robert C. Salisbury). The Steering Committee
will be dissolved as of the Effective Time.
SECTION 7.04. Notices of Certain Events. Each of Pharmacia and Upjohn
shall give prompt notice to the other of (i) any notice or other communication
from any person alleging that the consent of such person is or may be required
in connection with the Transactions, (ii) any notice or other communication from
any Governmental Entity in connection with the Transactions, (iii) any actions,
suits, claims, investigations or proceedings commenced or, to the best of its
knowledge threatened in writing against, relating to or involving or otherwise
affecting Pharmacia, Upjohn or their subsidiaries that relate to the
consummation of the Transactions, (iv) the occurrence of a default or event
that, with notice or lapse of time or both, will become a default under any
Upjohn Material Contract or Pharmacia Material Contract, and (v) any change that
is reasonably likely to result in an Upjohn Material Adverse Effect or a
Pharmacia Material Adverse Effect or is likely to delay or impede the ability of
either Upjohn or Pharmacia to consummate the transactions contemplated by this
Agreement or to fulfill its obligations set forth herein.
SECTION 7.05. Contractual Consents. Prior to or at the Effective Time,
each of Pharmacia and Upjohn shall use its reasonable best efforts to prevent
the occurrence, as a result of the Transactions, of a change of control or any
event which constitutes a default (or an event which with notice or lapse of
time or both would become a default) under any material contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which it
or any of its subsidiaries is a party.
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ARTICLE VIII
ADDITIONAL AGREEMENTS
SECTION 8.01. Registration Statement; Disclosure Documents. (a) As
promptly as practicable after the execution of this Agreement, Pharmacia and
Upjohn shall jointly prepare and Newco shall file with the SEC a single document
that will constitute (i) the proxy statement of Upjohn relating to the special
meeting of Upjohn's stockholders (the "Upjohn Stockholders' Meeting") to be held
to consider adoption of this Agreement, (ii) the prospectus forming part of the
registration statement on Form S-4 of Newco (together with all amendments
thereto, the "Registration Statement"), in connection with the registration
under the Securities Act of the Newco Common Stock to be issued to the
stockholders of Pharmacia and Upjohn pursuant to the Exchange Offer in the
United States and the Merger, respectively, and (iii) the offer to purchase to
be used by Newco in connection with the Exchange Offer in the United States
(such document, together with any amendments thereof or supplements thereto, the
"Proxy Statement"). Substantially contemporaneously with the filing of the Proxy
Statement with the SEC, copies thereof shall be provided to the National
Association of Securities Dealers ("NASD"), the NYSE and the SSE. Pharmacia,
Upjohn and Newco each shall use its reasonable best efforts to cause the
Registration Statement to become effective as promptly as practicable, and,
prior to the effective date of the Registration Statement (the "Registration
Statement Effective Date"), Newco shall take all or any action required under
any applicable Laws in connection with the issuance of Newco Common Stock and
SDSs pursuant to the Merger and the Exchange Offer. Pharmacia or Upjohn, as the
case may be, shall furnish all information concerning Pharmacia or Upjohn as the
other party may reasonably request in connection with such actions and the
preparation of the Registration Statement and Disclosure Documents. As promptly
as practicable after the Registration Statement Effective Date, the Proxy
Statement will be mailed to the stockholders of Pharmacia and Upjohn, and, in
the case of Pharmacia, Swedish language translations or summaries thereof, as
may be necessary or appropriate, will be provided to its Swedish stockholders.
Pharmacia, Upjohn and Newco shall cause the Disclosure Documents to comply as to
form and substance in all material respects with the applicable requirements of
(i) the Exchange Act, including, without limitation, Sections 14(a) and 14(d)
thereof and the respective regulations promulgated thereunder, (ii) the NASD,
the NYSE, the SSE and the FSA, (iii) the Securities Act, (iv) the NBK
Recommendations Concerning Public Offers for the Acquisition of Shares (1988)
and (v) the DGCL.
(b) (i) The Disclosure Documents shall include the unanimous and
unconditional recommendation of the Board of Directors of Upjohn to the
stockholders of Upjohn that they vote in favor of adoption of this Agreement;
provided, however, that the Board of Directors of Upjohn may, at any time prior
to the Effective Time, withdraw, modify or change any such recommendation if the
Board of Directors of Upjohn determines in good faith that failure to so
withdraw, modify or change its recommendation would cause the Board of Directors
of Upjohn to breach its fiduciary duties to Upjohn's stockholders under
applicable Laws after receipt of advice to such effect from independent legal
counsel (who may be Upjohn's regularly engaged independent legal counsel). In
addition, the Disclosure Documents will include the opinion of Goldman Sachs
referred to in Section 4.17.
(ii) The Disclosure Documents shall include the unanimous and unconditional
recommendation of the Board of Directors of Pharmacia to the stockholders of
Pharmacia that they accept the Exchange Offer; provided, however, that the Board
of Directors of Pharmacia may, at any time prior to the Effective Time,
withdraw, modify or change any such recommendation if the Board of Directors of
Pharmacia determines in good faith that failure to so withdraw, modify or change
its recommendation would cause the Board of Directors of Pharmacia to breach its
fiduciary duties to Pharmacia or Pharmacia's stockholders under applicable Laws
after receipt of advice to such effect from independent legal counsel (who may
be Pharmacia's regularly engaged independent legal counsel). In addition, the
Disclosure Documents will include the opinion of Morgan Stanley referred to in
Section 5.16.
(c) No amendment or supplement to the Disclosure Documents or the
Registration Statement will be made without the approval of Pharmacia and
Upjohn, which approval shall not be unreasonably withheld or delayed. Each of
Newco, Pharmacia and Upjohn will advise the others, promptly after it receives
notice
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thereof, of the time when the Registration Statement has become effective or any
supplement or amendment has been filed, of the issuance of any stop order, of
the suspension of the qualification of Newco Common Stock or the SDSs issuable
in connection with the Merger and the Exchange Offer for offering or sale in any
jurisdiction, or of any request by the SEC, the NASD, the NYSE, the SSE or the
FSA for amendment of the Disclosure Documents or the Registration Statement or
comments thereon and responses thereto or requests by the SEC, the SSE or the
FSA for additional information.
(d) The information supplied by Pharmacia for inclusion in the Registration
Statement and the Disclosure Documents shall not, at (i) the time the
Registration Statement is declared effective, (ii) the time the Proxy Statement
(or any amendment thereof or supplement thereto) is first mailed to the
stockholders of Pharmacia and Upjohn, (iii) the time of the Upjohn Stockholders'
Meeting, (iv) the Effective Time and (v) the Expiration Date, contain any untrue
statement of a material fact or fail to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. If at any time prior to the Effective Time, any event or
circumstance relating to Pharmacia or any Pharmacia Subsidiary, or their
respective officers or directors, should be discovered by Pharmacia that should
be set forth in an amendment or a supplement to the Registration Statement or
Disclosure Documents, Pharmacia shall promptly inform Upjohn. All documents that
Pharmacia is responsible for filing in connection with the Transactions will
comply as to form and substance in all material aspects with the applicable
requirements of the SSE or the FSA, the DGCL, the Securities Act and the
Exchange Act.
(e) The information supplied by Upjohn for inclusion in the Registration
Statement and the Disclosure Documents shall not, at (i) the time the
Registration Statement is declared effective, (ii) the time the Proxy Statement
(or any amendment thereof or supplement thereto) is first mailed to the
stockholders of Upjohn and Pharmacia, (iii) the time of the Upjohn Shareholder
Meeting, (iv) the Effective Time, and (v) the Expiration Date, contain any
untrue statement of a material fact or fail to state any material fact required
to be stated therein or necessary in order to make the statements therein not
misleading. If at any time prior to the Effective Time any event or circumstance
relating to Upjohn or any Upjohn Subsidiary, or their respective officers or
directors, should be discovered by Upjohn that should be set forth in an
amendment or a supplement to the Registration Statement or Disclosure Documents,
Upjohn shall promptly inform Pharmacia. All documents that Upjohn is responsible
for filing with the SEC in connection with the Transactions will comply as to
form and substance in all material respects with the applicable requirements of
the DGCL, the Securities Act and the Exchange Act.
SECTION 8.02. Stockholders' Meeting. Upjohn shall call and hold the
Upjohn Stockholders' Meeting as promptly as practicable after the Registration
Statement Effective Date for the purpose of voting upon the adoption of this
Agreement and Pharmacia, Upjohn and Newco will cooperate with each other to
cause the Upjohn Stockholders' Meeting to be held on or proximate to the
Expiration Date of the Exchange Offer. Upjohn shall use its reasonable best
efforts (through its agents or otherwise) to solicit from its stockholders
proxies in favor of the adoption of this Agreement, and shall take all other
action necessary or advisable to secure the affirmative vote of its stockholders
required by the DGCL to secure such adoption, except to the extent that the
Board of Directors of Upjohn determines in good faith that doing so would cause
the Board of Directors of Upjohn to breach its fiduciary duties to Upjohn's
stockholders under applicable Laws after receipt of advice to such effect from
independent legal counsel (who may be Upjohn's regularly engaged independent
legal counsel).
SECTION 8.03. Access to Information; Confidentiality. (a) Except as
required pursuant to any confidentiality agreement or similar agreement or
arrangement to which Pharmacia or Upjohn or any of their respective subsidiaries
is a party or pursuant to applicable Law or the regulations or requirements of
any stock exchange or other regulatory organization with whose rules the parties
are required to comply, from the date of this Agreement to the Effective Time,
Pharmacia and Upjohn shall (and shall cause their respective subsidiaries to):
(i) provide to the other (and its officers, directors, employees, accountants,
consultants, legal counsel, agents and other representatives, collectively,
"Representatives") access at reasonable times upon prior notice to the officers,
employees, agents, properties, offices and other facilities of the other and its
subsidiaries and to the books and records thereof and (ii) furnish promptly such
information concerning the business, properties, contracts, assets, liabilities,
personnel and other aspects of the other party and its
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subsidiaries as the other party or its Representatives may reasonably request.
No investigation conducted pursuant to this Section 8.03 shall affect or be
deemed to modify any representation or warranty made in this Agreement.
(b) The parties shall comply with, and shall cause their respective
Representatives to comply with, all of their respective obligations under the
Confidentiality Agreement dated May 4, 1995 (the "Confidentiality Agreement")
between Pharmacia and Upjohn with respect to the information disclosed pursuant
to this Section 8.03.
SECTION 8.04. No Solicitation of Transactions. (a) Each party to this
Agreement will not, directly or indirectly, and will instruct its officers,
directors, employees, subsidiaries, agents or advisors or other representatives
(including, without limitation, any investment banker, attorney or accountant
retained by it), not to, directly or indirectly, solicit, initiate or knowingly
encourage (including by way of furnishing nonpublic information), or take any
other action knowingly to facilitate, any inquiries or the making of any
proposal or offer (including, without limitation, any proposal or offer to its
stockholders) that constitutes, or may reasonably be expected to lead to, any
Competing Transaction, or enter into or maintain or continue discussions or
negotiate with any person or entity in furtherance of such inquiries or to
obtain a Competing Transaction, or agree to or endorse any Competing
Transaction, or authorize or permit any of the officers, directors or employees
of such party or any of its subsidiaries, or any investment banker, financial
advisor, attorney, accountant or other representative retained by such party or
any of such party's subsidiaries, to take any such action. Each party to this
Agreement shall notify the other parties promptly if any proposal or offer, or
any inquiry or contact with any person with respect thereto, regarding a
Competing Transaction is made. Each party to this Agreement immediately shall
cease and cause to be terminated all existing discussions or negotiations with
any parties conducted heretofore with respect to a Competing Transaction and
promptly request that all confidential information furnished on behalf of such
party be returned. Each party to this Agreement agrees not to release any third
party from, or waive any provision of, any confidentiality or standstill
agreement to which it is a party.
(b) Notwithstanding anything to the contrary in Section 8.04(a), the Board
of Directors of each party to this Agreement may cause such party to furnish
information to, and may participate in discussions or negotiations with, any
person that, unsolicited by such party, has submitted a written proposal to such
Board of Directors relating to a Competing Transaction, in each case to the
extent that the Board of Directors of such party determines in good faith that
the failure to do so would cause the Board of Directors of such party to breach
its fiduciary duties to such party or its stockholders under applicable Laws
after receipt of advice to such effect from independent legal counsel (who may
be such party's regularly engaged independent legal counsel) and,
notwithstanding anything to the contrary contained in this Agreement, any such
furnishing of information and participation in discussions or negotiations shall
not constitute a breach of this Agreement by such party; provided, however, that
any party furnishing such information, or participating in such discussions or
negotiations shall notify the other promptly of such action and shall, in any
such notice, indicate the identity of the person making the written proposal
referred to in this Section 8.04(b) and, in reasonable detail, the terms and
conditions of such written proposal.
(c) Notwithstanding anything to the contrary in Section 8.04(a), the
provisions of Section 8.04(a) shall apply to directors of Pharmacia and Upjohn
solely in their capacity as directors of Pharmacia and Upjohn, respectively, and
no actions taken by such directors in their capacity as officers or directors of
any other person shall be deemed to be a violation of Section 8.04(a).
(d) A "Competing Transaction" means any of the following involving
Pharmacia or Upjohn, as the case may be (other than the Transactions
contemplated by this Agreement): (i) a merger, consolidation, share exchange,
business combination or other similar transaction; (ii) any sale, lease,
exchange transfer or other disposition of 25% or more of the assets of such
party and its subsidiaries, taken as a whole or (iii) a tender offer or exchange
offer for, or any other acquisition of, 10% or more of the outstanding voting
securities of such party.
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SECTION 8.05. Employee Benefits Matters. (a) Annex A hereto sets forth
certain agreements among the parties hereto with respect to employee benefits
matters and is incorporated herein by this reference.
(b) Prior to the Effective Time, Upjohn shall amend the Upjohn Employee
Savings Plan/Employee Stock Ownership Plan (the "Upjohn Plan") to provide that
the execution of this Agreement and the consummation of the Transactions will
not constitute a "change of control" (as defined in Section 16 of such Upjohn
Plan) resulting in automatic vesting under the Upjohn Plan.
SECTION 8.06. Directors' and Officers' Indemnification and
Insurance. (a) The Certificate of Incorporation and By-Laws of the Surviving
Corporation shall contain the provisions that are set forth, as of the date of
this Agreement, in the Restated Certificate of Incorporation and the By-Laws,
respectively, of Upjohn, which provisions shall not be amended, repealed or
otherwise modified for a period of six years from the Effective Time in any
manner that would affect adversely the rights thereunder of individuals who at
or at any time prior to the Effective Time were directors, officers, employees,
fiduciaries or agents of Upjohn.
(b) For a period of six years after the Effective Time, Newco shall cause
to be maintained in effect the current directors' and officers' liability
insurance policies maintained by Upjohn and Pharmacia (provided that Newco may,
and in the event of the cancellation or termination of such policies, Newco
shall substitute therefor policies reasonably satisfactory to the indemnified
parties of at least the same coverage containing terms and conditions which are
no less advantageous) with respect to claims arising from facts or events that
occurred prior to the Effective Time.
(c) This Section 8.06 is intended to be for the benefit of, and shall be
enforceable by, the indemnified parties, their heirs and personal
representatives and shall be binding on Newco and the Surviving Corporation and
their respective successors and assigns.
(d) From and after the Effective Time, Newco agrees that it shall indemnify
and hold harmless each present and former director and officer of Upjohn or
Pharmacia, determined as of the Effective Time (the "Indemnified Parties"),
against any costs or expenses (including reasonable attorneys' fees), judgments,
fines, losses, claims, damages or liabilities (collectively, "Costs") incurred
in connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of or pertaining
to matters existing or occurring at or prior to the Effective Time, whether
asserted or claimed prior to, at or after the Effective Time, to the fullest
extent that Upjohn or Pharmacia would have been permitted under Delaware or
Swedish law, as the case may be, and their charter documents (each as in effect
on the date hereof) to indemnify such Indemnified Parties (and Newco shall also
advance expenses as incurred to the fullest extent permitted under applicable
Law; provided that the Indemnified Party to whom expenses are advanced provides
an undertaking to repay such advances if it is ultimately determined that such
Indemnified Party is not entitled to indemnification); and provided, further,
that any determination required to be made with respect to whether an officer's
or director's conduct complies with the standards set forth under Delaware or
Swedish law and Upjohn or Pharmacia's charter documents shall be made by
independent counsel selected by Newco.
(e) To the extent paragraph (d) shall not serve to indemnify and hold
harmless an Indemnified Party, for a period of six years after the date hereof,
Newco shall, subject to the terms set forth herein, indemnify and hold harmless,
to the fullest extent permitted under applicable Law (and Newco shall also
advance expenses as incurred to the fullest extent permitted under applicable
Law; provided that the Indemnified Party to whom expenses are advanced provides
an undertaking to repay such advances if it is ultimately determined that such
Indemnified Party is not entitled to indemnification), each Indemnified Party
against any Costs incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to the transactions contemplated by
this Agreement; provided, however, that Newco shall not be required to indemnify
any Indemnified Party pursuant hereto if it shall be determined that the
Indemnified Party acted in bad faith and not in a manner such Indemnified Party
believed to be in or not opposed to the best interests of Upjohn or Pharmacia,
as the case may be.
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(f) Any Indemnified Party wishing to claim indemnification under paragraphs
(d) or (e) of this Section 8.06, upon learning of any such claim, action, suit,
proceeding or investigation, shall promptly notify Newco thereof, but the
failure to so notify shall not relieve Newco of any liability it may have to
such Indemnified Party if such failure does not materially prejudice Newco. In
the event of any such claim, action, suit, proceeding or investigation (whether
arising before or after the Effective Time), (i) Newco shall have the right to
assume the defense thereof and Newco shall not be liable to such Indemnified
Parties for any legal expenses of other counsel or any other expenses
subsequently incurred by such Indemnified Parties in connection with the defense
thereof, except that if Newco elects not to assume such defense or counsel for
the Indemnified Parties advises that there are issues which raise conflicts of
interest between Newco and the Indemnified Parties, the Indemnified Parties may
retain counsel satisfactory to them, and Newco shall pay all reasonable fees and
expenses of such counsel for the Indemnified Parties promptly as statements
therefor are received; provided, however, that Newco shall be obligated pursuant
to this paragraph (f) to pay for only one firm of counsel for all Indemnified
Parties in any jurisdiction unless the use of one counsel for such Indemnified
Parties would present such counsel with a conflict of interest, (ii) the
Indemnified Parties will cooperate in the defense of any such matter and (iii)
Newco shall not be liable for any settlement effected without its prior written
consent; and provided, further, that Newco shall not have any obligation
hereunder to any Indemnified Party when and if a court of competent jurisdiction
shall ultimately determine, and such determination shall have become final, that
the indemnification of such Indemnified Party in the manner contemplated hereby
is prohibited by applicable Law. If such indemnity is not available with respect
to any Indemnified Party, then Newco and the Indemnified Party shall contribute
to the amount payable in such proportion as is appropriate to reflect relative
faults and benefits.
(g) If Newco or any of its successors or assigns (i) shall consolidate with
or merge into any other corporation or entity and shall not be the continuing or
surviving corporation or entity or such consolidation or merger or (ii) shall
transfer all or substantially all of its properties and assets to any
individual, corporation or other entity, then and in each such case, proper
provisions shall be made so that the successors and assigns of Newco shall
assume all of the obligations set forth in this Section 8.06.
SECTION 8.07. Pooling Affiliates. (a) Not fewer than 45 days prior to the
Effective Time, Upjohn shall deliver to Pharmacia a list of names and addresses
of those persons who were, in Upjohn's reasonable judgment, at the record date
for the Upjohn Stockholders' Meeting, affiliates within the meaning of Rule 145
of the rules and regulations promulgated under the Securities Act or applicable
SEC accounting releases with respect to pooling-of-interests accounting
treatment (each such person, a "Pooling Affiliate") of Upjohn. Upjohn shall
provide Pharmacia with such information and documents as Pharmacia shall
reasonably request for purposes of reviewing such list. Upjohn shall use its
reasonable best efforts to deliver or cause to be delivered to Pharmacia, prior
to the Effective Time, an affiliate letter in the form attached hereto as
Exhibit 8.07(a), executed by each of the Pooling Affiliates of Upjohn identified
in the foregoing list.
(b) Not fewer than 45 days prior to the Effective Time, Pharmacia shall
deliver to Upjohn a list of names and addresses of those persons who were, in
Pharmacia's reasonable judgment, at the record date for the Upjohn Stockholders'
Meeting, Pooling Affiliates of Pharmacia. Pharmacia shall provide Upjohn such
information and documents as Upjohn shall reasonably request for purposes of
reviewing such list. Pharmacia shall use its reasonable best efforts to deliver
or cause to be delivered to Upjohn, prior to the Effective Time, an affiliate
letter in the form attached hereto as Exhibit 8.07(b), executed by each of the
Pooling Affiliates of Pharmacia identified in the foregoing list.
SECTION 8.08. Pooling. From and after the date hereof and until the
Effective Time, none of Newco, Pharmacia or Upjohn, or any of their respective
subsidiaries or other affiliates over which they exercise control, shall
knowingly take any action, or knowingly fail to take any action, that is
reasonably likely to jeopardize the treatment of the Merger and the Pharmacia
Transaction as a "pooling of interests" for accounting purposes. Between the
date of this Agreement and the Effective Time, each of Newco, Pharmacia and
Upjohn shall take all reasonable actions necessary to cause the Merger and the
Pharmacia Transaction to be characterized as a pooling of interests for
accounting purposes if such a characterization shall be jeopardized by action
taken by Newco, Pharmacia or Upjohn, respectively, prior to the Effective Time.
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SECTION 8.09. Letters of Accountants. (a) Upjohn shall use its reasonable
best efforts to cause to be delivered to Pharmacia "comfort" letters of Coopers
& Lybrand, Upjohn's independent public accountants, dated and delivered on the
Registration Statement Effective Date and as of the Effective Time, and
addressed to Pharmacia, in form and substance reasonably satisfactory to
Pharmacia and reasonably customary in scope and substance for letters delivered
by independent public accountants in connection with transactions such as those
contemplated by this Agreement.
(b) Pharmacia shall use its reasonable best efforts to cause to be
delivered to Upjohn "comfort" letters of KPMG Bohlins AB ("KPMG Bohlins") (or of
an affiliated entity within the KPMG group), and Ohrlings Reveko AB, Pharmacia's
independent public accountants, dated and delivered the Registration Statement
Effective Date and as of the Effective Time, and addressed to Upjohn, in form
and substance reasonably satisfactory to Upjohn and reasonably customary in
scope and substance for letters delivered by independent public accountants in
connection with transactions such as those contemplated by this Agreement.
SECTION 8.10. Further Action; Consents; Filings. (a) Upon the terms and
subject to the conditions hereof, each of the parties hereto shall use its best
efforts to (i) take, or cause to be taken, all appropriate action, and do, or
cause to be done, all things necessary, proper or advisable under applicable Law
or otherwise to consummate and make effective the Transactions, (ii) obtain from
Governmental Entities any consents, licenses, permits, waivers, approvals,
authorizations or orders required to be obtained or made by Pharmacia or Upjohn
or any of their subsidiaries in connection with the authorization, execution and
delivery of this Agreement and the consummation of the Transactions, (iii) make
all necessary filings, and thereafter make any other submissions either required
or deemed appropriate by each of the parties, with respect to this Agreement and
the Transactions required under (A) the rules and regulations of the SSE or the
FSA, (B) the Securities Act, the Exchange Act and any other applicable federal
or Blue Sky Laws, (C) the HSR Act, (D) Council Regulation (EEC) No. 4064/89 and
(E) any other applicable Law. The parties hereto shall cooperate and consult
with each other in connection with the making of all such filings, including by
providing copies of all such documents to the nonfiling party and its advisors
prior to filing, and none of the parties will file any such document if any of
the other parties shall have reasonably objected to the filing of such document.
No party to this Agreement shall consent to any voluntary extension of any
statutory deadline or waiting party or to any voluntary delay of the
consummation of the Transactions at the behest of any Governmental Entity
without the consent and agreement of the other parties to this Agreement, which
consent shall not be unreasonably withheld or delayed.
(b) Without limiting the generality of Section 8.10(a), each of Pharmacia
and Upjohn shall:
(i) take promptly any or all of the following actions to the extent
necessary to obtain the approval of any Governmental Entity with
jurisdiction over the enforcement of any applicable Laws regarding the
legality of the Transactions: entering into negotiations, providing
information, making proposals, entering into and performing agreements or
submitting to judicial or administrative orders, or selling or otherwise
disposing of, or holding separate (through the establishment of a trust or
otherwise) particular assets or categories of assets, or businesses, of
Pharmacia, Upjohn or any of their affiliates; provided, however, neither
Pharmacia nor Upjohn shall be obligated to take any action that would have
a Pharmacia Material Adverse Effect or an Upjohn Material Adverse Effect,
as the case may be, assuming for purposes of this proviso that the
Transactions have been consummated;
(ii) use its best efforts to prevent the entry in a judicial or
administrative proceeding brought under any Law by any Government Entity or
any other party of any permanent or preliminary injunction or other order
(an "Order") that would make consummation of the Transactions in accordance
with the terms of this Agreement unlawful or that would prevent or delay
such consummation, including, without limitation, taking the steps
contemplated by Section 8.10(b)(i); and
(iii) take promptly, in the event that such an Order has been issued
in such a proceeding, any and all steps, including, without limitation, the
appeal thereof, the posting of a bond or the steps contemplated by Section
8.10(b)(i), necessary to vacate, modify or suspend such injunction or order
so as to permit such consummation on a schedule as close as possible to
that contemplated by this Agreement.
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SECTION 8.11. Upjohn Rights Plan. Prior to the Effective Time, Upjohn
shall take all necessary action (i) to redeem, for $.05 per Right (as defined in
the Rights Agreement), all of the outstanding Rights to purchase Upjohn Series A
Preferred Stock issued pursuant to the Rights Agreement, effective immediately
prior to the Effective Time, and (ii) to ensure that after such redemption (A)
none of Upjohn, Newco or Newco Sub shall have any obligations under the Rights
or Rights Agreement and (B) none of the holders of the Rights shall have any
rights under the Rights or Rights Agreement.
SECTION 8.12. Newco Organization. (a) Immediately prior to the Effective
Time, Newco shall, and Pharmacia and Upjohn shall cause Newco to, take action to
(i) cause the full Board of Directors of Newco at the Effective Time to consist
of (A) eight persons who are currently directors of Pharmacia and are mutually
agreeable to Pharmacia and Upjohn and (B) eight persons who are currently
directors of Upjohn and are mutually agreeable to Pharmacia and Upjohn and (ii)
cause to be confirmed as (w) Chairman ("Chairman") of Newco, Jan Ekberg, (x)
President and Chief Executive Officer ("CEO") of Newco, John L. Zabriskie, (y)
Executive Vice President of Newco, Goran Ando, and (z) Executive Vice President
of Newco, Robert C. Salisbury. Pharmacia and Upjohn shall designate the persons
who will be the directors of Newco at the Effective Time no later than the
Registration Statement Effective Date.
(b) At the Effective Time, Pharmacia and Upjohn shall cause Newco to have
an Executive Management Committee (the "Executive Management Committee")
consisting of the Chairman, the CEO and the Executive Vice Presidents of Newco
referred to in Section 8.12(a). The CEO shall be the chairman of the Executive
Management Committee. The purpose of the Executive Management Committee shall be
to enhance communication, coordination, and effective shared decision making
among the senior executives of Newco, and the members of such committee shall
meet from time to time to consult with each other on key issues relating to the
business of Newco. The Executive Management Committee shall be dissolved at such
time as the Board of Directors of Newco determines that the synergies expected
to be obtained as a result of the combination of the businesses of Pharmacia and
Upjohn have been substantially realized.
(c) As soon as practicable after the Effective Time, but in no event later
than six months after the Effective Time, Newco shall establish its corporate
management group in the United Kingdom. The officers of Newco shall cause those
certain persons as shall be agreed to by Pharmacia and Upjohn prior to the date
hereof to have their principal place of business established in the United
Kingdom.
(d) Pharmacia, Upjohn and Newco shall take all action necessary to cause
the Restated Certificate of Incorporation and By-laws of Newco, as of the
Effective Time, to be in the forms attached hereto as Exhibits A-3 and A-4,
respectively. In addition, promptly after the date hereof, Pharmacia and Upjohn
shall take all action necessary to cause the name of Newco to be "Pharmacia &
Upjohn, Inc".
SECTION 8.13. Depositary Facility for Newco Common Stock. As soon as
practicable after the date hereof, Newco will use its reasonable best efforts to
cause a commercial bank to operate a depositary facility in Sweden for the Newco
Common Stock. Newco shall pay all fees of such commercial bank relating to the
establishment and operation of such depositary facility, including, without
limitation, any fees payable in connection with the trading of the SDSs and the
distribution of dividends.
SECTION 8.14. Plan of Reorganization. This Agreement is intended to
constitute a "plan of reorganization" within the meaning of section 1.368-2(g)
of the income tax regulations promulgated under the Code. From and after the
date of this Agreement and until the Effective Time, each party hereto shall use
its reasonable best efforts to cause the Merger to qualify, and will not,
without the prior written consent of the parties hereto, knowingly take any
actions or cause any actions to be taken which could prevent the Merger from
qualifying, as a reorganization under the provisions of section 368(a) of the
Code or (in conjunction with the acquisition of Pharmacia Shares pursuant to the
Exchange Offer) as a transfer of property described in Section 351(a) of the
Code. From and after the date of this Agreement and until the Effective Time,
each party hereto shall use its reasonable best efforts to cause the Exchange
Offer (in conjunction with the acquisition of Upjohn Shares pursuant to the
Merger) to qualify, and will not, without the prior written consent of the
parties hereto, knowingly take any actions or cause any actions to be taken
which could prevent the Exchange Offer from qualifying, as a transfer of
property described in Section 351(a) of the Code. Following the Effective Time,
and consistent with any such consent, none of the Surviving Corporation,
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Newco, Pharmacia or any of their affiliates shall knowingly take any action or
knowingly cause any action to be taken which would cause the Merger or the
Exchange Offer to fail to so qualify as a reorganization under section 368(a) of
the Code or as a transfer of property described in Section 351(a) of the Code,
as the case may be.
SECTION 8.15. Public Announcements. The initial press release concerning
the Transactions shall be a joint press release and, thereafter, Pharmacia and
Upjohn shall consult with each other before issuing any press release or
otherwise making any public statements with respect to this Agreement or any
Transaction and shall not issue any such press release or make any such public
statement prior to such consultation, except to the extent required by
applicable Law or the requirements of the SSE, the NASD, the Securities Exchange
Automated Quotation system ("SEAQ"), or the NYSE, in which case the issuing
party shall use its reasonable best efforts to consult with the other party
before issuing any such release or making any such public statement.
SECTION 8.16. Obligations of Newco Sub. Newco shall take all action
necessary to cause Newco Sub to perform its obligations under this Agreement and
to consummate the Merger on the terms and subject to the conditions set forth in
this Agreement.
SECTION 8.17. Stock Exchange Listings and De-listings. Newco shall use
its best efforts to cause the shares of Newco Common Stock to be issued in the
Merger and the Pharmacia Transaction to be approved for listing on the NYSE, the
LSE and the SSE, subject to official notice of issuance, prior to the Effective
Time. Newco shall use its best efforts to cause the SDSs to be issued in the
Pharmacia Transaction to be approved for listing on the SSE, subject to official
notice of issuance, prior to the Effective Time. Upjohn shall use its best
efforts to cause the Upjohn Common Stock to be de-listed from the NYSE and
de-registered under the Exchange Act as soon as practicable following the
Effective Time. Pharmacia shall use its best efforts to cause (i) the Pharmacia
Shares to be delisted from the SSE, (ii) the Pharmacia Shares to cease to be
quoted on SEAQ, (iii) the designation of the ADSs as NASDAQ National Market
Securities to be terminated, and (iv) the Pharmacia Class A Common Shares to be
de-registered under the Exchange Act, in each case as soon as permitted under
applicable Laws and regulations.
SECTION 8.18. Maintenance of Certain Facilities. As part of its global
capability, Newco intends to retain and develop regional operating centers in
each of Stockholm, Sweden, Kalamazoo, Michigan and Milan, Italy.
SECTION 8.19. Cancellation of Newco Common Stock Owned by Pharmacia and
Upjohn. The shares of Newco Common Stock owned by Pharmacia and Upjohn
immediately prior to the consummation of the Transactions will be cancelled
immediately upon consummation of the Transactions.
ARTICLE IX
CONDITIONS TO THE TRANSACTIONS
SECTION 9.01. Conditions to the Obligations of Each Party to Consummate
the Transactions. The obligations of Pharmacia, Upjohn, Newco and Newco Sub to
consummate the Transactions, or to permit the consummation of the Transactions,
are subject to the satisfaction or, if permitted by applicable Law, waiver of
the following conditions:
(a) the Registration Statement shall have been declared effective by
the SEC under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued by the
SEC and no proceeding for that purpose shall have been initiated by the
SEC;
(b) the Proxy Statement shall have been approved by the SSE and no
stop order suspending the effectiveness of the Proxy Statement shall have
been issued by the SSE and no proceeding for that purpose shall have been
initiated by the SSE;
(c) the Upjohn Stockholder Approval Condition;
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(d) no court of competent jurisdiction shall have issued or entered
any Order which is then in effect and has the effect of making any of the
Transactions illegal or otherwise prohibiting their consummation;
(e) any waiting period (and any extension thereof) applicable to the
consummation of the Transactions under the HSR Act and any other
competition, merger control or similar Law, including Council Regulation
(EEC) No. 4064/89, shall have expired or been terminated;
(f) all consents, approvals and authorizations required to be obtained
to consummate the Transactions shall have been obtained from all
Governmental Entities, except where the failure to obtain any such
consents, approvals and authorizations would not result in a change in or
effect on the business of Upjohn or Pharmacia that is, or is reasonably
likely to be, materially adverse to the business, assets (including
intangible assets), liabilities (contingent or otherwise), condition
(financial or otherwise) or results of operations of Upjohn, Pharmacia and
their respective subsidiaries, taken as a whole;
(g) each of Coopers & Lybrand, Upjohn's independent public
accountants, and KPMG Bohlins AB (or an affiliate thereof within the KPMG
group) will have issued an opinion, addressed to Pharmacia and Upjohn, that
each of the Merger and the Pharmacia Transaction will qualify as a "pooling
of interests" under applicable U.S. and Swedish accounting rules including,
without limitation, applicable SEC accounting standards;
(h) There shall have been received, each in form and substance
reasonably satisfactory to Pharmacia and Upjohn evidence that (i) Upjohn
shall have amended the Upjohn Stock Option Plans or taken such other
actions as are necessary to render inapplicable the provisions, if any,
contained in such plans that provide for the payment of cash by Upjohn in
respect of the cancellation of Upjohn Options resulting from the execution
of this Agreement and the consummation of the Transactions and to provide
in lieu thereof that each unexpired and unexercised Upjohn Option under
Upjohn's Stock Option Plans or otherwise granted by Upjohn other than
pursuant to any Upjohn Stock Option Plan shall be assumed by Newco at the
Effective Time on the terms and conditions set forth in Section 2.04(b) of
this Agreement, (ii) Upjohn shall have amended the Upjohn Plan to provide
that the execution of this Agreement and the consummation of the
Transactions will not constitute a "change of control" (as defined in
Section 16 of such Upjohn Plan) resulting in automatic vesting under the
Upjohn Plan and (iii) all consents necessary or desirable to preserve for
Newco any right or benefit under each note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument
or obligation listed in Section 4.05(a) of the Upjohn Disclosure Schedule
shall have been obtained, except, in the case of clause (iii), where the
failure to obtain any such consents would not result in a change in or
effect on the business of Upjohn that is, or is reasonably likely to be,
materially adverse to the business, assets (including intangible assets),
liabilities (contingent or otherwise), condition (financial or otherwise)
or results of operations of Newco and its subsidiaries, taken as a whole;
(i) (A) Sullivan & Cromwell shall have issued its opinion, addressed
to Newco, Upjohn and Pharmacia, based upon customary representations of
Upjohn and Newco, and, if required, Pharmacia, and customary assumptions,
to the effect that the Merger will be treated for federal income tax
purposes as a reorganization qualifying under the provisions of Section
368(a) of the Code and that each of Upjohn, Newco and Newco Sub will be a
party to the reorganization within the meaning of Section 368(b) of the
Code, and/or that the Merger (in conjunction with the acquisition of
Pharmacia Shares pursuant to the Exchange Offer) will be treated as a
transfer of property described in Section 351(a) of the Code, such opinion
to be dated on or about the date that is two business days prior to the
date the Proxy Statement is first mailed to stockholders of Upjohn and
Pharmacia, which opinion shall not have been withdrawn or modified in any
material respect;
(B) Shearman & Sterling shall have issued its opinion, addressed to
Newco, Pharmacia and Upjohn, based upon customary representations of
Pharmacia, Newco and Upjohn, and customary assumptions, to the effect that
the Exchange Offer (in conjunction with the acquisition of Upjohn Shares
pursuant to the Merger) will be treated for federal income tax purposes as
a transfer of property described in Section 351(a) of the Code, such
opinion to be dated on or about the date that is two business days
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prior to the date the Proxy Statement is first mailed to stockholders of
Upjohn and Pharmacia, which opinion shall not have been withdrawn in any
material respect.
(C) Mannheimer Swartling and KPMG Bohlins AB shall have issued their
opinion, addressed to Newco, Pharmacia and Upjohn, based upon
representations of Pharmacia and assumptions concerning, among other
things, the actions of holders of Pharmacia Shares, to the effect that,
under the income tax laws of Sweden, none of Newco, Pharmacia or the
Pharmacia stockholders will recognize taxable income or gain as a result of
the Exchange Offer.
(j) the shares of Newco Common Stock to be issued pursuant to the
Merger and the Exchange Offer shall have been authorized for listing on the
NYSE, subject to official notice of issuance, and the SDSs representing the
Newco Common Stock shall have been authorized for listing on the SSE; and
(k) the Minimum Condition.
SECTION 9.02. Conditions to the Obligations of Upjohn. The obligations of
Upjohn to consummate the Transactions, or to permit the consummation of the
Transactions, are subject to the satisfaction or, if permitted by applicable
Law, waiver of the following further conditions:
(a) each of the representations and warranties of Pharmacia contained
in this Agreement shall be true and correct as of the Effective Time as
though made on and as of the Effective Time, except where any such failure
or failures to be so true and correct, in the aggregate, would not have a
Pharmacia Material Adverse Effect, and except that those representations
and warranties that address matters only as of a particular date shall
remain true and correct as of such date, except where any such failure or
failures to be so true and correct, in the aggregate, would not have a
Pharmacia Material Adverse Effect, and Upjohn shall have received a
certificate of the Chairman, President or Chief Financial Officer of
Pharmacia to such effect; and
(b) Pharmacia shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Effective Time, and
Upjohn shall have received a certificate of the Chairman, President or
Chief Financial Officer of Pharmacia to that effect.
SECTION 9.03. Conditions to the Obligations of Pharmacia. The obligations
of Pharmacia to consummate the Transactions, or to permit the consummation of
the Transactions, are subject to the satisfaction or, if permitted by applicable
Law, waiver of the following further conditions:
(a) each of the representations and warranties of Upjohn contained in
this Agreement shall be true and correct as of the Expiration Date, as
though made on and as of the Expiration Date, except where any such failure
or failures to be so true and correct, in the aggregate, would not have an
Upjohn Material Adverse Effect, and except that those representations and
warranties that address matters only as of a particular date shall remain
true and correct as of such date, except where any such failure or failures
to be so true and correct, in the aggregate, would not have an Upjohn
Material Adverse Effect, and Pharmacia shall have received a certificate of
the Chairman, President or Chief Financial Officer of Upjohn to such
effect; and
(b) Upjohn shall have performed or complied in all material respects
with all agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Effective Time, and
Pharmacia shall have received a certificate of the Chairman, President or
Chief Financial Officer of Upjohn to that effect.
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ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.01. Termination. This Agreement may be terminated and the
Merger and the Exchange Offer may be abandoned at any time prior to the
Effective Time, notwithstanding any requisite approval and adoption of this
Agreement, as follows:
(a) by mutual written consent duly authorized by the Board of
Directors of each of Pharmacia and Upjohn;
(b) by either Pharmacia or Upjohn, if the Effective Time shall not
have occurred on or before February 15, 1996; provided, however, that (i)
the right to terminate this Agreement under this Section 10.01(b) shall not
be available to the party whose failure to fulfill any obligation under
this Agreement shall have been the cause of, or resulted in, the failure of
the Effective Time to occur on or before such date; (ii) if the applicable
federal antitrust authority shall seek an Order with respect to the
legality of the Transactions under applicable antitrust Laws, this
Agreement may be extended prior to the termination hereof by written notice
of either Pharmacia or Upjohn to the other to the date that is 30 days
following the date on which a ruling with respect to such an Order is
entered by a trial court or administrative body; and (iii) if such Order
shall have been entered which had the effect of enjoining the consummation
of the Transactions and any party hereto shall have commenced an appeal
thereof, this Agreement may be extended prior to the termination hereof by
written notice of either Pharmacia or Upjohn to the other to the date which
is 30 days following the issuance of a decision by the applicable appeals
court with respect to such an appeal; provided, further, that,
notwithstanding anything to the contrary in this paragraph (b), in no event
shall this Agreement be extended beyond May 31, 1996;
(c) by either Pharmacia or Upjohn, if any Order preventing the
consummation of the Merger or the Pharmacia Transaction shall have been
entered by any court of competent jurisdiction and shall have become final
and nonappealable;
(d) by Pharmacia, if (i) the Board of Directors of Upjohn withdraws,
modifies or changes its recommendation of this Agreement in a manner
adverse to Newco or Pharmacia or shall have resolved to do so, (ii) the
Board of Directors of Upjohn shall have recommended to the stockholders of
Upjohn a Competing Transaction or shall have resolved to do so, or (iii) a
tender offer or exchange offer for 10% or more of the outstanding shares of
capital stock of Upjohn is commenced, and the Board of Directors of Upjohn
fails to recommend against acceptance of such tender offer or exchange
offer by its stockholders (including by taking no position with respect to
the acceptance of such tender offer or exchange offer by its stockholders);
(e) by Upjohn, if (i) the Board of Directors of Pharmacia withdraws,
modifies or changes its recommendation of the Exchange Offer in a manner
adverse to Newco or Upjohn or shall have resolved to do so, (ii) the Board
of Directors of Pharmacia shall have recommended to the stockholders of
Pharmacia a Competing Transaction or shall have resolved to do so, or (iii)
a tender offer or exchange offer for 10% or more of the outstanding shares
of capital stock of Pharmacia is commenced (other than the Exchange Offer),
and the Board of Directors of Pharmacia fails to recommend against
acceptance of such tender offer or exchange offer by its stockholders
(including by taking no position with respect to the acceptance of such
tender offer or exchange offer by its stockholders);
(f) by Pharmacia or Upjohn if, (i) this Agreement shall fail to
receive the requisite vote for adoption at the Upjohn Stockholders' Meeting
or any adjournment or postponement thereof or (ii) the Exchange Offer
expires without any Pharmacia Shares having been accepted for payment;
(g) by Pharmacia, upon a breach of any material representation,
warranty, covenant or agreement on the part of Upjohn set forth in this
Agreement, or if any representation or warranty of Upjohn shall have become
untrue, in either case such that the conditions set forth in Section 9.03
would not be satisfied ("Terminating Upjohn Breach"); provided, however,
that, if such Terminating Upjohn Breach is
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curable by Upjohn through the exercise of its best efforts and for so long
as Upjohn continues to exercise such best efforts, Pharmacia may not
terminate this Agreement under this Section 10.01(g);
(h) by Upjohn, upon breach of any material representation, warranty,
covenant or agreement on the part of Pharmacia set forth in this Agreement,
or if any representation or warranty of Pharmacia shall have become untrue,
in either case such that the conditions set forth in Section 9.02 would not
be satisfied ("Terminating Pharmacia Breach"); provided, however, that, if
such Terminating Pharmacia Breach is curable by Pharmacia through best
efforts and for so long as Pharmacia continues to exercise such best
efforts, Upjohn may not terminate this Agreement under this Section
10.01(h);
(i) by Pharmacia, if the Board of Directors of Pharmacia shall,
following receipt of advice of independent legal counsel (who may be
Pharmacia's regularly engaged independent legal counsel) that failure to so
terminate would cause the Board of Directors of Pharmacia to breach its
fiduciary duties under applicable Laws, have withdrawn, modified or changed
its recommendation of the approval of the Exchange Offer in a manner
adverse to Newco or Upjohn and, on or prior to such date, any person (other
than Newco or Upjohn) shall have made a public announcement or otherwise
communicated to Pharmacia and its stockholders with respect to a Competing
Transaction; provided, however, that Pharmacia may not terminate this
Agreement pursuant to this subsection (i) until three business days have
elapsed following delivery to Upjohn of written notice of such
determination of Pharmacia (which written notice will inform Upjohn of the
material terms and conditions of the Competing Transaction); provided,
further, however, that such termination under this Section 10.01(i) shall
not be effective until Pharmacia has made payment to Upjohn of the amounts
required to be paid pursuant to Section 10.05(c); or
(j) by Upjohn, if the Board of Directors of Upjohn shall, following
receipt of advice of independent legal counsel (who may be Upjohn's
regularly engaged independent legal counsel) that failure to so terminate
would cause the Board of Directors of Upjohn to breach its fiduciary duties
under applicable Laws, have withdrawn, modified or changed its
recommendation of the adoption of this Agreement in a manner adverse to
Newco or Pharmacia and, on or prior to such date, any person (other than
Newco or Pharmacia) shall have made a public announcement or otherwise
communicated to Upjohn and its stockholders with respect to a Competing
Transaction; provided, however, that Upjohn may not terminate this
Agreement pursuant to this subsection (j) until three business days have
elapsed following delivery to Pharmacia of written notice of such
determination of Upjohn (which written notice will inform Pharmacia of the
material terms and conditions of the Competing Transaction); provided,
further, however, that such termination under this Section 10.01(j) shall
not be effective until Upjohn has made payment to Pharmacia of the amounts
required to be paid pursuant to Section 10.05(b).
SECTION 10.02. Effect of Termination. Except as provided in Section
11.01, in the event of termination of this Agreement pursuant to Section 10.01,
this Agreement shall forthwith become void, there shall be no liability under
this Agreement on the part of Pharmacia, Upjohn, Newco or Newco Sub or any of
their respective officers or directors, and all rights and obligations of each
party hereto shall cease, subject to the remedies of the parties set forth in
Sections 10.05(b), (c) and (d); provided, however, that nothing herein shall
relieve any party from liability for the wilful breach of any of its
representations and warranties or the breach of any of its covenants or
agreements set forth in this Agreement.
SECTION 10.03. Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; provided, however, that, after the
approval of this Agreement by the stockholders of Upjohn, no amendment may be
made that would reduce the amount or change the type of consideration into which
each Upjohn Share shall be converted upon consummation of the Merger. This
Agreement may not be amended except by an instrument in writing signed by the
parties hereto.
SECTION 10.04. Waiver. At any time prior to the Effective Time, any party
hereto may (a) extend the time for the performance of any obligation or other
act of any other party hereto, (b) waive any inaccuracy in the representations
and warranties contained herein or in any document delivered pursuant hereto,
and (c) waive compliance with any agreement or condition contained herein;
provided, however, that Newco and
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Newco Sub (x) will waive any of the conditions to the Transactions contained in
Article IX if so directed by Pharmacia and Upjohn, jointly, and (y) may not
waive any of such conditions without the prior written consent of each of Upjohn
and Pharmacia. Any waiver of a condition set forth in Section 9.01, or any
determination that such a condition has been satisfied, will be effective only
if made in writing by each of Upjohn and Pharmacia and, unless otherwise
specified in such writing, shall thereafter operate as a waiver (or
satisfaction) of such condition for any and all purposes of this Agreement. Any
such extension or waiver shall be valid if set forth in an instrument in writing
signed by the party or parties to be bound thereby.
SECTION 10.05. Expenses. (a) Except as set forth in this Section 10.05,
all Expenses (as defined below) incurred in connection with this Agreement and
the Transactions shall be paid by the party incurring such expenses, whether or
not the Merger or the Exchange Offer is consummated, except that Pharmacia and
Upjohn each shall pay one-half of all Expenses relating to printing, filing and
mailing the Registration Statement and the Disclosure Documents and all SEC and
other regulatory filing fees incurred in connection with the Registration
Statement and the Disclosure Documents. "Expenses" as used in this Agreement
shall consist of 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, the preparation,
printing, filing and mailing of the Registration Statement and the Disclosure
Documents, the solicitation of stockholder approvals and all other matters
related to the closing of the Transactions.
(b) Upjohn agrees that, if (A) Upjohn shall terminate this Agreement
pursuant to Section 10.01(j), (B) (y) Pharmacia shall terminate this Agreement
pursuant to Section 10.01(d) and (z) at the time of such termination, any person
shall have made a public announcement or otherwise communicated to Upjohn and
its stockholders with respect to a Competing Transaction with respect to Upjohn,
or (C) (i) Pharmacia shall terminate this Agreement pursuant to Section
10.01(f)(i) due to the failure of the Upjohn Stockholder Approval Condition,
(ii) at the time of such failure, any person shall have made a public
announcement or otherwise communicated to Upjohn and its stockholders with
respect to a Competing Transaction with respect to Upjohn and (iii) within 12
months thereafter, such Competing Transaction shall be consummated, in each case
resulting in a Change of Control (as defined below) of Upjohn, then promptly
after such termination, or (in the case of clause (C)) promptly after the
consummation of such Competing Transaction, Upjohn shall reimburse Pharmacia for
all of its Expenses (upon receipt of reasonable documentation in respect
thereof) up to an aggregate amount of $50,000,000. For purposes of this
Agreement, the term "Change of Control," with respect to any particular person,
shall mean the occurrence of any of the following events with respect to such
person: (i) there shall be consummated (A) any merger, consolidation or
combination (any, a "Combination") involving such person in which such person is
not the continuing or surviving corporation, or pursuant to which shares of such
person's voting stock would be converted in whole or in part into cash, other
securities or other property, other than a Combination involving such person in
which the holders of such person's voting stock immediately prior to the
Combination have substantially the same proportionate ownership of voting stock
of the surviving corporation immediately after the Combination, or (B) any sale,
lease, exchange or transfer (in one transaction or a series of related
transactions) of all or substantially all of the assets of such person, or (ii)
any person, other than such person or a subsidiary thereof or any employee
benefit plan sponsored by such person or a subsidiary thereof or a corporation
owned, directly or indirectly, by the stockholders of such person in
substantially the same proportions in their ownership of stock of such person,
shall become the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of securities of such person representing 50% or more of the
combined voting power of then outstanding securities ordinarily (and apart from
rights accruing in special circumstances) having the right to vote in the
election of directors, as a result of a tender or exchange offer, open market
purchases, privately negotiated purchases or otherwise.
(c) Pharmacia agrees that, if (A) Pharmacia shall terminate this Agreement
pursuant to Section 10.01(i), (B) (y) Upjohn shall terminate this Agreement
pursuant to Section 10.01(e) and (z) at the time of such termination, any person
shall have made a public announcement or otherwise communicated to Pharmacia and
its stockholders with respect to a Competing Transaction with respect to
Pharmacia or (C)
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(i) Upjohn shall terminate this Agreement pursuant to Section 10.01(f)(ii) due
to the fact that the Exchange Offer has expired without any Pharmacia Shares
having been accepted for payment, (ii) at the time of such failure, any person
shall have made a public announcement or otherwise communicated to Pharmacia and
its stockholders with respect to a Competing Transaction with respect to
Pharmacia and (iii) within 12 months thereafter, such Competing Transaction
shall be consummated, in each case resulting in a Change of Control of
Pharmacia, then promptly after such termination, or (in the case of clause (C))
promptly after the consummation of such Competing Transaction, Pharmacia shall
reimburse Upjohn for all its Expenses (upon receipt of reasonable documentation
in respect thereof) up to an aggregate amount of $50,000,000.
(d) Each of Pharmacia and Upjohn agrees that the payments provided for in
Sections 10.05(b) and (c) shall be the sole and exclusive remedies of the
parties upon a termination of this Agreement pursuant to Section 10.01(d), (e),
(f), (i) or (j), as the case may be, and such remedies shall be limited to the
payments stipulated in Sections 10.05(b) and (c); provided, however, that
nothing herein shall relieve any party from liability for the wilful breach of
any of its representations and warranties or the breach of any of its covenants
or agreements set forth in this Agreement.
(e) Any payment required to be made pursuant to Sections 10.05(b) or (c)
shall be made to the party entitled to receive such payment not later than two
business days after delivery to the other party of notice of demand for payment
and shall be made by wire transfer of immediately available funds to an account
designated by the party entitled to receive payment in the notice of demand for
payment delivered pursuant to this Section 10.05(e).
(f) In the event that Pharmacia or Upjohn, as the case may be, shall fail
to pay any Expenses when due, the amount of any such Expenses shall be increased
to include the costs and expenses actually incurred or accrued by the other
(including, without limitation, fees and expenses of counsel) in connection with
the collection under and enforcement of this Section 10.05, together with
interest on such unpaid Expenses, commencing on the date that such Expenses
became due, at a rate equal to the rate of interest publicly announced by
Citibank, N.A., from time to time, in the City of New York, as such bank's Prime
Rate plus 1.00%.
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.01. Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
and in any certificate delivered pursuant hereto shall terminate at the
Effective Time or upon the termination of this Agreement pursuant to Section
10.01, as the case may be, except that the agreements set forth in Articles I,
II and III and Sections 8.05(a), 8.06, 8.12, 8.13, 8.17, 8.18 and 8.19 and this
Article XI shall survive the Effective Time, those set forth in Sections
8.03(b), 8.06, and 10.05 and this Article XI shall survive termination, and
those set forth in Section 8.15 shall survive for a period of one year after
termination of this Agreement. Each party agrees that, except for the
representations and warranties contained in this Agreement and the respective
Disclosure Schedules, no party hereto has made any other representations and
warranties, and each party hereby disclaims any other representations and
warranties made by itself or any of its officers, directors, employees, agents,
financial and legal advisors or other representatives with respect to the
execution and delivery of this Agreement or the transactions contemplated
herein, notwithstanding the delivery or disclosure to any other party or any
party's representatives of any documentation or other information with respect
to any one or more of the foregoing.
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SECTION 11.02. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by telecopy
and facsimile or by registered or certified mail (postage prepaid, return
receipt requested) to the respective parties at the following addresses (or at
such other address for a party as shall be specified in a notice given in
accordance with this Section 11.02):
if to Pharmacia:
Pharmacia Aktiebolag
Frosundaviks Alle 15
1171 97 Stockholm
Sweden
Attention: Mats Lidgard
Telecopier: 011-46-8-624-5467
with a copy to:
Shearman & Sterling
199 Bishopsgate
London EC2M 3TY
England
Attention: John A. Marzulli, Jr.
Telecopier: 011-44-171-920-9020
and a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Attention: Clare O'Brien
Telecopier: (212) 848-7179
if to Upjohn:
The Upjohn Company
7000 Portage Road
Kalamazoo, Michigan 49001
Attention: Kenneth M. Cyrus
Telecopier: (616) 323-4116
with copies to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Neil T. Anderson and Francis J. Aquila
Telecopier: (212) 558-3588
SECTION 11.03. Certain Definitions. For purposes of this Agreement, the
term:
(a) "affiliate" of a specified person means a person who directly or
indirectly through one or more intermediaries controls, is controlled by,
or is under common control with, such specified person;
(b) "beneficial owner" with respect to any shares of capital stock
means a person who shall be deemed to be the beneficial owner of such
shares (i) which such person or any of its affiliates or associates (as
such term is defined in Rule 12b-2 promulgated under the Exchange Act)
beneficially owns, directly or indirectly, (ii) which such person or any of
its affiliates or associates has, directly or
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indirectly, (A) the right to acquire (whether such right is exercisable
immediately or subject only to the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
consideration rights, exchange rights, warrants or options, or otherwise,
or (B) the right to vote pursuant to any agreement, arrangement or
understanding, or (iii) which are beneficially owned, directly or
indirectly, by any other persons with whom such person or any of its
affiliates or associates or person with whom such person or any of its
affiliates or associates has any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of any shares of
capital stock;
(c) "business day" means any day on which the principal offices of the
SEC in Washington, D.C. are open to accept filings, or, in the case of
determining a date when any payment is due, any day on which banks are not
required or authorized to close in The City of New York, USA or in
Stockholm, Sweden;
(d) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of
voting securities, as trustee or executor, by contract or credit
arrangement or otherwise;
(e) "knowledge" means, with respect to any matter in question, that
the executive officers of Pharmacia or Upjohn, as the case may be, (i) have
knowledge of such matter, or (ii) after due investigation, should have
known of such matter;
(f) "person" means an individual, corporation, company, limited
liability company, partnership, limited partnership, syndicate, person
(including, without limitation, a "person" as defined in section 13(d)(3)
of the Exchange Act), trust, association or entity or government, political
subdivision, agency or instrumentality of a government; and
(g) "subsidiary" or "subsidiaries" of any person means any
corporation, limited liability company, partnership, joint venture or other
legal entity of which such person (either alone or through or together with
any other subsidiary) owns, directly or indirectly, more than 50% of the
stock or other equity interests, the holders of which are generally
entitled to vote for the election of the board of directors or other
governing body of such corporation or other legal entity.
SECTION 11.04. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of Law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the Transactions 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 a mutually acceptable manner in
order that the Transactions be consummated as originally contemplated to the
fullest extent possible.
SECTION 11.05. Assignment; Binding Effect; Benefit. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto (whether by operation of Law or otherwise)
without the prior written consent of the other parties. Subject to the preceding
sentence, this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns. Notwithstanding
anything contained in this Agreement to the contrary, except for the provisions
of Sections 8.06 and 8.13 (the "Third Party Provisions"), nothing in this
Agreement, expressed or implied, is intended to confer on any person other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement. The
Third Party Provisions may be enforced by the beneficiaries thereof.
SECTION 11.06. Incorporation of Exhibits. The Pharmacia Disclosure
Schedule, the Upjohn Disclosure Schedule, Annex A and all Exhibits attached
hereto and referred to herein are hereby incorporated herein and made a part of
this Agreement for all purposes as if fully set forth herein.
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SECTION 11.07. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
SECTION 11.08. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York to the greatest
extent permissible by law; provided, however, that the parties specifically
agree that all questions of Swedish corporate law and the interpretation thereof
(including, without limitation, questions relating to the fiduciary duties of
the directors of Pharmacia) shall be governed by the laws of the Kingdom of
Sweden.
SECTION 11.09. Submission to Jurisdiction; Venue. The parties hereto
unconditionally and irrevocably agree and consent to the exclusive jurisdiction
of, and service of process and venue in, the United States District Court for
the Southern District of New York and the courts of the State of New York
located in the County of New York, State of New York and waive any objection
with respect thereto, for the purpose of any action, suit or proceeding arising
out of or relating to this Agreement or the transactions contemplated hereby and
further agree not to commence any such action, suit or proceeding except in any
such court. Each party irrevocably waives any objections or immunities to
jurisdiction to which it may otherwise be entitled or become entitled (including
sovereign immunity, immunity to pre-judgment attachment, post-judgment
attachment and execution) in any legal suit, action or proceeding against it
arising out of or relating to this Agreement or the transactions contemplated
hereby which is instituted in any such court. If any such court shall enter a
judgment against Pharmacia, the parties agree to seek the enforcement of any
such judgment only in the courts of the Kingdom of Sweden and to seek execution
of such judgment only upon the assets and properties of Pharmacia located within
the Kingdom of Sweden. Pharmacia hereby appoints CT Corporation, New York, New
York, as its authorized agent (the "Pharmacia Authorized Agent") upon whom
process may be served in any such action arising out of or relating to this
Agreement or the transactions contemplated hereby which may be instituted in the
United States District Court for the Southern District of New York or the courts
of the State of New York by any other party hereto. Such appointment shall be
irrevocable. Pharmacia agrees to take any and all action, including the filing
of any and all documents and instruments, that may be necessary to continue such
appointment in full force and effect as aforesaid. Service of process upon the
Pharmacia Authorized Agent and written notice of such service to Pharmacia shall
be deemed, in every respect, effective service of process upon Pharmacia.
SECTION 11.10. Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 11.11. Counterparts. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
SECTION 11.12. Entire Agreement. This Agreement (including Annex A, the
Exhibits, the Pharmacia Disclosure Schedule and the Upjohn Disclosure Schedule)
and the Confidentiality Agreement constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings among the parties with respect thereto. No
addition to or modification of any provision of this Agreement shall be binding
upon any party hereto unless made in writing and signed by all parties hereto.
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IN WITNESS WHEREOF, Pharmacia, Upjohn, Newco and Newco Sub have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
<TABLE>
<S> <C>
PHARMACIA AKTIEBOLAG (publ)
Attest by: /s/ MATS LIDGARD By /s/ SOREN GYLL
--------------------------------- ---------------------------------------
Name: Mats Lidgard Name: Soren Gyll
Title: General Counsel Title: Chairman
Attest by: /s/ MATS LIDGARD By /s/ JAN EKBERG
--------------------------------- ---------------------------------------
Name: Mats Lidgard Name: Jan Ekberg
Title: General Counsel Title: President and CEO
THE UPJOHN COMPANY
Attest by: /s/ KENNETH M. CYRUS By /s/ JOHN L. ZABRISKIE
--------------------------------- ---------------------------------------
Name: Kenneth M. Cyrus Name: John L. Zabriskie, Ph.D.
Title: Executive Vice President, Title: Chairman and Chief Executive
Secretary and General Officer
Counsel
PHARMACIA & UPJOHN, INC.
Attest by: /s/ KENNETH M. CYRUS By /s/ ROBERT C. SALISBURY
-------------------------------- ----------------------------------------
Name: Kenneth M. Cyrus Name: Robert C. Salisbury
Title: Executive Vice President Title: President and Chief Executive
and Secretary Officer
PHARMACIA & UPJOHN
SUBSIDIARY, INC.
Attest by: /s/ KENNETH M. CYRUS By /s/ ROBERT C. SALISBURY
-------------------------------- ----------------------------------------
Name: Kenneth M. Cyrus Name: Robert C. Salisbury
Title: Executive Vice President Title: President and Chief Executive
and Secretary Officer
</TABLE>
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ANNEX A
EMPLOYEE BENEFITS
Pharmacia, Upjohn and Newco agree to the following with respect to the
compensation and benefits programs of Pharmacia and the Pharmacia Subsidiaries
and Upjohn and the Upjohn Subsidiaries, respectively:
1. Continuation of Benefits. Except as contemplated by the Agreement
or this Annex A, for a period of 18 months following the Effective Time,
Pharmacia and Upjohn shall each maintain employee benefit plans and
arrangements (directly or in conjunction with Newco) which in the aggregate
will provide a similar level of benefits to active and retired employees of
Pharmacia and the Pharmacia Subsidiaries to those provided under Pharmacia
employee benefit plans and arrangements as in effect immediately prior to
the Effective Time and a similar level of benefits to active and retired
employees of Upjohn and the Upjohn Subsidiaries to those provided under
Upjohn employee benefit plans and arrangements as in effect immediately
prior to the Effective Time; provided, however, that changes may be made to
such employee benefit plans and arrangements to the extent necessary to
comply with applicable Law. From and after the Effective Time, Newco shall
honor, and shall cause Upjohn or Pharmacia, as the case may be, to honor in
accordance with their terms, all existing employment and severance
agreements and severance plans which apply to current or former employees
or directors of Upjohn or the Upjohn Subsidiaries or Pharmacia or the
Pharmacia Subsidiaries. Except as contemplated by the Agreement or this
Annex A, Newco shall honor all outstanding awards under the Upjohn
Incentive Programs, including the Compensation and Incentive Committee
resolutions in connection therewith attached hereto as Exhibit 1.
2. Service Recognition. To the extent that service is relevant for
purposes of eligibility, participation, vesting or benefit accrual under
any employee benefit plan, program or arrangement established or maintained
by Newco, Pharmacia or a Pharmacia Subsidiary or Upjohn or an Upjohn
Subsidiary, employees of Pharmacia and the Pharmacia Subsidiaries and
Upjohn and the Upjohn Subsidiaries shall be credited for service accrued or
deemed accrued prior to the Effective Time with Pharmacia or a Pharmacia
Subsidiary or Upjohn or an Upjohn Subsidiary, as the case may be; provided,
however, that such crediting of service does not result in the duplication
of benefits or an unintended windfall with respect to the accrual of
benefits.
3. Upjohn Employee Savings Plan/ESOP. Effective as of the Effective
Time, the Upjohn Plan will be amended to permit employees of Pharmacia and
the Pharmacia Subsidiaries who are United States citizens or are regularly
employed in the United States or its territories or possessions to
participate. Such participation will become effective as of the Effective
Time for those employees who have completed a "year of eligibility service"
(as defined in the Upjohn Plan, with the service recognition described in
paragraph 2 above) as of the Effective Time, and will become effective with
respect to other employees upon completion of such a year of eligibility
service.
4. Stock Plans for Non-U.S. Employees. The parties shall undertake a
review of the matters described in this paragraph 4, and to the extent they
conclude that it is desirable to do so, they shall take the necessary
action such that, as soon as practicable after the Effective Time, Newco
shall establish one or more employee stock ownership plans or equivalent
arrangements for non-U.S. employees (the "Non-U.S. Plans"), which will be
structured after taking into account local laws and practices as well as
tax and other relevant considerations, in which Pharmacia and Upjohn
employees at locations outside the United States will be eligible to
participate.
5. Equity Incentive Plan. Effective as of the Effective Time, Newco
shall adopt an equity-based management incentive plan or equivalent
arrangement (the "Newco Equity Plan") in which key employees of Pharmacia
and the Pharmacia Subsidiaries and Upjohn and the Upjohn Subsidiaries will
be eligible to participate on an equivalent basis. The Newco Equity Plan
will provide for the granting of stock options and/or other equity-based
awards, and it is anticipated that stock options under the Newco
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Equity Plan will be granted to participating key employees after the
Effective Time in accordance with past practice of Upjohn. The criteria to
be used to select key employees of Pharmacia and the Pharmacia Subsidiaries
and Upjohn and the Upjohn Subsidiaries to participate in the Newco Equity
Plan shall be at least as broad as the criteria that are used by Upjohn as
of the date hereof to select employees to participate in the Upjohn 1992
Incentive Program.
6. Incentive Compensation Plan. Effective as of the Effective Time,
Newco shall adopt an annual incentive compensation plan (the "Newco
Incentive Plan") in which key employees of Pharmacia and the Pharmacia
Subsidiaries and Upjohn and the Upjohn Subsidiaries will be eligible to
participate on an equivalent basis. The criteria to be used to select key
employees of Pharmacia and the Pharmacia Subsidiaries and Upjohn and the
Upjohn Subsidiaries to participate in the Newco Incentive Plan shall be at
least as broad as the criteria that are used by Upjohn as of the date
hereof to select employees to participate in the Upjohn Incentive
Compensation Plan of 1992. The terms and conditions of the Newco Incentive
Plan shall be comparable to those set forth in the existing Upjohn
incentive compensation arrangements (including, without limitation, the
Upjohn 1992 Incentive Program).
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ANNEX B
FAIRNESS OPINION OF GOLDMAN, SACHS & CO.
September 15, 1995
Board of Directors
The Upjohn Company
7000 Portage Road
Kalamazoo, MI 49001
Gentlemen and Mesdames:
You have requested our opinion as to the fairness to the holders of the
outstanding shares of Common Stock, par value $1.00 per share (the "Shares"), of
The Upjohn Company (the "Company") of the exchange ratio of 1.45 shares of
Common Stock, par value $0.01 per share ("New Common Stock"), of Pharmacia &
Upjohn, Inc. ("Newco"), a Delaware corporation 50% owned by each of the Company
and Pharmacia (as defined below), to be received for each Share (the "Exchange
Ratio") pursuant to the Combination Agreement, dated as of August 20, 1995 (the
"Agreement"), by and among Newco, Pharmacia & Upjohn Subsidiary, Inc., a wholly
owned subsidiary of Newco ("Newco Sub"), Pharmacia Aktiebolag, a corporation
organized under the laws of the Kingdom of Sweden ("Pharmacia"), and the
Company. Under the terms of the Agreement, Newco Sub will be merged with and
into the Company (the "Merger") and each outstanding Share will be converted
into the right to receive 1.45 shares of New Common Stock. The Agreement also
contemplates that Newco will commence an exchange offer (the "Offer") to
exchange each outstanding Class A Common Share, nominal value SEK 25 per share
("Class A Common Share"), each outstanding Class B Common Share, nominal value
SEK 25 per share ("Class B Common Share"), and each outstanding American
Depositary Share ("ADS"), each representing one Class A Common Share, of
Pharmacia (collectively, the "Pharmacia Securities") for one share of New Common
Stock, or a Swedish Depositary Share representing one share of New Common Stock.
As soon as practicable after the consummation of the Offer (assuming that Newco
has acquired Pharmacia Securities representing more than 90 percent of the share
capital of Pharmacia and voting rights exercisable at a general meeting of
Pharmacia stockholders), Newco will commence a compulsory acquisition proceeding
under Swedish law to acquire all of the outstanding Pharmacia Securities not
acquired by Newco pursuant to the Offer (such compulsory acquisition,
collectively with the Merger and the Offer, are referred to herein as the
"Combination"). Upon the consummation of the Combination, the Company and
Pharmacia will become wholly owned subsidiaries of Newco and the stockholders of
the Company and Pharmacia will each hold approximately 50% of the equity of
Newco, assuming full acceptance of the Offer by Pharmacia stockholders.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company, having acted as its financial advisor in connection
with, and having participated in certain of the negotiations leading to, the
Agreement. In addition, we are familiar with Pharmacia, having provided certain
investment banking services to Pharmacia from time to time, including acting as
a managing underwriter of a public offering of Class A Common Shares and ADSs in
June, 1994. In the course of the trading activities of Goldman, Sachs & Co.,
prior to our retention in connection with this matter, the Firm accumulated a
long position of 145,683 Shares, a short position of 84,803 Shares and a short
position of 750 OTC call option contracts on the Shares as well as a short
position of 17,700 Class A Common Shares, a long position of 52,200 ADSs and a
short position of 10,000 ADSs.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Co-Promotion Agreement, dated August 20, 1995, between the
Company and Pharmacia; Annual Reports to Stockholders and Annual Reports on Form
10-K of the Company for the five years ended December 31, 1994; certain interim
reports to stockholders and Quarterly Reports on Form 10-Q of the Company;
certain other
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The Upjohn Company
September 15, 1995
Page Two
communications from the Company to its stockholders; and certain internal
financial analyses and forecasts for the Company prepared by its management. We
also have reviewed the Annual Report to Stockholders and the Annual Report on
Form 20-F of Pharmacia for the year ended December 31, 1994; the Prospectus
dated June 16, 1994 related to Pharmacia's public offering of Class A Common
Shares and ADSs; certain interim reports to stockholders of Pharmacia; certain
other communications from Pharmacia to its stockholders; and certain internal
financial analyses and forecasts for Pharmacia prepared by its management. We
also have reviewed certain financial analyses and forecasts for the combined
operations of the Company and Pharmacia prepared by the managements of the
Company and Pharmacia and provided to us by the Company. We also have held
discussions with members of the senior management of the Company and of
Pharmacia regarding the past and current business operations, financial
condition and future prospects of their respective companies and of the combined
operations of the Company and Pharmacia. In addition, we have reviewed the
reported price and trading activity for the Shares and the Pharmacia Securities,
compared certain financial and stock market information for the Company and
Pharmacia with similar information for certain other companies the securities of
which are publicly traded, reviewed the financial terms of certain recent
business combinations in the pharmaceutical industry specifically and in other
industries generally and performed such other studies and analyses as we
considered appropriate.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. In that regard, we have relied upon the managements of
the Company and Pharmacia as to the reasonableness and achievability of the
financial and operating forecasts (and the assumptions and bases therefore)
provided to us by the Company, and with your consent we have assumed that such
forecasts, including, without limitation, projected cost savings and operating
synergies resulting from the Combination, reflect the best currently available
estimates and judgments of such respective managements and that such projections
and forecasts will be realized in the amounts and time periods contemplated
thereby. In addition, we have not made an independent evaluation or appraisal of
the assets and liabilities of the Company or Pharmacia or any of their
subsidiaries and we have not been furnished with any such evaluation or
appraisal. We have assumed with your consent that the Combination will be
accounted for as a pooling-of-interests transaction under generally accepted
accounting principles.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
Exchange Ratio pursuant to the Agreement is fair to the holders of Shares. We
are not expressing any opinion herein as to the prices at which New Common Stock
may trade if and when they are issued.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
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ANNEX C
MORGAN STANLEY
MORGAN STANLEY & CO. LIMITED
25 CABOT SQUARE
CANARY WHARF
LONDON E14 4QA
20 August 1995
Pharmacia AB
Board of Directors
Frosundaviks Alle 15
171 97 Stockholm
Sweden
Gentlemen:
We understand that Pharmacia AB ("Pharmacia" or the "Company"), The Upjohn
Company ("Upjohn"), Pharmacia & Upjohn, Inc. ("Newco"), a Delaware corporation
and Pharmacia & Upjohn Subsidiary, Inc., a wholly-owned subsidiary of Newco,
have resolved to enter into the Combination Agreement, dated 20 August, 1995
(the "Combination Agreement"), which provides, among other things, for a
combination of Pharmacia and Upjohn in a merger of equals (the "Combination").
The Combination will be effected by (i) a merger of Upjohn into Newco Sub (the
"Merger") whereby Upjohn shareholders will receive 1.45 common shares of Newco,
par value $0.01 per share (the "Newco Common Stock") for every common share in
Upjohn, par value $1.00 per share (the "Upjohn Common Stock"); and (ii) an
exchange offer (the "Exchange Offer") by Newco for all outstanding Class A
Shares, par value SEK 25 per share and Class B Shares, par value SEK 25 per
share of Pharmacia (together the "Pharmacia Shares"). Pursuant to the Exchange
Offer, each issued and outstanding Pharmacia Share shall be exchanged into 1.0
shares of Newco Common Stock (the "Exchange Ratio"). The Newco Common Stock will
be listed in Sweden in the form of Swedish Depositary Shares ("SDSs"). Pursuant
to the Exchange Offer (and, if necessary, compulsory acquisition in accordance
with the laws of the Kingdom of Sweden) we understand that Newco will acquire
all of the issued Pharmacia Shares in exchange for Newco Common Stock. Newco
will be named Pharmacia & Upjohn.
The terms and conditions of the Exchange Offer and the Merger are more
fully set forth in the Combination Agreement. The Combination Agreement and the
other documents relating to the Combination, include, among other things,
certain provisions which we understand are designed to create a balance of
control in Newco. Further, as a result of the Exchange Ratio, the shareholders
of Pharmacia and Upjohn will receive an essentially equal ownership share in
Newco. Accordingly, the Exchange Ratio does not reflect a change of control
premium to either Pharmacia or Upjohn shareholders.
You have asked for our opinion as to whether the Exchange Ratio is fair
from a financial point of view to the holders of the Pharmacia Shares.
For the purpose of the opinion set forth herein, we have:
(i) analysed certain publicly available financial statements and other
information of Pharmacia and Upjohn;
(ii) analysed certain internal financial statements and other financial
and operating data, including certain financial projections,
concerning Pharmacia and Upjohn prepared by the managements of
Pharmacia and Upjohn respectively, and discussed certain of this data
with senior executives of Pharmacia and Upjohn;
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(iii) reviewed the recent reported prices and trading activity for the
Pharmacia Shares and the Upjohn Common Stock;
(iv) compared the financial performance of Pharmacia and Upjohn and the
prices and trading activity of the Pharmacia Shares and Upjohn Common
Stock with that of certain other comparable publicly-traded companies
and their securities;
(v) reviewed and discussed with the senior management of Pharmacia its
assessment of the strategic rationale for the transaction and the
perceived benefits of the transaction to the holders of the Pharmacia
Shares, based on senior management's estimates of the potential cost
savings and other synergies likely to be achieved by Newco if the
Combination is consummated (as set out in the joint business plan) and
its assessment of the prospectus for, and the risks associated with,
Upjohn's products and research and development portfolio;
(vi) reviewed the likely impact of the Combination on the future earnings
per share for Pharmacia shareholder, based on the forecast financial
performance of Pharmacia and Upjohn set out in (ii) above and the cost
savings and other synergies discussed in (v) above;
(vii) participated in certain discussions and negotiations among
representatives of the Company and Upjohn and their advisors;
(viii) reviewed the latest drafts of the Combination Agreement, the
Registration Statement on Form S-4, including the Joint Proxy
Statement/Prospectus relating to the Exchange Offer to be made
pursuant to the Combination Agreement, and certain related documents
including the proposed Certificate of Incorporation and Bylaws; and
(ix) conducted such other analysis as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for purposes of this
opinion. With regard to financial projections and other estimates supplied to
us, we have assumed that they have been reasonably prepared on the bases
reflecting the best currently available estimates and judgments of the future
financial performance of Pharmacia and Upjohn. We have assumed and relied upon
the accuracy of advice received from Enskilda, Skandinaviska Enskilda Banken
with regard to certain Swedish aspects of the Combination, including but not
limited to, the structuring of the SDR programme, and certain Swedish capital
markets and regulatory issues. We have assumed and relied upon the accuracy and
completeness of the advice and opinions of: (a) KPMG Bohlins AB and Mannheimer
Swartling that the Combination will satisfy the deferral provisions of Section
27 para 4 of the Swedish State Income Tax Law and will therefore not result in
any immediate taxation of the Swedish holders of Pharmacia Shares; and (b) KPMG
Bohlins AB (or an affiliate thereof within the KPMG Group) that the Combination
will be accounted for as a pooling of interests transaction in accordance with
generally accepted Swedish and United States accounting principles.
We have not made any independent valuation or appraisal of the assets or
liabilities of Pharmacia or Upjohn, nor have we been furnished with any such
appraisals. Our opinion is necessarily based on economic, market, and other
conditions as in effect on, and the information made available to us as of, the
date hereof.
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services.
Morgan Stanley & Co. Limited and its affiliates provide financial advisory and
financing services to the Company, Upjohn and AB Volvo and, in the past, have
received fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of the Company only and shall not be disclosed to any third party or
used for any other purpose without our prior written consent.
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Based on the foregoing, we are of the opinion on the date hereof that the
Exchange Ratio is fair from a financial point of view to the holders of the
Pharmacia Shares.
Very truly yours,
MORGAN STANLEY & CO. LIMITED
By: /s/ JOHN STUDZINSKI
------------------------------------
John Studzinski
Managing Director
Date: 20 August, 1995
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EXHIBIT 8(A)
September 15, 1995
The Upjohn Company,
7000 Portage Road,
Kalamazoo, Michigan 49001.
Dear Sirs:
We have acted as your special United States counsel in connection with the
Registration Statement on Form S-4 of Pharmacia & Upjohn, Inc. filed with the
Securities and Exchange Commission on August 21, 1995, as amended ("Registration
Statement"), and hereby confirm to you our opinion as set forth under the
heading "Tax Consequences of the Merger and the Offer -- United States Federal
Income Tax Consequences -- Tax Consequences to Upjohn Stockholders" in the
Prospectus/Proxy Statement and the Prospectus/U.S. Offer to Purchase relating
thereto dated September 15, 1995.
We hereby consent to the filing with the Securities and Exchange Commission
of this letter as an exhibit to the Registration Statement and the reference to
us in the Prospectus/Proxy Statement and the Prospectus/U.S. Offer to Purchase
under the heading "Tax Consequences of the Merger and the Offer -- United States
Federal Income Tax Consequences -- Tax Consequences to Upjohn Stockholders." In
giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
/s/ SULLIVAN & CROMWELL
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ANNEX D
EXCERPT FROM THE DELAWARE GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS. -- (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to sec.228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of his shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec.251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of sec.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec.251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec.253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
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(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to sec.228 or
253 of this title, the surviving or resulting corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of
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their shares have not been reached by the surviving or resulting corporation. If
the petition shall be filed by the surviving or resulting corporation, the
petition shall be accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the time and place
fixed for the hearing of such petition by registered or certified mail to the
surviving or resulting corporation and to the stockholders shown on the list at
the addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall
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be dismissed as to any stockholder without the approval of the Court, and such
approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
D-4
<PAGE> 332
Facsimiles of the Offer Letter of Transmittal, properly completed and duly
signed, will be accepted. The Letter of Transmittal and certificates evidencing
Pharmacia Securities and any other required documents should be sent or
delivered by each stockholder or such stockholder's broker, dealer, commercial
bank, trust company or other nominee to the Depositary at one of its addresses
set forth below.
The Depositary for the Offer is:
CITIBANK, N.A.
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission By Hand or Overnight Courier:
(For Eligible Institutions
Citibank, N.A. Only) Citibank, N.A.
Corporate Agency & Trust (212) 825-3483 Corporate Trust Window
Sort 3573 Confirm By Telephone 111 Wall Street, 5th Floor
New York, New York 10043 (800) 422-2066 New York, New York
By Telex:
ITT 420 392 NY ADR
Answer Back: NYWSS
</TABLE>
------------------
Questions or requests for assistance may be directed to the Information
Agent or the Dealer Managers at their respective addresses and telephone numbers
listed below. Additional copies of this Prospectus or the Offer Letter of
Transmittal and the Notice of Guaranteed Delivery enclosed herewith may be
obtained from the Information Agent. A stockholder may also contact brokers,
dealers, commercial banks or trust companies for assistance concerning the
Offer.
The Information Agent for the Offer is:
D.F. KING & CO., INC.
<TABLE>
<S> <C>
United States Europe
77 Water Street Royex House, Aldermanbury Square
New York, New York 10005 London, England EC2V 7HR
1-800-488-8035 (Toll Free) (44) 171 600 5005 (Collect)
</TABLE>
Outside of the United States and Europe:
(212) 269-5550 (Collect)
The Dealer Managers for the Offer are:
<TABLE>
<S> <C>
MORGAN STANLEY & CO. GOLDMAN, SACHS & CO.
Incorporated 85 Broad Street
1251 Avenue of the Americas New York, New York 10004
New York, New York 10020 (212) 902-1000
(212) 703-2808
</TABLE>
<PAGE> 333
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933. The Registrant's Certificate
of Incorporation and By-laws provide for indemnification of its directors,
officers, employees and other agents to the maximum extent permitted by the
Delaware General Corporation Law. In addition, the Registrant has entered into
Indemnification Agreements with its executive officers and directors. The
Registrant also intends to purchase and maintain insurance for its officers,
directors, employees or agents against liabilities which an officer, a director,
an employee or an agent may incur in his capacity as such.
The Combination Agreement provides that for a period of six years after the
Effective Time, the Company will cause to be maintained in effect the current
directors' and officers' liability insurance policies maintained by Upjohn and
Pharmacia (provided that the Company may, and in the event of the cancellation
or termination of such policies, the Company will substitute therefor policies
reasonably satisfactory to the indemnified parties of at least the same coverage
containing terms and conditions which are no less advantageous) with respect to
claims arising from facts or events that occurred prior to the Effective Time.
The Combination Agreement provides that from and after the Effective Time,
the Company agrees that it will indemnify and hold harmless each present and
former director and officer of Upjohn or Pharmacia, determined as of the
Effective Time, against any Costs (as defined in the Combination Agreement)
incurred in connection with any claim action, suit, proceeding or investigation,
whether civil, criminal, administrative or investigative, arising out of or
pertaining to matters existing or occurring at or prior to the Effective Time,
whether asserted or claimed prior to, at or after the Effective Time, to the
fullest extent that Upjohn or Pharmacia would have been permitted under Delaware
or Swedish law, as the case may be, and their charter documents (each as in
effect on the date of the Combination Agreement) to indemnify such indemnified
parties (and the Company will also advance expenses as incurred to the fullest
extent permitted under applicable Law, provided that such indemnified party to
whom expenses are advanced provides an undertaking to repay such advances if it
is ultimately determined that such indemnified party is not entitled to
indemnification); and provided, further, that any determination required to be
made with respect to whether an officer's or director's conduct complies with
the standards set forth under Delaware or Swedish law and Upjohn's or
Pharmacia's charter documents will be made by independent counsel selected by
the Company.
To the extent the foregoing provision does not serve to indemnify and hold
harmless an Indemnified Party (as defined in the Combination Agreement), for a
period of six years after the date of the Combination Agreement, the Combination
Agreement provides that the Company will, subject to the terms set forth in the
Combination Agreement, indemnify and hold harmless, to the fullest extent
permitted under applicable Law; (and the Company will also advance expenses as
incurred to the fullest extent permitted under applicable Law; provided that the
Indemnified Party to whom expenses are advanced provides an undertaking to repay
such advances if it is ultimately determined that such Indemnified Party is not
entitled to indemnification), each Indemnified Party against any Costs incurred
in connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of or pertaining
to the transactions contemplated by the Combination Agreement; provided,
however, that the Company will not be required to indemnify any Indemnified
Party if it is determined that the Indemnified Party acted in bad faith and not
in a manner such Indemnified Party believed to be in or not opposed to the best
interests of Upjohn or Pharmacia, as the case may be.
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<PAGE> 334
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
--------- ------------------------------------------------------------------------------
<S> <C> <C>
2 -- Combination Agreement, dated as of August 20, 1995, by and among Upjohn,
Pharmacia, Pharmacia & Upjohn, Inc. and Pharmacia & Upjohn Subsidiary, Inc.
(included as Annex A to the Prospectus/Proxy Statement/U.S. Offer to Purchase
which is part of this Registration Statement).*
3(a) -- Form of Restated Certificate of Incorporation of Pharmacia & Upjohn, Inc.*
3(b) -- Form of By-laws of Pharmacia & Upjohn, Inc.*
5(a) -- Opinion of Sullivan & Cromwell.
5(b) -- Opinion of Shearman & Sterling.
8(a) -- Opinion of Sullivan & Cromwell regarding United States tax consequences to
Upjohn stockholders.
8(b) -- Opinion of Shearman & Sterling regarding United States tax consequences to
Pharmacia shareholders.
10(a) -- Co-Promotion Agreement, dated as of August 20, 1995, between Upjohn and
Pharmacia (incorporated by reference to Exhibit 10(a) of Upjohn's Current
Report on Form 8-K dated August 21, 1995).*
10(b) -- Registration Rights Agreement, dated as of August 20, 1995, among Pharmacia &
Upjohn, Inc., The Upjohn Company, Pharmacia Aktiebolag and AB Volvo.*
15 -- Letter from Coopers & Lybrand L.L.P. concerning unaudited interim financial
information.
21 -- List of subsidiaries of Pharmacia & Upjohn, Inc.*
23(a) -- Consent of Coopers & Lybrand L.L.P.
23(b) -- Consent of Hans Karlsson, KPMG Bohlins AB, member KPMG International and Goran
Tidstrom, Ohrlings Coopers & Lybrand AB, member of Coopers & Lybrand
International.
23(c) -- Consent of KPMG Peat Marwick LLP.
23(d) -- Consent of Sullivan & Cromwell (included in Exhibits 5(a) and 8(a)).
23(e) -- Consent of Shearman & Sterling (included in Exhibits 5(b) and 8(b)).
23(f) -- Consent of Goldman, Sachs & Co.*
23(g) -- Consent of Morgan Stanley & Co. Limited.*
24 -- Powers of Attorney.*
99(a) -- Opinion of Goldman, Sachs & Co. (included as Annex B to the Prospectus/Proxy
Statement/U.S. Offer to Purchase which is part of this Registration
Statement).
99(b) -- Opinion of Morgan Stanley & Co. Limited (included as Annex C to the
Prospectus/Proxy Statement/U.S. Offer to Purchase which is part of this
Registration Statement).
99(c) -- Form of Proxy for voting Upjohn capital stock.
99(d) -- Form of Joint Letter to Stockholders of Pharmacia and Upjohn.
99(e) -- Consents of Persons Named as About to Become Directors.
</TABLE>
---------------
* Previously filed.
(b) Financial Statement Schedules.
Schedules are omitted because they are either not required, are not
applicable or because equivalent information has been included in the financial
statements, the notes thereto or elsewhere herein.
II-2
<PAGE> 335
(c) Reports, Opinions and Appraisals.
Omitted because they are included as annexes to the Prospectus/Proxy
Statement/U.S. Offer to Purchase mailed to shareholders.
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, whether applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(d) The Registrant hereby undertakes that every prospectus (i) that is
filed pursuant to paragraph (c) immediately preceding or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(e) Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
II-3
<PAGE> 336
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(f) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(g) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-4
<PAGE> 337
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kalamazoo, State of
Michigan, on this 15th day of September, 1995.
PHARMACIA & UPJOHN, INC.
By: /s/ ROBERT C. SALISBURY
--------------------------------------
Robert C. Salisbury
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
------------------------------------------ ------------------------------ -------------------
<C> <S> <C>
* Chairman of the Board of September 15, 1995
------------------------------------------ Directors
Mats Pettersson
/s/ ROBERT C. SALISBURY Chief Executive Officer September 15, 1995
------------------------------------------
Robert C. Salisbury
* Chief Accounting Officer September 15, 1995
------------------------------------------
Mats Lidgard
/s/ KENNETH M. CYRUS Chief Financial Officer September 15, 1995
------------------------------------------
Kenneth M. Cyrus
*By /s/ KENNETH M. CYRUS
------------------------------------------
Kenneth M. Cyrus
as Attorney-in-fact
</TABLE>
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<PAGE> 338
SCHEDULE A
DIRECTORS AND EXECUTIVE OFFICERS OF UPJOHN
The following table sets forth the name, citizenship, business address,
present principal occupation and material positions and occupations within the
past five years of each director and executive officer of Upjohn. Unless
otherwise specified each person listed below is a citizen of the United States
and has his or her business address at the offices of Upjohn, 7000 Portage Road,
Kalamazoo, Michigan 49001.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT, MATERIAL POSITIONS
NAME AND BUSINESS ADDRESS HELD DURING PAST FIVE YEARS, AND BUSINESS ADDRESS
THEREOF
John L. Zabriskie,
Ph.D. ..................... Chairman of the Board and Chief Executive Officer
of Upjohn. Prior to joining Upjohn in 1994, Dr.
Zabriskie had spent his entire career with Merck &
Co., Inc., One Merck Drive, Whitehouse Station, NJ.
During his last five years with Merck, he held
several officer positions in sales, marketing,
public affairs and manufacturing, serving most
recently as executive vice president of Merck &
Co., Inc., and president, Merck Manufacturing
Division. He is active in the debate over U.S.
health care reform as a member of the Healthcare
Leadership Council and a past member of the Jackson
Hole Group for Healthcare Reform. He is also active
in the Pharmaceutical Research and Manufacturers
Association of America. Dr. Zabriskie has served on
the boards of Penjerdel Corporation; Pennsylvania
Biotechnology Association; the National
Pharmaceutical Council, Inc.; Morristown Memorial
Hospital and Wells College. He is currently a
director of First of America Bank Corporation, 211
South Rose Street, Kalamazoo, MI, Kellogg
Corporation, One Kellogg Square, Battle Creek, MI,
and Southwest Michigan Healthcare Coalition. He
began serving as a Director of Upjohn in January
1994 and is a member of the Executive and Finance
Committees of the Board.
Frank C. Carlucci
Suite 2205
1001 Pennsylvania
Avenue NW
Washington, DC 20004..... Chairman, The Carlyle Group, a merchant bank in
Washington, D.C. Mr. Carlucci was vice chairman of
The Carlyle Group from 1989 to 1993. He served as
U.S. Secretary of Defense from 1987 to 1989. Mr.
Carlucci is currently on the board of directors of
Ashland Oil, Inc.; Bell Atlantic Corporation, 1717
Arch St. 47W, Philadelphia, PA; Connecticut Mutual
Life Insurance Company, 140 Garden St., Hartford,
CT; General Dynamics Corporation, 3190 Fairview
Park Drive, Falls Church, VA; Kaman Corporation,
1332 Blue Hills Ave., Bloomfield, CT; Neurogen
Corporation, 35 Northeast Industrial Board,
Branford CT; Northern Telecom Limited, 2920
Matheson, Massisauga, Canada; The Quaker Oats
Company, Quaker Tower, Chicago, IL; SunResorts,
Ltd., N.V.; Texas Biotechnological Corporation,
7000 Fannin Street, Suite 1920 Houston, TX and
Westinghouse Electric Corporation, Westinghouse
Bldg., Pittsburgh, PA; and serves on the board of
trustees for the nonprofit Rand Corporation. Mr.
Carlucci has served as a Director of The Upjohn
Company since 1990 and is a member of the Audit;
Compensation and Incentive; Finance; and Nominating
Committees of the Board.
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<PAGE> 339
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT, MATERIAL POSITIONS
NAME AND BUSINESS ADDRESS HELD DURING PAST FIVE YEARS, AND BUSINESS ADDRESS
THEREOF
William D. Mulholland*
Suite 400
302 Bay Street
Toronto, Ontario
Canada M5X 1A1........... Former Chairman of the Board and Chief Executive
Officer of the Bank of Montreal. Mr. Mulholland is
currently a director of the Bank of Montreal, 129
St. James Street, Montreal, Canada and Canadian
Pacific Ltd., 910 Peel Street, Station Center,
Montreal, Canada. He is a trustee of Queen's
University, Kingston, Ontario, Canada and a member
of the Advisory Committee on Canadian Studies at
the School of Advanced International Studies, Johns
Hopkins University. Mr. Mulholland has received
honorary Doctor of Laws degrees from Memorial
University and Queen's University. He has served as
a Director of Upjohn since 1977 and is Chairman of
the Executive; and Compensation and Incentive
Committees and a member of the Finance; and
Nominating Committees of the Board.
M. Kathryn Eickhoff
Suite 400
510 LaGuardia Place
New York, NY 10012....... President, Eickhoff Economics Incorporated Economic
consultants. Ms. Eickhoff is the former associate
director for Economic Policy, United States Office
of Management and Budget. She serves as a director
of AT&T, 32 Avenue of the Americas, New York, NY;
National Westminster Bancorp. Inc., 10 Exchange
Place, Jersey City, NJ and Tenneco Inc. 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
served as a Director of Upjohn from 1982 to 1985
and returned as a Director in 1987. She is Chairman
of the Finance Committee and a member of the Audit;
Executive; and Nominating Committees of the Board.
Daryl F. Grisham
4605 South State Street
Chicago, IL 60609........ President and Chief Executive Officer Parker House
Sausage Company. Mr. Grisham joined Parker House
Sausage Company in 1954. He has been a director of
that company since 1961 and was promoted to his
current position in 1969. Mr. Grisham is a former
director for G.D. Searle and Company and Illinois
Bell Telephone Co. He serves as a director of
Harris Bankcorp, Inc., 111 West Monroe St.,
Chicago, IL; Lincoln Park Zoological Society and
the Rehabilitation Institute of Chicago and the
Lyric Opera of Chicago. He also serves as a trustee
for the Chicago Museum of Science & Industry and
Northwestern University. He has served as a
Director of Upjohn since 1989. He is Chairman of
the Social Responsibility Committee and is a member
of the Compensation and Incentive; Executive and
Nominating Committees of the Board.
---------------
* Citizen of Canada
2
<PAGE> 340
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT, MATERIAL POSITIONS
NAME AND BUSINESS ADDRESS HELD DURING PAST FIVE YEARS, AND BUSINESS ADDRESS
THEREOF
Lawrence C. Hoff........... Former President and Chief Operating Officer of
Upjohn. Mr. Hoff has long been active in major
industry and educational associations including
having served as a director, American Diabetes
Association, Inc.; trustee, Borgess Medical Center;
director, Council on Family Health; chairman,
Pharmaceutical Research and Manufacturers of
America; member, U.S. Chamber of Commerce,
International Policy Committee. He holds an
honorary Doctor of Science in Pharmacy degree from
Massachusetts College of Pharmacy and Allied Health
Sciences, and is currently a director of Alpha Beta
Technology, Inc.; Curative Technologies, Inc., 14
Research Way, East Setauket, NY and Medimmune,
Inc., 35 West Watkins Mill Road, Gathersburg, MD.
He has served as a Director of Upjohn since 1973
and is a member of the Audit and the Social
Responsibility Committees of the Board.
Jerry R. Mitchell,
M.D., Ph.D. ............. Vice Chairman of the Board and President, Upjohn
Laboratories. Previously, Dr. Mitchell had been
Executive Vice President and President, Upjohn
Laboratories (1991-92); and Senior Vice President
and President, Upjohn Laboratories (1990). Prior to
joining Upjohn, Dr. Mitchell was a professor of
internal medicine and the director of the Center
for Experimental Therapeutics, Baylor College of
Medicine, 1 Baylor Plaza, Houston, TX and
Affiliated Hospitals. During his distinguished
career, Dr. Mitchell has served on many national
advisory boards and committees and has received
numerous honors and scientific awards. He has
published two books and has written hundreds of
manuscripts and abstracts. Dr. Mitchell has been a
Director of Upjohn since 1991.
William U. Parfet
8850 M-89
Box 351
Richland, MI 49083....... President and Chief Executive Officer of
Richard-Allan Medical Industries, Inc. A
manufacturer of surgical equipment and medical
supplies. Prior to joining Richard-Allan in October
1993, Mr. Parfet had been Vice Chairman of the
Board of Upjohn, and was President (1991-93) and
Executive Vice President (1989-91) before that. Mr.
Parfet serves on various boards of directors,
including Bissell, Inc., 2345 Walker Rd. N.W.,
Grand Rapids, MI, CMS Energy Corporation, Fairlane
Park Drive, Dearborn, MI, the Financial Accounting
Foundation, Flint Ink Corporation, 2511 Glendale
Ave., Detroit, MI, Old Kent Financial Corporation,
One Vandenberg Center, Grand Rapids, MI, Stryker
Corporation, 2925 Fairfield Rd., Kalamazoo, MI and
Universal Foods, Inc. He has served as a Director
of Upjohn since 1985 and is a member of the Finance
and the Social Responsibility Committees of the
Board.
Richard H. Brown
4410 Main Street
Kansas City, MO 64111.... President and Chief Executive Officer of H&R Block
Inc. Prior to joining H&R Block in August, 1995,
Mr. Brown was Vice Chairman of Ameritech Corp. Mr.
Brown was elected Ameritech vice chairman in
January 1993. He joined Illinois Bell as president
and chief executive officer in 1990 and, prior to
that, he was executive vice president of United
Telecom and U.S. Sprint. He is a member of the
Economic Club
3
<PAGE> 341
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT, MATERIAL POSITIONS
NAME AND BUSINESS ADDRESS HELD DURING PAST FIVE YEARS, AND BUSINESS ADDRESS
THEREOF
of Chicago, a trustee, Rush Presbyterian-St. Luke's
Medical Center, Vice Chairman of the board of
trustees of Ohio University Foundation and serves
actively in many non-profit organizations in
Illinois. Mr. Brown also serves on a number of
other boards. He has served as a Director of Upjohn
since September 1993 and is a member of the
Compensation and Incentive; the Nominating; and the
Social Responsibility Committees of the Board.
Geraldine A.
Kenney-Wallace*
26 Whitney Avenue
Toronto, Ontario
Canada M4W 2A8........... Past-President and Vice-Chancellor of McMaster
University, Ontario, Canada. Dr. Kenney-Wallace is
a member of the board of directors of the Bank of
Montreal, 129 St. James Street, Montreal, Canada,
DMR Inc., General Motors (Canada), 330 Bloor Street
West, Toronto, Canada and Northern Telecom Ltd.,
2920 Matheson, Massisauga, Canada. She serves on
the advisory board of the Canadian Foundation for
AIDS Research, the Manning Foundation, the
Canada-Japan Forum, the Canadian National
Roundtable on the Environment and the Economy and
the Singapore National Science and Technology
Boards. During her scientific career in lasers,
ultra-fast phenomena and optoelectronics, Dr.
Kenney-Wallace has received numerous honors and
scientific awards. She has served as a Director of
Upjohn since 1993 and is a member of the Audit; the
Finance; and the Social Responsibility Committees
of the Board.
William E. LaMothe
Heritage Tower
Suite 1701
25 W. Michigan Avenue
Battle Creek, MI 49017... Former Chairman of the Board and Chief Executive
Officer of Kellogg Company. Mr. LaMothe is a former
director of the Food and Drug Law Institute,
Kimberly Clark Corporation, 351 Phelps Drive,
Irving, TX, Unisys Corporation, P.O. Box 500,
BlueBell, PA and the Western Michigan University
Foundation. He is currently a director of Allstate
Insurance Companies, 2775 Sanders Road, Northbrook,
IL, Kellogg Company, One Kellogg Square, Battle
Creek, MI, and Sears Roebuck & Company, Sears
Tower, Chicago, IL; and he is a member of the board
and a trustee for the W. K. Kellogg Foundation
Trust. Mr. LaMothe serves on the board of The
Battle Creek Community Foundation. He has served as
a Director of Upjohn since 1986 and is a member of
the Audit; the Compensation and Incentive; the
Executive; and the Nominating Committees of the
Board.
Ley S. Smith............... President and Chief Operating Officer of Upjohn.
Mr. Smith was elected President and Chief Operating
Officer in 1993; he became Vice Chairman of the
Board in 1991; and was elected Executive Vice
President in January 1989. Mr. Smith also served as
Acting Chief Executive Officer of Upjohn from April
1993 until January 1994. He is currently a member
of the Borgess Medical Center Board of Trustees and
board member for the Biopure Corporation. Mr. Smith
is active in a wide variety of
---------------
* Citizen of Canada
4
<PAGE> 342
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT, MATERIAL POSITIONS
NAME AND BUSINESS ADDRESS HELD DURING PAST FIVE YEARS, AND BUSINESS ADDRESS
THEREOF
business, community, and medical- and
pharmaceutical-related activities, including the
Pharmaceutical Research and Manufacturers of
America; the Virginia Neurological Institute; the
Health, Welfare and Retirement Income Task Force of
the Business Roundtable; and the Greater Kalamazoo
United Way. He has served as a Director of Upjohn
since 1989.
Antonio M. Gotto, Jr., M.D.
Texas Medical Center
Smith Tower
6550 Fannin
Suite 1423
Houston, Texas 77030..... Chairman of the Department of Medicine at Baylor
College of Medicine. Dr. Gotto was appointed to the
Board of Directors of Upjohn in November 1994. He
is Distinguished Service Professor and Chairman of
the Department of Internal Medicine at Baylor
College of Medicine. He holds the J.S. Abercrombie
Chair of Atherosclerosis Research and the Bob and
Vivian Smith Chair in Internal Medicine. He is
Chief of the Internal Medicine Service at The
Methodist Hospital and Ben Taub County Hospital in
Houston, Texas. He is director of the Medtronic
Corporation. He is a former member of: the National
Academy of Sciences -- Institute of Medicine; the
National Heart, Lung, and Blood Advisory Council
for the National Institutes of Health; and the
National Diabetes Advisory Board. He has served as
National President of the American Heart
Association. He is currently President of the
International Atherosclerosis Society, Co-Chairman
of the U.S.-Russian and U.S.-Italian Cardiovascular
Workgroups and Secretary of the Texas and district
Rhodes Scholar Selection Committee. He has received
many awards, honorary degrees and recognition by
foreign governments. He is a member of the Audit
and the Social Responsibility Committees of the
Board.
Kenneth M. Cyrus........... Executive Vice President, Secretary and General
Counsel of Upjohn since 1994. Formerly Senior Vice
President, Secretary and General Counsel from 1991
to 1994, and prior thereto Vice President,
Secretary and General Counsel from 1988 to 1991.
Donald R. Parfet........... Executive Vice President since 1995. Formerly
Executive Vice President for Administration of
Upjohn from 1991 to 1995, and prior thereto Senior
Vice President for Administration from 1989 to
1991.
Robert C. Salisbury........ Executive Vice President and Chief Financial
Officer of Upjohn since 1994. Formerly Senior Vice
President for Finance and Chief Financial Officer
from 1991 to 1994, and prior thereto Vice President
for Finance and Chief Financial Officer from 1989
to 1991.
Jack J. Jackson............ Senior Vice President for U.S. and Canadian
Pharmaceutical Operations of Upjohn since 1994.
Formerly Vice President for Western Hemisphere
Pharmaceutical Operations from 1992 to 1994, prior
thereto Vice President for North American
Pharmaceutical Operations from 1991 to 1992, and
prior thereto Vice President for U.S.
Pharmaceutical Sales from 1989 to 1991.
5
<PAGE> 343
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT, MATERIAL POSITIONS
NAME AND BUSINESS ADDRESS HELD DURING PAST FIVE YEARS, AND BUSINESS ADDRESS
THEREOF
Fernando A. Leal*.......... Senior Vice President for Strategic Planning and
Business Development of Upjohn since 1995. Formerly
Senior Vice President for International and
Pharmaceutical Operations from 1994 to 1995, and
prior thereto, Senior Vice President for Japan,
Pacific and European Operations from 1993 to 1994,
Vice President for Pacific and Latin American
Pharmaceutical Operations from 1992 to 1993 and
Vice President for Japan/Pacific/Latin America from
1989 to 1992.
Carlos A. Salvagni*........ Senior Vice President for Technical Operations of
Upjohn since 1994. Formerly Senior Vice President
for Worldwide Manufacturing and Engineering from
1993 to 1994, and prior thereto Vice President for
Worldwide Manufacturing from 1990 to 1993.
---------------
* Citizen of Brazil
* Citizen of Argentina
6
<PAGE> 344
SCHEDULE B
DIRECTORS AND EXECUTIVE OFFICERS OF PHARMACIA
The following table sets forth the name, citizenship, business address,
present principal occupation and material positions and occupations within the
past five years of each director and officer of Pharmacia. Unless otherwise
specified each person listed below is a national of Sweden and has his or her
principal business address at the offices of Pharmacia, at Frosundaviks, Alle
15, 171 97 Stockholm, Sweden.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT, MATERIAL POSITIONS
NAME AND BUSINESS/PERSONAL ADDRESS HELD DURING PAST FIVE YEARS, AND BUSINESS
ADDRESS THEREOF
Soren Gyll
AB Volvo
S-405 08
Goteborg, Sweden......... President and Chief Executive Officer of AB Volvo.
He is a member of the boards of directors of AB
Catena, AB Custos, Svensk Interkontinental
Lufttrafik, AB Volvo, the Federation of Swedish
Industries and the Swedish Employers'
Confederation. Mr. Gyll is also a member of the
Royal Swedish Academy of Engineering Sciences, the
Central Board of the Association of Swedish
Engineering Industries and the board of Swedish
Engineering Employers' Association. Mr. Gyll was
appointed to the Pharmacia Board in 1984 and has
been Chairman since 1992.
Olof Lund
Celsius AB
Box 1777
S-111 87
Stockholm, Sweden........ President and Chief Executive Officer of Celsius
AB. He is also the Chairman of AssiDoman AB. Mr.
Lund is also a member of the boards of directors of
the Federation of Swedish Industries and the
Swedish Pension Guarantee Mutual Insurance Company
(FPG)/Labor Market Insurance (AMF). Mr. Lund was
appointed to the Pharmacia Board in 1992 and is the
Vice Chairman of the Board.
Jan Ekberg................. President and Chief Executive Officer of Pharmacia
and a member of the Pharmacia Board since 1992.
From 1990 to 1992, Mr. Ekberg served as President
of Kabi Pharmacia. He is also Chairman of Pharmacia
Biotech AB and Pharmacia Biosensor AB. From 1986 to
1990, Mr. Ekberg served as President of KabiVitrum
and, from 1987 to 1990, he served as Executive Vice
President of Procordia. He is a member of the
boards of directors of Oy Partek AB, AB Volvo
Personvagnar AB, Nobelpharma AB and the Federation
of Swedish Industries. He is a member of the Royal
Swedish Academy of Engineering Sciences and the
Supervisory Board of Huhtamaki.
Kurth Augustson
Ellaparksvagen 26
S-18346
Taby, Sweden............. Member of the boards of directors of Skandia and
Dansk Tyggegummi Fabrik A/S (Stimorol) and was
formerly President and Chief Executive Officer of
Freia Marabou AS, S-17285, Sundbyberg, Sweden and
Procordia Food and Beverages. Mr. Augustson was
appointed to the Pharmacia Board in 1993.
1
<PAGE> 345
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT, MATERIAL POSITIONS
NAME AND BUSINESS/PERSONAL ADDRESS HELD DURING PAST FIVE YEARS, AND BUSINESS
ADDRESS THEREOF
Gustaf Douglas, M.B.A.
Harvard
Investment AB Latour
S-10388
Stockholm, Sweden........ Chairman and principal owner of Investment AB
Latour. He is Vice Chairman of Securitas AB and
Sveriges Television AB and a member of the boards
of directors of Assa Abloy AB, Hagstromer &
Qviberg, Munksjo and Stiftelsen Svenska Dagbladet.
Mr. Douglas was appointed to the Pharmacia Board in
1992.
Gustav von Hertzen,
Honorary Industrial
Councillor, Ph.D. (Hon.)*
Skarpskyttegatan 3B22
SF-00130
Helsingfors, Finland..... Member of the boards of directors of
Instrumentarium Oy and Lithells AB. Mr. von Hertzen
is also Chairman of HUCS Institute and a member of
the Supervisory Board of the Aamulehti Group. Mr.
von Hertzen formerly was an officer of Helsinki
Selance Park Ltd., Viiki, SF-00710, Helsinki,
Finland. He is a member of the Royal Swedish
Academy of Engineering. Mr. Hertzen was appointed
to the Pharmacia Board in 1989.
Goran Linden
AB Fortos
Box 2278
S-10317
Stockholm, Sweden........ President and Chief Executive Officer of AB Fortos.
He is Chairman of Alfred Berg Holding AB, Partena
AB, Retriva AB, Procordia Fastigheter AB and
Swedish Match AB. He is also a board member of
Alfred Berg Holding AB, Cultor AB, Lithells AB and
Monark Stiga AB. Mr. Linden was appointed to the
Pharmacia Board in 1994.
Berthold Lindqvist
Gambro AB
Box 10101
S-2010
Lund, Sweden............. President and Chief Executive Officer of Gambro AB.
He is also a board member of Gambro AB, Besam AB,
PLM AB, AB Volvo Lastvagnar AB, Inductus AB. Mr.
Lindqvist was appointed to the Pharmacia Board in
1992.
Ulla Reinius, M.B.A.
Finansfakta AB
Sibyllegatan 5
S-11451
Stockholm, Sweden........ President of Finansfakta AB. She is also a member
of the boards of directors of Uppsala
University/Division of Capital and Property
Administration and the Swedish Association for
Share Promotion. Ms. Reinius was appointed to the
Pharmacia Board in 1992.
---------------
*Citizen of Finland
2
<PAGE> 346
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT, MATERIAL POSITIONS
NAME AND BUSINESS/PERSONAL ADDRESS HELD DURING PAST FIVE YEARS, AND BUSINESS
ADDRESS THEREOF
Bengt Samuelsson, M.D.
Karolinska Institutet
S-171 77
Stockholm, Sweden........ Professor of Medical and Physiological Chemistry,
Karolinska Institutet. He was the Nobel laureate in
Physiology of Medicine in 1982. He is the Chairman
of The Nobel Foundation. He is also a member of the
boards of directors of Svenska Handelsbanken and
the Liposome Company, Princeton, N.J. Dr.
Samuelsson is a member of the Royal Swedish Academy
of Sciences, the American Academy of Arts and
Sciences, the Association of American Physicians,
Academie des Sciences, Paris, the U.S. National
Academy of Sciences and the Royal Society, London.
Dr. Samuelsson was appointed to the Pharmacia Board
in 1990.
(++)Ake Hammarstrom
Pharmacia BioProcess
Technology AB
(Rapsgatan 7)
S-751 82
Uppsala, Sweden.......... Officer of the local of the Swedish Union of
Clerical and Technical Employees in Industry (SIF)
at Pharmacia Biotech. Mr. Hammarstrom was appointed
to the Pharmacia Board in 1991 as a Deputy Board
member representing Pharmacia employees affiliated
with the Federation of Salaried Employees in
Industry and Services (PTK).
Joseph Jenadri............. Shop Steward for the trade-union local at Pharmacia
Stockholm and the employee representative of
Pharmacia employees affiliated with LO. Mr.
Jenardri was appointed to the Pharmacia Board in
1990 as a Deputy Board member representing
Pharmacia employees affiliated with the Swedish
Trade Union Confederation (LO).
Ingela Sander.............. Shop Steward for the local of the Swedish Union of
Clerical and Technical Employees in Industry (SIF)
at Pharmacia Stockholm. Ms. Sander was originally
appointed to the Pharmacia Board as a Deputy Board
member representing Pharmacia employees affiliated
with the Federation of Salaried Employees in
Industry and Services (PTK) in 1993.
Lennart G. Persson
Pharmacia Consumer Pharma
(Norrbroplatsen 2)
Box 941, S-25109
Helsingborg, Sweden...... Deputy Director of Pharmacia. Mr. Persson was
appointed to the Pharmacia Board as a Deputy Board
member representing Company employees affiliated
with the Federation of Salaried Employees in
Industry and Services (PTK) in 1993.
3
<PAGE> 347
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT, MATERIAL POSITIONS
NAME AND BUSINESS/PERSONAL ADDRESS HELD DURING PAST FIVE YEARS, AND BUSINESS
ADDRESS THEREOF
Britta Kaul
Pharmacia Pharmaceuticals
Uppsala
S-751 82
Uppsala, Sweden.......... Deputy Director of Pharmacia. Ms. Kaul was
appointed to the Pharmacia Board as a Deputy Board
member representing Company employees affiliated
with the Federation of Salaried Employees in
Industry and Services (PTK) in 1993.
Roland Hakansson
Pharmacia Consumer Pharma
S-251 09
Helsingborg, Sweden...... Deputy Director of Pharmacia. Mr. Hakansson was
appointed to the Pharmacia Board as a Deputy Board
member representing Company employees affiliated
with the Swedish Trade Union Confederation (LO) in
1993.
Goran A. Ando, M.D......... Executive Vice President and Deputy Chief Executive
Officer of Pharmacia. Dr. Ando joined Pharmacia in
February 1995 from Glaxo Holdings p.l.c., Lansdowne
House, Berkeley Square, London W1X 6BQ, England. He
is responsible for Corporate Research and
Development, Operations, Strategies, Business
Development, Quality and Environmental/Risk
Management.
Jan Blomberg............... Executive Vice President, Chief Financial Officer
of Pharmacia. Mr. Blomberg is Head of Corporate
Financial Management (Finance, Accounting & Taxes,
Business Control, Information Technology and
Legal). Since 1985 Mr. Blomberg has served as
Executive Vice President and Chief Financial
Officer of Pharmacia.
Lars Lindegren
Pharmacia S.p.A.
Pharmaceuticals Milano
via Robert Koch, 1, 2
I-20152
Milano, Italy............ Executive Vice President of Pharmacia. Mr.
Lindegren serves as President of Business Area
Pharmaceuticals Milan. Between 1989 and 1993 Mr.
Lindegren served as President of Business Area
Hospital Care.
Gilles Pajot*.............. Executive Vice President of Pharmacia. Mr. Pajot
serves as President of Market Area Europe. From
1974 to 1990 Mr. Pajot was employed by Pharmacia
France S.A., from 1979 as President. From 1991 to
1992 he served as President of Pharmacia
Biosystems. From 1992 to 1993, Mr. Pajot served as
Executive Vice President of Kabi Pharmacia.
---------------
*Citizen of France
4
<PAGE> 348
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT, MATERIAL POSITIONS
NAME AND BUSINESS/PERSONAL ADDRESS HELD DURING PAST FIVE YEARS, AND BUSINESS
ADDRESS THEREOF
Lamberto Andreotti**
Pharmacia S.p.A.
Via Robert Koch, 1,2
I-201 52
Milano, Italy............ Group Vice President of Pharmacia. Mr. Andreotti
serves as President of Market Area Americas and
Market Company Italy. Mr. Andreotti joined
Pharmacia upon its acquisition of FICE, where from
1990 to 1993 he served as Vice President Italian
Activities and Corporate Operations, then Chief
Executive Officer of Farmitalia Carlo Erba S.r.1.
Since 1993 he has served as Group Vice President of
Pharmacia.
Lars Ingelmark............. Group Vice President of Pharmacia. Mr. Ingelmark
serves as President of Market Area Asia-Pacific.
From 1987 to 1990 Mr. Ingelmark was employed by
KabiVitrum serving as Executive Vice President.
From 1990 to 1993 he was employed by Kabi
Pharmacia, first serving as Managing Director of
Nordic Pharmaceutical AB, and later as Executive
Vice President of Kabi Pharmacia. Since 1993 Mr.
Ingelmark has served as Group Vice President of
Pharmacia.
Peter Benson
Business Area Hospital
Care
S-112 87
Stockholm, Sweden........ Group Vice President of Pharmacia. Mr. Benson
serves as President of Business Area Hospital Care.
He has been employed by Pharmacia since 1988.
Arne Forsell
Pharmacia Biotech AB
S-751 82
Uppsala, Sweden.......... President, Pharmacia Biotech AB. Mr. Forsell joined
Pharmacia in 1990 as President of Pharmacia LKB
Biotechnology and in 1991 was appointed Executive
Vice President of Pharmacia Biosystems AB. Since
1992, he has served as President of Pharmacia
Biotech AB, and as Chairman of Pharmacia Biotech
Inc.
Jorgen Johnsson
Business Area Consumer
Pharma
Box 941, S-251 09
Helsingborg, Sweden...... Group Vice President of Pharmacia. Mr. Johnsson
serves as President of Business Area Consumer
Pharma. He has been employed by Pharmacia since
1986.
Goran Pettersson
Business Area
Pharmaceuticals Uppsala
S-751 82
Uppsala, Sweden.......... Group Vice President of Pharmacia. Mr. Pettersson
serves as President of Business Area
Pharmaceuticals Uppsala. He has been employed by
Pharmacia since 1987 when he joined KabiVitrum as
Market Company
---------------
**Citizen of Italy
5
<PAGE> 349
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT, MATERIAL POSITIONS
NAME AND BUSINESS/PERSONAL ADDRESS HELD DURING PAST FIVE YEARS, AND BUSINESS
ADDRESS THEREOF
President in the U.K. Since 1991, Mr. Pettersson
has served as President for various business areas.
Toni Weitzberg
Business Area
Biopharmaceuticals
S-112 89
Stockholm, Sweden........ Group Vice President of Pharmacia. Mr. Weitzberg
serves as President of Business Area
Biopharmaceuticals. He has been employed by
Pharmacia since 1983.
Jan Wurtz
Business Area Diagnostics
S-751 82
Uppsala, Sweden.......... Group Vice President of Pharmacia. Mr. Wurtz serves
as President of Business Area Diagnostics. He has
been employed by Pharmacia since 1987.
Hans Carlson............... Senior Vice President, Human Resources & Management
Development of Pharmacia. Mr. Carlson was employed
by Kabi Pharmacia and its predecessors from 1977 to
1982 and has been employed by Pharmacia since 1986.
From 1990 to 1992 Mr. Carlson served as Senior Vice
President Human Resources of Kabi Pharmacia. Since
1993 he has served as Senior Vice President Human
Resources and Management Development of Pharmacia.
Anders Harfstrand, MD...... Senior Vice President of Pharmacia. Dr. Harfstrand
is Head of Corporate Communications and Investor
Relations. He has been employed by Pharmacia since
1988.
Mats Pettersson............ Group Vice President of Pharmacia. Mr. Pettersson
is Head of Corporate Business Development. He
started, after a career as an independent auditor,
as Vice President in the French subsidiary and
served as Chief Financial Officer of Kabi from 1981
to 1988. During 1988-1992 he was Head of Business
Development in Europe and has been in his present
position since 1993.
Hakan Astrom............... Group Vice President of Pharmacia. Mr. Astrom is
Head of Corporate Strategic Planning. From 1988 to
1990 Mr. Astrom was Executive Vice President of
KabiVitrum. From 1990 to 1992 he served as Vice
President of Kabi Pharmacia and President of Kabi
Pharmacia Biopharma. From 1992 to 1993 Mr. Astrom
served as President and Chief Executive Officer of
Kabi Pharmacia. Since 1993 he has served as Group
Vice President of Pharmacia.
Mats Lidgard............... General Counsel of Pharmacia. He is Head of Legal
Affairs (including legal, patents and trademarks)
and serves as Secretary to the Board and the
Corporate Management Group. He has been employed by
Pharmacia since 1984.
6
<PAGE> 350
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
------- --------------------------------------------------------------------------- ----
<S> <C> <C> <C>
2 -- Combination Agreement, dated as of August 20, 1995, by and among Upjohn,
Pharmacia, Pharmacia & Upjohn, Inc. and Pharmacia & Upjohn Subsidiary, Inc.
(included as Annex A to the Prospectus/Proxy Statement/U.S. Offer to
Purchase which is part of this Registration Statement).*
3(a) -- Form of Restated Certificate of Incorporation of Pharmacia & Upjohn, Inc.*
3(b) -- Form of By-laws of Pharmacia & Upjohn, Inc.*
5(a) -- Opinion of Sullivan & Cromwell.
5(b) -- Opinion of Shearman & Sterling.
8(a) -- Opinion of Sullivan & Cromwell regarding United States tax consequences to
Upjohn stockholders.
8(b) -- Opinion of Shearman & Sterling regarding United States tax consequences to
Pharmacia shareholders.
10(a) -- Co-Promotion Agreement, dated as of August 20, 1995, between Upjohn and
Pharmacia (incorporated by reference to Exhibit 10(a) of Upjohn's Current
Report on Form 8-K dated August 21, 1995).*
10(b) -- Registration Rights Agreement, dated as of August 20, 1995, among Pharmacia
& Upjohn, Inc., The Upjohn Company, Pharmacia Aktiebolag and AB Volvo.*
15 -- Letter from Coopers & Lybrand L.L.P. concerning unaudited interim financial
information.
21 -- List of subsidiaries of Pharmacia & Upjohn, Inc.*
23(a) -- Consent of Coopers & Lybrand L.L.P.
23(b) -- Consent of Hans Karlsson, KPMG Bohlins AB, member KPMG International and
Goran Tidstrom, Ohrlings Coopers & Lybrand AB, member of Coopers & Lybrand
International.
23(c) -- Consent of KPMG Peat Marwick LLP.
23(d) -- Consent of Sullivan & Cromwell (included in Exhibits 5(a) and 8(a)).
23(e) -- Consent of Shearman & Sterling (included in Exhibits 5(b) and 8(b)).
23(f) -- Consent of Goldman, Sachs & Co.
23(g) -- Consent of Morgan Stanley & Co. Limited.*
24 -- Powers of Attorney.*
99(a) -- Opinion of Goldman, Sachs & Co. (included as Annex B to the
Prospectus/Proxy Statement/U.S. Offer to Purchase which is part of this
Registration Statement).
99(b) -- Opinion of Morgan Stanley & Co. Limited (included as Annex C to the
Prospectus/ Proxy Statement/U.S. Offer to Purchase which is part of this
Registration Statement).
99(c) -- Form of Proxy for voting Upjohn capital stock.
99(d) -- Form of Joint Letter to Stockholders of Pharmacia and Upjohn.
99(e) -- Consents of Persons Named as About to Become Directors.
</TABLE>
---------------
* Previously filed.
<PAGE> 1
EXHIBIT 5(A)
September 15, 1995
Pharmacia & Upjohn, Inc.,
Fleming Way,
Crawley, Sussex RH10 2LZ,
England.
Dear Sirs:
In connection with the registration under the Securities Act of 1933
(the "Act") of 348,677,949 shares of Common Stock, par value $.01 per share (the
"Common Stock"), of Pharmacia & Upjohn, Inc., a Delaware corporation (the
"Company"), to be issued upon consummation of the exchange offer (the "Exchange
Offer") to be made by the Company to the holders of the Class A Common Shares,
Class B Common Shares and American Depositary Receipts representing Class A
Common Shares of Pharmacia Aktiebolag, a Swedish limited liability company, and
upon consummation of the merger (the "Merger" and together with the Exchange
Offer, the "Transactions") of Pharmacia & Upjohn Subsidiary, Inc., a Delaware
corporation, with and into The Upjohn Company, a Delaware corporation, we, as
your special counsel, have examined such corporate records, certificates and
other documents, and such questions of law, as we have considered necessary or
appropriate for the purposes of this opinion. Upon the basis of such
examination, we advise you that, in our opinion, when the registration statement
relating to the Common Stock (the "Registration Statement") has become effective
under the Act, an amended and restated certificate of incorporation of the
Company substantially in the form filed as Exhibit 3(a) to the Registration
Statement has been duly filed with the Department of State of the State of
Delaware, and the Common Stock has been duly issued and delivered in connection
with the Transactions as contemplated by the Registration Statement, the Common
Stock will be validly issued, fully paid and nonassessable.
The foregoing opinion is limited to the Federal laws of the United
States and the General Corporation Law of the State of Delaware, and we are
expressing no opinion as to the effect of the laws of any other jurisdiction.
Also, we have relied as to certain matters on information obtained from
public officials, officers of the Company and other sources believed by us to be
responsible.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "Validity of
Shares" in the Prospectus/Proxy Statement and the Prospectus/U.S. Offer to
Purchase relating to the Transactions. In giving such consent, we do not thereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Act.
Very truly yours,
/s/ SULLIVAN & CROMWELL
<PAGE> 1
EXHIBIT 5(B)
SEPTEMBER 15, 1995
PHARMACIA & UPJOHN, INC.
FLEMING WAY
CRAWLEY, SUSSEX RH10 2LZ
ENGLAND
LADIES AND GENTLEMEN:
We have acted as counsel for Pharmacia & Upjohn, Inc., a Delaware
corporation (the "Company"), and Pharmacia Aktiebolag, a corporation organized
under the laws of the Kingdom of Sweden ("Pharmacia"), in connection with the
filing by the Company with the United States Securities and Exchange Commission
of a Registration Statement on Form S-4 (No. 33-61969) (the "Registration
Statement") covering the registration under the Securities Act of 1933, as
amended (the "Act"), of 348,677,949 shares (the "Shares") of the Company's
common stock, par value $.01 per share. The Shares are to be issued by the
Company pursuant to the Combination Agreement dated as of August 20, 1995, among
the Company, Pharmacia, The Upjohn Company and Pharmacia & Upjohn Subsidiary,
Inc. (the "Combination Agreement").
In connection with the foregoing, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of such documents and
corporate and public records as we have deemed necessary as a basis for the
opinion hereinafter expressed. In our examination, we have assumed the
genuineness of all signatures, the authenticity of all documents presented to us
as originals, the conformity to the originals of all documents presented to us
as copies, and the authenticity of the originals of such documents. In rendering
our opinion. we have relied as to factual matters upon certificates of public
officials and certificates and representations of officers of the Company.
Our opinion expressed herein is limited to the General Corporation Law of
the State of Delaware.
Based on the foregoing and having regard for such legal considerations as
we deem relevant, we are of the opinion that, when an amended and restated
certificate of incorporation of the Company substantially in the form filed as
Exhibit 3(a) to the Registration Statement has been duly filed with the
Secretary of State of the State of Delaware and has become effective, and the
Shares have been duly issued and delivered in accordance with the terms of the
Combination Agreement, the Shares will be validly issued, fully paid and
non-assessable.
We hereby consent to the use of this opinion as Exhibit 5(b) to the
Registration Statement and to the use of our name under the caption "Validity of
Shares" contained in the prospectus which is included in the Registration
Statement. In giving such consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended.
Very truly yours,
/s/ SHEARMAN & STERLING
------------------------------------
JAM/CO/MDW/AY
<PAGE> 1
EXHIBIT 8(A)
September 15, 1995
The Upjohn Company,
7000 Portage Road,
Kalamazoo, Michigan 49001.
Dear Sirs:
We have acted as your special United States counsel in connection with the
Registration Statement on Form S-4 of Pharmacia & Upjohn, Inc. filed with the
Securities and Exchange Commission on August 21, 1995, as amended ("Registration
Statement"), and hereby confirm to you our opinion as set forth under the
heading "Tax Consequences of the Merger and the Offer -- United States Federal
Income Tax Consequences -- Tax Consequences to Upjohn Stockholders" in the
Prospectus/Proxy Statement and the Prospectus/U.S. Offer to Purchase relating
thereto dated September 15, 1995.
We hereby consent to the filing with the Securities and Exchange Commission
of this letter as an exhibit to the Registration Statement and the reference to
us in the Prospectus/Proxy Statement and the Prospectus/U.S. Offer to Purchase
under the heading "Tax Consequences of the Merger and the Offer -- United States
Federal Income Tax Consequences -- Tax Consequences to Upjohn Stockholders." In
giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
/s/ SULLIVAN & CROMWELL
<PAGE> 1
EXHIBIT 8(B)
September 15, 1995
Pharmacia & Upjohn, Inc.
Fleming Way
Crawley, Sussex RH10 2LZ
England
Pharmacia Aktiebolag
Frosondaviks Alle 15
1171 97 Stockholm
Sweden
The Upjohn Company
7000 Portage Road
Kalamazoo, Michigan 49001
U.S.A.
Gentlemen:
You have requested our opinion concerning certain United States federal
income tax consequences of the acquisition by Pharmacia & Upjohn, Inc. (the
"Company") of outstanding shares of Pharmacia Aktiebolag ("Pharmacia") pursuant
to the Exchange Offer, as defined in the Combination Agreement, dated as of
August 20, 1995, among the Upjohn Company ("Upjohn"), Pharmacia, The Company and
Pharmacia & Upjohn Subsidiary, Inc. (the "Agreement"). Capitalized terms not
defined herein have the meanings assigned to them in the Agreement.
Our opinion is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), the regulations promulgated thereunder, judicial authority and
current administrative rulings, all as in effect on the date hereof. In
connection with this opinion, we have reviewed the Agreement, the Registration
Statement on Form S-4 (No. 33-61969) (the "Registration Statement") and the
Exhibits thereto, and such other documents and materials that we considered to
be relevant. We have relied upon the facts and descriptions set forth in the
Agreement and the Registration Statement, and upon representations you have made
to us in certain letters addressed to us.
In rendering this opinion we have assumed that the representations set
forth in all such letters will be true and correct at the time delivered and
will be true and correct at the time that the Merger and the Exchange Offer are
consummated. We also have assumed that all statements made "to the best of the
knowledge" of a person in any such letter are correct as if made without such
qualification. We also have assumed that the Transactions will be consummated in
accordance with the Agreement and as described in the Registration Statement and
that a number of Pharmacia Securities representing more than 90% of the number
of shares and voting power of then outstanding Pharmacia Securities shall have
been validly tendered and not withdrawn prior to the expiration of the Exchange
Offer. We also have assumed that the Company will not be an "investment company"
within the meaning of section 1.351-1(c)(1) of the Regulations.
In addition, we have assumed that, immediately following the exchange of
Pharmacia Securities pursuant to the Exchange Offer, neither Volvo nor Stattum
will be subject to any binding agreement or commitment to sell, transfer or
otherwise dispose of any Newco Shares of SDSs that they may receive pursuant to
the Exchange Offer, and that both Volvo and Stattum will bear the full risks and
benefits of ownership with respect to any such Newco Shares or SDSs. We further
have assumed that Volvo and Stattum will furnish us with representation letters
to such effect prior to the consummation of the Exchange Offer.
9
<PAGE> 2
Based upon the foregoing:
1. We are of the opinion that the Exchange Offer (in conjunction with the
acquisition of Upjohn Shares pursuant to the Merger) will be treated for federal
income tax purposes as a transfer of property described in Section 351(a) of the
Code.
2. The discussion of material United States federal income tax consequences
of the Exchange Offer to Pharmacia stockholders in the section of the
Registration Statement entitled "Tax Consequences of the Merger and the Offer"
constitutes, and accurately reflects, our opinion as to those matters and
consequences discussed therein (as if fully restated herein), subject to all the
qualifications, limitations and assumptions set forth herein and therein.
No opinion is expressed as to any matter not specifically addressed above.
Further, no opinion is expressed as to the tax consequences of any of the
Transactions under any foreign, state or local tax law.
We hereby consent to the use of this opinion as Exhibit 8(b) to the
Registration Statement and to the use of our name under the caption "Tax
Consequences of the Merger and the Offer" contained in the Prospectus/Proxy
Statement/U.S. Offer to Purchase which is included in the Registration
Statement. In giving this consent, we do not thereby concede that we come within
the category of persons whose consent is required by the Securities Act of 1933,
as amended, or the General Rules and Regulations promulgated thereunder.
Very truly yours,
/s/ SHEARMAN & STERLING
--------------------------------------
<PAGE> 1
EXHIBIT 15
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Pharmacia & Upjohn, Inc.
Registration Statement on Form S-4
We are aware that our report dated July 19, 1995 on our review of interim
financial information of The Upjohn Company for the period ended June 30, 1995
and included in The Upjohn Company quarterly report on Form 10Q for the quarter
then ended is incorporated by reference in this registration statement. Pursuant
to Rule 436(c) under the Securities Act of 1933, this report should not be
considered a part of the registration statement prepared or certified by us
within the meaning of Sections 7 and 11 of that Act.
/s/ COOPERS & LYBRAND L.L.P.
Chicago, Illinois
September 12, 1995
<PAGE> 1
EXHIBIT 23(A)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated January 26, 1995, on our audits of the financial statements of
The Upjohn Company and of our report dated August 21, 1995, on our audit of the
consolidated balance sheet of Pharmacia & Upjohn, Inc. We also consent to the
reference to our firm under the caption "Experts".
/s/ COOPERS & LYBRAND L.L.P.
Chicago, Illinois
September 12, 1995
<PAGE> 1
EXHIBIT 23(B)
CONSENT OF JOINT INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 and the
incorporation by reference from Pharmacia's Annual Report on Form 20-F for the
year ended December 31, 1994, of our report dated March 20, 1995. We also
consent to the reference to us under the heading "Experts".
<TABLE>
<S> <C>
/s/ HANS KARLSSON /s/ GORAN TIDSTROM
----------------------------- ------------------------------------------
Hans Karlsson Goran Tidstrom
Authorized Public Accountant Authorized Public Accountant
KPMG Bohlins AB Ohrlings Coopers & Lybrand AB
Member of KPMG International Member of Coopers & Lybrand International
</TABLE>
Stockholm, Sweden
September 14, 1995
<PAGE> 1
EXHIBIT 23(C)
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors of
Pharmacia & Upjohn, Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in this registration statement on Form S-4.
/s/ KPMG Peat Marwick LLP
--------------------------------------
Short Hills, New Jersey
September 12, 1995
<PAGE> 1
EXHIBIT 23(F)
September 15, 1995
Board of Directors
The Upjohn Company
7000 Portage Road
Kalamazoo, MI 49001
Re: Registration Statement (File No. 33-61969) of
Pharmacia & Upjohn, Inc.
Gentlemen and Mesdames:
Reference is made to our opinion letter dated September 15, 1995 with
respect to the fairness to the holders of the outstanding shares of Common
Stock, par value $1.00 per share (the "Shares"), of The Upjohn Company (the
"Company") of the exchange ratio of 1.45 shares of Common Stock, par value $0.01
per share, of Pharmacia & Upjohn, Inc. ("Newco"), a Delaware corporation 50%
owned by each of the Company and Pharmacia Aktiebolag, to be received for each
Share pursuant to the Combination Agreement, dated as of August 20, 1995, by and
among Newco, Pharmarcia & Upjohn Subsidiary, Inc., a wholly owned subsidiary of
Newco, Pharmacia Aktiebolag, a corporation organized under the laws of the
Kingdom of Sweden, and the Company.
The foregoing opinion letter is solely for the information and assistance
of the Board of Directors of the Company in connection with its consideration of
the transaction contemplated therein and is not to be used, circulated, quoted
or otherwise referred to for any other purpose, nor is it to be filed with,
included in or referred to in whole or in part in any registration statement,
proxy statement or any other document, except in accordance with our prior
written consent.
In that regard, we hereby consent to the reference to the opinion of our
Firm under the captions "Summary -- The Combination -- Reasons for the
Combination; Boards' Recommendations," "Summary -- The Combination -- Fairness
Opinions," "The Merger -- Reasons for the Merger and Upjohn Board
Recommendation," "The Combination -- Reasons for the Combination; Boards'
Recommendations" and "The Combination -- Fairness Opinions" and to the inclusion
of the foregoing opinion in the Prospectus/Proxy Statement/U.S. Offer to
Purchase included in the above-mentioned Registration Statement, as amended. In
giving such consent, we do not thereby admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933
or the rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
<PAGE> 1
EXHIBIT 99(C)
THE UPJOHN COMPANY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE UPJOHN COMPANY
7000 PORTAGE ROAD
KALAMAZOO, MICHIGAN 49001
The undersigned hereby (1) acknowledges receipt of the Notice of Special
Meeting of Stockholders of The Upjohn Company, a Delaware corporation
("Upjohn"), to be held at the Radisson Plaza Hotel, 100 West Michigan Avenue,
Kalamazoo, Michigan on Tuesday, October 17, 1995 at 10:00 a.m., local time (the
"Upjohn Special Meeting"), and at any adjournments or postponements thereof, and
the Prospectus furnished in connection therewith, and (2) appoints J. L.
Zabriskie, R. C. Salisbury and K. M. Cyrus and each of them, as his or her
proxies (with full power of substitution) for and in the name, place, and stead
of the undersigned, to vote upon and act with respect to all of the shares of
Common Stock, par value $1 per share, of Upjohn (the "Upjohn Common Stock") and
all of the shares of Upjohn Series B Convertible Perpetual Preferred Stock, par
value $1 per share, of Upjohn (the "Upjohn Preferred Stock") standing in the
name of the undersigned, or with respect to which the undersigned is entitled to
vote and act, at the Upjohn Special Meeting, and at any adjournments or
postponements thereof.
The undersigned directs that this proxy be voted as follows:
(1) To adopt the Combination Agreement, dated as of August 20, 1995 (the
"Combination Agreement"), among Upjohn, Pharmacia Aktiebolag, a Swedish
corporation, Pharmacia & Upjohn, Inc., a Delaware corporation, and Pharmacia
& Upjohn Subsidiary, Inc., a Delaware corporation.
/ / FOR / / AGAINST / / ABSTAIN
(2) In the discretion of proxies named above, are authorized to vote upon such
other business as may properly come before the meeting or any adjournments
or postponements thereof.
THIS PROXY, WHEN PROPERLY EXECUTED AND DELIVERED, WILL BE VOTED AS SPECIFIED
ABOVE. IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR EACH OF THE
PROPOSALS. THE PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS
CARD.
Notwithstanding stockholder approval of the foregoing proposals, Upjohn
reserves the right to abandon the Merger at any time prior to the consummation
of the Merger and the transactions contemplated thereby, subject to the terms
and conditions of the Combination Agreement.
Holders of Upjohn Common Stock will not be entitled to appraisal rights in
connection with the Merger.
The undersigned hereby revokes any proxy heretofore given to vote or act
with respect to the Upjohn Common Stock and the Upjohn Preferred Stock and
hereby ratifies and confirms all that the proxies, their substitutes, or any of
them may lawfully do by virtue hereof.
PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE. NO
POSTAGE IS REQUIRED.
Date: , 1995
----------------------------------
Signature of Stockholder
----------------------------------
Signature of Stockholder (if
jointly held)
PLEASE DATE THIS PROXY AND SIGN
YOUR NAME EXACTLY AS IT APPEARS
HEREON. WHERE THERE IS MORE THAN
ONE OWNER, EACH SHOULD SIGN. WHEN
SIGNING AS AN ATTORNEY,
ADMINISTRATOR, EXECUTOR, GUARDIAN,
OR TRUSTEE, PLEASE ADD YOUR TITLE
AS SUCH. IF EXECUTED BY A
CORPORATION, THE PROXY SHOULD BE
SIGNED BY A DULY AUTHORIZED
OFFICER AND STATE THE FULL NAME OF
THE CORPORATION.
<PAGE> 1
EXHIBIT 99(D)
<TABLE>
<S> <C>
[LOGO] [LOGO]
The Upjohn Company Pharmacia Aktiebolag
7000 Portage Road Frosundaviks Alle 15
Kalamazoo, Michigan 49001 17197 Stockholm, Sweden
(616) 323-4000 46-8-624-5000
</TABLE>
September 18, 1995
Dear Stockholders:
We are pleased to report that the Boards of The Upjohn Company and
Pharmacia Aktiebolag have agreed to a "merger of equals" that will create a new,
global pharmaceutical company named Pharmacia & Upjohn, Inc. By combining
complementary strengths, the new entity will be one of the largest and most
advanced pharmaceutical companies in the world. It will have the critical mass
of products and expertise in a number of major therapeutic areas and the
manufacturing and marketing infrastructure and financial strength to maintain a
leading presence in each of the world's major markets.
The new company will have several distinct competitive advantages as the
worldwide pharmaceutical industry continues to consolidate. These advantages
include:
- greatly enhanced global market presence, being a truly worldwide
company;
- significant breadth and depth in product portfolio and critical
mass in research and development;
- leading expertise in major therapeutic areas, supported by an
research and development budget of $1.1 billion; and
- a strong balance sheet and the financial flexibility to take
advantage of new business opportunities.
Reflecting its global scope, Pharmacia & Upjohn, Inc.'s corporate
management will be located in London, with operational headquarters in
Kalamazoo, Stockholm/Uppsala and Milan. Pharmacia & Upjohn, Inc. will be
incorporated under Delaware law and its shares are expected to be listed
initially on the New York Stock Exchange and Stockholm Stock Exchange and, at a
later date, on the London Stock Exchange.
The transaction is subject to approval by a majority of Upjohn
shareholders, the acceptance of the exchange offer by the holders of more than
90% of the Pharmacia shares and various regulatory approvals in both the U.S.
and Europe. The transaction is described in detail in the enclosed document.
The Boards of both companies have unanimously approved the combination, and
we urge you to vote for adoption of the Combination Agreement or to accept the
Pharmacia exchange offer, as the case may be. We believe the combination
represents the best way to enhance the value of your investment, and we invite
you to join in this exciting enterprise.
Very truly yours,
<TABLE>
<S> <C>
JOHN L. ZABRISKIE, PH.D. JAN EKBERG
Chairman of the Board and Chief President and Chief Executive
Executive Officer of Upjohn Officer of Pharmacia.
</TABLE>
<PAGE> 1
EXHIBIT 99(E)
CONSENT OF A PERSON NAMED
AS ABOUT TO BECOME A DIRECTOR
I hereby consent to my being named in the Registration Statement on Form
S-4 of Pharmacia & Upjohn, Inc. (the "Company") as a person who will become a
director of the Company upon consummation of the transactions described therein.
September 12, 1995 /s/ RICHARD H. BROWN
--------------------------------------
Richard H. Brown
<PAGE> 2
CONSENT OF A PERSON NAMED
AS ABOUT TO BECOME A DIRECTOR
I hereby consent to my being named in the Registration Statement on Form
S-4 of Pharmacia & Upjohn, Inc. (the "Company") as a person who will become a
director of the Company upon consummation of the transactions described therein.
September 12, 1995 /s/ FRANK C. CARLUCCI
--------------------------------------
Frank C. Carlucci
<PAGE> 3
CONSENT OF A PERSON NAMED
AS ABOUT TO BECOME A DIRECTOR
I hereby consent to my being named in the Registration Statement on Form
S-4 of Pharmacia & Upjohn, Inc. (the "Company") as a person who will become a
director of the Company upon consummation of the transactions described therein.
September 14, 1995 /s/ GUSTAF DOUGLAS
--------------------------------------
Gustaf Douglas
<PAGE> 4
CONSENT OF A PERSON NAMED
AS ABOUT TO BECOME A DIRECTOR
I hereby consent to my being named in the Registration Statement on Form
S-4 of Pharmacia & Upjohn, Inc. (the "Company") as a person who will become a
director of the Company upon consummation of the transactions described therein.
September 12, 1995 /s/ M. KATHRYN EICKHOFF
--------------------------------------
M. Kathryn Eickhoff
<PAGE> 5
CONSENT OF A PERSON NAMED
AS ABOUT TO BECOME A DIRECTOR
I hereby consent to my being named in the Registration Statement on Form
S-4 of Pharmacia & Upjohn, Inc. (the "Company") as a person who will become a
director of the Company upon consummation of the transactions described therein.
September 14, 1995 /s/ JAN EKBERG
--------------------------------------
Jan Ekberg
<PAGE> 6
CONSENT OF A PERSON NAMED
AS ABOUT TO BECOME A DIRECTOR
I hereby consent to my being named in the Registration Statement on Form
S-4 of Pharmacia & Upjohn, Inc. (the "Company") as a person who will become a
director of the Company upon consummation of the transactions described therein.
September 12, 1995 /s/ DARYL F. GRISHAM
--------------------------------------
Daryl F. Grisham
<PAGE> 7
CONSENT OF A PERSON NAMED
AS ABOUT TO BECOME A DIRECTOR
I hereby consent to my being named in the Registration Statement on Form
S-4 of Pharmacia & Upjohn, Inc. (the "Company") as a person who will become a
director of the Company upon consummation of the transactions described therein.
September 14, 1995 /s/ SOREN GYLL
--------------------------------------
Soren Gyll
<PAGE> 8
CONSENT OF A PERSON NAMED
AS ABOUT TO BECOME A DIRECTOR
I hereby consent to my being named in the Registration Statement on Form
S-4 of Pharmacia & Upjohn, Inc. (the "Company") as a person who will become a
director of the Company upon consummation of the transactions described therein.
September 12, 1995 /s/ WILLIAM E. LAMOTHE
--------------------------------------
William E. LaMothe
<PAGE> 9
CONSENT OF A PERSON NAMED
AS ABOUT TO BECOME A DIRECTOR
I hereby consent to my being named in the Registration Statement on Form
S-4 of Pharmacia & Upjohn, Inc. (the "Company") as a person who will become a
director of the Company upon consummation of the transactions described therein.
September 14, 1995 /s/ GORAN LINDEN
--------------------------------------
Goran Linden
<PAGE> 10
CONSENT OF A PERSON NAMED
AS ABOUT TO BECOME A DIRECTOR
I hereby consent to my being named in the Registration Statement on Form
S-4 of Pharmacia & Upjohn, Inc. (the "Company") as a person who will become a
director of the Company upon consummation of the transactions described therein.
September 14, 1995 /s/ BERTHOLD LINDQUIST
--------------------------------------
Berthold Lindquist
<PAGE> 11
CONSENT OF A PERSON NAMED
AS ABOUT TO BECOME A DIRECTOR
I hereby consent to my being named in the Registration Statement on Form
S-4 of Pharmacia & Upjohn, Inc. (the "Company") as a person who will become a
director of the Company upon consummation of the transactions described therein.
September 14, 1995 /s/ OLOF LUND
--------------------------------------
Olof Lund
<PAGE> 12
CONSENT OF A PERSON NAMED
AS ABOUT TO BECOME A DIRECTOR
I hereby consent to my being named in the Registration Statement on Form
S-4 of Pharmacia & Upjohn, Inc. (the "Company") as a person who will become a
director of the Company upon consummation of the transactions described therein.
September 12, 1995 /s/ WILLIAM D. MULHOLLAND
--------------------------------------
William D. Mulholland
<PAGE> 13
CONSENT OF A PERSON NAMED
AS ABOUT TO BECOME A DIRECTOR
I hereby consent to my being named in the Registration Statement on Form
S-4 of Pharmacia & Upjohn, Inc. (the "Company") as a person who will become a
director of the Company upon consummation of the transactions described therein.
September 12, 1995 /s/ WILLIAM U. PARFET
--------------------------------------
William U. Parfet
<PAGE> 14
CONSENT OF A PERSON NAMED
AS ABOUT TO BECOME A DIRECTOR
I hereby consent to my being named in the Registration Statement on Form
S-4 of Pharmacia & Upjohn, Inc. (the "Company") as a person who will become a
director of the Company upon consummation of the transactions described therein.
September 14, 1995 /s/ ULLA REINIUS
--------------------------------------
Ulla Reinius
<PAGE> 15
CONSENT OF A PERSON NAMED
AS ABOUT TO BECOME A DIRECTOR
I hereby consent to my being named in the Registration Statement on Form
S-4 of Pharmacia & Upjohn, Inc. (the "Company") as a person who will become a
director of the Company upon consummation of the transactions described therein.
September 14, 1995 /s/ BENGT SAMUELSSON
--------------------------------------
Bengt Samuelsson
<PAGE> 16
CONSENT OF A PERSON NAMED
AS ABOUT TO BECOME A DIRECTOR
I hereby consent to my being named in the Registration Statement on Form
S-4 of Pharmacia & Upjohn, Inc. (the "Company") as a person who will become a
director of the Company upon consummation of the transactions described therein.
September 12, 1995 /s/ JOHN L. ZABRISKIE,
--------------------------------------
John L. Zabriskie, Ph.D.
