<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 21, 1995
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PHARMACIA & UPJOHN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
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>
------------------------
<TABLE>
<S> <C>
FLEMING WAY CORPORATION TRUST COMPANY
CRAWLEY, SUSSEX RH10 2LZ 1209 ORANGE STREET
ENGLAND WILMINGTON, DELAWARE 19801
(44-123) 953-1133 (312) 658-7581
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
EXECUTIVE OFFICES)
</TABLE>
------------------------
COPIES TO:
<TABLE>
<S> <C>
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. / /
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
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Common Stock, par value
$.01 per share.................. 329,221,861 Shares $24.87 $8,187,747,683 $2,823,361.27
-----------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Assumes that all shares of Upjohn Common Stock are exchanged for shares of
Common Stock of Pharmacia & Upjohn, Inc. (the "New Common Stock") and that
all Pharmacia ADSs and all Pharmacia Class A Shares and Pharmacia Class B
Shares held by U.S. Persons (as defined herein) are exchanged for shares of
New Common Stock, each pursuant to the terms of the Combination Agreement
described herein. The securities registered hereby are not being registered
for the purpose of distribution outside the United States.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act, based on (i) $36.56,
the average of the high and low sale price per share of Upjohn Common Stock
on the New York Stock Exchange on August 17, 1995, (ii) $23.41, the average
of the high and low quotation per share of a Pharmacia ADS on NASDAQ on
August 14, 1995, (iii) $23.14, the average of the high and low sale price
per Pharmacia Class A Share on the Stockholm Stock Exchange on August 14,
1995 (based on the exchange rate of $1.00 = SEK 7.19 on August 14, 1995),
and (iv) $22.94, the average of the high and low sale price per Pharmacia
Class B Share on the Stockholm Stock Exchange on August 14, 1995 (based on
such exchange rate). The proposed maximum offering price is equal to (i) the
market value per share of the Upjohn Common Stock multiplied by the maximum
number of shares of Upjohn Common Stock which may be exchanged in the Merger
described herein for shares of New Common Stock, plus (ii) the market value
per Pharmacia ADS multiplied by the number of Pharmacia ADSs which may be
exchanged in the Offer described herein for shares of New Common Stock, plus
(iii) the market value per Pharmacia Class A Share multiplied by the number
of Pharmacia Class A Shares held by U.S. Persons and Pharmacia Class A
Shares which may be sold from time to time in the United States during the
distribution, plus (iv) the market value per Pharmacia Class B Share
multiplied by the number of Pharmacia Class B Shares held by U.S. Persons
and Pharmacia Class B Shares which may be sold from time to time in the
United States during the distribution.
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
<TABLE>
<CAPTION>
LOCATION IN PROSPECTUS/PROXY
STATEMENT AND PROXY
FORM S-4 ITEM NUMBER AND HEADING STATEMENT/PROSPECTUS/
---------------------------------------------- U.S. OFFER TO PURCHASE
-----------------------------------------
<S> <C> <C> <C>
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 Page 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 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
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... Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................ *
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.............................. *
</TABLE>
---------------
* Omitted because not required, inapplicable or answer is in the negative.
i
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
14. Incorporation with Respect to Registrants
Other Than S-2 or S-3 Registrants...... Summary; Risk Factors; 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>
---------------
* Omitted because not required, inapplicable or answer is in the negative.
ii
<PAGE> 4
EXPLANATORY NOTE
The form of prospectus filed as a part of the Registration Statement
contains two sets of cover pages. The first set, with page numbers preceded by
the letter "A", relates to the terms of a merger (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 ("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 shares of New Common Stock for (i) Class A
Common Shares, 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) Class B Common Shares, nominal
value SEK 25 per share, of Pharmacia held by U.S. Persons and (iii) American
Depositary Shares, each representing one Pharmacia Class A Common Share. The
Prospectus/Proxy Statement/U.S. Offer to Purchase distributed to holders of
Upjohn shares will contain the first set of cover pages. The Prospectus/Proxy
Statement/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 , 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 9:00 a.m., Eastern
Standard Time, on , 1995 at (the "Upjohn
Special Meeting"), and at any adjournments or postponements thereof, for the
following purposes:
1. To approve 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
owned 50% 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/U.S.
Offer to Purchase (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 (the "Exchange Ratio") 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 all outstanding Class A Common Shares of Pharmacia,
each Class B Common Shares of Pharmacia and each American Depositary Share
representing one Class A Common Share of Pharmacia, for one share of New Common
Stock or a Swedish Depository Share, each 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 , 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
, 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
SUBJECT TO COMPLETION, DATED AUGUST 21, 1995
PROSPECTUS/PROXY STATEMENT/U.S. OFFER TO PURCHASE
PROSPECTUS
PHARMACIA & UPJOHN, INC.
SHARES OF COMMON STOCK
AND
PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS
OF
THE UPJOHN COMPANY
TO BE HELD ON , 1995
------------------------
This Prospectus/Proxy Statement/U.S. Offer to Purchase ("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 9:00 a.m., Eastern Standard Time, on
, 1995 at , (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 ("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
("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 owned 50% 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 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
248,947,796 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 7,322 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.
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, determined
as described under "The Merger -- Fractional Shares."
The Combination Agreement also contemplates that the Company will commence
an offer, (the "Offer") to exchange each outstanding Class A Common Shares of
Pharmacia, each Class B Common Shares of Pharmacia and each American Depositary
Share, each representing one Class A Common Shares of Pharmacia (collectively,
the "Pharmacia Securities"), for shares of New Common Stock or Swedish
Depositary Shares, each 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 consummation of the other. As soon as practicable
after the consummation of the Offer, the Company will commence a compulsory
acquisition proceeding to acquire all of the issued and outstanding Pharmacia
Securities not acquired by the Company pursuant to the Offer (such compulsory
acquisition, together with the Merger and the Offer, the "Transactions"). Upon
consummation of the Transactions, 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, assuming full acceptance
of the Offer by Pharmacia Stockholders.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY INVESTORS IN EVALUATING AN INVESTMENT IN THE SECURITIES OFFERED
HEREBY.
------------------------
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 , 1995.
------------------------
THIS PROSPECTUS IS DATED , 1995.
A-1
<PAGE> 7
PROSPECTUS/PROXY STATEMENT/U.S. OFFER TO PURCHASE
U.S. OFFER TO EXCHANGE EACH
CLASS A COMMON SHARE, NOMINAL VALUE SEK 25 PER SHARE, AND
CLASS B COMMON SHARE, NOMINAL VALUE SEK 25 PER SHARE
BENEFICIALLY OWNED BY A U.S. PERSON
AND AMERICAN DEPOSITARY SHARE, REPRESENTING ONE CLASS A COMMON SHARE
OF
PHARMACIA AKTIEBOLAG
FOR
ONE SHARE OF COMMON STOCK, PAR VALUE $.01 PER SHARE
OF
PHARMACIA & UPJOHN, INC.
THE U.S. OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 NOON, NEW YORK
CITY TIME, ON , 1995, UNLESS THE U.S. OFFER IS EXTENDED. WITHDRAWAL
RIGHTS WILL NOT BE AVAILABLE DURING ANY EXTENSION ANNOUNCED IN CONNECTION WITH
THE ANNOUNCEMENT OF THE SATISFACTION OF ALL CONDITIONS TO THE U.S. OFFER NOT
PREVIOUSLY ANNOUNCED TO HAVE BEEN SATISFIED OR WAIVED. ANNOUNCEMENT OF THE
RESULTS OF THE U.S. OFFER AND/OR ANY EXTENSION THEREOF WILL BE MADE
APPROXIMATELY TEN BUSINESS DAYS AFTER THE PRIOR EXPIRATION DATE.
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 UPJOHN IN ACCORDANCE WITH THE DELAWARE GENERAL CORPORATION LAW
AND THE RESTATED CERTIFICATE OF INCORPORATION OF UPJOHN 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 -- GENERAL 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 THE STOCKHOLDERS OF PHARMACIA, AND
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR
SHARES PURSUANT TO THE OFFER.
------------------------
SEE "RISK FACTORS" FOLLOWING "SUMMARY" HEREIN FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY INVESTORS IN EVALUATING AN INVESTMENT IN
THE SECURITIES OFFERED HEREBY.
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
, 1995
B-1
<PAGE> 8
IMPORTANT
Any U.S. Person (as defined below) desiring to tender all or any portion of
such stockholder's (i) Class A Common Shares, nominal value SEK 25 per share
(the "Pharmacia Class A Common Shares"), and (ii) Class B Common Shares, nominal
value SEK 25 per share (the "Pharmacia Class B Common Shares" and, together with
the Pharmacia Class A Common Shares, the "Pharmacia Shares"), and any
stockholder desiring to tender all or any portion of such stockholder's American
Depositary Shares ("ADSs," and together with the Pharmacia Shares, the
"Pharmacia Securities"), each representing one Pharmacia Class A Common Share
and evidenced by American Depositary Receipts, should either (1) complete and
sign the Offer Letter of Transmittal (or a facsimile thereof) in accordance with
the instructions thereto and mail or deliver it together with the certificate(s)
evidencing tendered Pharmacia Securities, and any other required documents, to
the Depositary or tender such Pharmacia Securities pursuant to the procedure for
book-entry transfer set forth herein, together with an Agent's Message (as
defined herein), or (2) request that a broker, dealer, commercial bank, trust
company or other nominee effect the transaction on such stockholder's behalf.
Any stockholder whose Pharmacia Securities are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee must contact
such broker, dealer, commercial bank, trust company or other nominee if such
stockholder desires to tender such Pharmacia Securities. See "The U.S. Offer To
Purchase -- Section 2."
Any stockholder who desires to tender Pharmacia Securities and whose
certificates evidencing such Pharmacia Securities are not immediately available,
or who cannot comply with the procedure for book-entry transfer on a timely
basis, may tender such Pharmacia Securities 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/Proxy Statement/U.S.
Offer to Purchase ("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.
------------------------
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 non-U.S.
Persons (as defined herein) on the same terms and 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, of Pharmacia & Upjohn, Inc. ("New Common Stock"), or one share of New
Common Stock.
------------------------
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 owned 50% 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, 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 to acquire all of the issued and outstanding Pharmacia Securities (as
defined below) not acquired by the Company pursuant to the Offer (such
compulsory acquisition, 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.
B-2
<PAGE> 9
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.
Upjohn does not have independent knowledge of the matters set forth or
incorporated by reference herein concerning Pharmacia and its subsidiaries.
Pharmacia does not have independent knowledge of the matters set forth or
incorporated by reference herein concerning Upjohn and its subsidiaries.
No person has been authorized to give any information or make any
representation other than those contained 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.
B-3
<PAGE> 10
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................... 6
Incorporation of Certain Documents by Reference............ 7
Exchange Rates............................................. 8
Summary.................................................... 9
Risk Factors............................................... 27
Market Price and Dividend Data............................. 30
Market Prices............................................ 30
Dividends................................................ 31
The Companies and the Combination.......................... 33
The Companies............................................ 33
The Combination and the Company.......................... 33
Industry Background...................................... 33
Business................................................. 34
Operations............................................... 34
The Upjohn Special Meeting................................. 35
General.................................................. 35
Matters to be Considered at the Upjohn Special Meeting
and Board of Directors Recommendation.................. 35
Voting at the Upjohn Special Meeting..................... 35
Proxies.................................................. 36
The Merger................................................. 37
Reasons for the Merger and Upjohn Board Recommendation... 37
Effect of the Merger..................................... 37
Conversion of Stock...................................... 37
Fractional Shares........................................ 38
Exchange Procedures...................................... 38
Effective Time, Conditions............................... 39
Interests of Certain Persons in the Combination.......... 39
Appraisal Rights......................................... 40
Certain U.S. Tax Consequences............................ 41
The U.S. Offer to Purchase
Introduction............................................. 42
Section 1. Terms of the U.S. Offer; Number of Shares and
Proration; Expiration Date................... 44
Section 2. Procedures for Tendering Pharmacia
Securities................................... 45
Section 3. Withdrawal Rights............................ 48
Section 4. Acceptance for Exchange; Delivery of New
Common Stock................................. 49
Section 5. Certain U.S. Income Tax Consequences......... 50
Section 6. Certain Information Covering the Company..... 50
Section 7. Purpose of the Combination; Plans for
Pharmacia.................................... 50
Section 8. Dividends and Distributions.................. 51
Section 9. Certain Conditions of the U.S. Offer......... 51
Section 10. Fees and Expenses............................ 51
Section 11. Miscellaneous................................ 52
The Combination............................................ 53
Background of the Combination............................ 53
Reasons for the Combination; Boards' Recommendations..... 54
Fairness Opinions........................................ 57
Stock Exchange Listings.................................. 63
Federal Securities Law Restrictions...................... 63
Accounting Treatment..................................... 64
The Combination Agreement.................................. 65
The Merger............................................... 65
The Offer................................................ 66
Conditions to the Transactions........................... 67
Representations and Warranties........................... 69
Certain Covenants; Conduct of Business Prior to
Consummation of the Transactions....................... 69
Competing Transactions................................... 71
The Company Board of Directors and Headquarters.......... 71
Upjohn Rights Agreement.................................. 73
Termination or Amendment of the Combination Agreement.... 73
Director and Officer Liability........................... 77
The Co-Promotion Agreement................................. 78
Tax Consequences of the Merger and the Offer............... 79
United States Federal Income Tax Consequences............ 79
Swedish Tax Consequences................................. 80
Regulatory Matters......................................... 81
Antitrust................................................ 81
European Union........................................... 81
State Takeover Lowes..................................... 82
Federal Food, Drug and Cosmetic Act, etc. ............... 82
Other Laws............................................... 83
Description of the Company................................. 84
Business................................................. 84
Directors and Executive Officers......................... 85
Compensation of Directors and Executive Officers
of the Company......................................... 85
Unaudited Pro Forma Combined Financial Statements.......... 87
Description of Upjohn...................................... 95
General.................................................. 95
Business Areas........................................... 95
Prescription Pharmaceuticals............................. 96
Consumer Products........................................ 97
Chemicals................................................ 97
Animal Health............................................ 97
<CAPTION>
PAGE
----
<S> <C>
Sales by Principal Countries............................. 97
Production............................................... 98
Marketing and Distribution............................... 98
Competition.............................................. 99
Regulation............................................... 99
Patents and Trademarks................................... 100
Research and Development................................. 100
Geographic Area Information.............................. 101
Properties............................................... 102
Employees................................................ 102
Environmental Matters.................................... 102
Product Liability Insurance.............................. 103
Litigation............................................... 103
Directors and Executive Officers......................... 104
Beneficial Ownership of Upjohn Common Stock.............. 107
Certain Relationships and Related Combination............ 108
Upjohn Summary Selected Financial Data..................... 109
Upjohn Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 110
General.................................................. 110
Six Months Ended June 30, 1995
Compared to Six Months Ended June 30, 1994............. 110
1994 Compared to 1993.................................... 114
1993 Compared to 1992.................................... 120
Description of Pharmacia................................... 125
Overview................................................. 125
Development.............................................. 125
Acquisition of FICE...................................... 126
BCP Demerger............................................. 126
Major Shareholders....................................... 126
Restructuring............................................ 126
Sales and Marketing...................................... 126
Business Areas........................................... 127
Business Development Project -- Pharmacia Biosensor...... 135
Research and Development................................. 136
Manufacturing and Production............................. 139
Competition.............................................. 140
Employees and Labor...................................... 144
Property................................................. 144
Legal Proceedings........................................ 144
Directors and Executive Officers......................... 145
Beneficial Ownership of Pharmacia Common Shares.......... 148
Pharmacia Selected Financial Data.......................... 149
Pharmacia Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 151
General.................................................. 151
Results of Continuing Operations......................... 151
1994 Compared to 1993.................................... 152
1993 Compared to 1992.................................... 155
Liquidity, Capital Resources and Investments............. 158
Reconciliation to U.S. GAAP.............................. 159
Impact of Currency Fluctuations and Inflation............ 159
Description of Capital Stock and Charter Documents of the
Company.................................................. 161
Authorized Capital Stock................................. 161
Common Stock............................................. 161
Series A Convertible Perpetual Preferred Stock........... 162
Other Series of Preferred Stock.......................... 164
Preemptive Rights........................................ 164
Transfer Agent and Registrar............................. 164
Certain Changes in Rights of Stockholders Resulting from
the Combination.......................................... 165
Changes in Rights of Upjohn Stockholders................. 165
Size and Classification of Board of Directors............ 165
General Meeting of Stockholders.......................... 165
Special Meeting of Stockholders.......................... 166
Amendment of Charter Documents........................... 166
New Preferred Stock...................................... 167
Changes in Rights of Pharmacia Stockholders.............. 167
Size and Classification of the Board of Directors........ 168
Removal of Directors..................................... 168
Shareholder Vote Required for Certain Combination........ 168
General Meeting of Stockholders.......................... 169
Amendment of Charter Documents........................... 170
Dividends................................................ 170
Preemptive Rights........................................ 171
Business Combination..................................... 171
Dissenters' Rights....................................... 172
Legal Matters.............................................. 172
Experts.................................................... 172
Index to Financial Statements.............................. F-1
Annex A -- The 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>
4
<PAGE> 11
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
"ADS Bank"......................................
"ADSs"..........................................
"Affiliates"....................................
"affiliates"....................................
"Agent's Message"...............................
"AMP"...........................................
"ANDAs".........................................
"Antitrust Division"............................
"APB 16"........................................
"BCP"...........................................
"Biosensor".....................................
"Book-Entry Confirmation".......................
"Book-Entry Transfer Facilities"................
"Book-Entry Transfer Facility"..................
"business day"..................................
"Canadian Person"...............................
"Change of Control".............................
"CNS"...........................................
"Co-Promotion Agreement"........................
"Code"..........................................
"Combination"...................................
"Combination Agreement".........................
"Combination Conditions"........................
"Commission"....................................
"Commission Order"..............................
"Company".......................................
"Company Certificate"...........................
"Company ESOP"..................................
"Compensation Committee"........................
"Compulsory Acquisition"........................
"Conversion Price"..............................
"BCP"...........................................
"Dealer Managers"...............................
"Delaware Court"................................
"Depositary"....................................
"DGCL"..........................................
"EBIT"..........................................
"EBITD".........................................
"ECU"...........................................
"EEC"...........................................
"Effective Time"................................
"Engagement Letter".............................
"Enskilda"......................................
"EPA"...........................................
"EPS"...........................................
"Exchange Act"..................................
"Expenses"......................................
"FDA"...........................................
"FFDCA".........................................
"FICE"..........................................
"Final Expiration Date".........................
"Final Offer Period"............................
"forvaltare"....................................
"FTC"...........................................
"Genentech".....................................
"Goldman Sachs".................................
"Guaranteed Delivery Procedures"................
"HSR Act".......................................
"IBD/RA"........................................
"Information Agent".............................
"Initial Expiration Date".......................
"Interim Offer Period"..........................
"IOLs"..........................................
"IV"............................................
"Kabi Pharmacia"................................
"KabiVitrum"....................................
"Liquidation"...................................
"LMWH"..........................................
"LSE"...........................................
"LTM"...........................................
"MAC"...........................................
"Medical Products Agency".......................
"Meeting".......................................
"Merger"........................................
"Merger Letter of Transmittal"..................
"Merger Sub"....................................
"Minimum Condition".............................
"Montedison"....................................
"Morgan Stanley"................................
"NASD"..........................................
"NASDAQ NMS"....................................
"NCE"...........................................
"NDA"...........................................
"New Common Stock"..............................
"New Preferred Stock"...........................
"Noon Buying Rate"..............................
"NYSE"..........................................
"Offer"*........................................
"Offer Letter of Transmittal"...................
"Offer Period"..................................
"Old Pharmacia".................................
"Pharmacia".....................................
"Pharmacia Articles"............................
"Pharmacia Biosystems"..........................
"Pharmacia Board"...............................
"Pharmacia Class A Common Shares"...............
"Pharmacia Class B Common Shares"...............
"Pharmacia, or the Group".......................
"Pharmacia Securities"..........................
"Pharmacia Shares"..............................
"PHS"...........................................
"Plan"..........................................
"Procordia"
"Prospectus"....................................
"Provence"......................................
"PRP"...........................................
"Recommendation"................................
"Record Date"...................................
"Redemption Price"..............................
"Registration Statement"........................
"S&C Tax Opinion"...............................
"S&S Tax Opinion"...............................
"Schedule 14D-1"................................
"Schedule 14D-9"................................
"SEAQ International"............................
"Securities Act"................................
"SEK"...........................................
"Selected Combination"..........................
"Selected Companies"............................
"Severance Agreements"..........................
"Severance Arrangements"........................
"SFAS 87".......................................
"SFAS 106"......................................
"SSE"...........................................
"Standard"......................................
"State".........................................
"Stock Options".................................
"Stockholder"...................................
"Stockholder Agreements"........................
"Swedish GAAP"..................................
"Swedish Newco".................................
"Swedish Offer".................................
"Swedish Sub"...................................
"Term"..........................................
"TPN"...........................................
"United States".................................
"Upjohn"........................................
"Upjohn Board"..................................
"Upjohn Certificate"............................
"Upjohn Certificates"...........................
"Upjohn Common Stock"...........................
"Upjohn Excess Shares"..........................
"Upjohn Material Contract"......................
"Upjohn Preferred Stock"........................
"Upjohn Special Meeting"........................
"Upjohn Termination Fee"........................
"U.S.$ or $"....................................
"USDA"..........................................
"U.S. GAAP".....................................
"U.S. Holders"..................................
"U.S. Person"...................................
</TABLE>
5
<PAGE> 12
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 will be
filing 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 be filing 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 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 in this Prospectus
by reference as 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 to 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.
Upjohn's 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. Pharmacia's Class A Shares and Class B Shares
are listed on the Stockholm Stock Exchange (the "SSE") and quoted on Stock
Exchange Automatic Quotation International ("SEAQ International"), and American
Depositary Shares representing Pharmacia's Class A Common Shares 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.
Following the consummation of the Combination, the Company will prepare
annual reports which will be distributed to its stockholders. The Company's
annual report will contain financial information examined and reported upon,
with an opinion 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, will be prepared in conformity with accounting principles
generally accepted in the United States. Additionally, the consolidated
financial statements of the Company will be translated to Swedish and into
Swedish kronor.
6
<PAGE> 13
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 into 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 and May,
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 to be part hereof 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 AKTIEBOLAG, TO PHARMACIA, 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 SHOULD BE MADE BY ,
1995.
7
<PAGE> 14
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 at the rate of $1.00 to SEK 7.2833, 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 kronor amounts actually represent such U.S. dollar amounts or 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>
AT DECEMBER 31,
JUNE 30, -----------------------------------------------
1995 1994 1993 1992 1991 1990
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
At end of period........................ 7.2833 7.4295 8.3400 7.0790 5.5550 5.6335
Average for period*..................... 7.3351 7.6654 7.8778 5.8787 6.0456 5.9106
High for period......................... 7.5245 8.3840 8.4835 7.1150 6.6280 6.2850
Low for period.......................... 7.1073 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 August 18, 1995, the high and low
Noon Buying Rates, respectively, were SEK 7.387 and SEK 7.047. On August 18,
1995, the Noon Buying Rate was U.S. $1.00 = SEK 7.36. The closing spot rate for
the Swedish kronar in the United States on August 18, 1995, as reported by the
Federal Reserve Bank of New York, was US $1.00 = SEK 7.387.
8
<PAGE> 15
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
"Glossary of Defined Terms." This Summary is qualified in its entirety by
reference to the full text of this Prospectus, the Schedules and the Exhibits
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, 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 Combination, 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. 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. The Company's
principal executive offices are located
at Fleming Way, Crawley, Sussex RH10 2LZ,
England, and its main telephone number is
(011-44-123) 953-1133.
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 existence will thereupon
be terminated. Merger Sub's executive
offices are located at 7000 Portage Road,
Kalamazoo, Michigan, and its main
telephone number is (616) 323-4000.
9
<PAGE> 16
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 of their respective pharmaceutical, over-the-counter, generics,
animal health and other businesses under the ownership of the Company, a newly
organized Delaware corporation (the "Combination"). 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"), 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,"
"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 Combination, assuming full acceptance of the
Offer by Pharmacia stockholders. One half of the members of the Board of
Directors of the Company has been nominated by Upjohn and the other half has
been 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 Headquarters."
The Company would have had combined 1994 sales of nearly $7 billion, 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 product introductions and line extensions in the
next three years. 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 of the Company 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 Merger 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
Merger -- Reasons for the Merger and Upjohn Board Recommendation" and "The
Combination -- Fairness Opinions."
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. In reaching its determination, the Pharmacia
Board
10
<PAGE> 17
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. Incorporated ("Morgan Stanley"), financial advisors to
Pharmacia, described herein.
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.
FAIRNESS OPINIONS
Upjohn Financial Advisors. Goldman Sachs has delivered its written opinion
to the Upjohn Board that as of August 20, 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 is fair from a financial point
of view to the holders of 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, 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 , 1995, at
, commencing at 9:00 a.m., Eastern Standard 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 , 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 the Record Date, there were shares of Upjohn
Common Stock outstanding, entitled to vote at the Upjohn Special Meeting and
held by approximately holders of record, and shares of Upjohn
Preferred Stock outstanding, entitled to vote at the Upjohn Special Meeting. All
of the outstanding shares of Upjohn Preferred Stock are held of record by 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 Plan is entitled to 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 properly executed and delivered proxy. See "The Upjohn Special
Meeting -- Voting at the Upjohn Special Meeting."
The affirmative vote of a majority of 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 , 1995, personally held shares of Upjohn
Common Stock, or approximately percent of the Upjohn Common Stock then
outstanding (of which shares were held in a fiduciary capacity), have
indicated that they intend to vote or direct the vote of
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<PAGE> 18
all the outstanding shares of Upjohn Common Stock over which they have voting
control in favor of the adoption of the Combination Agreement and will recommend
a vote in favor of adoption of the Combination Agreement with respect to shares
as to which they are fiduciaries. The trustee of the Plan has indicated that it
intends to direct the vote of such shares either in favor of or against the
adoption of the Combination Agreement, as directed by the beneficial owners
thereof. 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
approval and 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 Merger -- Proxies."
All expenses of this solicitation, including the cost 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
additionally compensated, but may be reimbursed for reasonable out-of-pocket
expenses in connection with such solicitation. Upjohn has retained
at an estimated cost of $ , 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."
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<PAGE> 19
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 acceptance of the Offer by Pharmacia. See "The
Merger -- Effect of the Merger."
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 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 248,947,796 shares of New Common Stock, (ii) each outstanding
share of 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 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 7,322 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 the surviving corporation. See
"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, 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, determined
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 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 and filed
in the office of the Recorder of New Castle County, Delaware, 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 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 and (iii) the other conditions set forth in Article IX
of the Combination Agreement (the conditions described in clauses (i), (ii) and
(iii), the "Combination Conditions")). See "The Combination
Agreement -- Conditions to the Transactions." 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."
Exchange Procedures. Promptly after consummation of the Merger, the
Exchange Agent will send to each holder of Upjohn capital stock a form of letter
of transmittal (a "Merger Letter of Transmittal"), and instructions for
surrendering shares of Upjohn stock in exchange for the merger consideration.
After surrender
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<PAGE> 20
to the Company of the certificates representing Upjohn Common Stock and Upjohn
Preferred Stock certificates 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 to be 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 Executive Severance Plan and the Upjohn Employees Severance Plan
(the "Severance Arrangements") which together cover most United States based
employees who are exempt from the Fair Labor Standards Act and certain
managerial employees abroad. 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 supercede 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 Combination Agreement -- The
Merger -- Treatment of Upjohn Stock Options" 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, certain 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
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."
THE OFFER AND THE COMPULSORY ACQUISITION
The Combination Agreement contemplates an offer by the Company to exchange
shares of New Common Stock for (i) Pharmacia Class A Common Shares and (ii)
Pharmacia Class B Common Shares, and ADSs representing Pharmacia Class A Common
Shares. The Offer will be conducted in two parts: (i) an offer to purchase
Pharmacia Shares that are beneficially owned by U.S. Persons and all outstanding
ADSs (the "U.S. Offer") pursuant to this Prospectus and (ii) 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 non-U.S.
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<PAGE> 21
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 that are non-U.S. Persons will receive, at their option, either
shares of New Common Stock or SDSs representing shares of New Common Stock
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.
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) would have the right
under the Swedish Companies Act to commence a process leading to a compulsory
acquisition by a Swedish wholly owned subsidiary of the Company for cash of any
Pharmacia Securities not theretofore tendered (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 Combination
Agreement --."
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 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 their intention to support the
Transactions.
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 and not withdrawn prior to the Final Expiration Date in
accordance with the procedures set forth in this Prospectus. The Offer Period
will consist of three different periods (i) the Initial Offer Period, (ii) the
Interim Offer Period and (iii) the Final Offer Period, as described below. The
term "Initial Offer Period" shall mean the period from and including
, 1995, to and including the Initial Expiration Date. The
term "Initial Expiration Date" shall mean 12:00 Noon, New York City time, on
, 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 Combination
Conditions have not been satisfied (such period the "Interim Offer Period"), in
which case the Offer will, effective as of the Initial Expiration Date, be
extended. Following the satisfaction or, if permissible, waiver of the
Combination Conditions, the Offer will remain open during a period of
approximately 15 days period immediately following the determination of such
satisfaction or such waiver (such period, the "Final Offer Period" and such 15th
day, the "Final Expiration Date"). HOLDERS OF PHARMACIA SECURITIES WILL NOT HAVE
THE RIGHT TO WITHDRAW SUCH SECURITIES FROM THE OFFER DURING THE INTERIM OFFER
PERIOD OR 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
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<PAGE> 22
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 -- Conditions" and "The Combination Agreement -- Conditions to the
Combination" (iii) waive, to the extent permissible, any condition, or otherwise
amend the Offer in any respect, by giving oral written notice of such delay,
termination or amendment to the Depositary and by making a public announcement
thereof. The Combination Agreement provides that Pharmacia and Upjohn may
jointly cause the Company to take certain actions, including waiving any of the
Combination Conditions, and the Company has agreed to take all such actions if
so directed.
The Company has retained to act as the Information
Agent and to act as Depositary in connection with the
U.S. Offer. See "The U.S. Offer to Purchase -- Section 10."
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 the Combination 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 Exchange Offer
expires without any shares of Pharmacia Shares having been accepted for payment;
(v) the other party's Board of Directors (A) withdraws or adversely modifies or
changes its recommendation of the Transactions or (B) recommends 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 is commenced and such other party's Board of Directors fails to
recommend against acceptance of such offer; (vii) the other party breaches 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 so terminate 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 below) incurred by such party in connection with the Combination, in
each case, 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 (the "EEC")
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. Consummation of the
Merger is conditioned upon receipt by Upjohn of an opinion of Sullivan &
Cromwell, special counsel to Upjohn, substantially to this effect. For a further
discussion of federal income tax
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<PAGE> 23
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 who 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. Consummation of the Offer is conditioned upon the
receipt by Pharmacia of an opinion of Shearman & Sterling, special tax counsel
to Pharmacia, substantially to this effect. 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.
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 Bohlinb (or another member of
the KPMG group), Pharmacia's independent accountants, stating that the
Combination will qualify as a pooling-of-interests transaction under Opinion No.
16 of the Accounting Principles Board ("APB 16"). 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
505,000,000 shares of New Common Stock outstanding, assuming full acceptance of
the Offer by Pharmacia stockholders, and 7,322 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") and except for New Common Stock represented by SDSs issued
in the Swedish Offer (which may not be sold in the United States during a 40 day
restricted period). 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 promulgated under the Securities Act or another
applicable exemption from the registration requirements of the Securities Act.
Volvo, which owns Pharmacia Shares representing 27.5% of the share capital and
27.8% of the voting rights, and Stattum, which owns Pharmacia Shares
representing 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 Agreements 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 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
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<PAGE> 24
market and other conditions, but could occur relatively soon after the Effective
Time. It is expected that Stattum will enter into an agreement substantially
similar to the Registration Rights Agreement.
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 becomes effective on the earlier of the
completion of the initial product promotion plans or April 1, 1996, whereby
Upjohn will have the right to co-promote Fragmin, Estring and Mycobutin in the
United States and Canada. Upon a change of control of either Upjohn or
Pharmacia, either party may terminate the 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 Combination,
assuming full acceptance of the Offer by Pharmacia stockholders.
Pursuant to the Combination Agreement, the Board of Directors of the
Company 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
Company's By-laws provide that, until 2001, one half of the Company's Directors
shall be citizens of the United States or Canada and one half shall be nationals
of European Union member states or Sweden.
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 Board of the Company 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's By-laws provide that until 2001 the Chairman and President and Chief
Executive Officer may not both be citizens of the United States or Canada or
nationals of European Union member states or Sweden and, unless otherwise
approved by 80% of all of the directors of the Company (the "Directors"), may
not be the same person. The Company will be led by an integrated global
corporate management group drawn from both companies 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 505 million shares of New Common Stock and
approximately 7,322 shares of New Preferred Stock. See Note 2 to the Pro Forma
Consolidated 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. The declaration and payment of future
dividends, however, depends 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 the Swedish Depositary Shares ("SDSs")) will be entitled to one
vote per share on all matters submitted to a vote of the Company's stockholders.
Each share of New Preferred Stock will be entitled to vote on all matters
submitted to a vote of the Company's stockholders, voting together with the
holders of New Common Stock
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<PAGE> 25
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 would be converted on the record date for determining
stockholders entitled to vote, rounded to the nearest one-hundredth of a vote.
See "Description of Capital Stock and Charter Documents of the Company."
LISTING
Application will be made to list the New Common Stock on the NYSE and the
London Stock Exchange (the "LSE") and the SDSs on the Stockholm Stock Exchange
(the "SSE"). The Company expects that the New Common Stock will be quoted on
SEAQ International immediately following the Effective Time.
RISK FACTORS
SEE "RISK FACTORS" FOLLOWING THIS "SUMMARY" FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY INVESTORS IN EVALUATING AN INVESTMENT IN
THE SECURITIES OFFERED HEREBY.
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) August 18, 1995, the last
full trading day prior to the date of this Prospectus, was $39.625 per share.
The last sale prices of the Pharmacia Shares on the SSE were SEK 179.25 per
Class A Share and SEK 178.25 per Class B Share at the close of business on
August 18, 1995 and SEK 181.00 per Class A Share and SEK 182.50 per Class B
Share at the close of business on August 18, 1995. The last sale price of the
Pharmacia ADSs as quoted on NASDAQ was $25.38 per ADS on August 18, 1995 and
$25.38 per ADS on August 18, 1995.
Holders of shares of Upjohn Common Stock and Pharmacia Securities are urged
to obtain current market quotations for such securities.
19
<PAGE> 26
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
is based on the unaudited June 30, 1995 balance sheets of both Upjohn and
Pharmacia and assumes the Combination occurred on that date. The pro forma
income statement data is 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 assumes the Combination occurred at January 1,
1992. The selected unaudited pro forma financial data should be read in
conjunction with the Pro Forma Unaudited 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 Pro Forma Unaudited 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. U.S. GAAP
differs in certain significant respects from Swedish GAAP.
The Pro Forma Unaudited 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. The amount and timing of
such costs cannot be precisely predicted and, consequently, such costs cannot
presently be quantified. Upon final determination, a substantial charge will be
recorded during and reflected in the Company's statement of earnings
as a non-recurring charge to operations in accordance with U.S. GAAP and as a
result will reduce stockholders' equity on the Company's balance sheet. 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 Pro
Forma Financial Statements of the Company to any such benefits.
THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS OF THE COMPANY DO 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 SUCH DATE OR AT THE BEGINNING OF THE PERIODS INDICATED OR TO
PROJECT THE FINANCIAL POSITION OR RESULTS OF OPERATIONS FOR ANY FUTURE DATE OR
PERIOD.
20
<PAGE> 27
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA OF THE COMPANY
(U.S. GAAP)
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
SIX MONTHS SIX MONTHS ---------------------------------------------------
ENDED ENDED
JUNE 30, 1995 JUNE 30, 1994 1994 1993 1992
--------------- ------------- --------------- --------------- ---------------
($) (SEK) (SEK) ($) (SEK) ($) (SEK) ($) (SEK)
------ ------ ------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Revenue............
Earnings from continuing
operations.................
Earnings from continuing
operations per share.......
Dividends per common share...
Total assets.................
Long-term debt...............
</TABLE>
<TABLE>
<CAPTION>
PHARMACIA UPJOHN
HISTORICAL HISTORICAL PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
CERTAIN COMPARATIVE INFORMATION:
Book value per common share at June 30, 1995....................... $ $ 14.47 $
Book value per common share at December 31, 1994................... 13.76
Earnings from continuing operations per share for the six months
ended
June 30, 1995.................................................... 1.51
Earnings from continuing operations per share for the six months
ended June 30, 1994..............................................
Earnings from continuing operations per share for the year ended
December 31, 1994................................................ 2.75
Earnings from continuing operations per share for the year ended
December 31, 1993................................................ 2.20
Earnings from continuing operations per share for the year ended
December 31, 1992................................................ 2.92
Dividends per common share for the six months ended June 30,
1995............................................................. .74
Dividends per common share for the six months ended June 30,
1994.............................................................
Dividends per common share for the year ended December 31, 1994.... 1.48
Dividends per common share for the year ended December 31, 1993.... 1.48
Dividends per common share for the year ended December 31, 1992.... 1.42
</TABLE>
---------------
(1) The translation of U.S. dollars into Swedish kronor has been made at SEK
7.2833 to $1.00 solely for the convenience of the reader and does not form
part of the financial statements from which the summary unaudited pro forma
financial data have been extracted.
21
<PAGE> 28
SUMMARY UNAUDITED PRO FORMA BALANCE SHEET DATA OF THE COMPANY
(U.S. GAAP)
<TABLE>
<CAPTION>
JUNE 30, 1995
-----------------------------
PRO FORMA PRO FORMA
($) (SEK)
---------- ----------
(IN MILLIONS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
</TABLE>
---------------
(1) The translation of U.S. dollars into Swedish kronor has been made at SEK
to $ solely for the convenience of the reader and does
not form part of the financial statements from which the summary pro forma
financial data has been extracted.
22
<PAGE> 29
SUMMARY COMPARATIVE PER SHARE DATA
The following table summarizes certain unaudited selected financial
information on a pro forma and pro forma equivalent per share basis and is
derived from, should be read in conjunction with and is qualified in its
entirety by reference to, the pro forma condensed combined financial data that
are included elsewhere herein and the historical financial statements of Upjohn
and Pharmacia which are included elsewhere herein or incorporated herein by
reference. The information presented in this table is for informational purposes
only and is not necessarily indicative of future combined earnings or financial
position or of combined earnings or financial position that would have been
reported had the combination been completed at the beginning of the respective
periods or as of the dates for which such unaudited pro forma information is
presented.
23
<PAGE> 30
SUMMARY SELECTED FINANCIAL DATA
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)
<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 $1.26 per share.
24
<PAGE> 31
PHARMACIA SUMMARY SELECTED FINANCIAL DATA
The summary selected financial data for each of the four years ended
December 31, 1994 are derived from the audited consolidated financial statements
of Pharmacia and the Notes thereto. The summary selected financial data for the
six months ended June 30, 1995 and 1994 are derived from the unaudited
consolidated financial statements of Pharmacia. The following data should be
read in conjunction with "Pharmacia Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Pharmacia Consolidated
Financial Statements and the Notes thereto contained elsewhere herein and are
qualified in their entirety by reference to the Pharmacia Consolidated Financial
Statements and such Notes. The following summary selected financial data treat
the branded consumer products operations ("BCP"), which were demerged effective
July 1, 1993, as discontinued operations for all periods presented. Results of
Farmitalia Carlo Erba S.r.1. ("FICE") are included in the Pharmacia Consolidated
Financial Statements from May 1, 1993, the effective date of its acquisition by
Pharmacia.
Pharmacia prepares its consolidated financial statements in accordance with
Swedish GAAP, which differ in certain significant respects from U.S. GAAP. See
Note 25 to the Pharmacia Consolidated Financial Statements for a description of
the significant differences between Swedish GAAP and U.S. GAAP affecting
Pharmacia's consolidated net income and stockholders' equity.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------- --------------------------------------------
1995 1995 1994 1994(2) 1994 1993(1) 1992 1991
----- ----- ----- ------- ------ ------- ------ ------
($) (SEK) (SEK) ($) (SEK) (SEK) (SEK) (SEK)
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
AMOUNTS IN ACCORDANCE WITH SWEDISH GAAP:
Sales...................................... 3,632 26,450 24,708 15,448 13,652
Operating income from continuing
operations............................... 741 5,398 3,327 2,153 1,680
Financial income and expenses, net......... (10 ) (76) (6 ) 391 7
Income from continuing operations before
income taxes and minority interests...... 731 5,322 3,321 2,544 1,687
Income taxes on continuing operations...... (280 ) (2,041) (1,148 ) (961) (293)
Minority interests......................... -- (2) (5 ) 16 (1)
Net income from continuing operations...... 450 3,279 2,168 1,599 1,393
Net income from continuing operations per
Share/ADS................................ 1.77 12.92 8.55 6.31 5.49
APPROXIMATE AMOUNTS IN ACCORDANCE WITH U.S.
GAAP:
Net income from continuing operations...... 365 2,656 1,281 1,029 492
Net income from continuing operations per
Share/ADS................................ 1.44 10.47 5.05 4.06 1.94
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED AS OF DECEMBER 31,
JUNE 30, --------------------------------------------
------------- 1994(2) 1994 1993(1)
1995 1995 ------- ------ -------
----- -----
($) (SEK) (SEK)
($) (SEK)
1992
------
(SEK)
1991
------
(IN MILLIONS) (SEK)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
AMOUNTS IN ACCORDANCE WITH SWEDISH GAAP:
Liquid assets..................................... 550 4,004 3,099 7,934 5,352
Total current assets.............................. 2,090 15,227 14,492 15,157 10,897
Total fixed assets................................ 2,372 17,278 19,083 6,772 5,872
Net assets of discontinued operations(3).......... -- -- -- 9,533 8,480
Total assets...................................... 4,463 32,505 33,575 31,462 25,249
Total current liabilities......................... 1,228 8,942 13,266 7,301 4,036
Long-term borrowings.............................. 161 1,174 1,235 428 437
Stockholders' equity.............................. 2,490 18,132 15,697 20,609 18,195
APPROXIMATE AMOUNTS IN ACCORDANCE WITH U.S. GAAP:
Stockholders' equity.............................. 3,320 24,181 22,420 31,002 --
</TABLE>
25
<PAGE> 32
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31,
----------------------------------------------
1994(2) 1994 1993(1) 1992 1991
------ ------ ------ ------ ------
($) (SEK) (SEK) (SEK) (SEK)
<S> <C> <C> <C> <C> <C>
(IN MILLIONS, EXCEPT % AND EMPLOYEES)
OTHER DATA
Capital expenditures.............................. 218 1,591 2,975 1,089 1,086
Net cash flow from operating activities........... 596 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).................. 18,622 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 acquisitions 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 1994 financial information has
been translated using the June 30, 1995 Noon Buying Rate of $1.00 = SEK
7.2833.
(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
Pharmacia Consolidated Financial Statements.
26
<PAGE> 33
RISK FACTORS
RISK OF NONREALIZATION OF SYNERGIES
The Combination involves the integration of two companies that have
previously operated independently. There can be no assurances 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 annual savings in operating
costs as a result of the Combination (through the combination and consolidation
of the respective research and development, manufacturing, sales, marketing and
administrative operations of Upjohn and Pharmacia) of approximately $500 million
annually, there can be no assurances that these savings will be realized.
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 EEC No. 4064/89, subject to waiver of such condition
in accordance with the terms of the Combination Agreement. Upjohn and Pharmacia
intend to pursue vigorously all required regulatory approvals. There can be no
assurance, 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."
RISK TO 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 assurances can be given that if
the Company decides to make such additional purchases of Pharmacia Securities
that 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 of Directors, 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 stockholders generally. The Combination will
give rise to certain entitlements and benefits with respect to certain 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
27
<PAGE> 34
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 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."
ANTI-TAKEOVER PROVISIONS
The Company's Restated Certificate of Incorporation and 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's Board of Directors into three
classes, each of which will serve for different three-year periods; (ii) provide
that only the Chairman of the Board, the President and Chief Executive Officer
or a majority of the Company's directors may call special meetings of the
stockholders; (iii) limit the ability of the stockholders to amend or repeal
certain provisions of the By-laws and the Restated Certificate of Incorporation,
except with the consent of holders of at least 66 2/3% of the Voting Stock (as
defined therein) or approval by 80% of all of the Directors. 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
shareholder 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. While these rights would not prevent the
takeover of the Company by a person not approved by the Board of Directors of
the Company, they may, if issued, have certain anti-takeover effects.
EXCHANGE RATES
Fluctuations in the relative value of Swedish kronor and U.S. dollars may
be significant to the Company and its stockholders because, among other things,
they affect the translation of the results of the Swedish kronor-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. The Company may implement currency hedging
strategies to help offset the effects of these fluctuations. See "Upjohn
Management's Discussion and Analysis of Results of Operations and Financial
Condition" and "Pharmacia Management's Discussion and Analysis of Results of
Operations and Financial Condition."
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 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. 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 -- Competition."
28
<PAGE> 35
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 affect 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 sufficient coverage at acceptable premium levels. See "Upjohn Management
Discussion and Analysis of Financial Condition and Results of Operations,"
"Description of Upjohn" and "Description of Pharmacia -- Competition -- Product
Liability."
29
<PAGE> 36
MARKET PRICE AND DIVIDEND DATA
As of August 18, 1995, there were 45,788 holders of record of Upjohn Common
Stock. As of August 18, 1995, there were approximately 4,276 holders of record
of Pharmacia Class A Common Shares, and of Pharmacia Class B Common Shares, and
54 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
Upjohn
The Upjohn Common Stock is listed on the New York Stock Exchange. 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 August 18, 1995).................................... 40.125 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) August 18, 1995, the last
full trading day prior to the date of this Prospectus, was $39.625 per share.
Holders of shares of Upjohn Common Stock and Pharmacia Shares are urged to
obtain a current market quotation for the Upjohn Common Stock.
Pharmacia
Pharmacia's share capital consists of the Pharmacia Class A Common Shares
and the Pharmacia Class B Common Shares. The Pharmacia Class A Common Shares and
the Pharmacia Class B Common Shares confer equal rights of participation in
Pharmacia's assets and profits, but each Pharmacia Class A Common Share confers
one vote per share while each Pharmacia Class B Common Share confers one-tenth
of one vote per share.
The principal market for trading in the Pharmacia Shares is the SSE, on
which the Pharmacia Shares have been traded since 1987. The Pharmacia Shares are
also quoted on SEAQ International. Since June 1994, the ADSs have been quoted on
NASDAQ. The ADSs are also quoted on SEAQ International.
The table below sets forth, for the periods indicated, the high and low
closing sale prices for the Pharmacia Class A Common Shares and the Pharmacia
Class B Common Shares as stated in the Official List
30
<PAGE> 37
of the SSE and the ADSs on NASDAQ. The Official List reflects price and volume
information for trades completed by members on the SSE during the day as well as
for inter-dealer trades completed off the SSE and certain inter-dealer trades
completed during trading on the previous business day.
Share prices for periods subsequent to November 11, 1993 reflect the
demerger of BCP by Pharmacia's predecessor, by way of a special dividend. Share
prices for earlier periods are therefore not comparable. See "Description of
Pharmacia -- Development."
<TABLE>
<CAPTION>
A SHARES B SHARES ADSS
-------------- -------------- ---------------
HIGH LOW HIGH LOW HIGH LOW
---- --- ---- --- ---- ----
(SEK PER (SEK PER ($ PER ADS)(1)
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 August 18, 1995)..... 182 158 181 157 1/2 25 3/8 22
</TABLE>
---------------
(1) Each ADS represents one Pharmacia Class A Common Share.
(2) June 17, 1994 through June 30, 1994.
The reported middle market prices of the Pharmacia Shares on the Stockholm
Stock Exchange 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 179.25 per Pharmacia Class A Common Share
and SEK 178.25 per Pharmacia Class B Common Share and (ii) August 18, 1995, the
last full trading day prior to the date of this Prospectus, were SEK 179.25 per
Pharmacia Class A Common Share and SEK 178.25 per Pharmacia Class B Common
Share. 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.
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.
31
<PAGE> 38
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 $.37 per share dividend on June 20, 1995 which
was paid on August 1, 1995 to stockholders of record on July 11, 1995.
Pharmacia
The following table sets forth dividends in respect of Pharmacia Shares for
the period indicated. Dividends are declared annually and are subject to the
approval of Pharmacia Stockholders.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 SEK U.S.$(1)
---------------------------------------------------------------------------- ---- --------
<S> <C> <C>
1990................................................................... 2.85 .47
1991................................................................... 3.15 .54
1992................................................................... 3.55 .49
SIX MONTHS ENDED JUNE 30
1993................................................................... (2) (2)
SIX MONTHS ENDED DECEMBER 31
1993................................................................... 2.20(3) .28(3)
</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 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.
For the year ended December 31, 1994, Pharmacia paid a cash dividend of SEK
2.60 ($.34) per Pharmacia Share.
32
<PAGE> 39
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 SEK 26,450 million and its operating income was SEK 5,398 million.
THE COMBINATION AND THE COMPANY
The Boards of Directors of Upjohn and Pharmacia have unanimously approved
the Combination. 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, 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 members of
the Board of Directors of the Company 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 companies 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. 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 of Upjohn & Pharmacia believe that, as a result of the
Combination, the Company will be well-positioned to compete in this environment.
33
<PAGE> 40
BUSINESS
Based on combined 1994 sales, the Company's prescription pharmaceutical
business would have ranked among the top ten in the worldwide industry. 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.
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 product introductions and line extensions in the next
three years and deeper penetrations of existing markets. The Company expects to
have 24 products in early phase clinical testing, including promising agents in
oncology, diseases of the central nervous system, infectious diseases, asthma,
urinary incontinence and vascular disease.
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 the 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 the Company"
and the Financial Statements of the Company contained elsewhere herein.
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 assurances can be given, the Company expects to achieve
operating cost synergies of over $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 assurances can be given, management estimates that in excess of 85%
of the consolidation will be in effect by the end of 1996. Cost reductions will
come from both companies and will be spread throughout the geographic regions in
which the Company will conduct business. It is currently anticipated that the
total workforce reduction of the Company will involve over 4,000 employees.
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 assurances 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. These can be no assurances,
however, that additional unexpected costs will not be incurred.
34
<PAGE> 41
THE UPJOHN SPECIAL MEETING
GENERAL
This Prospectus is being furnished to holders of Upjohn Common Stock and
Upjohn Preferred Stock by and on behalf of the Upjohn Board in connection with
the solicitation of proxies by the Upjohn Board for use at the Special Meeting
of Stockholders of Upjohn to be held at 9:00 a.m., Eastern Standard Time, on
, 1995 at [ ] (the "Meeting") and at any
adjournments or postponements thereof. This Prospectus and the accompanying form
of proxy are first being mailed to stockholders of Upjohn on or about
, 1995.
HOLDERS OF PHARMACIA SECURITIES WHO ARE NOT ALSO UPJOHN 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 THE STOCKHOLDERS OF UPJOHN VOTE FOR ADOPTION OF THE COMBINATION
AGREEMENT.
VOTING AT THE UPJOHN SPECIAL MEETING
The Upjohn Board has fixed the close of business on ,
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 the
Record Date, there were shares of Upjohn Common Stock outstanding,
entitled to vote at the Upjohn Special Meeting and held by approximately
holders of record, and shares of Upjohn Preferred Stock outstanding,
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. 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 properly executed and delivered proxy.
The affirmative vote of a majority of 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 , 1995, personally held shares
of Upjohn Common Stock, or approximately percent of the Common Stock then
outstanding (of which shares were held in a fiduciary capacity), 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 will recommend a vote of approval
with respect to shares as to which they are fiduciaries.
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.
35
<PAGE> 42
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,
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 Special Meeting or (iii) attending the Special Meeting and voting in person
(although attendance at the 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, 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, including the cost 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
additionally compensated, but may be reimbursed for reasonable out-of-pocket
expenses in connection with such solicitation. The Company has retained
at an estimated cost of $ , 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.
36
<PAGE> 43
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 Merger 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 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; Board's
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 any subsidiary of Upjohn, all of which will be cancelled) will be
converted into the right to receive 1.45 shares of New Common Stock with the
result that all of the outstanding shares of Upjohn Common Stock will be
converted collectively into 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 7,332 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 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,
determined as described 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 Preferred Stock in all respects except for the
conversion ratio, which has been adjusted in light of the Exchange Ratio.
37
<PAGE> 44
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 (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. The holders of the fractional share interests
will be paid in lieu of receiving fractional shares, without interest, as soon
as practicable after the determination by the Exchange Agent as to the portion
of the proceeds to which such holder is entitled.
EXCHANGE PROCEDURES
From and after the Effective Time, (i) certificates representing Upjohn
Common Stock converted in the Merger ("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 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 a Upjohn Certificate is registered, it will be a condition of such exchange
that the Upjohn Certificate so surrendered be properly endorsed or otherwise 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 so converted, 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 so
converted, and cash in lieu of fractional shares pursuant to the terms of the
Combination Agreement and in accordance with the transmittal letter, 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
such declared dividends and distributions which shall have become payable with
respect to such New Common Stock in respect of a record date after the Effective
Time will be paid to the holder of record of the full shares of New Common Stock
represented by the Upjohn Certificate issued in exchange therefor, without
interest.
After the Effective Time, there will be no further transfers of Upjohn
Common Stock on the stock transfer books of Upjohn. If a 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 and cash
in lieu of fractional shares and any dividends and distributions will be issued
in exchange therefor.
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. Three years after the Effective Time (or such earlier date
immediately prior to such time as the securities would otherwise escheat 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 the Company will then, to the extent
permitted by law, be free and clear of any claims or interest of any holder of
Upjohn Common Stock in respect thereof.
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<PAGE> 45
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 RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
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 and filed in the office of the
Recorder of New Castle County, Delaware, 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's 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 superceded by employment and severance
agreements with the Company, which will be comparable to the existing
agreements. In the event the severance agreements are not superceded, 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 2-year period following a
change in control, the executive would receive pursuant to the 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 3-year period immediately preceding the year of the change
in control and (ii) continued welfare plan insurance coverage for up to 30
months. If the severance agreements remain in effect and the executive officers
were terminated following a change in control, the executive officers would
receive aggregate payments equal to $ , 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 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
39
<PAGE> 46
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 5 years from such
termination 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."
The 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 2 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 2-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 2-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 the Upjohn
Preferred Stock, with respect to those shares of Upjohn Preferred Stock which
did not consent to the Merger, will be entitled to have the "fair value" of such
shares of Upjohn Preferred Stock at the Effective Time of the Merger (exclusive
of any element of value arising from the accomplishment or expectation of the
Merger) judicially determined 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.
The Trustee as the sole record holder of Upjohn Preferred Stock in order to
exercise appraisal rights 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 the notice from Upjohn of the Effective Time of the Merger
and that appraisal rights are available (such notice to be mailed by the merged
company either before the effective date of the Merger or within 10 days
thereafter). It is currently anticipated that the Merger will be consummated in
or around December 1995. This Prospectus is being mailed to the Trustee as the
sole record holder of Upjohn Preferred Stock to satisfy such notice 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.
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Finally, the Trustee must execute (or have executed on its behalf) a demand
for appraisal, fully and correctly. The Trustee as the record holder 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 beneficial owners of such shares. If
less than all, 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 of the Upjohn Preferred
Stock.
If the Trustee elects to exercise its appraisal rights, it should mail or
deliver its written demand to Upjohn, 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 the merged
company 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 dissenter's 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 the Company. 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 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 income tax consequences of the Merger.
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<PAGE> 48
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 an offer by the Company to exchange
shares of New Common Stock for (i) Pharmacia Class A Common Shares and (ii)
Pharmacia Class B Common Shares, in each case held by U.S. Persons and ADSs
representing Pharmacia Class A Common Shares. The 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 the same price 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 non-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 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 HOLDERS
OF PHARMACIA SECURITIES AND UNANIMOUSLY RECOMMENDED THAT SECURITYHOLDERS 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 Company's
Schedule 14D-1. The Schedule 14D-9 contains the Pharmacia Board's unanimous and
unconditional recommendation that holders of Pharmacia Securities ACCEPT the
Offer.
The U.S. Offer is being made to holders of ADSs and, with respect to
Pharmacia Shares, only to U.S. Persons who hold beneficially or of record such
Pharmacia Shares. Notwithstanding the foregoing, arrangements have been made so
that the U.S. Offer may also be accepted by Canadian Persons. In connection with
tenders of Pharmacia Shares, holders will be required to certify that they are
either a U.S. Person or a Canadian Person. As used herein, the term "U.S.
Person" means any individual who is a resident or citizen of the United States,
a corporation, partnership or other entity created or organized in or under the
laws of the United States or an estate or trust the income of which is subject
to United States federal income taxation regardless of the source; provided,
however, that the term "U.S. Person" does not include a branch or agency of a
United States bank or insurance company that is operating outside the United
States for valid business reasons as a locally regulated branch or agency
engaged in the banking or insurance business and not solely for the purpose of
investing in securities not registered 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. As used herein, 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 sub-division thereof.
In order to facilitate the making of the U.S. Offer application has been
made to the Commission asking the Commission to issue an Order (the "Commission
Order") granting the Company certain relief concerning 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
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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 (i) all outstanding Pharmacia Class A Common Shares
that are owned of record or beneficially by U.S. Persons on the basis of one
Pharmacia Class A Common Share for one newly issued share of New Common Stock,
(ii) all outstanding Pharmacia Class B Common Shares that are owned of record or
beneficially by U.S. Persons on the basis of one Pharmacia Class B Common Share
for one share of New Common Stock, and (iii) all outstanding ADSs, whether or
not held by U.S. Persons, on the basis of one ADS for one share of New Common
Stock.
Conditions. The U.S. Offer is conditioned upon the satisfaction or, if
permissible, waiver of the Combination Conditions, as is the Swedish Offer. 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 were to own Pharmacia
Securities representing more than 90 percent of the share capital and voting
rights of Pharmacia exercisable at a general meeting of stockholders of
Pharmacia, the Company would contribute all of the Pharmacia Securities acquired
in the Offer to a newly formed wholly owned subsidiary organized under the laws
of the Kingdom of Sweden ("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 (as defined herein) to commence a process
leading to a Compulsory Acquisition. If this level is obtained by the Company as
a result of the Offer or otherwise, the Company intends to contribute its
Pharmacia Securities to Swedish Sub as to cause Swedish Sub to exercise its
right to effect the Compulsory Acquisition. The Compulsory Acquisition initiated
by Swedish Sub will relate to all Pharmacia Shares, including Pharmacia Class A
Common Shares underlying the ADSs.
Absent an agreement between Swedish Sub and all remaining holders of
Pharmacia Shares 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
Swedish Companies Act. Under Sections 31 through 35 of Chapter 14 of the Swedish
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. The
Company is not currently aware of any special reasons which would be applicable
in this case. 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. The Company expects that the price paid in the
Compulsory Acquisition would be determined by reference to the value of New
Common Stock. There can be no assurance 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 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 securityholders of Pharmacia upon
posting appropriate security for payments to be made in connection with the
Compulsory Acquisition. Interest is set by the tribunal typically at the
official rate per annum set by the Swedish Central Bank (which, as of August 15,
1995 was 9.5 percent per annum) plus two to four percent per annum as set by the
tribunal, payable on the security posted from the date the security is posted 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
assurances 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 securityholders of Pharmacia
will not be obligated to pay brokerage fees or commissions or, except as set
forth in Instruction 6 of the Offer Letter of Transmittal, Swedish transfer
taxes on the purchase of Pharmacia Securities pursuant to the U.S. Offer. The
Company will
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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
(the "Depositary") and , 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 August 18, 1995, there were 3,499,348 ADSs outstanding, held of record by
54 ADS holders. Pharmacia has instructed the ADS Bank that from and after
, 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 or Canadian Persons.
Requests for appropriate forms may be directed to the ADS Bank at Citibank,
N.A., at .
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. Exchange with holders of Pharmacia Securities that are
Canadian Persons will be made on the same basis as exchange 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 AND PRORATION; EXPIRATION
DATE
General. Upon the terms and subject to the conditions set forth in the
U.S. Offer, as it 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 Final 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
the Final Offer Period. The term "Initial Expiration Date" shall mean 12:00
noon, New York City time on , 1995, unless and until the Company
extends the Initial Offer Period upon the termination of the Interim Offer
Period, 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, in accordance with Swedish exchange offer practice, the
Offer will continue to be extended to holders of Pharmacia Securities. If, at
the end of the Initial Offer Period, the Combination Conditions are determined
to be satisfied, or the Company determines to waive such conditions (such waiver
to be effected in accordance with the Combination Agreement), subject to the
applicable regulations of the Commission and the SSE the Final
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Offer Period will commence and will expire on the Final Expiration Date. If, at
the end of the Initial Offer Period, the Combination Conditions are determined
not to be satisfied, and the Company determines not to waive such conditions,
the Initial Offer Period will be extended effective as of the last scheduled
Initial Expiration Date, and the Initial Offer Period will expire on the next
scheduled Initial Expiration Date. HOLDERS OF PHARMACIA SECURITIES WILL NOT HAVE
THE RIGHT TO WITHDRAW THEIR PHARMACIA SECURITIES FROM THE OFFER DURING THE
INTERIM OFFER PERIOD OR 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 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 any
consideration 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 any condition to the extent permitted to do so 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.
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 during the Offer Period unless all Pharmacia Securities
validly tendered into the U.S. Offer and not withdrawn prior to the Final
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 and
who are believed by Pharmacia to be U.S. 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. 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.
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
(or facsimile copy thereof), properly completed and duly executed, together with
any required signature guarantees and any other required documents, must be
received
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by the Depositary at one of its addresses set forth on the back cover of this
Prospectus, and either (a) certificates representing such Pharmacia Securities
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 Final Expiration Date or (b) the tendering securityholder must comply with
the Guaranteed Delivery Procedures (as defined below).
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. 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 PHARMACIA SECURITIES
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
SECURITYHOLDER. 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 Pharmacia Securities 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. 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. 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 (as
defined below), 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 securityholder 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 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. Signatures on all Offer Letters of Transmittal must
be guaranteed by a firm that is a member of the Medallion Signature Guarantee
Program, except in cases where 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 an
Eligible Institution (an "Eligible Institution"). See Instruction 1 to the Offer
Letter of Transmittal. If the certificates for Pharmacia Securities 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
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<PAGE> 53
certificates for Pharmacia Securities not accepted for exchange or not tendered
are to be returned to, a person other than the registered owner(s) of Pharmacia
Securities so surrendered, then the certificates for Pharmacia Securities 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 Pharmacia Securities, with the signature(s) on such
certificates or stock powers guaranteed as aforesaid. See Instruction 5 to the
Offer Letter of Transmittal.
Guaranteed Delivery. If a holder of Pharmacia Securities desires to tender
Pharmacia Securities pursuant to the U.S. Offer and such holder's certificates
are not immediately available or, in the case of ADS holders, 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 Pharmacia Securities 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 Pharmacia Securities (or, in
the case of ADSs, timely confirmation of the book-entry transfer of
such ADSs into the Depositary's account at a Book-Entry Transfer
Facility, 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 an Agent's Message and any other documents
required by the Letter of Transmittal, are received by the Depositary
within five 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
Pharmacia Securities (or, in the case of ADSs, timely confirmation of a
book-entry transfer of such ADSs into the Depositary's account at a Book-Entry
Transfer Facility pursuant to the procedures set forth above), 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.
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 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
reserves the absolute right to waive any of the applicable conditions set out in
this Prospectus or any defect or irregularity in the tender of any Pharmacia
Securities. 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.
Other Requirements. By executing the Offer Letter of Transmittal, a
tendering securityholder irrevocably appoints designees of the Company, as such
securityholder's attorney-in-fact and proxy, with full power of substitution, in
the manner set forth in the Offer Letter of Transmittal, to the full extent of
such securityholder's rights with respect to Pharmacia Securities tendered by
such securityholder 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
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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 securityholder 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
securityholder 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.
It is a violation of Section 10(b) of the Exchange Act and Rule 10b-4
promulgated thereunder for a person to tender such Pharmacia Securities for his
or her account unless the person so tendering (a) owns such Pharmacia Securities
or (b) owns other securities convertible into or exchangeable for such Pharmacia
Securities or owns an option, warrant or right to purchase such Pharmacia
Securities and intends to acquire such Pharmacia Securities for tender by
conversion, exchange or exercise of such option, warrant or right. Section 10(b)
and Rule 10b-1 provide a similar restriction applicable to the tender or
guarantee of a tender on behalf of another person.
The acceptance of Pharmacia Securities by the Company pursuant to any of
the procedures described above will constitute a binding agreement between the
tendering securityholder and the Company upon the terms and subject to the
conditions applicable to the U.S. Offer, including the tendering
securityholder's representation that (a) such securityholder owns the Pharmacia
Securities being tendered within the meaning of Rule 10b-4 promulgated by the
Commission under the Exchange Act and (b) the tender of such Pharmacia
Securities complies with Rule 10b-1.
SECTION 3. WITHDRAWAL RIGHTS
The Company acknowledges that Rule 14d-7 under the Exchange Act provides
that stockholders of the 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.
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 PERIOD OR DURING 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 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'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.
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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 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, all Pharmacia Securities validly tendered into the U.S. Offer prior to
the Final Expiration Date and not withdrawn in accordance with the procedures
set forth in Section 3 above as promptly as practicable after the Initial
Expiration Date. 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 certificates evidencing such Pharmacia Securities (or, in the case
of ADSs, timely confirmation of a book-entry transfer of such ADSs into the
Depositary's account at a Book-Entry Transfer Facility as described in Section 2
above), an Offer Letter of Transmittal (or facsimile copy thereof) properly
completed and duly executed, together with any required signature guarantees, an
Agent's Message and any other documents required by the Offer Letter of
Transmittal.
For purposes of the U.S. Offer, the Company will be deemed to have accepted
for exchange, and hereby 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, approximately 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 the offer. If,
after determination of the results of the Offer following the end of the Interim
Period, it is determined that one or more Combination Conditions have 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 securityholders whose Pharmacia Securities have been
accepted for exchange until approximately two weeks after the Initial Expiration
Date. Accordingly, if the Offer is not extended following the expiration of the
Initial Offer Period, which expires on , 1995, the Company expects
to make such certificates available to tendering securityholders on
approximately , 1995. In the event that the Offer is extended, such
certificates are expected to be made available approximately two weeks after the
Initial Expiration Date. Delivery of the certificates for shares of New Common
Stock due to tendering securityholders 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
securityholders for purposes of the U.S. Offer. The Depositary will act as agent
for tendering securityholders for the purpose of receiving the certificates for
New Common Stock from the Company and transmitting the same to tendering
securityholders.
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
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expiration date of the Offer. 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 at the
end 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 into which such Pharmacia Securities are tendered, 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 securityholder 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, because of an invalid tender, the failure to satisfy a Combination
Condition, or otherwise, the certificates evidencing any such Pharmacia
Securities will be returned, without expense to the tendering securityholder
(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 Initial 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 subsidiaries or, to
the best knowledge of the Company, any of the persons listed in Schedule I or II
hereto, on the one hand, and Pharmacia or any of its directors, officers or
affiliates, on the other hand, 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
I or II hereto, on the one hand, and Pharmacia or any of its controlling
persons, subsidiaries, executive officers, or directors, on the other hand, and
(iii) neither the Company nor, to the best knowledge of the Company, any of the
persons listed in Schedule I or II hereto has any contract, arrangement,
understanding or relationship with any person with respect to any Pharmacia
Securities. See "Description of the Company."
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 or the Compulsory Acquisition. See "Summary -- The Pharmacia
Transaction."
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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) 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 (to the extent permissible). See
"The Combination Agreement -- Conditions to the Combination."
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. The
Monitor Company, a management consultant, is acting as advisor to Upjohn.
Skandinaviska, Enskilda, Banken, a Swedish bank ("Enskilda"), is also acting as
financial advisor to Pharmacia in connection with the Combination. Morgan
Stanley and Goldman Sachs will be paid fees as financial advisors. The Monitor
Company will be paid a fee of $ in connection with the Merger and
Enskilda will be paid a fee of SEK in connection with the Combination.
The Company has retained to act as the Information
Agent and to act as Depositary in connection with the U.S.
Offer. The Information Agent may contact securityholders 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
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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. From time to time, Upjohn has also explored 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. Upjohn held preliminary discussions
with several parties concerning such matters. Upjohn retained Goldman Sachs as
financial advisor to advise Upjohn with respect to strategic alternatives. See
"-- Fairness Opinions -- Upjohn Financial Advisor" for information concerning
such engagements. The Upjohn Board was informed of the various discussions being
held by senior management, and various presentations with respect to such
alternatives were made to the Upjohn Board of Directors by senior management and
Upjohn's financial and legal advisors.
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 to whom Pharmacia markets with focused sales teams.
Pharmacia has also aimed to maintain a significant presence in certain OTC
segments where it can develop health care products with strong brand names. In
the area of 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 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 from time
to time has considered possible strategic alliances or acquisitions and pursued
opportunities to expand its research and development activities in the United
States. Pharmacia retained Morgan Stanley as its financial advisor in connection
with its examination of strategic alterations.
The Combination arose out of discussions between Upjohn and Pharmacia which
began in February 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 a more desirable business opportunity and began discussions
regarding such a combination.
On May 4, 1995, Upjohn and Pharmacia executed a Confidentiality Agreement
providing for the exchange of confidential, proprietary information between
Upjohn and Pharmacia for the purpose of evaluating the proposed Combination. Mr.
John L. Zabriskie, Chairman and Chief Executive Officer of Upjohn, and Mr. Jan
Ekberg, President and Chief Executive Officer of Pharmacia, met on May 11, 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 June 15, the Pharmacia Board met and was briefly
advised as to the ongoing discussions. 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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The parties' counsel and financial advisors continued their discussions
throughout August 1995. Subsequent Pharmacia Board meetings were held on August
12, 1995 and August 17, 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 by
telephone.
Volvo and Stattum were each informed of the proposed Combination through
their representation on the Pharmacia Board. 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 this meeting, Volvo retained J.P. Morgan &
Co. as its financial advisor in connection with its consideration of the
proposed Combination. Each of Volvo and Stattum has indicated its intention to
support the Combination.
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, of Merger Sub.
On August 20, 1995, the Board of the Company, by a unanimous written
consent, approved 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 a unanimous
written consent, approved the execution and performance by the Company of the
Combination Agreement.
A special meeting of the Upjohn Board was held on August 19, 1995 to
consider the Combination and the related Combination. At that meeting, Upjohn's
senior management and counsel and financial advisors 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 approval of the
Combination 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
and voted unanimously to recommend that holders of Pharmacia Securities ACCEPT
the Offer.
REASONS FOR THE COMBINATION; BOARDS' RECOMMENDATIONS
Upjohn
The Upjohn Board believes that the terms of the Merger are fair to, and in
the best interests of, Upjohn and its stockholders and unanimously recommends
that the stockholders of Upjohn vote FOR approval 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 pharmaceutical research, crucial therapeutic areas and
key geographic markets in North America, Europe and Japan.
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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 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 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 and
Pharmacia's respective research and development programs and the
integration of overlapping manufacturing, distribution, sales and
administrative operations.
4. The Board'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 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 Upjohn 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 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 launch of
launch 28 introductions of pipeline products and new indications in the
next three years.
8. The fact that the securityholders of Upjohn will hold approximately
50% of the equity in the Company.
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
proven skill of Upjohn's and Pharmacia's respective management teams.
10. The 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 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, 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 consequences
to Upjohn stockholders.
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 shall be nationals of EU member
states or Sweden.
The Upjohn Board did not quantify or attempt to assign relative weights to
the specific factors considered in reaching its determination.
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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. 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. The consolidation taking place among pharmaceutical companies suggests
that large companies will be better able to compete in the pharmaceutical
industry and, as a top ten global pharmaceutical company in the world, the
Company will have 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.
2. 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.
3. Its belief that Upjohn's businesses provide an excellent geographic and
product fit with Pharmacia's businesses.
4. 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.
5. The ability the Combination will afford Pharmacia to utilize the core
technologies and knowledge of the Company to develop more cost-effective
pharmaceutical compounds and technologies for customers and to develop those
compounds and technologies more rapidly.
6. 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.
7. The fact that the Pharmacia Stockholders will have approximately a 50%
(assuming full acceptance of the Offer) 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.
8. 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 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.
9. The role that Pharmacia's management, which the Pharmacia Board believes
is experienced and proven in certain pharmaceutical fields, will play in the
overall management of the development and production of the Company's products.
10. 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).
11. Management's assessment of possible strategic alternatives, including
pursuing Management's internal growth case, mergers, acquisitions, joint
ventures and combining all or certain of Pharmacia's operations with a third
party.
12. 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.
13. 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.
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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 written opinion of Morgan Stanley dated August 20, 1995 that, as of
the date of such opinion, as set forth in such opinion, the number of shares of
New Common Stock or SDSs to be received by holders of Pharmacia Securities
pursuant to the Offer was fair to the holders of Pharmacia Shares from a
financial point of view.
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 its earlier opinion by
delivery of its written opinion dated August 20, 1995.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS, DATED AUGUST 20,
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) this Prospectus and the Registration
Statement of which it is a part; (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. Goldman Sachs also held 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 the
Company and Pharmacia as to the reasonableness and achievability of the
financial and operating forecasts (and the assumptions and bases therefore)
provided to Goldman Sachs, 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
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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. Goldman Sachs utilized substantially the same type
of financial analyses in connection with providing the written opinion attached
hereto as Annex B.
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, 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 estimated market 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. Goldman Sachs also considered for the Selected
Companies long-term projected EPS growth rates (based on publicly available
research analyst estimates) which ranged from 7% to 18% compared to 5% for
Upjohn.
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 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.
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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 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 projections. Based upon the
foregoing discounted cash flow analysis, the net present value per share of the
New 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
Holdings 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 Combination"). Such analysis
indicated that for the Selected Combination (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 Merger 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 EPS of the common stock of the Company on a
pro forma basis. Based on such analyses, the proposed transaction would be
accretive to Upjohn's stockholders on an earnings per share 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 and Pharmacia managements' forecasts for each of Upjohn,
Pharmacia and the combined 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
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 to earnings ratios 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 implied values 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 values per share under each of
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Upjohn's management's and the analysts' view which ranged from $43.47 to $48.60.
Goldman Sachs also analyzed the implied value 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
values per share 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 contemplated transaction. 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 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 described above, Goldman Sachs' opinion to the Upjohn Board was 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 of Directors 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 Class A Common Shares and ADSs.
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 the date of 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 Pharmacia ADSs and a short position of 10,000 Pharmacia ADSs.
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. In addition, pursuant
to the terms of the Engagement Letter, Upjohn has agreed to pay Goldman Sachs
$15,500,000 upon consummation of the Combination, less any other fees
theretofore paid pursuant to the Engagement Letter. 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.
As noted under the caption "The Merger -- Reason for the Merger and Upjohn
Board Recommendation," the fairness opinion of Goldman Sachs was only one of
many factors considered by the Upjohn Board of Directors in determining to
approve the Combination Agreement.
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Pharmacia Financial Advisor: Pharmacia retained Morgan Stanley to act as
its financial advisor in connection with the Combination. Morgan Stanley was
selected by the Pharmacia Board 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.
Morgan Stanley rendered to the Pharmacia Board at its meeting on August 20,
1995 its written opinion that, based upon and subject to the various
considerations set forth in the opinion, the Offer Exchange Ratio is 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 ENTIRELY 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 Certificate
of Incorporation and Bylaws of the Company; 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, Skandinaviska Enskilda with regard to certain Swedish
aspects of the Merger, including but not limited to, the structuring of the SDS
programme 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 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 (or an affiliate
thereof within the KPMG group) that the Combination will be accounted for as a
pooling of interests transaction in accordance with Swedish GAAP and US GAAP.
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 Pharmacia & Upjohn. Morgan Stanley
also noted that, as a result of the Offer Exchange Ratio, the stockholders of
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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 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 programmes). 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 programmes); (iii) Discounted Cash Flow Analysis:
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
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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 favourable 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. In addition, the Company expects that
the New Common Stock will be quoted on SEAQ International immediately following
the Effective Time. It is a condition to the Combination that the shares of New
Common Stock and the SDSs issuable in the Combination 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.
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FEDERAL SECURITIES LAW RESTRICTIONS
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.
Pursuant to the Registration Rights Agreement, at any time following the
date on which Volvo first receives New Common Stock in connection with the
Exchange 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 and
without restriction as to manner of sale 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 Exchange 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 Exchange Offer under such registration statement. Certain of
the rights of Volvo under the Registration Rights Agreements are assignable to
third parties with the consent of the Company. It is expected that Stattum will
enter into a registration rights agreement substantially similar to that entered
into by Volvo.
ACCOUNTING TREATMENT
The Combination is expected to qualify under applicable U.S. and SEC
accounting rules and standards as a "pooling of interests" for accounting and
financial reporting purposes. Under this accounting method, 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 new corporation. It is a
condition to the Combination that the Company and Pharmacia each receive from
each of KPMG Bohlins AB, Pharmacia's independent accountants, 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. accounting rules including, without limitation,
applicable SEC accounting standards. 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 hereby incorporated by reference in this Prospectus and is attached
hereto as Annex A.
THE MERGER
Effective Time of the Merger
The Combination Agreement provides that, provided that the Combination
Agreement has not been terminated, 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 purchase 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 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 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 certificates
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 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.
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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 Series B Preferred
Stock that are outstanding immediately prior to the Effective Time and that are
held by the trustee, as the sole record holder, who has not voted in favor of
the Merger or consented thereto in writing and who has demanded properly in
writing appraisal for such shares of Upjohn Series B Preferred Stock in
accordance with Section 262 of the DGCL will not be converted into or represent
the right to receive shares of New Series A Preferred Stock. See "The
Merger -- Appraisal Rights."
THE OFFER
The Combination Agreement states that, provided that the Combination
Agreement has not been terminated, 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, subject to the conditions set forth below, one share of New Common Stock
or one SDS and (ii) the Company will offer for each ADS, subject to the
conditions set forth below, one share of New Common Stock.
The initial expiration date of the Offer will be the date that is 20
Business Days after 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 set forth below have been satisfied; provided,
however, that after the satisfaction of the Upjohn Stockholder Approval
Condition (as set forth in clause (c) of the conditions below), 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 conditions set forth below, 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.
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
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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 Compulsory Acquisition (in which
case such method will be used), will 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 in exchange for all of the capital stock of such
subsidiary, and will cause such subsidiary 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 such subsidiary 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 such subsidiary 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 TRANSACTIONS
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
Combinationhall 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 (or an
affiliate thereof within 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 Pharmacia Transactions 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 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
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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 Transactions Agreement, (2)
Upjohn shall have amended the Upjohn 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 Upjohn 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 5.04(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 the Company 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 the 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 the 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 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 Transaction, or to permit the
consummation of the Transaction, 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 complied in all
material respects with all agreements and covenants required by the Combination
Agreement
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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 Final Expiration Date,
as though made on and as of the Final 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 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 SSE and the Commission 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 (including, without limitation,
any phantom interest), of Upjohn or any Upjohn Subsidiary (except for the
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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 the Combination
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 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 Section 7.01(b) of the
Combination Agreement 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.
Pharmacia has agreed to comply with substantially similar limitations with
regard to the conduct of its business prior to the Effective Time.
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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
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 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 the 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.
THE COMPANY BOARD OF DIRECTORS AND HEADQUARTERS
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
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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.
Moreover, 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
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.
REGIONAL OPERATION CENTERS
As part of its global capability, the Company intends to retain and develop
regional operation centers in each of Stockholm, Sweden, Kalamazoo, Michigan and
Milan, Italy.
EMPLOYEE BENEFIT MATTERS
Pharmacia, Upjohn and the Company agree to the following with respect to
the compensation and benefits programs:
(i) except as contemplated by the Combination Agreement or Annex A of
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 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
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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 Upjohn Employee Savings
Plan/Employee Stock Ownership 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;
(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, Newco shall 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; and
(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 its
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 AB 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).
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 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 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 Combination and any party hereto shall have commenced
an appeal thereof, the Combination 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 the Combination Agreement be extended beyond May 31,
1996;
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(c) by either Pharmacia or Upjohn, if any Order preventing the
consummation of the Merger or the Pharmacia Combination 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
Combination 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 shares of Pharmacia Stock 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 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
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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 Transaction 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 Transaction.
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 in the Combination Agreement) 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.
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
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
(as defined below) of Pharmacia, then promptly after such termination, or (in
the case of clause (C)) promptly after the consummation of such
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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 provided for in
the two preceding paragraphs 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 in the two preceding paragraphs,
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 approval 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 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
conditions to the Transactions contained in Article IX of the Combination
Agreement if so directed by Pharmacia and Upjohn, jointly, and (y) may not waive
any such conditions without the prior written consent of each of Upjohn and
Pharmacia. Any waiver of a condition set forth in Section 9.01 of the
Combination Agreement, or any determination that such 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 condition for any and all
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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 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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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 by reference in this Prospectus from Upjohn's Current
Report on Form 8-K dated August 21, 1995.
Upjohn and Pharmacia have entered into a Co-Promotion Agreement, dated as
of August 20, 1995 (the "Co-Promotion Agreement"), whereby Upjohn will
co-promote Fragmin, Estring and Mycobutin in the United States and Canada during
the period from the completion of the initial product promotion plan through
December 31, 2000. Upon a change of control of either Upjohn or Pharmacia,
either party may terminate the agreement.
The Co-Promotion Agreement is not subject to consummation of the
Combination. As compensation for the co-promotion of the products, Pharmacia
shall compensate Upjohn for co-promotion services performed an amount equal to
such fraction of 25% of the aggregate net sales of the products or portion
thereof as the amount of Upjohn's promotional efforts under the Co-Promotion
Agreement bears to the aggregate amount of such efforts performed by both
parties. Such promotional efforts are to be measured by aggregate time spent by
each party's relevant salesforce on co-promotional activities, provided that
Upjohn will receive not less than 15% of the aggregate net sales of the
products. Neither party shall be entitled to any other compensation with respect
to the co-promotion of the products other than as explicitly stipulated in the
Co-Promotion Agreement.
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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, holders 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, 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 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 fractional share of New Common Stock pursuant to the
Merger and then as having received such cash in a redemption of such fractional
share of New Common Stock. Under Section 302 of the Code, provided that such
deemed distribution is "substantially disproportionate" with respect to such
U.S. Holder or is "not essentially equivalent to a dividend" after giving effect
to the constructive ownership rules of the Code, the U.S. Holder will generally
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, 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. An 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 STOCK 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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<PAGE> 87
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 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 "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. Upjohn
and Pharmacia intend to file 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 30 days subsequent to such filing, 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 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
substantial assets of Upjohn, Pharmacia or their affiliates. Private parties and
state attorneys general may also bring legal action under U.S. 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.
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 are 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
81
<PAGE> 88
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 that four months after the initiation of proceedings.
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 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 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 acquirer from voting on the arrears 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 Pharmacia's in vitro diagnostic and blood
products may be subject to the United States Federal Food, Drug, and Cosmetic
Act (the "FFDCA"). 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 or Drug Establishment) as an amendment to
the Registration of Drug Establishment currently on file with the FFDCA.
Pharmacia is required to file a Registration of Drug Establishment annually. The
Company, Upjohn and Pharmacia intend to cooperate in making such filing in a
timely manner. The Company also understands that Pharmacia's business may be
subject to similar regulation by the laws of
82
<PAGE> 89
foreign jurisdictions in which Pharmacia operates 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 what 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.
83
<PAGE> 90
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 Merger and the Offer, Upjohn and Pharmacia will be, directly or indirectly,
wholly-owned subsidiaries of the Company, which will have its executive offices
in London. 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. The Company's fiscal year
will end on December 31. Upjohn and Pharmacia determined in the course of
negotiations in connection with the Combination to incorporate the Company in
Delaware.
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."
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
Based on combined 1994 sales, the Company's prescription pharmaceutical
business would have ranked among the top ten in the worldwide industry. The
Company's initial annual research and development expenditures is 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.
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 product introductions and line extensions in the next
three years and deeper penetrations of existing markets. The Company expects to
have 24 products in early phase clinical testing, including promising agents in
oncology, diseases of the central nervous system, infectious diseases, asthma,
urinary incontinence and vascular disease.
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 the 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 the Financial Statements of
the Company contained elsewhere herein.
As of the Effective Date, the Company will have approximately 34,500
employees.
84
<PAGE> 91
DIRECTORS AND EXECUTIVE OFFICERS
The following persons, as of the Effective Time will be, the directors
and/or executive officers of the Company:
<TABLE>
<CAPTION>
NAME POSITION
------------------------------------------------ -----------------------------
<S> <C>
Jan Ekberg...................................... Chairman and Director
John L. Zabriskie............................... President and Chief Executive
Officer and Director
</TABLE>
For certain biographical information concerning Messrs. Zabriskie,
, , , and , see
"Description of Upjohn -- Directors and Executive Officers." For certain
biographical information concerning Messrs. Ekberg, , ,
, and , see "Description of
Pharmacia -- Directors and Executive Officers."
There are no family relationships among any director or executive officer
and any other director or executive officer of the Company, except that Mr.
and Mr. are .
The Company By-laws require a board comprised of not less than 8 nor more
than 16 members, which number may be increased or decreased within such range by
the Company's Board. 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 European Union member states or Sweden, (ii) the Chairman of the
Board and Chief Executive may not be the same person unless otherwise approved
by 80% of the Directors and (iii) one-half of the Directors shall be citizens of
the United States or Canada and one-half shall be nationals of European Union
member states or Sweden. As of the Effective Time, the Company will have 16
Directors. As permitted under the DGCL, the Company's 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 -- 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 in Management" for a discussion of certain interests
of the directors and executive officers of Upjohn and
85
<PAGE> 92
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 Company executive
directors and officers 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.
86
<PAGE> 93
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following pro forma combined balance sheet as of June 30, 1995, and the
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 are
unaudited. The pro forma combined financial statements have been prepared to
reflect the business combination of Pharmacia and Upjohn in accordance with U.S.
GAAP under the pooling-of-interests method of accounting. The Combination will
occur through the formation of the Company which will issue shares of
New Common Stock and shares of New Preferred Stock, which will be
exchanged for all of the outstanding shares of Pharmacia Securities and Upjohn
Common Stock and the Upjohn Preferred Stock. The Unaudited Pro Forma Combined
Balance Sheet at June 30, 1995 was prepared as if the combination was effective
at June 30, 1995. The Unaudited 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 effective as of
January 1, 1992. The unaudited 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 Pro Forma Combined Financial Statements.
The unaudited 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 is considering the
nature and extent of the charges to be incurred. The amount and timing of such
costs and therefore such charge cannot be precisely predicted and, consequently,
such costs cannot be presently quantified. Upon final determination, a
substantial charge will be recorded in either during 1996 or 1995 and be
reflected in the Company's statement of earnings as a non-recurring charge to
operations and as a result will reduce stockholders' equity. 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 pro forma combined financial
statements.
The unaudited pro forma data is provided for comparative purposes only. It
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 such date or at the beginning of the periods
indicated or to project the financial position or results of operations for any
future date or period. The unaudited pro forma combined financial data 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.
87
<PAGE> 94
PHARMACIA & UPJOHN, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1995
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------------- ------------------------
ADJUSTMENTS COMBINED
PHARMACIA UPJOHN INC. (DEC.) TOTAL
---------- ----------- ----------- --------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................ $ 303,914
Trade accounts receivable (net).......... 671,767
Inventories.............................. 502,172
Deferred income taxes and other.......... 664,027
---------- ----------- -------- --------
Total current assets............. 2,141,880
---------- ----------- -------- --------
Investments.............................. 598,254
Property, plant and equipment............ 3,203,532
Less allowance for depreciation.......... (1,351,189)
---------- ----------- -------- --------
Net property, plant and equipment........ 1,852,343
---------- ----------- -------- --------
Other noncurrent assets.................. 651,109
Intangibles, net......................... --
---------- ----------- -------- --------
Total assets..................... $ 5,243,586
========== =========== ======== ========
Current liabilities:
Accounts payable, short-term debt accrued
liabilities and dividends payable..... $ 357,404
Income taxes payable..................... 226,702
Other.................................... 494,967
---------- ----------- -------- --------
Total current liabilities........ 1,079,073
---------- ----------- -------- --------
Long-term debt........................... 515,005
Guarantee of ESOP debt................... 267,200
Postretirement benefit cost.............. 374,607
Deferred income taxes and other
noncurrent liabilities................ 505,322
Shareholders' equity:
Preferred stock.......................... 292,719
Common stock............................. 190,590
Capital in excess of par value........... 62,828
Retained earnings........................ 2,891,048
ESOP deferred compensation and currency
translation adjustments............... (238,967)
Treasury stock, at cost.................. (695,839)
---------- ----------- -------- --------
Total shareholders' equity....... 2,502,379
---------- ----------- -------- --------
Total liabilities and
shareholders' equity........... $ 5,243,586
========== =========== ======== ========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements.
88
<PAGE> 95
PHARMACIA & UPJOHN, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------------------
--------------------------
ADJUSTMENTS COMBINED
PHARMACIA UPJOHN INC. (DEC.) TOTAL
---------- ---------- ----------- ----------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Operating revenue:
Net sales................................... $1,643,446
Other revenue............................... 74,123
---------- ---------- ---------- ----------
Total............................... 0 1,717,569 0
---------- ---------- ---------- ----------
Operating costs and expenses:
Cost of products sold....................... 446,828
Research and development.................... 290,809
Marketing and administrative................ 628,153
---------- ---------- ---------- ----------
Total............................... 0 1,365,790 0
---------- ---------- ---------- ----------
Operating income.............................. 0 351,779 0
---------- ---------- ---------- ----------
Other non-operating income, net............. 24,998
---------- ---------- ---------- ----------
Earnings from continuing operations before
income taxes................................ 0 376,777 0
---------- ---------- ---------- ----------
Provision for income taxes.................... 109,300
---------- ---------- ---------- ----------
Earnings from continuing operations........... 0 267,477 0
---------- ---------- ---------- ----------
Dividends on preferred stock (net of tax)... 6,186
---------- ---------- ---------- ----------
Earnings from continuing operations available
for common shareholders..................... 0 $ 261,291 0
========== ========== ========== ==========
Primary earnings from continuing operations
per common share............................ $
==========
Fully diluted earnings from continuing
operations per common share................. $
==========
Weighted average equivalent shares used in
primary per share calculation...............
==========
Weighted average equivalent shares used in
fully diluted per share calculation.........
==========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements.
89
<PAGE> 96
PHARMACIA & UPJOHN, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1994
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------------- ------------------------
ADJUSTMENTS COMBINED
PHARMACIA UPJOHN INC. (DEC.) TOTAL
---------- ---------- ----------- ----------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Operating revenue:
Net sales..................................... $
Other revenue.................................
---------- ---------- ---------- ----------
Total................................. 0
---------- ---------- ---------- ----------
Operating costs and expenses:
Cost of products sold.........................
Research and development......................
Marketing and administrative..................
---------- ---------- ---------- ----------
Total................................. 0 0
---------- ---------- ---------- ----------
Operating income................................ 0 0
---------- ---------- ---------- ----------
Other non-operating income, net...............
---------- ---------- ---------- ----------
Earnings from continuing operations before
income taxes.................................. 0 0
---------- ---------- ---------- ----------
Provision for income taxes......................
---------- ---------- ---------- ----------
Earnings from continuing operations............. 0 0
---------- ---------- ---------- ----------
Dividends on preferred stock (net of tax).....
---------- ---------- ---------- ----------
Earnings from continuing operations available
for common shareholders....................... 0 $ 0
========== ========== ========== ==========
Primary earnings from continuing operations per
common share.................................. $
==========
Fully diluted earnings from continuing
operations per common share................... $
==========
Weighted average equivalent shares used in
primary per share calculation.................
==========
Weighted average equivalent shares used in fully
diluted per share calculation.................
==========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements.
90
<PAGE> 97
PHARMACIA & UPJOHN, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL -------------------------
------------------------ ADJUSTMENTS COMBINED
PHARMACIA UPJOHN INC. (DEC.) TOTAL
---------- ---------- ----------- ----------
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<S> <C> <C> <C> <C>
Operating revenue:
Net sales.................................. $ $3,274,996
Other revenue.............................. 69,542
---------- ---------- ---------- ----------
Total.............................. 3,344,538 0
---------- ---------- ---------- ----------
Operating costs and expenses:
Cost of products sold...................... 843,152
Research and development................... 607,187
Marketing and administrative............... 1,294,752
---------- ---------- ---------- ----------
Total.............................. 2,745,091 0
---------- ---------- ---------- ----------
Operating income............................. 599,447 0
---------- ---------- ---------- ----------
Other non-operating income, net............ 44,041
---------- ---------- ---------- ----------
Earnings from continuing operations before
income taxes............................... 643,488 0
---------- ---------- ---------- ----------
Provision for income taxes................... 154,400
---------- ---------- ---------- ----------
Earnings from continuing operations.......... 489,088 0
---------- ---------- ---------- ----------
Dividends on preferred stock (net of
tax).................................... 12,291
---------- ---------- ---------- ----------
Earnings from continuing operations available
for common shareholders.................... $ $ 476,797 0
========== ========== ========== ==========
Primary earnings from continuing operations
per common share........................... $
==========
Fully diluted earnings from continuing
operations per common share................ $
==========
Weighted average equivalent shares used in
primary per share calculation..............
==========
Weighted average equivalent shares used in
fully diluted per share calculation........
==========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements.
91
<PAGE> 98
PHARMACIA & UPJOHN, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ------------------------
----------------------- ADJUSTMENTS COMBINED
PHARMACIA UPJOHN INC. (DEC.) TOTAL
---------- ---------- ----------- ----------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Operating revenue:
Net sales..................................... $3,339,957
Other revenue................................. 40,579
---------- ---------- ---------- ----------
Total................................. 0 3,380,536 0
---------- ---------- ---------- ----------
Operating costs and expenses:
Cost of products sold......................... 783,590
Research and development...................... 612,490
Marketing and administrative.................. 1,316,138
Restructuring................................. 208,789
---------- ---------- ---------- ----------
Total................................. 0 2,921,007 0
---------- ---------- ---------- ----------
Operating income................................ 0 459,529 0
---------- ---------- ---------- ----------
Other non-operating income, net............... 21,043
---------- ---------- ---------- ----------
Earnings from continuing operations before
income taxes.................................. 0 480,572 0
---------- ---------- ---------- ----------
Provision for income taxes...................... 84,201
---------- ---------- ---------- ----------
Earnings from continuing operations............. 0 396,371 0
---------- ---------- ---------- ----------
Dividends on preferred stock (net of tax)..... 12,125
---------- ---------- ---------- ----------
Earnings from continuing operations available
for common shareholders....................... 0 $ 384,246 0
========== ========== ========== ==========
Primary earnings from continuing operations per
common share.................................. $
==========
Fully diluted earnings from continuing
operations per common share................... $
==========
Weighted average equivalent shares used in
primary per share calculation.................
==========
Weighted average equivalent shares used in fully
diluted per share calculation.................
==========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements.
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<PAGE> 99
PHARMACIA & UPJOHN, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ------------------------
----------------------- ADJUSTMENTS COMBINED
PHARMACIA UPJOHN INC. (DEC.) TOTAL
---------- ---------- ----------- ----------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Operating revenue:
Net sales..................................... $3,256,188
Other revenue................................. 28,560
---------- ---------- ---------- ----------
Total................................. 0 3,284,748 0
---------- ---------- ---------- ----------
Operating costs and expenses:
Cost of products sold......................... 754,483
Research and development...................... 553,297
Marketing and administrative and other........ 1,314,259
---------- ---------- ---------- ----------
Total................................. 0 2,622,039 0
---------- ---------- ---------- ----------
Operating income................................ 0 662,709 0
---------- ---------- ---------- ----------
Other non-operating income, net............... 10,181
---------- ---------- ---------- ----------
Earnings from continuing operations before
income taxes.................................. 0 672,890 0
---------- ---------- ---------- ----------
Provision for income taxes...................... 145,900
---------- ---------- ---------- ----------
Earnings from continuing operations............. 0 526,990 0
---------- ---------- ---------- ----------
Dividends on preferred stock (net of tax)..... 12,084
---------- ---------- ---------- ----------
Earnings from continuing operations available
for common shareholders....................... 0 $ 514,906 0
========== ========== ========== ==========
Primary earnings from continuing operations per
common share.................................. $
==========
Fully diluted earnings from continuing
operations per common share................... $
==========
Weighted average equivalent shares used in
primary per share calculation.................
==========
Weighted average equivalent shares used in fully
diluted per share calculation.................
==========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements.
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<PAGE> 100
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
The unaudited pro forma combined financial statements have been prepared to
reflect the business combination of Pharmacia and Upjohn. The Combination will
occur through the formation of the Company which will issue shares of New
Common Stock and shares of New Preferred Stock, which will be exchanged for
all of the outstanding shares of Pharmacia Securities and Upjohn Common Stock
and the Upjohn Preferred. The Combination is reflected under the
pooling-of-interests method of accounting in accordance with U.S. GAAP. The pro
forma combined financial statements have been adjusted to reflect the
Combination.
The Pharmacia consolidated financial statements included elsewhere herein
were historically prepared in accordance with Swedish GAAP 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." Certain reclassifications were made to Pharmacia's
historical consolidated financial statements in order to conform with Upjohn's
presentation. The Pharmacia historical consolidated financial statements have
been translated into U.S. dollars as of June 30, 1995 at a rate of $1 = SEK
7.2625 and for the six-month periods ended June 30, 1995 and 1994, and for the
years ended December 31, 1994, 1993 and 1992 using the weighted average rates of
exchange of $1 = SEK 7.3402, 7.9053, 7.7128, 7.8004 and 5.8214, respectively.
1) To record estimated expenses associated with the Combination, which
include transaction, legal, [and other costs].
2) To record the issuance of shares of New Common Stock and
shares of New Preferred Stock in exchange for outstanding
shares of Pharmacia Securities, outstanding shares of Upjohn Common
Stock (an exchange ratio of 1.45 to 1) and outstanding shares of
Upjohn Preferred Stock.
3) Refer to Note D to the Upjohn Consolidated Financial Statements relating
to January 1, 1993 accounting changes resulting in a net charge of $18,906 or
$.11 per share and to January 1, 1992 accounting changes resulting in a net
charge of $222,895 or $1.26 per share.
(x) 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 that would have been outstanding
at the end of each period 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 is converted into common shares. Under this
assumption, the weighted average number of common shares outstanding is
increased accordingly, and net earnings is adjusted by the amount of an
incremental Employee Stock Ownership Plan contribution (the "Company ESOP").
This incremental contribution is the net-of-tax difference between the income
the Company ESOP would have received on the New Preferred Stock and the assumed
dividend yield to be earned on the New Common Stock.
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<PAGE> 101
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 first 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 non-prescription 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> 102
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. patent for
the anti-anxiety indication of 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. 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
lifethreatening 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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<PAGE> 103
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 throughout the world many of the prescription
pharmaceuticals described above. 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, Russia,
India,
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<PAGE> 104
China and South America. 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.
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 a U.S. pharmaceutical sales force of technically trained
representatives who call on physicians, pharmacists, hospital personnel, HMOs
and other managed health care organizations and wholesale drug outlets. Upjohn
has several contractual relationships with health maintenance and hospital group
purchasing organizations. Upjohn also recently developed a disease management
group to provide non-product-specific services in the United States. Upjohn has
realized no revenues from these services to date. In the United States and a
number of other countries outside of the United States most sales of
pharmaceutical products are made directly to pharmacies, hospitals, chain
warehouses, wholesalers and other distributors, although some are made to
physicians and governments. In several other countries outside of the United
States sales are made primarily to governments. Nonprescription drugs are also
sold to other retail stores. Domestic customers are served from several
distribution centers located throughout the United States. Separate sales forces
handle nonprescription drug sales and foreign pharmaceutical sales. In addition,
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. 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
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<PAGE> 105
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 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
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<PAGE> 106
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.
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. There are continuing
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research programs principally in the areas of cardiovascular diseases, central
nervous system diseases, infectious diseases, atherosclerosis and thrombosis,
hypersensitivity diseases, cancer, diabetes, hair growth, virology, AIDS, trauma
and biotechnology.
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>
101
<PAGE> 108
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 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, improve 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.
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<PAGE> 109
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 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 class action complaint is pending in the United States
District Court for the Western District of Michigan against Upjohn and certain
directors and officers of Upjohn seeking damages resulting from the alleged
failure of Upjohn to disclose material adverse information regarding HALCION.
The court has denied plaintiff's motion to certify the action as a class action
and recently denied another individual's motion to intervene as plaintiff and
class representative. Upjohn does not know whether the court's order will be
appealed. The plaintiff claims that the failure to disclose information about
HALCION caused the price of Upjohn's stock to be artificially inflated, which
caused him to purchase Upjohn stock at an excessive price. Another action makes
a derivative complaint alleging a pattern of misconduct by Upjohn and named
defendants purposely concealing or minimizing 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 cases.
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
103
<PAGE> 110
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 $100,000.00.
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 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 2500 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
104
<PAGE> 111
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; 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 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-
105
<PAGE> 112
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 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 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, Chief Operating Officer and Acting Chief Executive
Officer in 1993; he became Vice Chairman of the Board in 1991; and was elected
Executive Vice President in January 1989. 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 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."
106
<PAGE> 113
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.
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> 114
Set forth in the following table are the beneficial holdings as of
, 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.............................
Frank C. Carlucci............................
M. Kathryn Eickhoff..........................
Antonio M. Gotto, Jr. .......................
Daryl F. Grisham.............................
Lawrence C. Hoff.............................
Geraldine A. Kenney-Wallace..................
William E. LaMothe...........................
Jerry R. Mitchell............................
William D. Mulholland........................
Donald R. Parfet.............................
William U. Parfet............................
Robert C. Salisbury..........................
Ley S. Smith.................................
John L. Zabriskie............................
Directors and executive officers as a group
(16 persons)...............................
------------- ------- ----------- -----
Total
========== =========== ======== ====
</TABLE>
---------------
* To be filed by amendment as of the latest practicable date.
CERTAIN RELATIONSHIPS AND RELATED COMBINATION
Donald R. Parfet, Executive Vice President, and William U. Parfet,
Director, are brothers.
108
<PAGE> 115
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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<PAGE> 116
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)
<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.
110
<PAGE> 117
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 (ANDA's) protecting the
exclusivity for GLYNASE expired at the end of March, 1995.
111
<PAGE> 118
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.
112
<PAGE> 119
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.
113
<PAGE> 120
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.
114
<PAGE> 121
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.
115
<PAGE> 122
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.
116
<PAGE> 123
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 the Japan
and 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.
117
<PAGE> 124
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,
118
<PAGE> 125
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 ("EPA") 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.
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<PAGE> 126
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
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<PAGE> 127
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 and
related growth rates for 1993 and 1992 are provided in the table below.
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
traizolam, 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 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
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<PAGE> 128
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 annual 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 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.
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.
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<PAGE> 129
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 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 (ANDAs) for products
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<PAGE> 130
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 carry a
higher profit margin than other products sold by Upjohn and contribute a higher
proportion of net earnings than their respective contributions to consolidated
sales.
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<PAGE> 131
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 ("CNS") 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 Wentworth'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 Stattum in
Procordia was reduced and AB Volvo acquired a significant ownership interest in
Wentworth.
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<PAGE> 132
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, AB 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 Wentowrth. 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 AB Volvo agreed to
exchange all of Stattum's shares in BCP for A Shares and B Shares of Pharmacia
held by AB Volvo, thereby increasing Stattum's ownership in Pharmacia to 57.6%
of the voting rights and 46.1% of the share capital and reducing AB 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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<PAGE> 133
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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<PAGE> 134
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 1,055 1,021
----- -----
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's Union
expert committee for pharmaceutical
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<PAGE> 135
matters recommended that European Union members approve Genotropin for treatment
of adults with growth-hormone deficiency. Pharmacia received additional
approvals from authorities in Sweden, Denmark, Germany, France and the
Netherlands for this indication. Pharmacia is the only company to have been
granted regulatory approval for the adult growth hormone deficiency indication.
A deficiency of growth hormone in adults causes 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, if any.
Although Genotropin has some process patents, in many jurisdictions a
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 Octonativ-M, a coagulation
factor VIII product used for treating hemophilia. Other plasma products include
ATenativ (Antithrombin in Sweden), which is used for preventing blood clots and
treating coagulation disturbances, 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 U.S. Food
and Drug Administration (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 viscous, elastic
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,
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causing pressure on prices and a slight decline in Pharmacia's sales volume and
market share. Pharmacia has 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 worldwide 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 Proctor & 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 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 in-licensed. 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 (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.
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 ("CNS") 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 and Hoechst AG.
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."
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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 the year
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.
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
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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 believes
that OTC status will be obtained in the United States in 1995 or 1996.
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 laxatives 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
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.
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
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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.
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
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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 operating income 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.
RESEARCH AND DEVELOPMENT
Pharmacia aims to direct its research and development effort 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 also seeks to expand the markets for its
existing products by identifying new indications as well as by expanding their
international market penetration. Pharmacia concentrates its research and
development resources on selected areas where it has existing expertise and
where it has 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 3,800 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. 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. 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 projects in
different stages of development, in line with overall policies set by
Pharmacia's senior management. Pharmacia has developed many of
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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 currently is
focusing its NCE research on two areas in particular: 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 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. 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 two to three 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 7 projects in phase III
clinical trials, five projects involving NCE compounds in phase II clinical
trials and a number of projects in phase I and at the preclinical research
stage. 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
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therapies. The table below sets forth in summary form Pharmacia's current
principal NCE research and development projects in phase II and III clinical
trials in order of expected new drug application.
<TABLE>
<CAPTION>
CLINICAL
COMPOUND (THERAPEUTIC AREA) INDICATION PHASE
------------------------------------------------------ ------------------------ -------------
<S> <C> <C>
Latanoprost (Ophthalmic Diseases) Glaucoma III Submitted
Reboxetine (CNS) Depression III
Linomide (Oncology) Leukemia III
Recombinant Factor VIII (Bleeding/Bleeding Disorders) Hemophilia III
Structured lipids (Nutrition) Parenteral nutrition III
Eltanolone (Anesthesia) Induction anesthesia III
Tolterodine (Urology/Gynecology) Urinary incontinence III
Thymoctonan (Infection) Herpes genitalis, HIV II
Exemestane (Oncology) Breast cancer II
Linomide (Multiple Sclerosis) Multiple Sclerosis II
9-Aminocamptothecin (Oncology) Solid tumors II
Eltanolone (Anesthesia) Maintenance anesthesia II
</TABLE>
Although Pharmacia's research and development efforts are implemented by
the various business areas, research priorities are generally established
centrally, based upon an evaluation of the perceived potential therapeutic
benefits of a particular NCE project. As a consequence, 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 United States and
expects to submit an application in Japan during late 1995. Pharmacia is also
pursuing several projects relating to cataract surgery.
Central Nervous System Disorders. In the CNS area, Pharmacia has two
potential products in phase III clinical trials. Cabergoline, which is used for
the treatment of hyperprolactinemia, is being evaluated as a potential treatment
for Parkinson's Disease in the EU, and tests indicate that it may have a longer
duration of action compared with similar treatments, making possible a more
favorable dosage. Applications for treatment of Parkinson's Disease have been
submitted in a number of European countries. Reboxetine is an anti-depressant
and tests indicate that it may produce milder side effects than other
treatments. Clinical phase III studies have been completed in Europe and
applications are expected to be submitted in the first quarter of 1996.
Oncology. Pharmacia is focusing research and development efforts in the
oncology area on a series of new compounds and novel mechanisms of action for
the treatment of various forms of tumors, particularly those which respond
poorly, or are resistant, to currently available therapy.
This research is conducted primarily in facilities in Nerviano/Milan,
Italy, and in new laboratories in Lund, Sweden designed specifically for
preclinical research in tumor biology and immunology. The research program
covers chemotherapy, hormone therapy and immunotherapy as well as novel
approaches, which are being pursued particularly in long-term research.
Pharmacia's compound Linomide, a potential immunomodulator, is currently in
phase III clinical trials and being tested against a form of leukemia. Pharmacia
is currently evaluating whether to continue phase III clinical trials. In
addition, phase II studies are in progress in relation to the indication of
multiple sclerosis.
Pharmacia also has two compounds in the oncology area in phase II clinical
trials. Exemestane is a hormonal anticancer agent that is being tested as a
potential treatment for advanced breast cancer. Phase III
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studies will begin in 1995. Estramustin L-alaninat has been suspended from
clinical trials. Pharmacia had been in phase II studies for Tallimustine, for
its effect on solid tumors, but those studies did not show sufficient effect.
9-Aminocamptothecin is in clinical phase II studies for the treatment of solid
tumors.
In addition, Pharmacia is actively pursuing new indications for the
anthracycline drugs epirubicin (in solid tumors) and idarubicin (in
hematological malignancies). Idarubicin is the first anthracycline effective
when administered orally. It is currently being evaluated by regulators for use
in capsule form.
Bleeding/Bleeding Disorders. Recombinant Factor VIII, currently in phase
III clinical trials, is being developed as a substitute for natural factor VIII,
which is currently obtained from human plasma, and as a potential treatment for
hemophilia A, the most common form of hemophilia.
Nutrition. Pharmacia is researching structured lipids containing a
purified semi-synthetic mixture of triglycerides to be used as an energy source
in catabolic patients requiring I.V. nutrition, such as patients with multiple
trauma, cancer or burns. A wide range of I.V. nutrition compounds is currently
under development.
Anesthesia. Eltanolone is in phase III clinical trials as an induction and
in phase II as a maintenance agent for anesthesia. The compound, a steroid
hormone, is formulated with the emulsion technology developed by Pharmacia and
is administered intravenously without pain at the injection site.
Urology. A new chemical entity, tolterodine, is in phase III clinical
testing for urinary incontinence.
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 genital herpes and, as a second
indication, will be tested for treatment of infections in HIV-positive persons.
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 some countries), 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.
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.
Emulsion Technology. Pharmacia also has extensive experience in the area
of fat emulsions for I.V. administration and has developed special expertise in
their formulation and processing. Pharmacia continues to focus on the
development of fat emulsions for IV administration and collaborates with
biotechnology companies to provide material and technological support for their
preclinical and clinical studies.
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
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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.
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.
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
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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 are
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.
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
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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. However, sales in
Japan of Fragmin, Pharmacia's eighth largest selling product in 1994, are likely
to be negatively affected by changes in the Japanese reimbursement system which
would disallow reimbursement for Fragmin if used for certain indications.
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 introduced throughout the EU 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
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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 -Octonativ-M
-Adriblastina -Genomix -Oxigard
-Ansatipine -Genotropin/Genotonorm -Pharmacia CAP
System
-ALF -Healon -Pharmorubicin
-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
-Nutritwin
</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 date,
Pharmacia believes that such costs will not be likely to have a material adverse
effect on Pharmacia's financial position.
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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, material to the
financial condition of Pharmacia. In addition, Pharmacia is not aware of any
other pending material legal proceeding.
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DIRECTORS AND EXECUTIVE OFFICERS
Certain information regarding the current Directors and Executive Officers
of Pharmacia is set out below.
DIRECTORS
Soren Gyll, age 55, 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 Swedish Engineering Employers' Association.
Olof Lund, age 65, Vice Chairman of the Pharmacia Board. Mr. Lund was
appointed to the Pharmacia Board in 1992. He is the Chairman of Celsius
Industrier AB and Chief Executive Officer of Celsius AB. He is also the Chairman
of AssiDoman AB, Celsius Invest AB and Celsius Information Systems. 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).
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. 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 Wentworth. From 1990 to 1992, Mr. Ekberg served as President of
Kabi Pharmacia. He is a member of the boards of directors of Oy Partek AB, AB
Volvo Personvagnar 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, M.B.A., 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).
Gustaf Douglas, M.B.A., 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 also the Chairman of the Centre for Business Studies and Social
Research (SNS) and Swegon AB. He is Vice Chairman of Securitas AB and Sveriges
Television AB and a member of the boards of directors of Assa Abloy, Hasselfors
AB, Hagstromer & Qviberg, Munksjo, Stiftelsen Svenska Dagbladet and Oresund.
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
the Chairman of Oy Hartwall AB and Medix AB. He is also a member of the boards
of directors of Instrumentarium Oy, Lithells AB and Helsinki Science Park. Mr.
von Hertzen is also Chairman of HUCS Institute and a member of the Supervisory
Board of the Aamulehti Group.
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 Alfred Berg Holding
AB, Partena AB, Wentworth AB, Wentworth Fastigheter AB and Swedish Match AB. He
is also a board member of Borgtornet AB, Cultor AB, Lithells AB and Spira Invest
AB.
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, AB Volvo Lastvagnar AB, Inductus AB and Securitas
AB.
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.
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Bengt Samuelsson, M.D., age 61, Professor of Medical and Physiological
Chemistry, Director. Dr. Samuelsson was appointed to the Pharmacia Board in
1990. He is President of the Karolinska Institute, Stockholm. 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 Schering AG, Berlin. 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. He is also a
member of the Swedish Recombinant DNA Advisory Committee.
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.
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.
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.
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.
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.1.c. He is responsible for Corporate Research and Development,
Operations, Strategies, Business Development, Quality and Environmental/Risk
Management.
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
Pharmacia.
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.
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.
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<PAGE> 153
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.
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.
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.
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.
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.
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.
Toni Weitzberg, age 45, Group Vice President. Mr. Weitzberg serves as
President of Business Area Biopharmaceuticals. He has been employed by Pharmacia
since 1983.
Jan Wurtz, age 48, Group Vice President. Mr. Wurtz serves as President of
Business Area Diagnostics. He has been employed by Pharmacia since 1987.
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.
Anders Harfstrand, age 39, Senior Vice President. Dr. Harfstrand is Head of
Corporate Communications and Investor Relations. He has been employed by
Pharmacia since 1988.
Mats Pettersson, age 50, 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.
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.
Mats Lidgard, age 41, General Counsel. He is Head of Legal Affairs and
serves as Secretary to the Board and the Corporate Management Group. He has been
employed by Pharmacia since 1984.
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<PAGE> 154
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 August 18, 1995, with
respect to all stockholders known by Pharmacia to be owners of more than 10% of
Pharmacia Securities and the total amount of Pharmacia's share capital owned 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%
AB Volvo...................... 45,902,847 23,862,919 27.9% 26.8% 27.5% 27.8%
Directors and officers (as a
group)...................... 99,464 125,999 * 0.1% * *
</TABLE>
---------------
* Less than 0.1%
The number of Pharmacia Shares currently owned by Stattum and AB 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 AB Volvo acquired a
significant ownership interest in Procordia, Pharmacia's predecessor, in
connection with the 1990 merger of Procordia, Old Pharmacia and Provence. 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 AB 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 AB 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 AB 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.
148
<PAGE> 155
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 1995 1994
----- ----- -----
($) (SEK) (SEK) YEAR ENDED DECEMBER 31,
---------------------------------------------
1994(3)
-----
($) 1994
------
(SEK) 1993(2)
------
(SEK) 1992
------
(SEK) 1991
------
(SEK)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN MILLIONS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA
AMOUNTS IN ACCORDANCE WITH SWEDISH
GAAP:
Sales.................................. 3,632 26,450 24,708 15,448 13,652
Operating income from continuing
operations........................... 741 5,398 3,327 2,153 1,680
Financial income and expenses, net..... (10) (76) (6) 391 7
Income from continuing operations
before income taxes and minority
interests............................ 731 5,322 3,321 2,544 1,687
Income taxes on continuing
operations........................... (280) (2,041) (1,148) (961) (293)
Minority interests..................... -- (2) (5) 16 (1)
Net income from continuing
operations........................... 450 3,279 2,168 1,599 1,393
Net income from continuing operations
per Share/ADS........................ 1.77 12.92 8.55 6.31 5.49
APPROXIMATE AMOUNTS IN ACCORDANCE WITH
U.S. GAAP:
Net income from continuing
operations........................... 365 2,656 1,281 1,029 492
Net income from continuing operations
per Share/ADS........................ 1.44 10.47 5.05 4.06 1.94
</TABLE>
149
<PAGE> 156
<TABLE>
<CAPTION>
SIX MONTHS AS OF AND FOR THE YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, -------------------------------------------------
--------------- 1994(3) 1994 1993(2) 1992 1991
1995 1995 ----- ------ ------ ------ ------
----- -----
($) (SEK) (SEK) (SEK) (SEK)
($) (SEK)
(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........................... 550 4,004 3,099 7,934 5,352
Total current assets.................... 2,090 15,227 14,492 15,157 10,897
Total fixed assets...................... 2,372 17,278 19,083 6,772 5,872
Net assets of discontinued operations
(1)................................... -- -- -- 9,533 8,480
Total assets............................ 4,463 32,505 33,575 31,462 25,249
Total current liabilities............... 1,228 8,942 13,266 7,301 4,036
Long-term borrowings.................... 161 1,174 1,235 428 437
Stockholders' equity.................... 2,490 18,132 15,697 20,609 18,195
APPROXIMATE AMOUNTS IN ACCORDANCE WITH
U.S. GAAP:
Stockholders' equity.................... 3,320 24,181 22,420 31,002 --
OTHER DATA
Capital expenditures.................... -- -- 218 1,591 2,975 1,089 1,086
Net cash flow from operating
activities............................ -- -- 596 4,340 4,105 3,281 2,250
Research and development expenses(5).... -- -- 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) (6)....... -- -- 18,622 18,622 17,843 13,540 13,120
</TABLE>
---------------
NOTES TO SELECTED FINANCIAL DATA
(1) 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.
(2) 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."
(3) Solely for convenience of the reader, the 1994 financial information has
been translated using the June 30, 1995 Noon Buying Rate of $1.00 = SEK
7.2833.
(4) Operating income from continuing operations in 1990 reflects a charge of
MSEK 1,738 relating to the restructuring of Old Pharmacia upon its
acquisition by Wentworth. See "Description of Pharmacia -- Development."
(5) 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.
(6) 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.
150
<PAGE> 157
PHARMACIA MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
In June 1993, Wentworth's two principal owners, AB Volvo and Standard,
announced their agreement to seek the separation of Wentworth'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 Wentworth were transferred to BCP. In November 1993,
Wentworth 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
Wentworth share. At the same time, Wentworth 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 [and for the first six months of 1995], 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 50%, 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
151
<PAGE> 158
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)................. 349 338 675 687 631 687 631
Salazopyrin (Pharmaceuticals Uppsala)...... 355 298 643 610 494 610 494
------ ------ ------ ------ -----
6,354 6,014 11,725 10,723 6,665 11,750 9,187
Other products............................. 6,918 7,665 14,725 13,985 8,925 15,665
------ ------ ------ -----
Total...................................... 13,272 13,679 26,450 24,708 15,448 27,415 9,187
====== ====== ====== ====== =====
</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, 1995
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.
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<PAGE> 159
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 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, a product used to treat various central nervous system
disorders, 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, during hemodialysis (the removal of waste substances
by circulating blood through an artificial kidney) and for the treatment of
acute deep vein thrombosis, 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 autoimmune disorders, 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
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<PAGE> 160
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 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.
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<PAGE> 161
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.
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....................... 687 631 9 15 (6)
Salazopyrin...................... 610 494 23 23 --
-- -- --
------- -------
11,750 9,187 28 25 3
======= ====== ===== ======= ==========
</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
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<PAGE> 162
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.
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, a decrease of 69% over
1992 sales, excluding the effect of currency fluctuations. 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
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<PAGE> 163
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.
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
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<PAGE> 164
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 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,
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<PAGE> 165
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, 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 differ in certain significant respects from U.S. GAAP. Under
U.S. GAAP, net income from continuing operations for the six months ended June
30, 1995 and for the years ended December 31, 1994, 1993 and 1992 were MSEK
, MSEK 2,656, MSEK 1,281 and MSEK 1,029, respectively, compared with MSEK
, MSEK 3,279, MSEK 2,168 and MSEK 1,599 under Swedish GAAP. Net income
from continuing operations per Share for the six months ended June 30, 1995 and
for the years ended December 31, 1994, 1993 and 1992 was SEK , SEK 10.47,
SEK 5.05 and SEK 4.06 under U.S. GAAP, respectively, compared with SEK ,
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
, MSEK 24,181, MSEK 22,420 and MSEK 31,002, respectively, compared
with MSEK , 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 combination 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 approximate 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 (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and 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. 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
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<PAGE> 166
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 contracts of MSEK
outstanding to cover future transaction exposure, of which MSEK
was to cover U.S. dollar exposure and MSEK was to cover Japanese yen exposure,
MSEK to cover translation exposure and MSEK to cover Company
lending and net borrowings. The substantial majority of contracts that hedge
future exposures are due in 1995. The corresponding amounts at June 30, 1994
were MSEK , MSEK and MSEK , 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 gains
in forward currency exchange contracts in order to cover transaction exposure
unrealized losses. Pharmacia hedges its net assets denominated in
currencies other than kronor. At June 30, 1995, such hedging covered
approximately % 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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<PAGE> 167
DESCRIPTION OF CAPITAL STOCK AND
CHARTER DOCUMENTS OF THE COMPANY
The summary of the terms of the 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 Company Restated Certificate of Incorporation (the
"Company Certificate") and the By-laws of the Company, which have been filed as
Exhibits to the Registration Statement. The Company Certificate and 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 are shares of New Common Stock, and 100,000,000 of which are
shares of New Preferred Stock, of which 7,500 are designated Series A
Convertible Perpetual 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's Board to issue additional
shares of stock could enhance the Company's Board's ability to negotiate on
behalf of the stockholders in a takeover situation and also could be used by the
Company's 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 Company Series A Convertible
Perpetual Preferred Stock or any other series of the Company preferred stock,
holders of shares of New Common Stock will be entitled to receive dividends on
such stock out of the surplus profits of the Company when, as and if authorized
and declared by the Company's Board and to share ratably in the assets of the
Company legally available for distribution to its 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 Company Series A Convertible Perpetual
Preferred Stock and on any other shares of the Company preferred stock then
outstanding with dividend or distribution rights senior to the New Common Stock
have been paid.
Holders 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 Company Series A Convertible Perpetual Preferred Stock or any
other series of the Company preferred stock, the holders of such shares will
possess all voting power. See "-- Series A Convertible Perpetual 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 Stock, Pharmacia Class
B Common Stock or ADSs in connection with the Combination, or when issued upon
conversion of the Company Series A Convertible Perpetual 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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<PAGE> 168
SERIES A CONVERTIBLE PERPETUAL PREFERRED STOCK
Designation and Amount
The New Preferred Stock will have a par value of $.01 per share and a
liquidation preference of $40,300.00 per share, plus accrued and unpaid
dividends. The authorized number of shares of New Preferred Stock is 7,500. The
terms of the New Preferred Stock are essentially the same as those of the Upjohn
Series B Convertible Perpetual Preferred Stock issued to the State Street Bank
and Trust Company, as Trustee of the Plan, except that the Conversion Ratio has
been changed to take into account the effect of the Merger.
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 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's 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 in the event
that the Company ESOP is terminated at the following redemption prices, 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 from the Trustee to the Company or any
indebtedness, expenses or costs incurred by the holder for the benefit of the
ESOP, or (ii) in the event that the ESOP 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 that term is defined in
the Company Certificate) of the New Common Stock on the date as of which the New
Preferred Stock is to be redeemed.
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
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<PAGE> 169
to $43.00 per share of New Common Stock, with each share of New Preferred Stock
being valued at $43,000 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 stock into which each share of New Preferred Stock
is 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 (as that term is
defined in the Company Certificate) 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 that term is 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 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 ERISA or any
successor provisions of law, the New Preferred Stock of such holder will be
assumed by and will become preferred stock of such successor or resulting
corporation, having in respect of such corporation the same powers, preferences
and relative, participating, optional or other
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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's 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's
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 then market price of such shares. As of the date hereof, no shares
of any other series of the Company preferred stock are outstanding.
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
.
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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 Preferred Stock and shares of New Common Stock and Preferred Stock.
These differences arise from differences between Upjohn's Certificate of
Incorporation and By-laws and the Company Certificate and By-laws, the governing
instruments of the two companies. See "Description of Capital Stock 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. Copies of the Company Certificate and By-laws have been filed as
Exhibits to the Registration Statement. All summaries set forth herein are
qualified in their entirety by reference thereto. For further information as to
where these and other Exhibits to the Registration Statement may be obtained,
see "Available Information."
SIZE AND CLASSIFICATION OF BOARD OF DIRECTORS
The Company
The Company Certificate and By-laws require a board comprised of not less
than 8 nor more than 16 members, which number may be increased or decreased
within such range by the Company's Board. 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 European Union member states or
Sweden, (ii) the Chairman of the Board and the President and Chief Executive
Officer may not be the same person unless otherwise approved by 80% of all the
Directors and (ii) one-half of the Directors shall be citizens of the United
States or Canada and one-half shall be nationals of European Union member states
or Sweden. 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's Board is classified into 3 classes which are to be
as nearly equal as possible. Directors in each class serve for a term of 3
years, with the exception that members of the first class will initially be
elected for a term of 1 year after which members of such class will then be
elected for a term of 3 years, and members of the second class will initially be
elected for a term of 2 years, after which members of such class will then be
elected for a term of 3 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 3 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 3 classes. The Upjohn Board may designate either the
Chairman of the Board, Vice Chairman of the Board, or President as Chief
Executive Officer.
GENERAL MEETING OF STOCKHOLDERS
The Company
Under the Company By-laws, the 1996 annual meeting will be held in either
Sweden or the United States and 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 Board or by any Stockholder entitled to
vote thereat that complies with the procedures set forth in Section 2.02 of the
By-laws (Stockholder Proposals and Nominations for Directors) may be conducted
at annual meetings.
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Upjohn
The Upjohn By-laws provide that the annual meeting shall be held in the
county of Kalamazoo, Michigan. Elections and any other proper business may be
transacted at the annual meeting.
SPECIAL MEETING OF STOCKHOLDERS
The Company
Under the Company By-laws, a special meeting of the Stockholders may only
be called by the Chairman of the Board, the President and Chief Executive
Officer or a majority of the Directors.
Upjohn
Under Upjohn's Certificate of Incorporation, special meetings of the Upjohn
Stockholders may only be called by the Chairman of the Upjohn Board, the Vice
Chairman of the Upjohn 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 Combination (as defined in the
Company Certificate) must be approved by 80% of all the Directors of the Company
and approved by the affirmative vote of 66 2/3% of the votes entitled to be cast
on matters submitted generally by all then outstanding shares of capital stock
of the Company ("Voting Stock"); and (B) resolutions to amend, alter, change or
repeal (i) the classification of the Company's Board or (ii) the provision in
the Company Certificate which requires the affirmative vote of 80% of all the
Directors in order to amend certain provisions of the Company By-laws must be
proposed by 80% of all the Directors.
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 Company's 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) 80% of all the Directors or 66 2/3% of the
Voting Stock must approve any amendment, alteration, change or repeal of the
provisions of the Company's By-laws relating to (i) the location of the global
corporate management group and of the Company's regional headquarters, (ii) the
number and terms of office of Directors, (iii) the qualifications of the
Chairman and the duties and powers conveyed to the Chairman, and (iv) the
composition and terms of committees of the Board, (v) certain arrangements
relating to dividend payments, (vi) the maintenance of the Swedish Depositary
Shares Program, and (vii) communications to stockholders in both the English and
Swedish languages; (B) the affirmative vote of 80% of all the Directors or
66 2/3% of the Voting Stock is required to approve any amendment, alteration,
change or repeal of the provisions of the Company's By-laws relating to the
place 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).
Upjohn
Upjohn reserves the right to amend, alter, change or repeal its Certificate
of Incorporation subject to the DGCL, provided, however, that the 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) without the affirmative
vote of the holders of a majority of Voting Stock other than any Related Person
(as defined in Upjohn's Certificate of Incorporation) unless approved by a
majority of Continuing Directors (as defined in Upjohn's Certificate of
Incorporation). The Company Board may amend the Company By-laws but may not
repeal any By-laws made by the stockholders.
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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 entire outstanding 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 made by the
stockholders.
NEW PREFERRED STOCK
The Company
Redemption Rights. The Company Preferred Stock shall be redeemable in
whole or in part at the option of the Corporation at any time after July 20,
1999, or at any time after the date of issuance, at the following redemption
prices per share:
<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>
and thereafter at $40,300.00 per share, plus, in each case, all accrued and
unpaid dividends thereon to the date fixed for redemption. Payment of the
redemption price shall be made in cash, shares of New Common Stock or some
combination thereof. From and after the date fixed for redemption, dividends on
New Preferred Stock shall cease, except the right to receive the redemption
price.
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 $43.00 per share of New Common Stock, with each share of New Preferred Stock
being valued at $43,000 for such purpose, which is subject to adjustment,
provided, however, that in no event shall the conversion price be less than
$1.00.
Voting Rights. Under the Company Certificate, the holders of New Preferred
Stock shall be entitled to vote on all matters and shall be entitled to the
number of votes equal to the number of shares of New Common Stock into which
their New Preferred Stock could be converted on the record date for determining
the stockholders entitled to vote. The holders of New Preferred Stock have no
special voting rights and their consent is not required for the taking of any
corporate action not affecting them adversely.
Upjohn
Under the Upjohn Certificate of Incorporation, the Upjohn Preferred Stock
is substantially similar to the Company 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 limited liability
company 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 Swedish Companies Act
governs Swedish companies. The following is a summary of certain significant
differences between the rights of holders of Pharmacia Securities and 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 By-laws, the governing instruments of the two companies.
See "Description of Capital Stock 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. Copies of the Pharmacia
Articles and the Company Certificate and By-laws have been filed as
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Exhibits to the Registration Statement. All summaries set forth herein are
qualified in their entirety by reference thereto. For further information as to
where these and other Exhibits to the Registration Statement may be obtained,
see "Available Information."
SIZE AND CLASSIFICATION OF THE BOARD OF DIRECTORS
The Company
The Company Certificate and By-laws require a board comprised of not less
than 8 nor more than 16 members, which number may be increased or decreased
within such range by the Company's Board. 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 EU member states or Sweden, (ii) the
Chairman of the Board and the President and Chief Executive Officer may not be
the same person unless otherwise approved by 80% of all the Directors and (ii)
one-half of the Directors shall be citizens of the United States or Canada and
one-half shall be from EU member states or Sweden. The Company currently has 4
Directors and 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's Board is classified into 3 classes which are to be
as nearly equal as possible. Directors in each class serve for a term of 3
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 3 years, and members of the second class will initially be
elected for a term of 2 years, after which members of such class will then be
elected for a term of 3 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 8 and not more than 11 directors with not more than 4 deputy
directors. Swedish law provides for the appointment of 3 additional directors (2
directors if the company is active in only one industry) and 3 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 Union country 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 3 deputy directors. The
directors and deputy directors 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.
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.
STOCKHOLDER VOTE REQUIRED FOR CERTAIN COMBINATIONS
The Company
The DGCL requires that before a merger can be approved by the stockholders
of a Delaware corporation, a resolution approving the merger must be adopted by
the corporation's board of directors. After approval by the board of directors
of a Delaware corporation, the merger agreement must be submitted to the
stockholders
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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, under the Company Certificate, a Business
Combination (as defined in the Company Certificate) requires the affirmative
vote of 66 2/3% of the Voting Stock unless certain conditions relating to
continuing director approval of, and the form of consideration given in, such
Business Combination, have been satisfied.
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 such as the following:
(i) a resolution to amend the Pharmacia Articles requires a majority
of two-thirds of the votes cast as well as two-thirds of all of the shares
represented at the meeting;
(ii) a resolution to amend the Pharmacia Articles which reduces any
stockholder's rights to profits or assets, restricts the transferability of
shares or alters the legal relationship between shares normally requires
the unanimous approval of the stockholders present at the meeting,
representing 90% of all issued shares; and
(iii) 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.
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 a
majority of two-thirds of the votes cast as well as two-thirds of all of the
shares represented at the meeting.
GENERAL MEETING OF STOCKHOLDERS
The Company
Under the Company By-laws, the 1996 annual meeting will be held in either
Sweden or the United States and 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 Board or by any Stockholder entitled to
vote thereat that complies with the procedures set forth in Section 2.02 of the
By-laws (Stockholder Proposals and Nominations for Directors) may be conducted
at annual meetings.
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 the stockholder must give
notice to Pharmacia of his 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
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represented by such stockholder's shares. A voting list of those present or
represented is prepared at the general meeting.
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 Combination (as defined in the
Company Certificate) must be approved by 80% of all the Directors of the Company
and approved by the affirmative vote of 66 2/3% of the votes entitled to be cast
on matters submitted generally by all then outstanding shares of capital stock
of the Company ("Voting Stock"); and (B) resolutions to amend, alter, change or
repeal (i) the classification of the Company's Board or (ii) the provision of
the Company Certificate which requires the affirmative vote of 80% of all the
Directors in order to amend certain provisions of the Company By-laws must be
proposed by 80% of all the Directors.
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 Company's 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) 80% of all the Directors or 66 2/3% of the
Voting Stock must approve any amendment, alteration, change or repeal of the
provisions of the Company's By-laws relating to (i) the location of the global
corporate management group and of the Company's regional headquarters, (ii) the
number and terms of office of Directors, (iii) the duties and powers conveyed to
the Chairman, and (iv) the composition and terms of committees of the Board, (v)
certain arrangements relating to dividend payments, (vi) the maintenance of the
Swedish Depositary Shares Program, and (vii) communications to stockholders in
both the English and Swedish languages; (B) the affirmative vote of 80% of all
the Directors or 66 2/3% of the Voting Stock is required to approve any
amendment, alteration, change or repeal of the provisions of the Company's
By-laws relating to the place 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).
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
incorporation. 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 nine-tenths of the shares
represented at the meeting.
DIVIDENDS
The Company
Under the Company By-laws dividends shall be declared only out of any
assets or funds of the Company legally available for the payment of dividends at
the discretion of the Company's Board. Dividends shall be paid to holders of the
Shares in U.S. dollars. The Company shall make such arrangements as are
necessary or appropriate to ensure that all dividends payable to holders of
Swedish Depositary Shares are paid in Swedish Kronor.
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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 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 that to
which the dividend relates.
PREEMPTIVE RIGHTS
The Company
The Company's By-laws and Certificate do not provide for preemptive rights.
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. The Pharmacia Articles do not contain
any contrary provisions.
The Pharmacia Series A Common Shares rank pari passu with the B 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 Series A Common Shares and Pharmacia Series B Common Shares
instead of issuing further Pharmacia Series A Common Shares to the holders of
the Pharmacia Series A Common Shares and further Pharmacia Series B Common
Shares to the holders of Pharmacia Series B Common Shares.
BUSINESS COMBINATION
The Company
The DGCL prohibits a corporation which has securities traded on an
exchange, designated on the NASDAQ/NMS or held of record by more than 2,000
stockholders from engaging in certain business combination, including a merger,
sale of substantial assets, loan or substantial issuance of stock, with an
interested shareholder, or an interested shareholder's affiliates or associates,
for a three-year period beginning on the date the interested shareholder
acquires 15% or more of the outstanding voting stock of the corporation. The
restrictions on business combination 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 shareholder 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 shareholder. Although a Delaware corporation may elect,
pursuant to its certificate or by-laws, not to be governed by this provision,
the Company Certificate and By-laws contain no such election.
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Pharmacia
The Companies Act does not have provisions similar to those outlined above
with respect to business combination.
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 Delaware
law if the corporation's stock is (prior to the relevant 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 Swedish law, 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.
LEGAL MATTERS
Certain legal matters relating to the validity of the New Common Stock and
New Preferred Stock offered hereby will be passed upon by Sullivan & Cromwell
and Shearman & Sterling.
EXPERTS
The Pharmacia & Upjohn, Inc. 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.
The consolidated balance sheets of Upjohn as of December 31, 1994 and 1993,
and the consolidated statements of income, retained earnings, 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.
172
<PAGE> 179
The consolidated financial statements of Pharmacia as of December 31, 1994
and 1993, 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 said firms as experts in accounting and auditing.
173
<PAGE> 180
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 Condensed 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 and 1993........................ 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
PHARMACIA & UPJOHN, INC.
Report of Coopers & Lybrand L.L.P. and KPMG Peat Marwick LLP ....................... F-66
Balance Sheet as of August 21, 1995................................................. F-67
Notes to Balance Sheet.............................................................. F-68
</TABLE>
F-1
<PAGE> 181
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> 182
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> 183
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> 184
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> 185
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> 186
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> 187
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> 188
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> 189
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> 190
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> 191
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> 192
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> 193
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 Western
Mich. 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.
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
F-14
<PAGE> 194
UPJOHN
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Dollar amounts in thousands, except per share data)
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> 195
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> 196
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. 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> 197
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> 198
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> 199
UPJOHN
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Dollar amounts in thousands, except per share data)
is reflected in the Consolidated Statement 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> 200
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> 201
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
========== ========== ==========
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> 202
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> 203
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> 204
UPJOHN
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1995 DECEMBER 31, 1994
------------- -----------------
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C>
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 17,655,515 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> 205
UPJOHN
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
1995 1994
----------- -----------
(UNAUDITED) (UNAUDITED)
(DOLLAR AMOUNTS IN
THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C>
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> 206
UPJOHN
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1995 1994
----------- -----------
(UNAUDITED) (UNAUDITED)
(DOLLAR AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Net cash provided by operations...................................... $ 251,528 $ 311,471
--------- ---------
CASH PROVIDED (REQUIRED) BY INVESTMENT ACTIVITIES:
Property, plant and equipment additions............................ (101,243) (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.............................................................. 10,630 (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..................................... (136,092) (131,839)
Other.............................................................. 16,783 1,582
--------- ---------
Net cash required by financing activities............................ (245,331) (156,663)
--------- ---------
Effect of exchange rate changes on cash.............................. 15,736 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> 207
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> 208
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> 209
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 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> 210
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
and 1993, 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 Coopers & Lybrand AB
Member of KPMG International Member of Coopers & Lybrand International
</TABLE>
F-31
<PAGE> 211
PHARMACIA
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------
NOTES 1992 1993 1994 1994
----- ------- ------- ------- -------------
SEK SEK SEK $
(UNAUDITED --
NOTE 1)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C> <C>
Sales........................................ 23 15,448 24,708 26,450 3,560
Operating expenses........................... 3 (12,158) (19,190) (19,951) (2,685)
Significant non-recurring items.............. 4 (141) (501) 820 110
Depreciation and amortization................ 5 (999) (1,705) (1,914) (258)
Share in earnings (losses) of associated
companies, net............................. 3 15 (7) (1)
------- ------- ------- -------
OPERATING INCOME FROM CONTINUING
OPERATIONS................................. 2,153 3,327 5,398 726
------- ------- ------- -------
Dividends received........................... 3 2 16 2
Interest income.............................. 1,118 1,214 509 69
Interest expense............................. 3 (719) (1,196) (607) (82)
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 5,322 716
Income taxes on continuing operations........ 7 (961) (1,148) (2,041) (275)
Minority interests........................... 16 (5) (2) --
------- ------- ------- -------
NET INCOME FROM CONTINUING OPERATIONS........ 1,599 2,168 3,279 441
NET INCOME FROM DISCONTINUED OPERATIONS...... 8 1,834 499 -- --
------- ------- ------- -------
NET INCOME................................... 3,433 2,667 3,279 441
======= ======= ======= =======
NET INCOME PER SHARE FROM CONTINUING
OPERATIONS................................. 6.31 8.55 12.92 1.74
NET INCOME PER SHARE FROM DISCONTINUED
OPERATIONS................................. 7.23 1.97 -- --
------- ------- ------- -------
NET INCOME PER SHARE......................... 13.54 10.52 12.92 1.74
======= ======= ======= =======
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> 212
PHARMACIA
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------
NOTES 1993 1994 1994
------ ------ ------ -----------
$
SEK SEK (UNAUDITED-
NOTE 1)
(IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Liquid assets............................................ 9 3,099 4,004 539
Trade accounts receivable................................ 10 6,354 6,196 834
Other receivables........................................ 11 1,532 1,825 246
Inventories.............................................. 12 3,507 3,202 431
----- ------ ------ -----------
Total current assets..................................... 14,492 15,227 2,050
----- ------ ------ -----------
FIXED ASSETS
Shares and participations................................ 13 1,108 1,101 148
Long-term receivables and other investments.............. 681 633 85
Intangible assets, net................................... 14 7,293 6,152 828
Property, plant and equipment, net....................... 15 10,001 9,392 1,264
----- ------ ------ -----------
Total fixed assets....................................... 19,083 17,278 2,325
----- ------ ------ -----------
Net assets of discontinued operations.................... 1,8 -- -- --
----- ------ ------ -----------
TOTAL ASSETS............................................. 33,575 32,505 4,375
==== ====== ====== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable................................... 2,157 2,289 308
Income taxes payable..................................... 1,415 1,437 194
Short-term loans......................................... 16 4,826 1,453 196
Other current liabilities................................ 17 4,868 3,763 506
----- ------ ------ -----------
Total current liabilities................................ 13,266 8,942 1,204
----- ------ ------ -----------
LONG-TERM LIABILITIES
Convertible debenture loans.............................. 18 219 217 29
Bond loan................................................ 19 46 101 14
Other long-term loans.................................... 19 970 856 115
Pension obligation....................................... 20 1,715 1,831 246
Deferred income taxes.................................... 7 867 1,306 176
Other liabilities........................................ 785 1,120 151
----- ------ ------ -----------
Total long-term liabilities.............................. 4,602 5,431 731
----- ------ ------ -----------
MINORITY INTERESTS....................................... 10 0 0
STOCKHOLDERS' EQUITY..................................... 21
Capital stock............................................ 6,341 6,341 853
Restricted reserves...................................... 4,873 6,114 823
----- ------ ------ -----------
Total restricted stockholders' equity.................... 11,214 12,455 1,676
----- ------ ------ -----------
Unrestricted reserves.................................... 1,816 2,398 323
Net income............................................... 2,667 3,279 441
----- ------ ------ -----------
Total unrestricted stockholders' equity.................. 4,483 5,677 764
----- ------ ------ -----------
Total stockholders' equity............................... 15,697 18,132 2,440
----- ------ ------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............... 33,575 32,505 4,375
==== ====== ====== =========
PLEDGED ASSETS AND CONTINGENT LIABILITIES................ 22
Pledged assets........................................... 1,492 1,092 147
Contingent liabilities................................... 1,099 765 103
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-33
<PAGE> 213
PHARMACIA
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------
1992 1993 1994 1994
------ ------ ------ ------------
$
SEK SEK SEK (UNAUDITED --
NOTE 1)
(IN MILLIONS)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income from continuing operations................ 1,599 2,168 3,279 441
Adjustments to reconcile net income from continuing
operations to net cash provided from operating
activities.........................................
Depreciation and amortization...................... 999 1,705 1,914 258
Net (gain) loss on sales of fixed assets........... 29 14 (300) (40)
Net (gain) on sale of subsidiary................... -- -- (596) (80)
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 17
Current liabilities................................ 1,127 66 (773) (104)
Change in deferred taxes........................... 326 (280) 439 59
Change in pension obligation....................... 202 76 116 16
Change in other long-term liabilities.............. (97) (31) 335 45
Other.............................................. (9) 25 (6) (1)
------ ------ ------ ------
Net cash provided from operating activities.......... 3,281 4,105 4,340 584
------ ------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchases of subsidiaries, net of cash
required........................................... (719) (6,674) (145) (20)
Proceeds from sale of subsidiary..................... -- -- 1,111 149
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) (234)
Proceeds from sales of other fixed assets............ 177 502 881 119
Discontinued operations.............................. 781 3,253 -- --
Change in long-term receivables...................... 499 70 38 5
Other................................................ (395) (577) 414 56
------ ------ ------ ------
Net cash provided from (used in) investing
activities......................................... (911) (7,550) 582 79
------ ------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings, net........................... 1,091 332 (3,372) (454)
Principal payments on long-term debt................. (115) (793) (58) (8)
Dividends paid....................................... (799) (900) (558) (75)
Other................................................ (29) (63) 55 7
------ ------ ------ ------
Net cash provided from (used in) financing
activities......................................... 148 (1,424) (3,933) (530)
------ ------ ------ ------
Effect of exchange rate changes on liquid assets..... 64 34 (84) (11)
NET INCREASE (DECREASE) IN LIQUID ASSETS............. 2,582 (4,853) 905 122
LIQUID ASSETS AT BEGINNING OF YEAR................... 5,352 7,934 3,099 417
------ ------ ------ ------
LIQUID ASSETS AT END OF YEAR......................... 7,934 3,099 4,004 539
====== ====== ====== ==========
</TABLE>
See additional information in Note 27.
See accompanying Notes to Consolidated Financial Statements
F-34
<PAGE> 214
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 1 C).
Solely for the convenience of the reader the 1994 consolidated financial
statements have been translated into United States Dollars ($) using the
December 31, 1994 Noon Buying Rate of the Federal Reserve Bank of New York of $1
= SEK 7.43.
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 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> 215
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> 216
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> 217
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, Montedision has agreed to indemnify
Pharmacia for potential losses from specified preacquisition contingencies,
including certain disputed tax liabilities. (See Note 7).
F-38
<PAGE> 218
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 Montedision 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 Montedision based on
Montedision'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> 219
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> 220
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,
--------------------
1992 1993 1994
--- --- ----
% % %
<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> 221
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> 222
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> 223
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> 224
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> 225
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> 226
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> 227
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, 1993
-----------------------
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> 228
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, 1993
-------------------------
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> 229
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
========= ========= =========
<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 from 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> 230
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> 231
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> 232
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> 233
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> 234
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> 235
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 amount of
these contracts were MSEK 15,492 and MSEK 16,941, respectively.
F-56
<PAGE> 236
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 currency 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. Stockholder's 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 stockholder's equity as a translation adjustment.
F-57
<PAGE> 237
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
----- ------ ----- ----
(SEK) (SEK) (SEK) $
(IN MILLIONS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Swedish GAAP net income from continuing operations.......... 1,599 2,168 3,279 441
Adjustments:
Accounting for business combination and goodwill............ (445) (1,537) (383) (51)
Deferred income taxes....................................... 237 127 (72) (10)
Foreign exchange gains and losses, net...................... (542) 498 123 16
Disposal of subsidiary...................................... -- -- (361) (48)
Other adjustments........................................... 25 41 143 19
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 2,656 357
----- ------ ----- ----
Approximate U.S. GAAP net income from discontinued
operations................................................ (871) 243 -- --
----- ------ ----- ----
Approximate U.S. GAAP net income............................ 158 1,524 2,656 357
===== ====== ===== ====
Approximate U.S. GAAP per share amounts:
Net income per share from continuing operations............. 4.06 5.05 10.47 1.41
Net income per share from discontinued operations........... (3.44) 0.96 -- --
----- ------ ----- ----
Net income per share/ADS.................................... .62 6.01 10.47 1.41
===== ====== ===== ====
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------
1992 1993 1994 1994
------ ------ ------ -----
(SEK) (SEK) (SEK) $
<S> <C> <C> <C> <C>
Swedish GAAP stockholders' equity........................ 20,609 15,697 18,132 2,440
Adjustments:
Accounting for business combination and goodwill......... 7,886 6,495 5,755 775
Deferred income taxes.................................... 220 85 36 5
Foreign exchange gains and losses, net................... (527) (29) 94 13
Investments.............................................. -- -- (151) (20)
Discontinued operations.................................. 2,529 -- -- --
Other adjustments........................................ 285 172 315 42
------ ------ ------ -----
Approximate U.S. GAAP stockholders' equity............... 31,002 22,420 24,181 3,255
====== ====== ====== =====
</TABLE>
---------------
(1) Solely for the convenience of the reader, financial information has been
translated to U.S. dollars using the December 31, 1994 Noon Buying Rate of
$1.00 = SEK 7.43.
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> 238
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 effect 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> 239
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 unrealised 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> 240
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 US Financial Accounting Standard 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 Company is
F-61
<PAGE> 241
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)
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 1994 1993
----- ----- -----
<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> 242
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> 243
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, receives a fee SEK 250,000 for Board
duties in 1994. This amount forms part of the total fee for Board duties
established, on 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> 244
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 remains 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 paying 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> 245
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-66
<PAGE> 246
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-67
<PAGE> 247
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 (as defined below) among the Company, Pharmacia &
Upjohn Subsidiary Inc. ("Merger Sub") Pharmacia Aktiebolag ("Pharmacia") and The
Upjohn Company ("Upjohn") dated August 20, 1995. 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 with respect to 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.
F-68
<PAGE> 248
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> 249
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
THE MERGER
SECTION 1.01. The Merger............................................................
SECTION 1.02. Effective Time; Closing...............................................
SECTION 1.03. Effect of the Merger..................................................
SECTION 1.04. Certificate of Incorporation; By-Laws.................................
SECTION 1.05. Directors and Officers of the Surviving Corporation...................
ARTICLE II
CONVERSION OF SECURITIES IN THE MERGER
SECTION 2.01. Conversion of Capital Stock...........................................
SECTION 2.02. Exchange of Certificates..............................................
SECTION 2.03. Stock Transfer Books..................................................
SECTION 2.04. Stock Options and Deferred Awards.....................................
SECTION 2.05. Shares of Dissenting Holders of Upjohn Series B Preferred Stock.......
ARTICLE III
THE PHARMACIA TRANSACTION
SECTION 3.01. The Exchange Offer....................................................
SECTION 3.02. Depositary............................................................
SECTION 3.03. Compulsory Acquisition................................................
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF UPJOHN
SECTION 4.01. Organization and Qualification; Subsidiaries..........................
SECTION 4.02. Certificate of Incorporation and By-Laws..............................
SECTION 4.03. Capitalization........................................................
SECTION 4.04. Authority Relative to This Agreement..................................
SECTION 4.05. No Conflict; Required Filings and Consents............................
SECTION 4.06. Permits; Compliance...................................................
SECTION 4.07. SEC Filings; Financial Statements.....................................
SECTION 4.08 Absence of Certain Changes or Events..................................
SECTION 4.09 Employee Benefit Plans; Labor Matters.................................
SECTION 4.10 Accounting and Tax Matters............................................
SECTION 4.11 Contracts; Debt Instruments...........................................
SECTION 4.12 Litigation............................................................
SECTION 4.13 Environmental Matters.................................................
SECTION 4.14 Trademarks, Patents and Copyrights....................................
SECTION 4.15 Taxes.................................................................
</TABLE>
A-2
<PAGE> 250
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 4.16 Rights Agreement......................................................
SECTION 4.17 Opinion of Financial Advisor..........................................
SECTION 4.18 Brokers...............................................................
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PHARMACIA
SECTION 5.01 Organization and Qualification; Subsidiaries..........................
SECTION 5.02 Corporate Organization Documents......................................
SECTION 5.03 Capitalization........................................................
SECTION 5.04 Authority Relative to This Agreement..................................
SECTION 5.05 No Conflict; Required Filings and Consents............................
SECTION 5.06 Permits; Compliance...................................................
SECTION 5.07 Stock Exchange and SEC Filings; Financial Statements..................
SECTION 5.08 Absence of Certain Changes or Events..................................
SECTION 5.09 Employee Benefit Plans; Labor Matters.................................
SECTION 5.10 Accounting and Tax Matters............................................
SECTION 5.11 Contracts; Debt Instruments...........................................
SECTION 5.12 Litigation............................................................
SECTION 5.13 Environmental Matters.................................................
SECTION 5.14 Trademarks, Patents and Copyrights....................................
SECTION 5.15 Taxes.................................................................
SECTION 5.16 Opinion of Financial Advisor..........................................
SECTION 5.17 Brokers...............................................................
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF NEWCO AND NEWCO SUB
SECTION 6.01 Organization and Qualification; Subsidiaries..........................
SECTION 6.02 Certificate of Incorporation and By-Laws..............................
SECTION 6.03 Capitalization........................................................
SECTION 6.04. Authority Relative to This Agreement..................................
SECTION 6.05. No Conflict...........................................................
SECTION 6.06. No Activities.........................................................
ARTICLE VII
COVENANTS
SECTION 7.01... Conduct of Business by Upjohn Pending the Closing.....................
SECTION 7.02... Conduct of Business by Pharmacia Pending the Closing..................
SECTION 7.03... Cooperation; Steering Committee.......................................
SECTION 7.04. Notices of Certain Events.............................................
SECTION 7.05. Contractual Consents..................................................
</TABLE>
A-3
<PAGE> 251
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE VIII
ADDITIONAL AGREEMENTS
SECTION 8.01. Registration Statement; Disclosure Documents..........................
SECTION 8.02. Stockholders' Meeting.................................................
SECTION 8.03. Access to Information; Confidentiality................................
SECTION 8.04. No Solicitation of Transactions.......................................
SECTION 8.05. Employee Benefits Matters.............................................
SECTION 8.06. Directors' and Officers' Indemnification and Insurance................
SECTION 8.07. Pooling Affiliates....................................................
SECTION 8.08. Pooling...............................................................
SECTION 8.09. Letters of Accountants................................................
SECTION 8.10. Further Action; Consents; Filings.....................................
SECTION 8.11. Upjohn Rights Plan....................................................
SECTION 8.12. Newco Organization....................................................
SECTION 8.13. Depositary Facility for Newco Common Stock............................
SECTION 8.14. Plan of Reorganization................................................
SECTION 8.15. Public Announcements..................................................
SECTION 8.16. Obligations of Newco Sub..............................................
SECTION 8.17. Stock Exchange Listings and De-listings...............................
SECTION 8.18. Maintenance of Certain Facilities.....................................
SECTION 8.19. Cancellation of Newco Common Stock Owned by Pharmacia and Upjohn......
ARTICLE IX
CONDITIONS TO THE TRANSACTIONS
SECTION 9.01. Conditions to the Obligations of Each Party to Consummate the
Transactions........................................................
SECTION 9.02. Conditions to the Obligations of Upjohn...............................
SECTION 9.03. Conditions to the Obligations of Pharmacia............................
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.01. Termination...........................................................
SECTION 10.02. Effect of Termination.................................................
SECTION 10.03. Amendment.............................................................
SECTION 10.04. Waiver................................................................
SECTION 10.05. Expenses..............................................................
</TABLE>
A-4
<PAGE> 252
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.01. Non-Survival of Representations, Warranties and Agreements............
SECTION 11.02. Notices...............................................................
SECTION 11.03. Certain Definitions...................................................
SECTION 11.04. Severability..........................................................
SECTION 11.05. Assignment; Binding Effect; Benefit...................................
SECTION 11.06. Incorporation of Exhibits.............................................
SECTION 11.07. Specific Performance..................................................
SECTION 11.08. Governing Law.........................................................
SECTION 11.09. Submission to Jurisdiction; Venue.....................................
SECTION 11.10. Headings..............................................................
SECTION 11.11. Counterparts..........................................................
SECTION 11.12. Entire Agreement......................................................
Annex A Employee Benefits.....................................................
</TABLE>
A-5
<PAGE> 253
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....................... 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>
A-6
<PAGE> 254
<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 of Preferred Certificates
shall surrender such Certificates of 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 the 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 (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 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/ ROBERT C. SALISBURY
---------------------------- ----------------------------
Name: Kenneth M. Cyrus Name: Robert C. Salisbury
Title: Executive Vice President, Title: President and Chief
Secretary and General Executive Officer
Counsel
PHARMACIA & UPJOHN
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
Secretary and General Executive Officer
Counsel
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
Secretary and General Executive Officer
Counsel
</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.
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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 Pharamcia 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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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.
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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:
<TABLE>
<S> <C> <C>
By Mail: By Facsimile: By Hand:
</TABLE>
By Facsimile Transmission:
(For Eligible Institutions Only)
Confirm By Telephone:
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:
Banks and Brokers Call Collect:
All Others Call Toll Free:
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> 309
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 has also purchased and maintained 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.
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 Merger Sub (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.
4(a) -- Form of Deposit Agreement dated as of , 1995 among Pharmacia &
Upjohn, Inc. and , as depositary and, holders of SDSs.*
5 -- Opinion of Sullivan & Cromwell.*
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).
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 and 8(a)).
23(e) -- Consent of Shearman & Sterling (included in Exhibit 8(b)).
23(f) -- Consent of Goldman, Sachs & Co. (included in Exhibit 99(a)).
23(g) -- Consent of Morgan Stanley & Co. Incorporated (included in Exhibit 99(b)).
24 -- Powers of Attorney (included on the signature page to this Registration
Statement).
</TABLE>
---------------
<TABLE>
<S> <C> <C>
* To be filed by amendment.
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
--------- ------------------------------------------------------------------------------
<S> <C> <C>
</TABLE>
Pharmacia.*
(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.
(c) Reports, Opinions and Appraisals.
Omitted because they are included as annexes to the Proxy Statement 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
---------------
<TABLE>
<S> <C> <C>
* To be filed by amendment.
</TABLE>
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<PAGE> 311
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
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-3
<PAGE> 312
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 New York, State of New
York, on this 21st day of August, 1995.
PHARMACIA & UPJOHN, INC.
By: /s/ ROBERT C. SALISBURY
--------------------------------------
Robert C. Salisbury
Chief Executive Officer
POWER OF ATTORNEY
The undersigned directors and officers of the Company do hereby constitute
and appoint Robert C. Salisbury, Mats Pettersson and Kenneth M. Cyrus, and each
of them, our true and lawful attorneys-in-fact and agents to do any and all acts
and things in our name and behalf in our capacities as directors and officers,
and to execute any and all instruments for us and in our names in the capacities
indicated below which such person or persons may deem necessary or advisable to
enable the Company to comply with the Securities Act of 1933, as amended, and
any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with this Registration Statement, including
specifically, but not limited to, power and authority to sign for us, or any of
us, in the capacities indicated below any and all amendments (including
post-effective amendments) hereto and we do hereby ratify and confirm all that
such person or persons shall do or cause to be done by virtue hereof.
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>
/s/ MATS Chairman of the Board of August 21, 1995
PETTERSSON Directors
------------------------------------------
Mats Pettersson
/s/ ROBERT C. Chief Executive Officer August 21, 1995
SALISBURY
------------------------------------------
Robert C. Salisbury
/s/ MATS Chief Accounting Officer August 21, 1995
LIDGARD
------------------------------------------
Mats Lidgard
/s/ KENNETH M. CYRUS Chief Financial Officer August 21, 1995
------------------------------------------
Kenneth M. Cyrus
</TABLE>
II-4
<PAGE> 313
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
------- ------------------------------------------------------------------------------- ----
<S> <C> <C>
2 Combination Agreement, dated as of August 20, 1995, by and among Upjohn,
Pharmacia, Pharmacia & Upjohn, Inc. and Merger Sub (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.
4(a) Form of Deposit Agreement dated as of , 1995 among Pharmacia &
Upjohn, Inc. and , as depositary, and holders of SDSs.*
5 Opinion of Sullivan & Cromwell.*
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).
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 of 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 and 8(a)).
23(e) Consent of Shearman & Sterling (included in Exhibit 8(b)).
23(f) Consent of Goldman, Sachs & Co. (included in Exhibit 99(a)).
23(g) Consent of Morgan Stanley & Co. Incorporated (included in Exhibit 99(b)).
24 Powers of Attorney (included on the signature page to this Registration
Statement).
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. Incorporated (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 Merger Letter of Acceptance and Transmittal.*
99(e) Form of Notice of Guaranteed Delivery.*
99(f) Form of Letter to Brokers.*
99(g) Form of Letter to Clients.*
99(h) Form of Letter to Stockholders of Upjohn.*
99(i) Form of Letter to Shareholders of Pharmacia.*
</TABLE>
---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3(a)
[FORM OF]
RESTATED
CERTIFICATE OF INCORPORATION
OF PHARMACIA & UPJOHN, INC.
Pharmacia & Upjohn, Inc., a Delaware corporation, hereby certifies as
follows:
(1) The name of the corporation is Bushwood, Inc. The date of filing
of its original certificate of incorporation with the Secretary of State
was August 17, 1995 under the name Bushwood, Inc.
(2) This restated certificate of incorporation amends and restates the
provisions of the certificate of incorporation of said corporation and has
been duly adopted in accordance with the provisions of Section 245 of the
General Corporation Law of the State of Delaware.
(3) The text of the certificate of incorporation is hereby amended and
restated to read as set forth in full:
ARTICLE I
NAME
The name of the corporation is Pharmacia & Upjohn, Inc. (the
"Corporation").
ARTICLE II
REGISTERED OFFICE AND REGISTERED AGENT
The address of the registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the registered agent of the
Corporation at such address is The Corporation Trust Company.
ARTICLE III
CORPORATE PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may now or hereafter be organized, and it shall have all
powers which may now or hereafter be lawful for a corporation to exercise under
the General Corporation Law of the State of Delaware (the "General Corporation
Law").
ARTICLE IV
CAPITAL STOCK
The total number of shares of all classes of stock that the Corporation
shall have authority to issue is One Billion Six Hundred Million
(1,600,000,000), of which One Billion Five Hundred Million (1,500,000,000)
shares shall be shares of Common Stock, par value $0.01 per share ("Common
Stock"), and One Hundred Million (100,000,000) shares shall be shares of
Preferred Stock, par value $0.01 per share ("Preferred Stock"), of which 7,500
shares shall be designated Series A Convertible Perpetual Preferred Stock.
A.1 PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors of the Corporation (the "Board") as shares of one or more series.
Subject to the provisions hereof and the limitations prescribed by law, the
Board is expressly authorized, prior to issuance, by adopting resolutions
providing for the issuance of, or providing for a change in the number of,
shares of any particular series and, if and to the extent from time to
1
<PAGE> 2
time required by law, by filing a certificate pursuant to the General
Corporation Law (or other law hereafter in effect relating to the same or
substantially similar subject matter), to establish or change the number of
shares to be included in each such series and to fix the designation and
relative powers, preferences and rights and the qualifications and limitations
or restrictions thereof relating to the shares of each such series. The
authority of the Board with respect to each series shall include, but not be
limited to, determination of the following:
(i) the distinctive serial designation of such series and the number
of shares constituting such series;
(ii) the dividend rate, or basis for determining such rate, if any, on
shares of such series, whether dividends shall be cumulative and, if so,
from which date or dates;
(iii) whether the shares of such series shall be redeemable (which, if
so redeemable, may be redeemed in whole or in part) and, if so, terms and
conditions of such redemption, including the date or dates upon and after
which such shares shall be redeemable, and the amount per share payable in
case of redemption, which amount may vary under different conditions and at
different redemption dates;
(iv) the obligation, if any, of the Corporation to purchase or redeem
shares of such series pursuant to a sinking fund or otherwise and the price
or prices at which, the period or periods within which and the terms and
conditions upon which the shares of such series shall be redeemed or
purchased;
(v) whether shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or classes and, if so,
the terms and conditions of such conversion or exchange, including the
price or prices or the rate or rates of conversion or exchange, the terms
of adjustment, if any, and whether such shares shall be convertible or
exchangeable at the option of the Corporation, the holders or both;
(vi) whether the shares of such series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the terms of
such voting rights;
(vii) the rights of the shares of such series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; and
(viii) any other relative rights, powers, preferences, qualification,
limitations or restrictions thereof relating to such series.
The shares of Preferred Stock of any one series shall be identical with
each other in all respects except as to the dates from and after which dividends
thereon shall cumulate, if cumulative.
The number of authorized shares of Preferred Stock may be increased or
decreased by the affirmative vote of the holders of a majority of the stock of
the Corporation entitled to vote without the separate vote of holders of
Preferred Stock as a class.
Without limiting any of the foregoing, there is hereby authorized to be
issued Series A Convertible Perpetual Preferred Stock ("Series A Convertible
Perpetual Preferred Stock") with the following designations, powers,
preferences, rights, qualifications, limitations and restrictions:
A.2 SERIES A CONVERTIBLE PERPETUAL PREFERRED STOCK
(1) Designation and Amount; Special Purpose Restricted Transfer
Issue. (a) The shares of such series shall be designated as shares of "Series A
Convertible Perpetual Preferred Stock, par value $0.01 per share" (the
"Convertible Perpetual Preferred Shares"), and the number of shares constituting
such series shall be 7,500. Each Convertible Perpetual Preferred Share shall
have a stated value of $40,300.00 per share.
(b) Convertible Perpetual Preferred Shares shall be issued only to State
Street Bank and Trust Company, its successors and assigns, as trustee (the
"Trustee") of the Newco Company Employee Stock Ownership Trust forming a part of
the Newco Company Employee Stock Ownership Plan, or any successor to such plan
(the "Plan" or "ESOP"). All references to the holder of Convertible Perpetual
Preferred Shares shall mean the Trustee or any company with which or into which
the Trustee may merge or any successor trustee under the trust agreement with
respect to the Plan. In the event of any transfer of record ownership of
2
<PAGE> 3
Convertible Perpetual Preferred Shares to any person other than any successor
trustee under the Plan, the Convertible Perpetual Preferred Shares so
transferred, upon such transfer and without any further action by the
Corporation or the holder thereof, shall be automatically converted into shares
of Common Stock on the terms otherwise provided for the conversion of
Convertible Perpetual Preferred Shares into shares of Common Stock pursuant to
paragraph (5) of this Article IV.A.2 and no such transferee shall have any of
the voting powers, preferences and relative, participating, optional or special
rights ascribed to Convertible Perpetual Preferred Shares hereunder but, rather,
only the powers and rights pertaining to the Common Stock into which such
Convertible Perpetual Preferred Shares shall be so converted. In the event of
such a conversion, the transferee of the convertible Perpetual Preferred Shares
shall be treated for all purposes as the record holder of the shares of Common
Stock into which such Convertible Perpetual Preferred Shares have been
automatically converted as of the date of such transfer. Certificates
representing Convertible Perpetual Preferred Shares shall bear a legend to
reflect the foregoing provisions. Notwithstanding the foregoing provisions of
this paragraph (1)(b), Convertible Perpetual Preferred Shares (i) may be
converted into shares of Common Stock as provided by paragraph (5) of this
Article IV.A.2 and the shares of Common Stock issued upon such conversion may be
transferred by the holder thereof as permitted by law and (ii) shall be
redeemable by the Corporation upon the terms and conditions provided by
paragraphs (6), (7) and (8) of this Article IV.A.2.
(2) Dividends and Distributions. (a) Subject to the provisions for
adjustment hereinafter set forth, the holders of Convertible Perpetual Preferred
Shares shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available therefor, cash dividends ("Convertible
Perpetual Preferred Dividends") in an amount per share not to exceed $2,518.75
per share per annum, payable quarterly in arrears, one-quarter on the 1st day of
January, one-quarter on the 1st day of April, one-quarter on the 1st day of July
and one-quarter on the 1st day of October of each year (each a "Dividend Payment
Date") commencing on [January 1, 19 ,] to holders of record at the start of
business on such Dividend Payment Date. In the event that any Dividend Payment
Date shall fall on any day other than a "Business Day" (as hereinafter defined),
the dividend payment due on such Dividend Payment Date shall be paid on the
Business Day immediately following such Dividend Payment Date. Convertible
Perpetual Preferred Dividends shall begin to accrue on outstanding Convertible
Perpetual Preferred Shares from the date of issuance of such Convertible
Perpetual Preferred Shares. Convertible Perpetual Preferred Dividends shall
accrue on a daily basis whether or not the Corporation shall have earnings or
surplus at the time, but Convertible Perpetual Preferred Dividends accrued after
issuance on the Convertible Perpetual Preferred Shares for any period less than
a full quarterly period between Dividend Payment Dates (or, in the case of the
first dividend payment, from the date of issuance through the first Dividend
Payment Date) shall be computed on the basis of a 360-day year of twelve 30-day
months. Accrued but unpaid Convertible Perpetual Preferred Dividends shall
cumulate as of the Dividend Payment Date on which they first become payable, but
no interest shall accrue on accumulated but unpaid Convertible Perpetual
Preferred Dividends.
(b) So long as any Convertible Perpetual Preferred Shares shall be
outstanding, no dividend shall be declared or paid or set apart for payment on
any other series of stock ranking on a parity with the Convertible Perpetual
Preferred Shares as to dividends, unless there shall also be or have been
declared and paid or set apart for payment on the Convertible Perpetual
Preferred Shares dividends for all dividend payment periods of the Convertible
Perpetual Preferred Shares ending on or before the dividend payment date of such
parity stock, ratably in proportion to the respective amounts of dividends
accumulated and unpaid through such dividend period on the Convertible Perpetual
Preferred Shares and accumulated and unpaid on such parity stock through the
dividend payment period on such parity stock next preceding such dividend
payment date. In the event that full cumulative dividends on the Convertible
Perpetual Preferred Shares have not been declared and paid or set apart for
payment when due, the Corporation shall not declare or pay or set apart for
payment any dividends or make any other distributions on, or make any payment on
account of the purchase, redemption or other retirement of any other class of
stock or series thereof of the Corporation ranking, as to dividends or as to
distributions in the event of a liquidation, dissolution or winding-up of the
Corporation, junior to the Convertible Perpetual Preferred Shares until full
cumulative dividends on the Convertible Perpetual Preferred Shares shall have
paid or declared and set apart for payment; provided, however, that the
foregoing shall not apply to (i) any dividend payable solely in any shares of
any stock ranking, as to dividends
3
<PAGE> 4
and as to distributions in the event of a liquidation, dissolution or winding-up
of the Corporation, junior to the Convertible Perpetual Preferred Shares or (ii)
the acquisition of shares of any stock ranking, as to dividends or as to
distributions in the event of a liquidation, dissolution or winding-up of the
Corporation, junior to the Convertible Perpetual Preferred Shares in exchange
solely for shares of any other stock ranking, as to dividends and as to
distributions in the event of a liquidation, dissolution or winding-up of the
Corporation, junior to the Convertible Perpetual Preferred Shares.
(3) Voting Rights. The holders of Convertible Perpetual Preferred Shares
shall have the following voting rights:
(a) The holders of Convertible Perpetual Preferred Shares shall be
entitled to vote on all matters submitted to a vote of the stockholders of
the Corporation, voting together with the holders of Common Stock as one
class. The holder of each Convertible Perpetual Preferred Share shall be
entitled to a number of votes equal to the number of shares of Common Stock
into which such Convertible Perpetual Preferred Share could be converted on
the record date for determining the stockholders entitled to vote, rounded
to the nearest one one-hundredth of a vote; it being understood that
whenever the "Conversion Price" (as defined in paragraph (5) of this
Article IV.A.2.) is adjusted as provided in paragraph (9) of this Article
IV.A.2, the number of votes of the Convertible Perpetual Preferred Shares
shall also be similarly adjusted.
(b) Except as otherwise required by law or set forth herein, holders
of Convertible Perpetual Preferred Shares shall have no special voting
rights and their consent shall not be required (except to the extent they
are entitled to vote with holders of Common Stock as set forth herein) for
the taking of any corporate action; provided, however, that the vote of at
least 66 2/3% of the outstanding Convertible Perpetual Preferred Shares,
voting separately as a series, shall be necessary to adopt any alteration,
amendment or repeal of any provision of the Restated Certificate of
Incorporation of the Corporation (including any such alteration, amendment
or repeal effected by any merger or consolidation in which the Corporation
is the surviving or resulting corporation), if such amendment, alteration
or repeal would alter or change the powers, preferences, or special rights
of the Convertible Perpetual Preferred Shares so as to affect them
adversely.
(4) Liquidation, Dissolution or Winding-Up. (a) Upon any voluntary or
involuntary liquidation, dissolution or winding-up of the Corporation, the
holders of Convertible Perpetual Preferred Shares shall be entitled to receive
out of assets of the Corporation which remain after satisfaction in full of all
valid claims of creditors of the Corporation and which are available for payment
to stockholders, and subject to the rights of the holders of any stock of the
Corporation ranking senior to or on a parity with the Convertible Perpetual
Preferred Shares in respect of distributions upon liquidation, dissolution or
winding-up of the Corporation, before any amount shall be paid or distributed
among the holders of Common Stock or any other shares ranking junior to the
Convertible Perpetual Preferred Shares in respect of distributions upon
liquidation, dissolution or winding-up of the Corporation, liquidating
distributions in the amount of $40,300.00 per share, plus an amount equal to all
accrued and unpaid dividends thereon to the date fixed for distribution, and no
more. If upon any liquidation, dissolution or winding-up of the Corporation, the
amounts payable with respect to the Convertible Perpetual Preferred Shares and
any other stock ranking as to any such distribution on a parity with the
Convertible Perpetual Preferred Shares are not paid in full, the holders of the
Convertible Perpetual Preferred Shares and such other stock shall share ratably
in any distribution of assets in proportion to the full respective preferential
amounts to which they are entitled. After payment of the full amounts to which
they are entitled as provided by the foregoing provisions of this paragraph
(4)(a), the holders of Convertible Perpetual Preferred Shares shall not be
entitled to any further right or claim to any of the remaining assets of the
Corporation.
(b) Written notice of any voluntary or involuntary liquidation, dissolution
or winding-up of the Corporation, stating the payment date or dates when, and
the place or places where, the amounts distributable to holders of Convertible
Perpetual Preferred Shares in such circumstances shall be payable, shall be
given by hand delivery, by courier, by standard form of telecommunication or by
first-class mail (postage prepaid), delivered, sent or mailed, as the case may
be, not less than 20 days prior to any payment date stated therein, to
4
<PAGE> 5
the holders of Convertible Perpetual Preferred Shares, at the address shown on
the books of the Corporation or any transfer agent for the Convertible Perpetual
Preferred Shares.
(5) Conversion into Common Stock. (a) A holder of shares of Convertible
Perpetual Preferred Shares shall be entitled, at any time prior to the close of
business on the date fixed for redemption of such shares pursuant to paragraphs
(6), (7) and (8) of this Article IV.A.2., to cause any or all of such shares to
be converted into shares of Common Stock, initially at a conversion price equal
to $43.00 per share of Common Stock, with each Convertible Perpetual Preferred
Share being valued at $43,000.00 for such purpose, and which price shall be
adjusted as hereinafter provided (and, as so adjusted, is hereinafter sometimes
referred to as the "Conversion Price") (that is, a conversion rate initially
equivalent to 1,450 shares of Common Stock for each Convertible Perpetual
Preferred Share so converted, which is subject to adjustment as the Conversion
Price is adjusted as hereinafter provided in paragraph (9) of this Article
IV.A.2.); provided, however, that in no event shall the Conversion Price be less
than $1.00.
(b) Any holder of Convertible Perpetual Preferred Shares desiring to
convert such shares into shares of Common Stock shall surrender the certificate
or certificates representing the Convertible Perpetual Preferred Shares being
converted, duly assigned or endorsed for transfer to the Corporation (or
accompanied by duly executed stock powers relating thereto), at the principal
executive office of the Corporation or the offices of the transfer agent for the
Convertible Perpetual Preferred Shares or such office or offices in the
continental United States of an agent for conversion as may from time to time be
designated by notice to the holders of the Convertible Perpetual Preferred
Shares by the Corporation or the transfer agent for the Convertible Perpetual
Preferred Shares, accompanied by written notice of conversion. Such notice of
conversion shall specify (i) the number of shares of Convertible Perpetual
Preferred Shares to be converted and the name or names in which such holder
wishes the certificate or certificates for Common Stock and for any Convertible
Perpetual Preferred Shares not to be so converted to be issued and (ii) the
address to which such holder wishes delivery to be made of such new certificates
to be issued upon such conversion.
(c) Upon surrender of a certificate representing a Convertible Perpetual
Preferred Share or Shares for conversion, the Corporation shall issue and send
by hand delivery, by courier or by first-class mail (postage prepaid) to the
holder thereof or to such holder's designee, at the address designated by such
holder, a certificate or certificates for the number of shares of Common Stock
to which such holder shall be entitled upon conversion. In the event that there
shall have been surrendered a certificate or certificates representing
Convertible Perpetual Preferred Shares, only part of which are to be converted,
the Corporation shall issue and send to such holder or such holder's designee,
in the manner set forth in the preceding sentence, a new certificate or
certificates representing the number of Convertible Perpetual Preferred Shares
which shall not have been converted.
(d) The issuance by the Corporation of shares of Common Stock upon a
conversion of Convertible Perpetual Preferred Shares into shares of Common Stock
made at the option of the holder thereof shall be effective as of the earlier of
(i) the delivery to such holder or such holder's designee of the certificates
representing the shares of Common Stock issued upon conversion thereof or (ii)
the commencement of business on the second Business Day after the surrender of
the certificate or certificates for the Convertible Perpetual Preferred Shares
to be converted, duly assigned or endorsed for transfer to the Corporation (or
accompanied by duly executed stock powers relating thereto) and accompanied by
all documentation required to effect the conversion, as provided by this Article
IV.A.2. On and after the effective date of conversion, the person or persons
entitled to receive the Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock, but no allowance or adjustments shall be made in respect of
dividends payable to holders of Common Stock in respect of any period prior to
such effective date. The Corporation shall not be obligated to pay any dividends
which shall have been declared and shall be payable to holders of Convertible
Perpetual Preferred Shares on a Dividend Payment Date if the record date for
such dividend is subsequent to the effective date of conversion of such shares.
(e) The Corporation shall not be obligated to deliver to holders of
Convertible Perpetual Preferred Shares any fractional share of Common Stock
issuable upon any conversion of such Convertible Perpetual Preferred Shares, but
in lieu thereof may make a cash payment in respect thereof in any manner
permitted by law.
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<PAGE> 6
(f) The Corporation shall at all times reserve and keep available out of
its authorized and unissued Common Stock, solely for issuance upon the
conversion of Convertible Perpetual Preferred Shares as herein provided, free
from any preemptive rights, such number of shares of Common Stock as shall from
time to time be issuable upon the conversion of all the Convertible Perpetual
Preferred Shares then outstanding. Nothing contained herein shall preclude the
Corporation from issuing shares of Common Stock held in its treasury upon the
conversion of Convertible Perpetual Preferred Shares into Common Stock pursuant
to the terms hereof. The Corporation shall prepare and shall use its best effort
to obtain and keep in force such governmental or regulatory permits or other
authorizations as may be required by law, and shall comply with all requirements
as to registration or qualification of the Common Stock, in order to enable the
Corporation lawfully to issue and deliver to each holder of record of
Convertible Perpetual Preferred Shares such number of shares of its Common Stock
as from time to time be sufficient to effect the conversion of all Convertible
Perpetual Preferred Shares then outstanding and convertible into shares of
Common Stock.
(6) Redemption At the Option of the Corporation. (a) The Convertible
Perpetual Preferred Shares shall be redeemable, in whole or in part, at the
option of the Corporation at any time after July 20, 1999, or at any time after
the date of issuance, if permitted by paragraph (6)(d) of this Article IV.A.2,
at the following redemption prices per share:
<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>
and thereafter at $40,300.00 per share, plus, in each case, an amount equal to
all accrued and unpaid dividends thereon to the date fixed for redemption.
Payment of the redemption price shall be made by the Corporation in cash or
shares of Common Stock, or a combination thereof, as permitted by paragraph
(6)(e) of this Article IV.A.2. From and after the date fixed for redemption,
dividends on Convertible Perpetual Preferred Shares called for redemption will
cease to accrue, such Convertible Perpetual Preferred Shares will no longer be
deemed to be outstanding and all rights in respect of such Convertible Perpetual
Preferred Shares shall cease, except the right to receive the redemption price.
If less than all of the outstanding Convertible Perpetual Preferred Shares are
to be redeemed, the Corporation shall redeem a portion of the Convertible
Perpetual Preferred Shares of each holder determined pro rata based on the
number of Convertible Perpetual Preferred Shares held by each holder.
(b) Unless otherwise required by law, notice of redemption will be sent to
the holders of Convertible Perpetual Preferred Shares at the address shown on
the books of the Corporation or any transfer agent for the Convertible Perpetual
Preferred Shares by hand delivery, by courier, by standard form of
telecommunication or by first-class mail (postage prepaid) delivered, sent or
mailed, as the case may be, not less than twenty (20) days nor more than sixty
(60) days prior to the redemption date. Each such notice shall state: (i) the
redemption date; (ii) the total number of Convertible Perpetual Preferred Shares
to be redeemed and, if fewer than all the shares held by such holder are to be
redeemed, the number of such Convertible Perpetual Preferred Shares to be
redeemed from such holder; (iii) the redemption price; (iv) whether the
redemption price shall be paid in cash or in shares of Common Stock, or in a
combination of such Common Stock and cash, as permitted by paragraph (6)(e) of
this Article IV.A.2; (v) the place or places where certificates for such
Convertible Perpetual Preferred Shares are to be surrendered for payment of the
redemption price; (vi) that dividends on the Convertible Perpetual Preferred
Shares to be redeemed will cease to accrue on such redemption date; and (vii)
the conversion rights of the Convertible Perpetual Preferred Shares to be
redeemed, the period within which conversion rights may be exercised, and the
Conversion Price and number of shares of Common Stock issuable upon conversion
of a Convertible Perpetual Preferred Share at the time. Upon surrender of the
certificate for any Convertible Perpetual Preferred Shares so called for
redemption and not previously converted (properly endorsed or assigned for
transfer, if the Board shall so require and the notice shall so state), such
shares shall be redeemed by the Corporation at the date fixed for redemption and
at the redemption price set forth in this paragraph (6).
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(c) (1) Within thirty (30) days after the later of (i) the effective date,
(ii) the enactment date or (iii) if the Corporation contests in good faith in a
judicial or administrative proceeding the legality of the change referred to in
this paragraph (6)(c)(1), the date such matter is finally determined (the time
for appeal having expired and no appeal having been filed) against the
Corporation, of a change in any statute, rule or regulation of the United States
of America which has the effect of limiting or making unavailable to the
Corporation all or any of the tax deductions for amounts paid (including
dividends) on the Convertible Perpetual Preferred Shares when such amounts are
used as provided under Section 404(k)(2) of the Internal Revenue Code of 1986,
as amended (the "Code") and in effect on the date Convertible Perpetual
Preferred Shares are initially issued [(other than a change pursuant to H.R.
2572 which is subject to paragraph (6)(c)(2) below)], the Corporation may, in
its sole discretion and notwithstanding anything to the contrary in paragraph
(6)(a) of this Article IV.A.2, elect to either (a) redeem any or all of such
Convertible Perpetual Preferred Shares for cash or, if the Corporation so
elects, in shares of Common Stock, or a combination of such shares of Common
Stock and cash, any such shares of Common Stock to be valued for such purpose at
their Fair Market Value (as defined in paragraph (9)(g) of this Article IV.A.2),
at a redemption price equal to the higher of (x) $40,300.00 per share or (y) the
Fair Market Value of the number of shares of Common Stock into which each
Convertible Perpetual Preferred Share is convertible at the time the notice of
such redemption is given, plus in either case accrued and unpaid dividends
thereon to the date fixed for redemption, or (b) exchange any or all of such
Convertible Perpetual Preferred Shares for securities of comparable value (as
determined by an independent appraiser) that constitute "qualifying employer
securities" with respect to a holder of Convertible Perpetual Preferred Shares
within the meaning of Section 409(l) of the Code and Section 407(d)(5) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or any
successor provisions of law.
(2) Within thirty (30) days after the later of (i) the effective date, (ii)
the enactment date or (iii) if the Corporation contests in good faith in a
judicial or administrative proceeding the legality of the change referred to in
this paragraph (6)(c)(2), the date such matter is finally determined (the time
for appeal having expired and no appeal having been filed) against the
Corporation, of a change in any statute, rule or regulation of the United States
of America [effected pursuant to H.R. 2572] which has the effect of limiting or
making unavailable to the Corporation all or any of the tax deductions for
amounts paid (including dividends) on the Convertible Perpetual Preferred Shares
when such amounts are used as provided under Section 404(k)(2) of the Code and
in effect on the date Convertible Perpetual Preferred Shares are initially
issued, or if no such change has been effected [pursuant to H.R. 2572 by
December 15, 1989 and that bill is pending at such time], the Corporation may,
in its sole discretion and notwithstanding anything to the contrary in paragraph
(6)(a) of this Article IV.A.2, elect to either (a) redeem any or all of such
Convertible Perpetual Preferred Shares for cash or, if the Corporation so
elects, in shares of Common Stock, or a combination of such shares of Common
Stock and cash, any such shares of Common Stock to be valued for such purpose at
their Fair Market Value (as defined in paragraph (9)(g) of this Article IV.A.2),
at a redemption price equal to the higher of (x) the sum of $40,300.00 per share
plus the incremental amount of cash dividends that would have been paid to a
holder of Convertible Perpetual Preferred Shares during the period from the date
of issuance until the date of such redemption had the dividend on the
Convertible Perpetual Preferred Shares during such period been equal to
$3,526.35 per share per annum rather than $2,518.75 per share per annum or (y)
the Fair Market Value of the number of shares of Common Stock into which each
Convertible Perpetual Preferred Share is convertible at the time the notice of
such redemption is given, plus in either case accrued and unpaid dividends
thereon to the date fixed for redemption, or (b) exchange any or all of the such
Convertible Perpetual Preferred Shares for securities of value comparable to
that set forth in subsection (x) above (as determined by an independent
appraiser) that constitute "qualifying employer securities" with respect to a
holder of Convertible Perpetual Preferred Shares within the meaning of Section
409(l) of the Code and Section 407(d)(5) of ERISA, or any successor provisions
of law.
(d) In the event that the Plan is terminated or the ESOP is terminated or
eliminated from the Plan in accordance with its terms, the Corporation shall, as
soon thereafter as practicable, call for redemption all the then outstanding
Convertible Perpetual Preferred Shares in accordance with paragraph (6)(a) of
this Article IV.A.2.
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(e) The Corporation, at its option, may make payment of the redemption
price required upon redemption or Convertible Perpetual Preferred Shares in cash
or in shares of Common Stock, or in a combination of such Common Stock and cash,
any such shares of Common Stock to be valued for such purposes at their Fair
Market Value (as defined in paragraph (9)(g) of this Article IV.A.2).
(7) Other Redemption Rights. Convertible Perpetual Preferred Shares shall
be redeemed by the Corporation for cash or, if the Corporation so elects, in
shares of Common Stock, or a combination of such shares of Common Stock and
cash, any such shares of Common Stock to be valued for such purpose at their
Fair Market Value, at a redemption price of $40,300.00 per share plus accrued
and unpaid dividends thereon to the date fixed for redemption, at the option of
the holder, at any time and from time to time upon notice to the Corporation
given not less than five (5) business days prior to the date fixed by the holder
in such notice for such redemption, upon certification by such holder to the
Corporation of the following events: (i) when and to the extent necessary for
such holder to make any payments of principal, interest or premium due and
payable (whether as scheduled, upon acceleration or otherwise) under the Note
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 within
the meaning of Sections 401(a) and 4975(e)(7) of the Code. Convertible Perpetual
Preferred Shares shall be redeemed by the Corporation for cash or, if the
Corporation so elects, in shares of Common Stock, or a combination of such
shares of Common Stock and cash, any such shares of Common Stock to be valued
for such purpose at their Fair Market Value, at a redemption price equal to the
higher of (x) $40,300.00 per share or (y) the Fair Market Value of the number of
shares of Common Stock into which each Convertible Perpetual Preferred Share is
convertible at the time the notice of such redemption is given, plus in either
case accrued and unpaid dividends thereon to the date fixed for redemption, at
the option of the holder, at any time and from time to time upon notice to the
Corporation given not less than five (5) business days prior to the date fixed
by the holder in such notice for such redemption, upon certification by such
holder to the Corporation that it is necessary for such holder to provide for
distributions required to be made to the Participants under, or to satisfy an
investment election of the Participants in accordance with, the Plan.
(8) Consolidation, Merger, etc. (a) In the event that the Corporation
shall consummate any consolidation or merger or similar business combination,
pursuant to which the outstanding shares of Common Stock are by operation of law
exchanged solely for or changed, reclassified or converted solely into stock of
any successor or resulting corporation (including the Corporation) that
constitutes "qualifying employer securities" with respect to a holder of
Convertible Perpetual Preferred Shares within the meaning of Section 409(1) of
the Code and Section 407(d)(5) of ERISA or any successor provisions of law, and,
if applicable, for a cash payment in lieu of fractional shares, if any, the
Convertible Perpetual Preferred Shares of such holder shall, in connection with
such consolidation, merger or similar business combination, be assumed by and
shall become preferred stock of such successor or resulting corporation, having
in respect of such corporation, insofar as possible, the same powers,
preferences and relative, participating, optional or other special rights
(including the redemption rights provided by paragraphs (6), (7) and (8) of this
Article IV.A.2), and the qualifications, limitations or restrictions thereon,
that the Convertible Perpetual Preferred Share had immediately prior to such
transaction, except that after such transaction each Convertible Perpetual
Preferred Share shall be convertible, otherwise on the terms and conditions
provided by paragraph (5) of this Article IV.A.2, into the number and kind of
qualifying employer securities so receivable by a holder of the number of shares
of Common Stock into which such Convertible Perpetual Preferred Shares could
have been converted immediately prior to such transaction; provided, however,
that if by virtue of the structure of such transaction, a holder of Common Stock
is required to make an election with respect to the nature and kind of
consideration to be received in such transaction, which election cannot
practicably be made by the holders of the Convertible Perpetual Preferred
Shares, then the Convertible Perpetual Preferred Shares shall, by virtue of such
transaction and on the same terms as apply to the holders of Common Stock, be
converted into or exchanged for the aggregate amount of stock, securities, cash
or other property (payable in kind) receivable by a holder of the number of
shares of Common Stock into which such Convertible Perpetual Preferred Shares
could have been converted immediately prior to such transaction if such holder
of Common Stock failed to exercise any rights of election to receive any kind or
amount of stock, securities, cash or other property (other than such qualifying
employer securities and a cash payment, if applicable, in lieu of fractional
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shares) receivable upon such transaction (provided that, if the kind or amount
of qualifying employer securities receivable upon such transaction is not the
same for each non-electing share, then the kind and amount so receivable upon
such transaction for each non-electing share shall be the kind and amount so
receivable per share by the plurality of the non-electing shares). The rights of
the Convertible Perpetual Preferred Shares as preferred stock of such successor
or resulting corporations shall successively be subject to adjustments pursuant
to paragraph (9) of this Article IV.A.2 after any such transaction as nearly
equivalent as practicable to the adjustment provided for by such section prior
to such transaction. The Corporation shall not consummate any such merger,
consolidation or similar transaction unless all then outstanding Convertible
Perpetual Preferred Shares shall be assumed and authorized by the successor or
resulting corporation as aforesaid.
(b) In the event that the Corporation shall consummate any consolidation or
merger or similar business combination, pursuant to which the outstanding shares
of Common Stock are by operation of law exchanged for or changed, reclassified
or converted into other stock or securities or cash or any other property, or
any combination thereof, other than any such consideration which is constituted
solely of qualifying employer securities (as referred to in paragraph (8)(a) of
this Article IV.A.2) and cash payments, if applicable, in lieu of fractional
shares, outstanding Convertible Perpetual Preferred Shares shall, without any
action on the part of the Corporation or any holder thereof (but subject to
paragraph (8)(c) of this Article IV.A.2), be automatically converted by virtue
of such merger, consolidation or similar transaction immediately prior to such
consummation into the number of shares of Common Stock into which such
Convertible Perpetual Preferred Shares could have been converted at such time so
that each Convertible Perpetual Preferred Share shall, by virtue of such
transaction and on the same terms as apply to the holders of Common Stock, be
converted into or exchanged for the aggregate amount of stock, securities, cash
or other property (payable in like kind) receivable by a holder of the number of
shares of Common Stock into which such Convertible Perpetual Preferred Shares
could have been converted immediately prior to such transaction; provided,
however, that if by virtue of the structure of such transaction, a holder of
Common Stock is required to make an election with respect to the nature and kind
of consideration to be received in such transaction, which election cannot
practicably be made by the holder of the Convertible Perpetual Preferred Shares,
then the Convertible Perpetual Preferred Shares shall, by virtue of such
transaction and on the same terms as apply to the holders of Common Stock, be
converted into or exchanged for the aggregate amount of stock, securities, cash
or other property (payable in kind) receivable by a holder of the number of
shares of Common Stock into which such Convertible Perpetual Preferred Shares
could have been converted immediately prior to such transaction if such holder
of Common Stock failed to exercise any rights of election as to the kind or
amount of stock, securities, cash or other property receivable upon such
transaction (provided that, if the kind or amount of stock, securities, cash or
other property receivable upon such transaction is not the same for each
non-electing share, then the kind and amount of stock, securities, cash or other
property receivable upon such transaction for each nonelecting share shall be
the kind and amount so receivable per share by a plurality of the non-electing
shares).
(c) In the event the Corporation shall enter into any agreement providing
for any consolidation or merger or similar business combination described in
paragraph (8)(b) of this Article IV.A.2, then the Corporation shall as soon as
practicable thereafter (and in any event at least ten (10) business days before
consummation of such transaction) give notice of such agreement and the material
terms thereof to each holder of Convertible Perpetual Preferred Shares and each
such holder shall have the right to elect, by written notice to the Corporation,
to receive, upon consummation of such transaction (if and when such transaction
is consummated), from the Corporation or the successor of the Corporations in
redemption and retirement of such Convertible Perpetual Preferred Shares, a cash
payment equal to the amount payable in respect of Convertible Perpetual
Preferred Shares upon liquidation of the Corporation pursuant to paragraph (4)
of this Article IV.A.2. No such notice of redemption shall be effective unless
given to the Corporation prior to the close of business on the second business
day prior to consummation of such transaction, unless the Corporation or the
successor of the Corporation shall waive such prior notice, but any notice of
redemption so given prior to such time may be withdrawn by notice of withdrawal
given to the Corporation prior to the close of business on the fifth business
day prior to consummation of such transaction.
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(9) Anti-dilution Adjustments. (a) In the event the Corporation shall, at
any time or from time to time while any of the Convertible Perpetual Preferred
Shares are outstanding, (i) pay a dividend or make a distribution in respect of
the Common Stock in shares of Common Stock, (ii) subdivide the outstanding
shares of Common Stock, or (iii) combine the outstanding shares of Common Stock
into a smaller number of shares, in each case whether by reclassification of
shares, recapitalization of the Corporation (including a recapitalization
effected by a merger or consolidation to which paragraph (8) of this Article
IV.A.2 does not apply) or otherwise, the Conversion Price in effect immediately
prior to such action shall be adjusted by multiplying such Conversion Price by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately before such event, and the denominator of which is the
number of shares of Common Stock outstanding immediately after such event. An
adjustment made pursuant to this paragraph (9)(A) shall be given effect, upon
payment of such a dividend or distribution, as of the record date for the
determination of stockholders entitled to receive such dividend or distribution
(on a retroactive basis) and in the case of a subdivision or combination shall
become effective immediately as of the effective date thereof.
(b) In the event that the Corporation shall, at any time or from time to
time while any of the Convertible Perpetual Preferred Shares are outstanding,
issue to holders of shares of Common Stock as a dividend or distribution,
including by way of a reclassification of shares or a recapitalization of the
Corporation, any right or warrant to purchase shares of Common Stock (but not
including as such a right or warrant any security convertible into or
exchangeable for shares of Common Stock) at a purchase price per share less than
the Fair Market Value (as hereinafter defined) of a share of Common Stock on the
date of issuance of such right or warrant, then, subject to the provisions of
paragraphs (9)(e) and (f) of this Article IV.A.2, the Conversion Price shall be
adjusted by multiplying such Conversion Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
before such issuance of rights or warrants plus the number of shares of Common
Stock which could be purchased at the Fair Market Value of a share of Common
Stock at the time of such issuance for the maximum aggregate consideration
payable upon exercise in full of all such rights or warrants, and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately before such issuance of rights or warrants plus the number of shares
of Common Stock that could be acquired upon exercise in full of all such rights
and warrants.
(c) In the event the Corporation shall, at any time or from time to time
while any of the Convertible Perpetual Preferred Shares are outstanding, issue,
sell or exchange shares of Common Stock (other than pursuant to any right or
warrant to purchase or acquire shares of Common Stock (including as such a right
or warrant any security convertible into or exchangeable for shares of Common
Stock) and other than pursuant to any employee or director incentive or benefit
plan or arrangement, including any employment, severance or consulting
agreement, of the Corporation or any subsidiary of the Corporation heretofore or
hereafter adopted) for a consideration having a Fair Market Value, on the date
of such issuance, sale or exchange, less than the Fair Market Value of such
shares on the date of issuance, sale or exchange, then, subject to the
provisions of paragraphs (9)(e) and (f) of this Article IV.A.2, the Conversion
Price shall be adjusted by multiplying such Conversion Price by a fraction the
numerator of which shall be the sum of (i) the Fair Market Value of all the
shares of Common Stock outstanding on the day immediately preceding the first
public announcement of such issuance, sale or exchange plus (ii) the Fair Market
Value of the consideration received by the Corporation in respect of such
issuance, sale or exchange of shares of Common Stock, and the denominator of
which shall be the product of (a) the Fair Market Value of a share of Common
Stock on the day immediately preceding the first public announcement of such
issuance, sale or exchange multiplied by (b) the sum of the number of shares of
Common stock outstanding on such day plus the number of shares of Common Stock
so issued, sold or exchanged by the Corporation. In the event the Corporation
shall, at any time or from time to time while any Convertible Perpetual
Preferred Shares are outstanding, issue, sell or exchange any right or warrant
to purchase or acquire shares of Common Stock (including as such a right or
warrant any security convertible into or exchangeable for shares of Common
Stock), other than any such issuance to holders of shares of Common Stock as a
dividend or distribution (including by way of a reclassification of shares or a
recapitalization of the Corporation) and other than pursuant to any employee or
director incentive or benefit plan or arrangement (including any employment,
severance or consulting agreement) of the Corporation or any subsidiary of the
Corporation heretofore or hereafter adopted, for a consideration having a Fair
Market Value, on the date of such issuance, sale or exchange, less than the Non-
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Dilutive Amount (as hereinafter defined), then, subject to the provisions of
paragraphs (9)(e) and (f) of this Article IV.A.2, the Conversion Price shall be
adjusted by multiplying such Conversion Price by a fraction the numerator of
which shall be the sum of (I) the Fair Market Value of all the shares of Common
Stock outstanding on the day immediately preceding the first public announcement
of such issuance, sale or exchange plus (II) the Fair Market Value of the
consideration received by the Corporation in respect of such issuance, sale or
exchange of such right or warrant plus (III) the Fair Market Value at the time
of such issuance of the consideration which the Corporation would receive upon
exercise in full of all such rights or warrants, and the denominator of which
shall be the product of (i) the Fair Market Value of a share of Common Stock on
the day immediately preceding the first public announcement of such issuance,
sale or exchange multiplied by (ii) the sum of the number of shares of Common
Stock outstanding on such day plus the maximum number of shares of Common Stock
which could be acquired pursuant to such right or warrant at the time of the
issuance, sale or exchange of such right or warrant (assuming shares of Common
Stock could be acquired pursuant to such right or warrant at such time).
(d) In the event the Corporation shall, at any time or from time to time
while any of the Convertible Perpetual Preferred Shares are outstanding, make an
Extraordinary Distribution (as hereinafter defined) in respect of the Common
Stock, whether by dividend, distribution, reclassification of shares or
recapitalization of the Corporation (including a recapitalization or
reclassification effected by a merger or consolidation to which paragraph (8) of
this Article IV.A.2 does not apply) or effect a Pro Rata Repurchase (as
hereinafter defined) of Common Stock, the Conversion Price in effect immediately
prior to such Extraordinary Distribution or Pro Rata Repurchase shall, subject
to paragraphs (9)(e) and (f) of this Article IV.A.2, be adjusted by multiplying
such Conversion Price by the fraction, the numerator of which is the difference
between (i) the product of (x) the number of shares of Common Stock outstanding
immediately before such Extraordinary Distribution or Pro Rata Repurchase
multiplied by (y) the Fair Market Value of a share of Common Stock on the day
before the ex-dividend date with respect to an Extraordinary Distribution which
is paid in cash and on the distribution date with respect to an Extraordinary
Distribution which is paid other than in cash, or on the applicable expiration
date (including all extensions thereof) of any tender offer which is a Pro Rata
Repurchase, or on the applicable expiration date (including all extensions
thereof) of any tender offer which is a Pro Rata Repurchase, or on the date of
purchase with respect to any Pro Rata Repurchase which is not a tender offer, as
the case may be, and (ii) the Fair Market Value of the Extraordinary
Distribution minus the aggregate amount of regularly scheduled quarterly
dividends declared by the Board and paid by the Corporation in the twelve months
immediately preceding such Extraordinary Distribution or the aggregate purchase
price of the Pro Rata Repurchase, as the case may be, and the denominator of
which shall be the product of (a) the number of shares of Common Stock
outstanding immediately before such Extraordinary Dividend or Pro Rata
Repurchase minus, in the case of a Pro Rata Repurchase, the number of shares of
Common Stock repurchased by the Corporation multiplied by (b) the Fair Market
Value of a share of Common Stock on the day before the ex-dividend date with
respect to an Extraordinary Distribution which is paid in cash and on the
distribution date with respect to an Extraordinary Distribution which is paid
other than in cash, or on the applicable expiration date (including all
extensions thereof) of any tender offer which is a Pro Rata Repurchase or on the
date of purchase with respect to any Pro Rata Repurchase which is not a tender
offer, as the case may be. The Corporation shall send each holder of Convertible
Perpetual Preferred Shares (i) notice of its intent to make any dividend or
distribution and (ii) notice of any offer by the Corporation to make a Pro Rata
Repurchase, in each case at the same time as, or as soon as practicable after,
such offer is first communicated (including by announcement of a record date in
accordance with the rules of any stock exchange on which the Common Stock is
listed or admitted to trading) to holders of Common Stock. Such notice shall
indicate the intended record date and the amount and nature of such dividend or
distribution, or the number of shares subject to such offer for a Pro Rata
Repurchase and the purchase price payable by the Corporation pursuant to such
offer, as well as the Conversion Price and the number of shares of Common Stock
into which a Convertible Perpetual Preferred Share may be converted at such
time.
(e) Notwithstanding any other provision of this paragraph (9), the
Corporation shall not be required to make any adjustment to the Conversion Price
unless such adjustment would require an increase or decrease of at least one
percent (1%) in the Conversion Price. Any lesser adjustment shall be carried
forward and shall be made no later than the time of, and together with, the next
subsequent adjustment which, together with any
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adjustment or adjustments so carried forward, shall amount to an increase or
decrease of at least one percent (1%) in the Conversion Price.
(f) If the Corporation shall make any dividend or distribution on the
Common Stock or issue any Common Stock, other capital stock or other security of
the Corporation or any rights or warrants to purchase or acquire any such
security, which transaction does not result in an adjustment to the Conversion
Price pursuant to the foregoing provisions of this paragraph (9), the Board
shall consider whether such action is of such a nature that an adjustment to the
Conversion Price should equitably be made in respect of such transaction. If in
such case the Board determines that an adjustment to the Conversion Price should
be made, an adjustment shall be made effective as of such date, as determined by
the Board. The determination of the Board as to whether an adjustment to the
Conversion Price should be made pursuant to the foregoing provisions of this
paragraph (9)(f), and, if so, as to what adjustment should be made and when,
shall be final and binding on the Corporation and all shareholders of the
Corporation. The Corporation shall be entitled to make such additional
adjustments in the Conversion Price, in addition to those required by the
foregoing provisions of this paragraph (9), as shall be necessary in order that
any dividend or distribution in shares of capital stock of the Corporation,
subdivision, reclassification or combination of shares of stock of the
Corporation or any recapitalization of the Corporation shall not be taxable to
the holders of the Common Stock.
(g) For purposes of this Article IV.A.2., the following definitions shall
apply:
"Business Day" shall mean each day that is not a Saturday, Sunday or a
day on which state or federally chartered banking institutions in New York
are not required to be open.
"Current Market Price" of publicly traded shares of Common Stock or
any other class of capital stock or other security of the Corporation or
any other issuer for any day shall mean the last reported sales price,
regular way, or, in the event that no sale takes place on such day, the
average of the reported closing bid and asked prices, regular way, in
either case as reported on the New York Stock Exchange Composite Tape or,
if such security is not listed or admitted to trading on the New York Stock
Exchange, on the principal national securities exchange on which such
security is listed or admitted to trading or, if not listed or admitted to
trading on any national securities exchange, on the NASDAQ National Market
System or, if such security is not quoted on such National Market System,
the average of the closing bid and asked prices on each such day in the
over-the-counter market as reported by NASDAQ or, if bid and asked prices
for such security on each such day shall not have been reported through
NASDAQ, the average of the bid and asked prices for such day as furnished
by any New York Stock Exchange member firm regularly making a market in
such security selected for such purpose by the Board of Directors of the
Corporation or a committee thereof.
"Extraordinary Distribution" shall mean any dividend or other
distribution to holders of Common Stock (effected while any of the
Convertible Perpetual Preferred Shares are outstanding) (i) of cash, where
the aggregate amount of such cash dividend or distribution together with
the amount of all cash dividends and distributions made during the
preceding period of 12 months, when combined with the aggregate amount of
all Pro Rata Repurchases (for this purpose, including only that portion of
the aggregate purchase price of such Pro Rata Repurchase which is in excess
of the Fair Market Value of the Common Stock repurchased as determined on
the Business Day immediately following the applicable expiration date
(including all extensions thereof) of any tender offer or exchange offer
which is a Pro Rata Repurchase, or the date of purchase with respect to any
other Pro Rata Repurchase which is not a tender offer or exchange offer
made during such period), exceeds ten percent (10%) of the aggregate Fair
Market Value of all shares of Common Stock outstanding on the day before
the ex-dividend date with respect to such Extraordinary Distribution which
is paid in cash and on the distribution date with respect to an
Extraordinary Distribution which is paid other than in cash, and/or (ii) of
any shares of capital stock of the Corporation (other than shares of Common
Stock), other securities of the Corporation (other than securities of the
type referred to in paragraph (9)(b) or (c) of this Article IV.A.2),
evidences of indebtedness of the Corporation or any other person or any
other property (including shares of any subsidiary of the Corporation) or
any combination thereof. The Fair Market Value of an
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Extraordinary Distribution for purposes of paragraph (9)(d) of this Article
IV.A.2 shall be equal to the sum of the Fair Market Value of such
Extraordinary Distribution plus the amount of any cash dividends which are
not Extraordinary Distributions made during such 12-month period and not
previously included in the calculation of an adjustment pursuant to
paragraph (9)(d) of this Article IV.A.2.
"Fair Market Value" shall mean, as to shares of Common Stock or any
other class of capital stock or securities of the Corporation or any other
issuer which are publicly traded, (i) for purposes of paragraphs (6) and
(7) of this Article IV.A.2, the Current Market Price on the date as of
which the Fair Market Value is to be determined, and (ii) for all other
purposes hereof, the average of the Current Market Prices of such shares or
securities for each day of the Adjustment Period. "Adjustment Period" shall
mean the period of five (5) consecutive trading days preceding, and
including, the date as of which the Fair Market Value of a security is to
be determined. The Fair Market Value of any security which is not publicly
traded (other than the Convertible Perpetual Preferred Shares) or of any
other property shall mean the fair value thereof as determined by an
independent investment banking or appraisal firm experienced in the
valuation of such securities or property selected in good faith by the
Board or a committee thereof, or, if no such investment banking or
appraisal firm is in the good faith judgment of the Board or such committee
available to make such determination, as determined in good faith by the
Board or such committee.
"Non-Dilutive Amount" in respect of an issuance, sale or exchange by
the Corporation of any right or warrant to purchase or acquire shares of
Common Stock (including any security convertible into or exchangeable for
shares of Common Stock) shall mean the difference between (i) the product
of the Fair Market Value of a share of Common Stock on the day preceding
the first public announcement of such issuance, sale or exchange multiplied
by the maximum number of shares of Common Stock which could be acquired on
such date upon the exercise in full of such rights and warrants (including
upon the conversion or exchange of all such convertible or exchangeable
securities), whether or not exercisable (or convertible or exchangeable) at
such date, and (ii) the aggregate amount payable pursuant to such right or
warrant to purchase or acquire such maximum number of shares of Common
Stock; provided, however, that in no event shall the Non-Dilutive Amount be
less than zero. For purposes of the foregoing sentence, in the case of a
security convertible into or exchangeable for shares of Common Stock, the
amount payable pursuant to a right or warrant to purchase or acquire shares
of Common Stock shall be the Fair Market Value of such security on the date
of the issuance, sale or exchange of such security by the Corporation.
"Pro Rata Repurchase" shall mean any purchase of shares of Common
Stock by the Corporation or any subsidiary thereof, whether for cash,
shares of capital stock of the Corporation, other securities of the
Corporation, evidences of indebtedness of the Corporation or any other
person or any other property (including shares of a subsidiary of the
Corporation), or any combination thereof, affected while any of the
Convertible Perpetual Preferred Shares are outstanding, pursuant to any
tender offer or exchange offer subject to Section 13(e) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or any successor
provision of law, or pursuant to any other offer available to substantially
all holders of Common Stock; provided, however, that no purchase of shares
by the Corporation or any subsidiary thereof made in open market
transactions shall be deemed a Pro Rata Repurchase. For purposes of this
paragraph (9)(g) of this Article IV.A.2, shares shall be deemed to have
been purchased by the Corporation or any subsidiary thereof "in open market
transactions" if they have been purchased substantially in accordance with
the requirements of Rule 10b-18 as in effect under the Exchange Act, on the
date Convertible Perpetual Preferred Shares are initially issued by the
Corporation or on such other terms and conditions as the Board or a
committee thereof shall have determined are reasonably designed to prevent
such purchases from having a material effect on the trading market for the
Common Stock.
(h) Whenever an adjustment to the Conversion Price and the related
voting rights of the convertible Perpetual Preferred Shares is required
pursuant to this Article IV.A.2., the Corporation shall forthwith place on
file with the transfer agent for the Common Stock and the Convertible
Perpetual Preferred Shares, and with the Secretary of the Corporation, a
statement signed by two officers of the Corporation stating the adjusted
Conversion Price determined as provided herein and the resulting
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conversion ratio, and the voting rights (as appropriately adjusted), of the
Convertible Perpetual Preferred Shares. Such statement shall set forth in
reasonable detail such facts as shall be necessary to show the reason and
the manner of computing such adjustment, including any determination of
Fair Market Value involved in such computation. Promptly after each
adjustment to the Conversion Price and the related voting rights of the
Convertible Perpetual Preferred Shares, the Corporation shall mail a notice
thereof and of the then prevailing conversion ratio to each holder of
Convertible Perpetual Preferred Shares.
(10) Ranking; Attributable Capital And Adequacy of Surplus; Retirement of
Shares. (a) The Convertible Perpetual Preferred Shares shall rank senior to the
Common Stock as to the payment of dividends and the distribution of assets on
liquidation, dissolution and winding-up of the Corporation, and, unless
otherwise provided in the Restated Certificate of Incorporation of the
Corporation, as the same may be amended, or a Certificate of Designations
relating to a subsequent series of Preferred Stock, par value $0.01 per share,
of the Corporation, the Convertible Perpetual Preferred Shares shall rank junior
to all series of the Corporation's Preferred Stock, par value $0.01 per share as
to the payment of dividends and the distribution of assets on liquidation,
dissolution or winding-up.
(b) In addition to any vote of stockholders required by law or by paragraph
(3)(b) of this Article IV.A.2., the vote of the holders of a majority of the
outstanding Convertible Perpetual Preferred Shares shall be required to increase
the par value of the Common Stock or otherwise increase the capital of the
Corporation allocable to the Common Stock for the purpose of the General
Corporation Law if, as a result thereof, the surplus of the Corporation for
purposes of the General Corporation Law would be less than the amount of
Convertible Perpetual Preferred Dividends that would accrue on the then
outstanding Convertible Perpetual Preferred Shares during the following three
years.
(c) Any Convertible Perpetual Preferred Shares acquired by the Corporation
by reason of the conversion or redemption of such shares as provided by this
Article IV.A.2., or otherwise so acquired, shall be retired as Convertible
Perpetual Preferred Shares and restored to the status of authorized but unissued
shares of Preferred Stock, par value $0.01 per share, of the Corporation,
undesignated as to series, and may thereafter be reissued as part of a new
series of such Preferred Stock as permitted by law.
(11) Miscellaneous. (a) All notices referred to in this Article IV.A.2
shall be in writing, and all notices hereunder shall be deemed to have been
given upon the earlier of delivery thereof if by hand delivery, by courier or by
standard form of telecommunication or three (3) Business Days after the mailing
thereof if sent by registered mail (unless first-class mail shall be
specifically permitted for such notice under the terms of this Article IV.A.2.)
with postage prepaid, addressed: (i) if to the Corporation, to its office at
(Attention: Secretary), or to the transfer agent for the
Convertible Perpetual Preferred Shares, or other agent of the Corporation
designated as permitted by this Article IV.A.2. or (ii) if to any holder of the
Convertible Perpetual Preferred Shares or Common Stock, as the case may be, to
such holder at the address of such holder as listed in the stock record books of
the Corporation (which may include the records of any transfer agent for the
Convertible Perpetual Preferred Shares or Common Stock, as the case may be) or
(iii) to such other address as the Corporation or any such holder, as the case
may be, shall have designated by notice similarly given.
(b) The term "Common Stock" as used in this Article IV.A.2. means the
Corporation's Common Stock, par value $0.01 per share, as the same exists at the
date of filing of a Certificate of Designations relating to Convertible
Perpetual Preferred Shares or any other class of stock resulting from successive
changes or reclassifications of such Common Stock consisting solely of changes
in par value, or from par value to no par value, or from no par value to par
value. In the event that, at any time as a result of an adjustment made pursuant
to paragraph (9) of this Article IV.A.2., the holder of any Convertible
Perpetual Preferred Shares upon thereafter surrendering such shares for
conversion, shall become entitled to receive any shares or other securities of
the Corporation other than shares of Common Stock, the Conversion Price in
respect of such other shares or securities so receivable upon conversion of
Convertible Perpetual Preferred Shares shall thereafter be adjusted, and shall
be subject to further adjustment from time to time, in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to Common Stock
contained in paragraph (9) of this Article IV.A.2, and the provisions of
paragraphs (1) through (8), (10) and (11) of this
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Article IV.A.2. with respect to the Common Stock shall apply on like or similar
terms to any such other shares or securities.
(c) The Corporation shall pay any and all stock transfer and documentary
stamp taxes that may be payable in respect of any issuance or delivery of
Convertible Perpetual Preferred Shares or shares of Common Stock or other
securities issued on account of Convertible Perpetual Preferred Shares pursuant
hereto or certificates representing such shares or securities. The Corporation
shall not, however, be required to pay any such tax which may be payable in
respect of any transfer involved in the issuance or delivery of Convertible
Perpetual Preferred Shares or Common Stock or other securities in a name other
than that in which the Convertible Perpetual Preferred Shares with respect to
which such shares or other securities are issued or delivered were registered,
or in respect of any payment to any person with respect to any such shares or
securities other than a payment, to the registered holder thereof, and shall not
be required to make any such issuance, delivery or payment unless and until the
person otherwise entitled to such issuance, delivery or payment has paid to the
Corporation the amount of any such tax or has established, to the satisfaction
of the Corporation, that such tax has been paid or is not payable.
(d) In the event that a holder of Convertible Perpetual Preferred Shares
shall not by written notice designate the name in which shares of Common Stock
to be issued upon conversion of such shares should be registered or to whom
payment upon redemption of Convertible Perpetual Preferred Shares should be made
or the addresses to which the certificate or certificates representing such
shares, or such payment, should be sent, the Corporation shall be entitled to
register such shares and make such payment, in the name of the holder of such
Convertible Perpetual Preferred Shares as shown on the records of the
Corporation and to send the certificate or certificates representing such
shares, or such payment, to the address of such holder shown on the records of
the Corporation.
(e) Unless otherwise provided in the Restated Certificate of Incorporation,
as the same may be amended, of the Corporation, all payments in the form of
dividends, distributions on voluntary or involuntary dissolution, liquidation or
winding-up or otherwise made upon the Convertible Perpetual Preferred Shares and
any other stock ranking on a parity with the Convertible Perpetual Preferred
Shares with respect to such dividend or distribution shall be pro rata, so that
amounts paid per Convertible Perpetual Preferred Share and such other stock
shall in all cases bear to each other the same ratio that the required
dividends, distributions or payments, as the case may be, then payable per share
on the Convertible Perpetual Preferred Share and such other stock bear to each
other.
(f) Any determination required or permitted to be made by the Board
hereunder may be made by a committee appointed by the Board which need not
include members of the Board.
(g) The Corporation may appoint, and from time to time discharge and
change, a transfer agent for the Convertible Perpetual Preferred Shares. Upon
any such appointment or discharge of a transfer agent, the Corporation shall
send notice thereof by hand delivery, by courier, by standard form of
telecommunication or by first-class mail, (postage prepaid), to each holder of
record of Convertible Perpetual Preferred Shares.
B. COMMON STOCK
(1) Subject to all of the rights of the Preferred Stock, except as may be
expressly provided with respect to the Preferred Stock herein, by law or by the
Board pursuant to this Article IV:
(a) dividends may be declared and paid or set apart for payment upon
the Common Stock only out of any assets or funds of the Corporation legally
available for the payment of dividends;
(b) the holders of Common Stock shall have the exclusive right to vote
for the election of Directors of the Corporation (the "Directors") and on
all other matters requiring stockholder action, each share of Common Stock
being entitled to one vote; and
(c) upon the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the net assets of the Corporation shall be
distributed pro rata to the holders of the Common Stock in accordance with
their respective rights and interests.
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ARTICLE V
DIRECTORS
(1) Elections of Directors of the Corporation need not be by written
ballot, except and to the extent provided in the By-Laws of the Corporation.
(2) The number of Directors of the Corporation shall be an even number
fixed from time to time in the manner provided by the By-laws of the
Corporation, but in no event shall such number be less than eight (8) nor more
than sixteen (16). At least half of the Directors shall be Independent Directors
as such term is used in Rule 303 of the Rules of the New York Stock Exchange as
in existence on the date hereof or as amended from time to time hereafter.
(3) The Board shall be divided into three classes, each class to have, as
nearly as may be possible, an equal number of Directors. The term of office of
Directors of the first class shall expire at the annual meeting of stockholders
next ensuing this classification; the term of office of Directors of the second
class shall expire at the second annual meeting of stockholders next ensuing
this classification; and the term of office of Directors of the third class
shall expire at the third annual meeting of stockholders next ensuing this
classification. At each annual meeting of the stockholders, Directors of each
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; provided that nothing herein shall be
construed to prevent (i) the election of a Director to succeed himself, or (ii)
the election of a Director for the remainder of an unexpired term in the class
of Directors to which he is elected.
(4) Except as otherwise fixed pursuant to the provisions of this Article V
relating to the rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation to elect
Directors under specified circumstances, newly created directorships resulting
from any increase in the number of Directors and any vacancies on the Board
resulting from death, resignation, disqualification, removal or other cause
shall be filled solely by the affirmative vote of a majority of the remaining
Directors then in office, even though less than a quorum. Any Director elected
in accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of Directors in which the new directorship was
created or the vacancy occurred and until such Director's successor shall have
been elected and qualified. No decrease in the number of Directors constituting
the Board shall shorten the term of any incumbent Director.
(5) To the fullest extent permitted by the General Corporation Law as it
now exists and as it may hereafter be amended, no Director of the Corporation
shall be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a Director.
ARTICLE VI
STOCKHOLDERS
(1) Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of such
holders and may not be effected by any consent in writing by any such holders.
Except as otherwise required by law and subject to the rights of the holders of
any class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation, special meetings of stockholders of the
Corporation may be called only by the Chairman of the Board, the Chief Executive
Officer, or a majority of the Directors.
(2) Except as otherwise provided by law, at any annual or special meeting
of stockholders only such business shall be conducted as shall have been
properly brought before the meeting in accordance with the provisions of this
Restated Certificate of Incorporation and the By-Laws of the Corporation. In
order to be
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properly brought before the meeting, such business must have either been (a)
brought before the meeting by or at the direction of the Board or (b) by any
stockholder in accordance with the following requirements:
(i) Any stockholder entitled to vote at such annual meeting may
propose business (other than nominations for the election of Directors) to
be included in the agenda of such meeting only if written notice of such
stockholder's intent is given to the Secretary of the Corporation (the
"Secretary"), either personally or by mail, postage prepaid, not earlier
than 90 days nor later than 60 days in advance of the anniversary of the
date of the immediately preceding annual meeting or if the date of the
annual meeting occurs more than 30 days before or 60 days after the
anniversary of such immediately preceding annual meeting, not later than
the close of business on the later of (a) the sixtieth day prior to such
annual meeting and (b) the [tenth] day following the date on which public
announcement of the date of such meeting is first made. A stockholder's
notice to the Secretary shall set forth in writing as to each business
matter such stockholder proposes to bring before the annual meeting (a) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting,
(b) the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business, (c) the class and number of shares of
the Corporation that are beneficially owned by the stockholder and (d) any
material interest of the stockholder in such business. Notwithstanding
anything in this Restated Certificate of Incorporation to the contrary, no
business shall be conducted at an annual meeting except in accordance with
the procedures set forth in this paragraph (2) of this Article VI. The
officer of the Corporation or other person presiding at the annual meeting
shall, if the facts so warrant, determine and declare to the meeting that
business was not properly brought before the meeting in accordance with the
provisions of this section, and, if he should so determine, he shall so
declare to the meeting and any such business not properly brought before
the meeting shall not be transacted.
(ii) Nominations for the election of Directors may be made by the
Board or any stockholder entitled to vote for the election of Directors.
Any stockholder entitled to vote for the election of Directors at the
annual meeting of the stockholders of the Corporation may nominate a person
or persons for election as a Director only if written notice of such
stockholder's intent to make such nomination is given to the Secretary in
accordance with the procedures set forth in the immediately preceding
paragraph of this Article VI.2. Each such notice shall set forth the name
and address of the stockholder who intends to make the nomination and of
the person or persons to be nominated for election as a Director; a
representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to nominate the person or persons
specified in the notice; a description of all arrangements or
understandings between the stockholder and each nominee and any other
person or persons (naming such person or persons) pursuant to which the
nomination or nominations for election as a Director are to be amended by
the stockholder; such other information regarding each nominee proposed by
such stockholder as would have been required to be included in a proxy
statement filed pursuant to the proxy rules of the United States Securities
and Exchange Commission if such nominee had been nominated, or was intended
to be nominated, for election as a Director by the Board; and the consent
of each nominee to serve as a Director of the Corporation if so elected.
The Board may refuse to acknowledge the nomination of any person not made
in compliance with the foregoing procedures.
(iii) For purposes hereof, "public announcement" shall mean disclosure
in a press release reported by the Dow Jones News Service, Associated Press
or a comparable Swedish or United States news service or in a document
publicly filed by the Corporation with the Stockholm Stock Exchange and the
United States Securities and Exchange Commission pursuant to Section 13, 14
or 15(d) of the United States Securities Exchange Act of 1934, as amended.
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ARTICLE VII
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
(1) The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he or her is or was a Director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
Director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or her in connection with such action, suit or proceeding if he
acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person
seeking indemnification did not act in good faith and in a manner which he or
she reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
(2) The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he or she is or was a Director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a Director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by him or her in connection with the
defense or settlement of such action or suit if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery of the State of Delaware or the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
(3) To the extent that a Director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in paragraphs (1) and (2) of this Article
VII, or in defense of any claim, issue or matter therein, he or she shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him or her in connection therewith.
(4) Any indemnification under paragraphs (1) and (2) of this Article VII
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the Director,
officer, employee or agent is proper in the circumstances because he or she has
met the applicable standard of conduct set forth in such paragraphs (1) and (2).
Such determination shall be made (a) by the Board by a majority vote of a quorum
consisting of Directors who were not parties to such action, suit or proceeding,
or (b) if such a quorum is not obtainable, or, even if obtainable, a quorum of
disinterested Directors so directs, by independent legal counsel in a written
opinion, or (c) by the stockholders of the Corporation.
(5) Expenses (including attorneys' fees) incurred by an officer or Director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the Corporation, as the Board deems appropriate, in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such Director or officer to repay such
amount if it shall ultimately be determined that he or she is not entitled to be
indemnified by the Corporation authorized in this Article VII. Such expenses
(including attorneys' fees) incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the Board deems appropriate.
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(6) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other sections of this Article VII shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any law, by-law, agreement, vote
of stockholders or disinterested Directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office.
(7) The Corporation may purchase and maintain insurance on behalf of any
person who is or was a Director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a Director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the Corporation would have the power to indemnify him or her
against such liability under the provisions of Section 145 of the General
Corporation Law.
(8) For purposes of this Article VII, references to "the Corporation" shall
include, in addition to the Corporation, any constituent corporation, including
Pharmacia Aktiebolag ("Pharmaica"), The Upjohn Company ("Upjohn") and any
companies to which Pharmacia and Upjohn had previously extended rights similar
to those afforded by this Article VII would have had power and authority to
indemnify its Directors, officers, employees or agents so that any person who is
or was a Director, officer, employee or agent of such constituent corporation,
or is or was serving at the request of such constituent corporation as a
Director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under the
provisions of this Article VII with respect to the resulting or surviving
corporation as he or she would have with respect to such constituent corporation
if its separate existence had continued.
(9) For purposes of this Article VII, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a Director, officer, employee or agent of the Corporation which
imposes duties on, or involves service by, such Director, officer, employee or
agent with respect to any employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he or she
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this Article
VII.
(10) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VII shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a Director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
ARTICLE VIII
BY-LAWS
(1) In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the Board is expressly authorized and empowered
in the manner provided in the By-Laws of the Corporation, to make, alter, amend
and repeal the By-Laws of the Corporation in any respect not inconsistent with
the laws of the State of Delaware or with the Restated Certificate of
Incorporation of the Corporation, but the Board shall not repeal any By-Law
hereafter made by the stockholders.
(2) Notwithstanding the provisions of paragraph (1) of this Article VIII,
however, any alteration, amendment or repeal of those provisions of the By-Laws
whose amendment, alteration or repeal requires the affirmative vote of 80% of
all the Directors or 66-2/3% of the votes entitled to be cast on matters
submitted to stockholders generally by all then outstanding shares of capital
stock of the Corporation authorized to be issued from time to time under this
Restated Certificate of Incorporation (the "Voting Stock" and a "Supermajority
Vote") shall require the affirmative vote of 80% of all the Directors.
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ARTICLE IX
REORGANIZATION
Whenever a compromise or arrangement is proposed between this Corporation
and its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this Corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
ARTICLE X
BUSINESS COMBINATION
(1) In addition to any affirmative vote required by law or the Restated
Certificate of Incorporation or By-Laws of the Corporation, a Business
Combination shall require a Supermajority Vote (which affirmative vote shall be
required notwithstanding the fact that no vote may be required, or that a lesser
percentage or separate class vote may be specified, by law or in any agreement
with any national securities exchange or otherwise); provided, however, that
such voting requirements shall not be applicable if:
(a) The Continuing Directors shall have expressly approved, by the
affirmative vote of a majority of such Continuing Directors, such Business
Combination prior to such Business Combination; or
(b) All of the following conditions shall be satisfied:
(i) The consideration to be received by holders of Voting Stock in the
Business Combination shall be in cash or if the consideration previously
paid by or on behalf of the Related Person in connection with its
acquisition of beneficial ownership of shares of Voting Stock constituted
in whole or in part of consideration other than cash, then in the same form
as such consideration. If such payment for shares of Voting Stock of the
Corporation has been made with varying forms of consideration, the form of
consideration for such Voting Stock shall be either cash or the form used
to acquire the beneficial ownership of the largest number of shares of
Voting Stock previously acquired by the Related Person;
(ii) After such Related Person shall have first become a Related
Person and prior to the consummation of such Business Combination:
(A) Except as approved by the affirmative vote of a majority of the
Continuing Directors, there shall have been no failure to declare and
pay at the regular dates therefor the full amount of all dividends
(whether or not cumulative) payable on the Preferred Stock or any class
or series of stock having a preference over the Common Stock as to
dividends or upon liquidation; and
(B) There shall have been (x) no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to reflect any
subdivision of the Common Stock) except as approved by a majority vote
of the Continuing Directors and (y) an increase in such annual rate of
dividends, to the extent necessary to reflect any reclassification
(including any reverse stock split), recapitalization, reorganization or
any similar transaction which has the effect of reducing the
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number of outstanding shares of Common Stock, unless the failure so to
increase such annual rate shall have been approved by a majority vote of
the Continuing Directors; and
(C) Such Related Person shall not have become the Beneficial Owner
of any additional shares of Voting Stock except as part of the
transaction that results in such Related Person becoming a Related
Person and except in a transaction that, after giving effect thereto,
would not result in any increase in the Related Person's percentage
beneficial ownership of any class of Voting Stock. The approval by a
majority of the Continuing Directors of any exception to the
requirements set forth in subparagraphs (A) and (B) hereof shall only be
effective for the purposes of this subparagraph (b) if obtained at a
meeting at which a Continuing Director Quorum is present;
(iii) After such Related Person shall have first become a Related
Person, such Related Person shall not have received the benefit, directly
or indirectly (except proportionately as a stockholder of the Corporation),
of any loans, advances, guarantees, pledges or other financial assistance
or any tax credits or other tax advantages provided by the Corporation; and
(iv) a proxy statement describing the proposed Business Combination
and complying with the requirements of the United States Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder,
or any acts, rules or regulations which a majority of the Continuing
Directors determine are successors thereto, shall (whether or not such a
proxy statement is required to be mailed pursuant to such acts, rules or
regulations) have been mailed to all holders of Voting Stock at least 30
days prior to the date of the meeting called to consider such Business
Combination and such statement shall have contained, on the first page
thereof, in a prominent place, any recommendation as to the advisability
(or inadvisability) of the Business Combination that the Continuing
Directors, or any of them, may choose to state and, if deemed advisable by
a majority of the Continuing Directors, the opinion of an investment
banking firm selected, at a meeting at which a Continuing Directors Quorum
is present by a majority of the Continuing Directors, as to the fairness
(or not) of the terms of the Business Combination, from a financial point
of view of the holders of the outstanding shares of capital stock of the
Corporation other than the Related Person and its Affiliates or Associates
(such investment banking firm to be paid a reasonable fee for its services
by the Corporation).
Notwithstanding any of the foregoing, however, the Corporation may not enter
into any Business Combination unless the Fair Market Value of the consideration
to be received per share by holders of Voting Stock in the Business Combination
before the date of the consummation of such Business Combination is at least
equal to the Highest Per Share Price.
(2) Notwithstanding anything to the contrary in Article X or in any
corporation law which may be applicable, in the event the Corporation merges,
consolidates with or otherwise reorganizes itself (including by
reincorporation), or sells all or substantially all its assets to, a Person
except in an arm's length transaction and to a Person that is not an Affiliate,
such a transaction will require the affirmative vote of 66 2/3% of the Voting
Stock unless the Certificate of Incorporation or By-Laws of the surviving
corporation after any such merger, consolidation or reorganization is identical
to that of the Corporation as of the effective date of any such merger,
consolidation or reorganization.
(3) For the purposes of Article X.1.and X.2., the following definitions
shall apply:
(a) The terms "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended, as in
effect at the date of the adoption of this Article IX (the term
"registrant" in said Rule 12b-2 meaning in this case the Corporation).
(b) The term "Beneficial Owner" shall mean any Person (i) which
beneficially owns any Voting Stock within the meaning ascribed in Rule
13d-3 of the General Rules and Regulations under the Securities Exchange
Act of 1934, as amended, or (ii) that has (x) the right to acquire any such
beneficial ownership (whether or not such right is exercisable immediately,
with the passage of time or subject to any condition) pursuant to any
agreement, contract, arrangement or understanding or upon the exercise of
any conversion, exchange or other right, warrant or option, or otherwise,
or (y) the right to vote
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pursuant to any agreement, arrangement or understanding. A Person shall be
deemed the Beneficial Owner of all Voting Stock of which any Affiliate or
Associate of such Person is the Beneficial Owner.
(c) The term "Business Combination" shall mean
(i) any merger or consolidation of the Corporation or any
Subsidiary with (a) any Related Person, or (b) any other corporation
(whether or not itself a Related Person) which is, or after such merger
or consolidation would be, an Affiliate or Associate of a Related
Person; or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) by or to
any Related Person, or any Affiliate or Associate of any Related Person,
involving any assets or securities of the Corporation, any Subsidiary or
any Related Person, or any Affiliate or Associate of any Related Person,
having an aggregate Fair Market Value of $25,000,000 or more; or
(iii) the issuance or transfer by the Corporation or any Subsidiary
(in the transaction or a series of transactions) of any securities of
the Corporation or any Subsidiary to any Related Person or any Affiliate
of any Related Person, other than the issuance on a pro rata basis to
all holders of stock of the same class pursuant to a stock split or
stock dividend; or
(iv) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of a Related
Person or any Affiliate or Associate of any Related Person; or
(v) any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any
other transaction (whether or not with or otherwise involving a Related
Person) that has the effect, directly or indirectly, of increasing the
proportionate share of any class of equity or convertible securities of
the Corporation or any Subsidiary which is directly or indirectly
beneficially owned by any Related Person or any Affiliate or Associate
of any Related Person; or
(vi) any loan, advance, guaranty, pledge or other financial
assistance by the Corporation or any Subsidiary to or for the benefit,
directly or indirectly (except proportionately as a stockholder), of a
Related Person; or
(vii) any agreement, contract or other arrangement providing for
any one or more of the actions specified in clauses (i) to (vi) of this
subparagraph b(3); or
(viii) any series of transactions which a majority of Continuing
Directors determine are related and which, taken together, would
constitute a Business Combination.
(d) The term "Continuing Director" shall mean a Director of the
Corporation who is not an Affiliate or Associate of the Related Person
involved in the relevant Business Combination and either (i) who was a
member of the Board of Directors of the Corporation immediately prior to
the time that such Related Person became a Related Person or (ii) whose
initial election as a Director of the Corporation was recommended by the
affirmative vote of a majority of the Continuing Directors then in office;
provided, however, that in either such case, such Continuing Director shall
have continued in office after first becoming a Continuing Director.
(e) The term "Continuing Director Quorum" shall mean at least 60% of
the number of Continuing Directors capable of exercising the powers
conferred upon them under the provisions of the Restated Certificate of
Incorporation or By-Laws of the Corporation or by law.
(f) The term "Fair Market Value" shall mean (i) in the case of United
States currency, the amount thereof, (ii) in the case of stock, (x) the
highest closing sale price per share thereof, during the 30 trading days
preceding the date as of which the determination thereof is to be made, on
the Composite Tape for New York Stock Exchange-Listed Stocks or, if such
stock is not listed on such exchange, on the New York Stock Exchange, or if
such stock is not listed on such exchange, on the United States securities
exchange registered as a national securities exchange under the Securities
Act of 1934, as amended, on which such stock is listed and principally
traded, (y) if such stock is not so listed, the
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<PAGE> 23
highest closing bid quotation per share thereof, during the 30 trading days
preceding the date as of which the determination thereof is to be made, on
the National Association of Securities Dealers, Inc. Automated Quotation
System, or any system then in use or (z) if no such quotations are then
available, the fair market value thereof, as of the date as of which the
determination thereof is to be made, as determined by a majority vote of
the Continuing Directors and (iii) in the case of securities, property or
assets other than such currency or stock, the fair market value thereof, as
of the date as of which the determination is to be made, as determined by a
majority vote of the Continuing Directors.
(g) The term "Highest Per Share Price" shall mean with respect to any
class or series of Voting Stock of the Corporation the highest of (i) the
highest price that can be determined, by a majority of the Continuing
Directors, to have been paid at any time by or on behalf of the Related
Person for any share or shares of such class or series of Voting Stock or,
if such Related Person has not acquired any Voting Stock of such class or
series, the highest equivalent, as determined by a majority vote of the
Continuing Directors, for a share of such class or series of such highest
price for any other class or series of Voting Stock, (ii) the Fair Market
Value per share of such Voting Stock, as determined by a majority of the
Continuing Directors, immediately prior to the time at which the relevant
Business Combination shall first have been publicly announced or at which
(iii) the highest preferential amount, if any, per share payable with
respect to such Voting Stock in the event of a voluntary or involuntary
liquidation of the Corporation. In determining the Highest Per Share Price
for any Voting Stock (i) all purchases by the Related Person shall be taken
into account regardless of whether the shares were purchased before or
after the Related Person becomes a Related Person, and (ii) the Highest Per
Share Price shall include any brokerage commissions, transfer taxes and
soliciting dealers' fees or other value paid in connection with such
purchases. The Continuing Directors shall determine, by a majority vote,
the Highest Per Share Price for each outstanding class and series of the
Voting Stock in connection with any Business Combination which is subject
to the voting requirement of paragraph (1) of this Article X.
A Related Person shall be deemed to have acquired a share of Voting
Stock at the time when such Related Person became the Beneficial Owner
thereof. The price deemed to have been paid by a Related Person for Voting
Stock of which an Affiliate or Associate is the Beneficial Owner shall be
the price, as determined by a majority vote of the Continuing Directors,
which is the highest of (i) the price paid upon the acquisition thereof by
the relevant Affiliate or Associate (if any, and whether or not such
Affiliate or Associate was an Affiliate or Associate at the time of such
acquisition), (ii) the Fair Market Value of such Voting Stock at the time
when the Related Person became the Beneficial Owner thereof and (iii) the
highest price previously paid by such Related Person or an Affiliate or
Associate thereof for such Voting Stock.
In any determination of the Highest Per Share Price or the price or
prices paid or deemed to have been paid by any Person, appropriate
adjustment shall be made to reflect the relevant effect of any stock
dividends, splits and distributions and any combination or reclassification
of capital stock.
(h) The term "other consideration to be received" shall, in the event
of a Business Combination which is a merger and in which the Corporation is
the surviving corporation, include, without limitation, capital stock of
the Corporation to be retained by the holders thereof other than the
Related Person.
(i) The term "Person" shall mean any individual, corporation,
partnership or other entity, including any group comprised of any Person
and any other Person, or any Affiliate or Associate thereof, with whom such
Person, or any Affiliate or Associate thereof, has any agreement,
arrangement or understanding, directly or indirectly, for the purpose of
acquiring, holding, voting or disposing of Voting Stock and each Person,
and any Affiliate or Associate thereof, which is a member of such group.
(j) The term "Related Person" shall mean (i) any Person (other than
the Corporation or any Subsidiary and other than any profit-sharing
employee stock ownership or other employee benefit plan of the Corporation
or any Subsidiary or any trustee or fiduciary with respect to any such plan
when acting in such capacity) who, together with its Affiliates and
Associates, is or shall become the Beneficial Owner of an aggregate of 15%
or more of the outstanding Voting Stock of the Corporation, (ii) is an
Affiliate or Associate of any such Person and (iii) shall become, in a
transaction or series of transactions not
23
<PAGE> 24
involving a public offering within the meaning of the Securities Act of
1933, as amended, the Beneficial Owner of Voting Stock of which a Related
Person was the Beneficial Owner at any time during the two years prior to
the time such Person or Affiliate or Associate became such Beneficial
Owner.
(k) The term "Subsidiary" means any Person a majority of the capital stock
of or other equity interest in which is owned by the Corporation, one or more
Subsidiaries of the Corporation or the Corporation and one or more Subsidiaries
of the Corporation.
(4) A majority of the Continuing Directors shall have the power to make any
and all determinations provided in this Article X and to interpret the
provisions of and definitions in this Article X, which determinations and
interpretations shall, to the fullest extent permitted by law, be conclusive,
except as a majority of the Continuing Directors may otherwise determine.
ARTICLE XI
AMENDMENT
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Restated Certificate of Incorporation, in the manner
now or hereafter prescribed by the General Corporation Law, and all rights
conferred upon stockholders herein are granted subject to this reservation;
provided, however, that (i) no amendment, alteration, change or repeal in any
respect of any provision of Article I, Article X or clause (i) of this Article
XI hereof may be made by the stockholders of the Corporation, and no provision
inconsistent therewith may be so adopted, without the affirmative vote of 80% of
all the Directors and a Supermajority Vote; and (ii) no amendment, alteration,
change or repeal in any respect of any provision of paragraph (3) of Article V
or paragraph (2) of Article VIII hereof may be proposed to the stockholders by
the Directors, and no provision inconsistent therewith may be proposed for
amendment, without the affirmative vote of 80% of all the Directors.
24
<PAGE> 1
EXHIBIT 3(b)
[FORM OF]
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
RESTATED
BY-LAWS
OF
PHARMACIA & UPJOHN, INC.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Adopted , 1995
and
Effective [prior to the Effective Date]
1
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
------ ----
<C> <S> <C>
ARTICLE I
OFFICES
1.01. Registered Office.............................................................. 4
1.02. Other Offices.................................................................. 4
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.01. Annual Meetings................................................................ 4
2.02. Stockholder Proposals and Nominations for Directors............................ 5
2.03. Special Meetings............................................................... 5
2.04. Notice of Meetings............................................................. 5
2.05. Waiver of Notice............................................................... 5
2.06. Adjournments................................................................... 5
2.07. Quorum......................................................................... 6
2.08. Voting......................................................................... 6
2.09. Proxies........................................................................ 6
2.10. No Stockholders' Consent in Lieu of Meeting.................................... 6
2.11. Organization................................................................... 6
2.12. Inspectors..................................................................... 6
2.13. Fixing Date for Determination of Stockholders of Record........................ 7
2.14. List of Stockholders Entitled to Vote.......................................... 7
ARTICLE III
BOARD OF DIRECTORS
3.01. General Powers................................................................. 7
3.02. Number and Term of Office...................................................... 7
3.03. The Chairman................................................................... 8
3.04. Mandatory Retirement........................................................... 8
3.05. Resignation.................................................................... 8
3.06. Removal........................................................................ 8
3.07. Vacancies...................................................................... 8
3.08. Meetings....................................................................... 9
3.09. Directors' Consent in Lieu of Meeting.......................................... 9
3.10. Action by Means of Telephone or Similar Communications Equipment............... 9
3.11. Compensation................................................................... 9
ARTICLE IV
COMMITTEES
4.01. Executive Committee............................................................ 10
4.02. Audit Committee................................................................ 10
4.03. Compensation Committee......................................................... 10
4.04. Nominating Committee........................................................... 11
4.05. Committee Members, Chairman, Books and Records................................. 11
4.06. Alternates..................................................................... 11
4.07. Other Committees............................................................... 11
4.08. Quorum and Manner of Acting.................................................... 12
ARTICLE V
OFFICERS
5.01. Officers....................................................................... 12
5.02. Authority and Duties........................................................... 12
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
SECTION PAGE
------ ----
<C> <S> <C>
5.03. Mandatory and Voluntary Retirement............................................. 12
5.04. Term of Office, Resignation and Removal........................................ 12
5.05. Vacancies...................................................................... 12
5.06. The President and Chief Executive Officer...................................... 12
5.07. The Executive Vice Presidents.................................................. 13
5.08. Vice Presidents................................................................ 13
5.09. The Secretary.................................................................. 13
5.10. Assistant Secretaries.......................................................... 13
5.11. The Treasurer.................................................................. 13
5.12. Assistant Treasurers........................................................... 13
ARTICLE VI
DIVIDENDS, FINANCE, AND PROXIES
6.01. Dividends...................................................................... 13
6.02. Checks, Drafts and Notes....................................................... 13
6.03. Execution of Proxies........................................................... 14
ARTICLE VII
7.01. SDSs and Swedish Holders....................................................... 14
ARTICLE VIII
REPORTING REQUIREMENTS
8.01. Shareholder Communications..................................................... 14
ARTICLE IX
SHARES AND TRANSFERS OF SHARES
9.01. Certificates Evidencing Shares................................................. 14
9.02. Stock Ledger................................................................... 14
9.03. Transfers of Shares............................................................ 14
9.04. Addresses of Stockholders...................................................... 14
9.05. Lost, Destroyed and Mutilated Certificates..................................... 15
9.06. Regulations.................................................................... 15
ARTICLE X
SEAL
10.01. Seal........................................................................... 15
ARTICLE XI
FISCAL YEAR
11.01. Fiscal Year.................................................................... 15
ARTICLE XII
INDEMNIFICATION AND INSURANCE
12.01. Indemnification................................................................ 15
12.02. Insurance for Indemnification.................................................. 17
ARTICLE XIII
AMENDMENTS
13.01. Amendments..................................................................... 17
</TABLE>
3
<PAGE> 4
BY-LAWS
OF
PHARMACIA & UPJOHN, INC.
ARTICLE I
OFFICES
SECTION 1.01. Registered Office. The registered office of Pharmacia &
Upjohn, Inc. (the "Corporation") in the State of Delaware shall be at the
principal office of The Corporation Trust Company in the City of Wilmington,
County of New Castle, and the registered agent in charge thereof shall be The
Corporation Trust Company.
SECTION 1.02. Other Offices. The Corporation shall establish and maintain
its global corporate management group in or proximate to London, England and
shall maintain regional headquarters in Kalamazoo, Michigan, U.S.A., and
Stockholm, Sweden. The Corporation may also have an office or offices at any
other place or places within or without the State of Delaware as the Board of
Directors of the Corporation (the "Board") may from time to time determine or
the business of the Corporation may from time to time require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.01. Annual Meetings. (a) The annual meeting of record holders (a
"Stockholder") of shares of the Corporation issued and outstanding (the
"Shares") of the Corporation shall be held on the third Tuesday in April of each
year, if not a legal holiday, but if a legal holiday, then on the day following,
or on such other day following, or on such other date as shall be set forth in
the notice of annual meeting approved by the Board and provided to Stockholders.
(b) The annual meeting of the Stockholders for 1996 shall be held in either
Sweden or the U.S., as determined by the Board of Directors, and thereafter the
location of the annual meetings shall alternate between Sweden and the United
States. Wherever located, provision shall be made for Stockholders located in
the other location to participate in the annual meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other.
(c) At any such annual meeting, only such business shall be conducted as
shall have been brought before the meeting (x) by or at the direction of the
Board or (y) by any Stockholder entitled to vote thereat that complies with the
procedures set forth in Section 2.02 hereof.
SECTION 2.02. Stockholder Proposals and Nominations for Directors. (a) Any
Stockholder entitled to vote at such annual meeting may propose business (other
than nominations for the election of Directors of the Corporation (the
"Directors") to be included in the agenda of such meeting only if written notice
of such Stockholder's intent is given to the Secretary of the Corporation (the
"Secretary"), either personally or by mail, postage prepaid, not earlier than 90
days nor later than 60 days in advance of the anniversary of the date of the
immediately preceding annual meeting or if the date of the annual meeting occurs
more than 30 days before or 60 days after the anniversary of such immediately
preceding annual meeting, not later than the close of business on the later of
(A) the sixtieth day prior to such annual meeting and (B) the tenth day
following the date on which public announcement of the date of such meeting is
first made. A Stockholder's notice to the Secretary shall set forth in writing
as to each business matter such Stockholder proposes to bring before the annual
meeting (A) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (B) the name and address, as they appear on the Corporation's books, of
the Stockholder proposing such business, (C) the class and number of Shares that
are beneficially owned by the Stockholder, and (D) any material interest of the
Stockholder in such business. Notwithstanding anything in these By-Laws to the
contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section 2.02(a). The officer of
the Corporation or other person presiding at the annual meeting shall, if the
facts so warrant, determine and
4
<PAGE> 5
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 2.02(a), and, if he or she
should so determine, he or she shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
(b) Nominations for the election of Directors may be made by the Board or
any Stockholder entitled to vote for the election of Directors. Any Stockholder
entitled to vote for the election of Directors at the annual meeting of the
Stockholders of the Corporation, may nominate a person or persons for election
as a Director only if written notice of such Stockholder's intent to make such
nomination is given to the Secretary in accordance with the procedures set forth
in this Section 2.02(a). Each such notice shall set forth the name and address
of the Stockholder who intends to make the nomination and of the person or
persons to be nominated for election as a Director; a representation that the
Stockholder is a holder of record of Shares of the Corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; a description of all
arrangements or understandings between the Stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations for election as a Director are to be amended by the
Stockholder; such other information regarding each nominee proposed by such
Stockholder as would have been required to be included in a proxy statement
filed pursuant to the proxy rules of the United States Securities and Exchange
Commission (the "SEC") if such nominee had been nominated, or was intended to be
nominated, for election as a Director by the Board; and the consent of each
nominee to serve as a Director of the Corporation if so elected. The Board may
refuse to acknowledge the nomination of any person not made in compliance with
the foregoing procedures.
(c) For purposes of this Section 2.02, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or a comparable Swedish or United States news service or in a document
publicly filed by the Corporation with the Stockholm Stock Exchange (the "SSE")
and the SEC pursuant to Section 13, 14 or 15(d) of the United States Securities
Exchange Act of 1934, as amended.
SECTION 2.03. Special Meetings. Special meetings of Stockholders for any
purpose or purposes may be called by the Chairman of the Board (the "Chairman"),
the President and Chief Executive Officer, or a majority of the Directors.
SECTION 2.04. Notice of Meetings. Except as otherwise provided by law,
written notice of each annual or special meeting of Stockholders stating the
place, date and time of such meeting and, in the case of a special meeting, the
purpose or purposes for which such meeting is to be held, shall be given by
first class mail (airmail in the case of international communications) by the
Corporation to the Stockholders not less than 10 nor more than 60 days before
the date of such meeting. The Corporation shall use all reasonable efforts to
cause the bank acting as the depositary (the "Depositary") with respect to the
Swedish Depositary Shares representing shares of common stock of the Corporation
(the "SDSs") or its designee to mail such notice in Sweden to record holders
(the "Swedish Holders") of SDSs. If mailed, such notice shall be deemed to be
given when deposited in the United States or (in the case of mailing by the
Depositary) Swedish mail, postage prepaid, directed to the Stockholder or
Swedish Holder at such Stockholder or Swedish Holder's address as it appears on
the records of the Corporation or the Depositary, as the case may be.
SECTION 2.05. Waiver of Notice. Notice of any annual or special meeting of
Stockholders need not be given to any Stockholder that files a written waiver of
notice with the Secretary, signed by the person entitled to notice, whether
before or after such meeting. Neither the business to be transacted at, nor the
purpose of, any meeting of Stockholders need be specified in any written waiver
of notice thereof. Attendance of a Stockholder at a meeting, in person or by
proxy, shall constitute a waiver of notice of such meeting, except when such
Stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the grounds that
the notice of such meeting was inadequate or improperly given.
SECTION 2.06. Adjournments. Whenever a meeting of Stockholders, annual or
special, is adjourned to another date, time or place, notice need not be given
of the adjourned meeting if the date, time and place thereof are announced at
the meeting at which the adjournment is taken. If the adjournment is for more
than
5
<PAGE> 6
30 days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
Stockholder entitled to vote thereat. At the adjourned meeting, any business may
be transacted which might have been transacted at the original meeting.
SECTION 2.07. Quorum. Except as otherwise provided by law or the
Certificate of Incorporation of the Corporation, as the same may be amended
and/or restated from time to time (the "Certificate of Incorporation") or
elsewhere in these By-Laws, the record holders of a majority of the Shares of
the Corporation entitled to vote thereat, present in person or by proxy, shall
constitute a quorum for the transaction of business at all meetings of
Stockholders, whether annual or special. If, however, such quorum shall not be
present in person or by proxy at any meeting of Stockholders, the Stockholders
entitled to vote thereat may adjourn the meeting from time to time in accordance
with Section 2.05 hereof until a quorum shall be present in person or by proxy.
SECTION 2.08. Voting. Except as otherwise provided in the Certificate of
Incorporation, each Stockholder shall be entitled to one vote for each Share
held by such Stockholder. Except as otherwise provided by law or the Certificate
of Incorporation or these By-Laws, when a quorum is present at any meeting of
Stockholders, the vote of the record holders of a majority of the Shares
constituting such quorum shall decide any question brought before such meeting.
Voting at any meeting of the Stockholders need not be by written ballot unless
the holders of a majority of the Shares present in person or by proxy at such
meeting shall so determine.
SECTION 2.09. Proxies. Each Stockholder entitled to vote at a meeting of
Stockholders may authorize another person or persons to act for such Stockholder
by proxy. Such proxy shall be filed with the Secretary before such meeting of
Stockholders, at such time as the Board may require. No proxy shall be voted or
acted upon more than three years from its date, unless the proxy provides for a
longer period.
SECTION 2.10. No Stockholders' Consent in Lieu of Meeting. Any action
required or permitted to be taken by the Stockholders of the Corporation must be
effected at a duly called annual meeting or special meeting of such Stockholders
and may not be effected by any consent in writing by any such Stockholders.
SECTION 2.11. Organization. Meetings of Stockholders shall be presided
over by the Chairman, or in the absence of the Chairman by the President and
Chief Executive Officer, or in the absence of the President and Chief Executive
Officer by an Executive Vice President, or in the absence of the foregoing
persons by a chairman designated by the Board, or in the absence of such
designation by a chairman chosen at the meeting. The Secretary of the
Corporation (the "Secretary"), or in the absence of the Secretary an Assistant
Secretary, shall act as secretary of the meeting, but in the absence of the
Secretary and any Assistant Secretary the chairman of the meeting may appoint
any person to act as secretary of the meeting.
SECTION 2.12. Inspectors. Prior to any meeting of Stockholders, the Board
or the President and Chief Executive Officer shall appoint one or more
inspectors to act at such meeting and make a written report thereof and may
designate one or more persons as alternate inspectors to replace any inspector
who fails to act. If no inspector or alternate is able to act at the meeting of
Stockholders, the person presiding at the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his or her duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspectors shall ascertain the number of Shares
and the voting power of each, determine the Shares represented at the meeting
and the validity of proxies and ballots, count all votes and ballots, determine
and retain for a reasonable period a record of the disposition of any challenges
made to any determination by the inspectors and certify their determination of
the number of Shares represented at the meeting and their count of all votes and
ballots. The inspectors may appoint or retain other persons to assist them in
the performance of their duties. The date and time of the opening and closing of
the polls for each matter upon which the Stockholders will vote at a meeting
shall be announced at the meeting. No ballot, proxy or vote, nor any revocation
thereof or change thereto, shall be accepted by the inspectors after the closing
of the polls. In determining the validity and counting of proxies and ballots,
the inspectors shall be limited to an examination of the proxies, any envelopes
submitted therewith, any information provided by a Stockholder who submits a
proxy by telegram, cablegram or other electronic transmission from which it can
be determined that the proxy was authorized by the Stockholder, ballots and
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the regular books and records of the Corporation, and they may also consider
other reliable information for the limited purpose of reconciling proxies and
ballots submitted by or on behalf of banks, brokers, their nominees or similar
persons which represent more votes than the holder of a proxy is authorized by
the record owner to cast or more votes than the Stockholder holds of record. If
the inspectors consider other reliable information for such purpose, they shall,
at the time they make their certification, specify the precise information
considered by them, including the person or persons from whom they obtained the
information, when the information was obtained, the means by which the
information was obtained and the basis for the inspectors' belief that such
information is accurate and reliable.
SECTION 2.13. Fixing Date for Determination of Stockholders of Record. In
order that the Corporation may determine the Stockholders entitled to notice of
or to vote at any meeting of Stockholders or any adjournment thereof, the Board
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board, and which record
date shall not be more than 60 nor less than 10 days before the date of such
meeting. If no record date is fixed by the Board, the record date for
determining Stockholders entitled to notice of or to vote at a meeting of
Stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
Stockholders of record entitled to notice of or to vote at a meeting of
Stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board may fix a new record date for the adjourned meeting.
In order that the Corporation may determine the Stockholders entitled to
receive payment of any dividend or other distribution or allotment of any rights
or the Stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted, and which record
date shall be not more than 60 days prior to such action. If no record date is
fixed, the record date for determining Stockholders for any such purpose shall
be at the close of business on the day on which the Board adopts the resolution
relating thereto.
SECTION 2.14. List of Stockholders Entitled to Vote. The Secretary shall
prepare and make, at least 10 days before every meeting of Stockholders, a
complete list of the Stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each Stockholder and the number
of Shares registered in the name of each Stockholder. Such list shall be open to
the examination of any Stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any Stockholder who is present.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.01. General Powers. The business and affairs of the Corporation
shall be managed by the Board, which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by law, the
Certificate of Incorporation or these By-Laws directed or required to be
exercised or done by Stockholders.
SECTION 3.02. Number and Term of Office. The number of Directors shall not
be less than eight nor more than sixteen, with the number fixed from time to
time by the Board. At least half of the Directors shall be independent Directors
as such term is used in Rule 303 of the Rules of the New York Stock Exchange as
in existence on the date hereof, or as amended from time to time hereafter (the
"Independent Directors"). Directors need not be Stockholders. Until the election
of Directors at the annual meeting of Stockholders held in 2001, one-half of the
Directors shall be citizens of Canada or the United States (the "U.S.
Directors") and one-half of the Directors shall be nationals of Sweden or member
states of the European Union (the
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"European Directors"). The Board shall be divided into three classes, each class
to have, as near as may be possible, an equal number of Directors and an equal
number of U.S. Directors and European Directors such that, although each class
may not have equal numbers of U.S. Directors and European Directors, the Board
shall include an equal number of U.S. Directors and European Directors. The term
of office of Directors of the first class shall expire at the annual meeting of
Stockholders held in 1996; the term of office of Directors of the second class
shall expire at the annual meeting of Stockholders held in 1997; and the term of
office of Directors of the third class shall expire at the annual meeting of
Stockholders held in 1998. Except as otherwise required by law, the Certificate
of Incorporation or these By-Laws, the Directors shall be elected at an annual
meeting of the Stockholders at which a quorum is present. Directors shall be
elected by a plurality of the votes of the Shares present in person or
represented by proxy and entitled to vote on the election of Directors. At each
annual meeting of 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; provided, however, that nothing herein shall be construed to prevent
(i) the election of a Director to succeed him or herself, or (ii) the election
of a Director for the remainder of an unexpired term in the class of Directors
to which he or she is elected.
SECTION 3.03. The Chairman. (a) (i) Until the annual meeting of
Stockholders at which Directors are elected in 2001, the Chairman and the
President and Chief Executive Officer may not both be citizens of Canada or the
United States and may not both be nationals of Sweden or member states of the
European Union, and (ii) the Chairman and the President and Chief Executive
Officer may not be the same person unless otherwise approved by 80% of the
Directors.
(b) The Chairman shall have authority to sign and acknowledge in the name
and on behalf of the Corporation all stock certificates, contracts or other
documents and instruments except when the signing thereof shall be expressly
delegated to an officer or agent by the Board or required by law to be otherwise
signed or executed and, unless otherwise provided by law or by the Board shall
authorize any officer, employee or agent of the Corporation to sign, execute and
acknowledge in his or her place and stead all such documents and instruments.
(c) The Chairman shall be a non-executive chairman of the Board who shall
devote such time as may be required to fulfill his or her obligations as
Chairman. The Chairman may hold such responsibilities with respect to the
governance of the Corporation as from time to time may be assigned by the Board
or the Executive Committee.
SECTION 3.04. Mandatory Retirement. No Director of the Corporation shall
continue to remain a Director beyond the annual meeting of Stockholders at which
Directors are elected next following or coinciding with his or her attaining age
70; provided, however, that any Director who is a Director at the time these
By-Laws first become effective may continue to remain a Director until the first
day of the month following or coinciding with his or her attaining age 72.
SECTION 3.05. Resignation. Any Director may resign at any time by giving
written notice to the Board, the Chairman or the Secretary. Such resignation
shall take effect at the time specified in such notice or, if the time be not
specified, upon receipt thereof by the Board, the Chairman or the Secretary, as
the case may be. Unless otherwise specified therein, acceptance of such
resignation shall not be necessary to make it effective.
SECTION 3.06. Removal. Any or all of the Directors may be removed for due
cause by vote of the record holders of a majority of the holders of Shares
entitled to vote thereon at a meeting of the Stockholders; provided, however,
that no such removal can be made at such meeting unless the notice thereof
specifies such removal and the reasons therefor as one of the matters that will
be considered at said meeting.
SECTION 3.07. Vacancies. Newly created directorships resulting from any
increase in the number of Directors and any vacancies on the Board resulting
from death, resignation, disqualification, removal, or other cause shall be
filled solely by the affirmative vote of a majority of the remaining Directors
then in office, even though less than a quorum. Any Director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of Directors in which the new directorship was
created or the
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vacancy occurred and until such Director's successor shall have been elected and
qualified. No decrease in the number of Directors constituting the Board shall
shorten the term of any incumbent Director.
SECTION 3.08. Meetings. (a) Annual Meetings. As soon as practicable after
each annual election of Directors by the Stockholders, the Board shall meet for
the purpose of organization, election of a Chairman and officers of the
Corporation, and the transaction of other business, unless it shall have
transacted all such business by written consent pursuant to Section 3.09 hereof.
(b) Other Meetings. Other meetings of the Board shall be held at such
times as the Chairman, the President and Chief Executive Officer, the Secretary,
and any two European Directors or two U.S. Directors shall from time to time
determine.
(c) Notice of Meetings. The Secretary shall give written notice to each
Director of each meeting of the Board, which notice shall state the place, date,
time and purpose of such meeting. Notice of each such meeting shall be given to
each Director, if by mail, addressed to him or her at his or her residence or
usual place of business, at least five days before the day on which such meeting
is to be held, or shall be sent to him or her at such place by telecopy,
telegraph, cable, or other form of recorded communication, or be delivered
personally or by telephone not later than three days before the day on which
such meeting is to be held. A written waiver of notice, signed by the Director
entitled to notice, whether before or after the time of the meeting referred to
in such waiver, shall be deemed equivalent to notice. Neither the business to be
transacted at, nor the purpose of any meeting of the Board need be specified in
any written waiver of notice thereof. Attendance of a Director at a meeting of
the Board shall constitute a waiver of notice of such meeting, except as
provided by law.
(d) Quorum and Manner of Acting. Except as otherwise required by law, the
Certificate of Incorporation or these By-Laws, a majority of the Directors then
in office shall constitute a quorum at any meeting of the Board, and the Board
shall act only when a quorum is present. Except as otherwise provided in these
By-Laws, a majority of the quorum shall decide any questions that come before
the meeting.
(e) Place of Meetings. The Board may hold its meetings at such place or
places within or without the State of Delaware as the Board or the Chairman may
from time to time determine, or as shall be designated in the respective notices
or waivers of notice of such meetings.
(f) Organization. At each meeting of the Board, the Chairman or, in his or
her absence, the President and Chief Executive Officer or, if both of such
persons are absent, a chairman chosen by a majority of the Directors present
shall act as chairman of the meeting. The Secretary, or in the absence of the
Secretary an Assistant Secretary, shall act as secretary of the meeting, but in
the absence of the Secretary and any Assistant Secretary the chairman of the
meeting may appoint any person to act as secretary of the meeting.
SECTION 3.09. Directors' Consent in Lieu of Meeting. Any action required
or permitted to be taken at any meeting of the Board or of any committee thereof
may be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by all
the members of the Board or such committee and such consent is filed with the
minutes of the proceedings of the Board or such committee.
SECTION 3.10. Action by Means of Telephone or Similar Communications
Equipment. In accordance with standards established by the Executive Committee,
any one or more members of the Board, or of any committee thereof, may
participate in a meeting of the Board or such committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
SECTION 3.11. Compensation. Unless otherwise restricted by the Certificate
of Incorporation, the Board may determine the compensation of Directors. In
addition, as determined by the Board, Directors may be reimbursed by the
Corporation for their expenses, if any, in the performance of their duties as
Directors. No such compensation or reimbursement shall preclude any Director
from serving the Corporation in any other capacity and receiving compensation
therefor.
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ARTICLE IV
COMMITTEES
SECTION 4.01. Executive Committee. The Board may, in its discretion,
designate annually an Executive Committee (the "Executive Committee") consisting
of any even number of Directors, but in any event not fewer than four Directors
as it may from time to time determine. The committee shall have and may exercise
all the powers and authority of the Board in the management of the business and
affairs of the Corporation and may authorize the seal of the Corporation to be
affixed to all papers which may require it, but the committee shall have no
power or authority to amend the Restated Certificate of Incorporation (except
that the committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of any shares of the Corporation adopted
by the Board, fix any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, for the exchange of such shares for shares
of any other class or classes or any other series of the same or any other class
or classes of stock of the Corporation), adopt an agreement of merger or
consolidation, recommend to the Stockholders the sale, lease or exchange of all
or substantially all of the Corporation's property and assets, recommend to the
Stockholders a dissolution of the Corporation or a revocation of a dissolution,
amend the By-Laws of the Corporation, elect officers or fill vacancies on the
Board or any committee of the Board, declare a dividend, authorize the issuance
of stock, or such other powers as the Board may from time to time eliminate. The
Executive Committee shall report its activities to the Board on a regular basis.
SECTION 4.02. Audit Committee. The Board shall designate annually an Audit
Committee (the "Audit Committee") consisting of an even number of Directors, but
in any event not fewer than two Directors as it may from time to time determine,
all of whom shall be Independent Directors, to assist the Board in fulfilling
its responsibilities with respect to overseeing the accounting, auditing and
financial reporting practices and the internal control policies and procedures
of the Corporation.
Specifically, the Audit Committee is authorized and directed on behalf of
the Board to:
(a) Review with the independent accountants the Corporation's
financial statements, basic accounting and financial policies and
practices, competency or control personnel, standard and special tests used
in verifying the Corporation's statements of account and in determining the
soundness of the Corporation's financial condition and report to the Board
the results of such reviews.
(b) Review the policies and practices pertaining to publication of
quarterly and annual statements to assure consistency with audited results
and the implementing of policies and practices recommended by the
independent accountants.
(c) Ensure that suitable independent audits are made of the operations
and results of subsidiary Corporations and affiliates.
(d) Review and approve the audit program to be conducted by the
Corporation's internal auditors and the results of completed audits.
(e) Review the nature of, and fees charged for, all audit and
non-audit services performed by the Corporation's independent auditing
firm.
(f) Employ, at its discretion, independent auditors and legal counsel,
at the expense of the Corporation, to assist the committee in performing
the responsibilities delegated to it in this section and conduct any
additional reviews, discussions or investigations which in its discretion
would be of assistance in fulfilling its responsibilities under this
section.
(g) Monitor compliance with the Corporation's code of business
conduct, and such other duties, functions and powers as the Board may from
time to time prescribe.
SECTION 4.03. Compensation Committee. The Board may, in its discretion,
designate annually a Compensation Committee (the "Compensation Committee")
consisting of an even number of Directors, but
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in any event not fewer than four Directors, as it may from time to time
determine. The Compensation Committee shall review, report and make
recommendations to the Board on the following matters:
(a) The compensation of Directors and all corporate officers of the
Corporation and its principal operating subsidiaries reporting directly to
the President and Chief Executive Officer following an annual review of
management's recommendations for the individuals involved. If circumstances
involving individuals require a salary adjustment between such reviews, a
recommendation may be made directly to the Board by the President and Chief
Executive Officer without the necessity of a meeting of the Compensation
Committee.
(b) Management recommendations for individual stock options to be
granted under existing stock option plans to key executives of the
Corporation and its subsidiary companies.
(c) The performance of the trustee of the Corporation's pension trust
fund and any proposed change in the investment policy of the trustee with
respect to such fund.
(d) Any proposed stock option plans, stock purchase plans, retirement
plans and any other plans, systems and practices of the Corporation
relating to the compensation o any employees of the Corporation, any
proposed plans of any subsidiary company involving the issuance or purchase
of capital stock of the Corporation.
(e) Such other matters as the Board may from time to time prescribe.
SECTION 4.04. Nominating Committee. The Board may, in its discretion,
designate annually a Nominating Committee (the "Nominating Committee")
consisting of an even number of Directors, but in any event not fewer than four
Directors, as it may from time to time determine. The Nominating Committee shall
review, report and make recommendations to the Board on the following matters:
(a) The size and composition of the Board and nominees for Directors;
evaluation of the performance of the officers of the Corporation and,
together with management, the selection and recommendation to the Board of
appropriate individuals for election, appointment and promotion as officers
of the Corporation with a view to ensuring the continuity of able, capable
management.
(b) Such other matters as the Board may from time to time prescribe.
SECTION 4.05. Committee Members, Chairman, Books and Records. Until the
annual meeting of Stockholders at which Directors are elected in 2001, (a)
one-half of the members of each committee will be citizens of Canada or the
United States and one-half of the members of each committee will be nationals of
Sweden or member states of the European Union, (b) a U.S. Director shall be the
chairman of each of the Nominating Committee and the Compensation Committee, (c)
the Chairman shall be the chairman of the Executive Committee and (d) an
European Director shall be the chairman of the Audit Committee. Each committee
shall fix its own rules of procedure and shall meet at such times and places and
upon such call or notice as shall be provided by such rules. It shall keep a
record of its acts and minutes of its proceedings, and all action of the
committee shall be reported to the Board at the next meeting of the Board.
SECTION 4.06. Alternates. Alternate members of the committees prescribed
by this Article IV may be designated by the Board from among the Directors to
serve as occasion may require. Whenever a quorum cannot be secured for any
meeting of any such committees from among the regular members thereof and
designated alternates, the member or members of such committee present at such
meeting and not disqualified from voting, whether or not he, she or they
constitute a quorum, may unanimously appoint another qualified member of the
Board to act at the meeting in the place of such absent or disqualified member.
Alternative members of such committees shall receive a reimbursement for
expenses and compensation at the same rate as regular members of such
committees.
SECTION 4.07. Other Committees. The Board may create such other
committees, each to consist of any even number of Directors, as it may from time
to time determine, and each such committee shall serve for such term and shall
have and may exercise, during intervals between meetings of the Board, such
duties,
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functions and powers as the Board may from time to time prescribe. In the
Board's discretion, any such committee may have among its members any number of
executive officers.
SECTION 4.08. Quorum and Manner of Acting. At each meeting of any
committee the presence of a majority of the members of such committee, whether
regular or alternate, shall be necessary to constitute a quorum for the
transaction of business, and if a quorum is present the concurrence of a
majority of those present shall be necessary for the taking of any action;
provided, however, that no action may be taken by the Executive Committee when
two or more officers of the corporation are present as members at a meeting of
either such committee unless such action shall be concurred in by the vote of
two or more members of such committee who are not officers of the Corporation.
ARTICLE V
OFFICERS
SECTION 5.01. Officers. The officers of the Corporation shall be the
President and Chief Executive Officer, such Executive Vice Presidents, the
Secretary, and a Treasurer and may include one or more Vice Presidents as the
Board may appoint from time to time, one or more Assistant Secretaries and one
or more Assistant Treasurers. Any two or more offices may be held by the same
person.
SECTION 5.02. Authority and Duties. All officers shall have such authority
and perform such duties in the management of the Corporation as may be provided
in these By-Laws or, to the extent not so provided, by resolution of the Board.
SECTION 5.03. Mandatory and Voluntary Retirement. Each Officer shall
tender his or her resignation to the President and Chief Executive Officer,
effective as of the first day of the month following or coinciding with his or
her attaining age 65.
SECTION 5.04. Term of Office, Resignation and Removal. (a) The President
and Chief Executive Officer and the Executive Vice Presidents shall be appointed
by the Board and all other officers shall be nominated by the Chairman and the
President and Chief Executive Officer jointly and appointed by the Board. Each
officer shall hold office for such term as may be determined by the Board.
(b) Any officer may resign at any time by giving written notice to the
Board, the Chairman, the President and Chief Executive Officer or the Secretary.
Such resignation shall take effect at the time specified in such notice or, if
the time be not specified, upon receipt thereof by the Board, the Chairman, the
President and Chief Executive Officer or the Secretary, as the case may be.
Unless otherwise specified therein, acceptance of such resignation shall not be
necessary to make it effective.
(c) Any officer elected or appointed by the Board may be removed by the
Board at any time, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment of an officer
shall not itself create contractual rights.
SECTION 5.05. Vacancies. Any vacancy occurring in any office of the
Corporation, for any reason, shall be filled by the Board or the Chairman and
the President and Chief Executive Officer in the same manner as set forth in
Section 5.04, as the case may be. Unless earlier removed pursuant to Section
5.04 hereof, any officer appointed to fill any such vacancy shall serve only
until such time as the unexpired term of his or her predecessor expires unless
reappointed.
SECTION 5.06. The President and Chief Executive Officer. The President and
Chief Executive Officer shall, in the absence of the Chairman, preside at all
meetings of the Stockholders and of the Board. The President and Chief Executive
Officer shall be the Chief Executive Officer and shall have general charge and
supervision of the business of the Corporation and, in general, shall perform
all duties incident to the office of chief executive officer or president of a
corporation and such other duties as may, from time to time, be assigned to him
or her by the Board or as may be provided by law. The President and Chief
Executive Officer shall have authority to sign and acknowledge in the name and
on behalf of the Corporation all stock certificates, contracts or other
documents and instruments and, unless otherwise provided by law or by the
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Board, may authorize any officer, employee or agent of the Corporation to sign,
execute and acknowledge in his place and stead all such documents and
instruments.
SECTION 5.07. The Executive Vice Presidents. Executive Vice Presidents
shall generally assist, and report to, the President and Chief Executive Officer
and perform such other duties as the Board or the President and Chief Executive
Officer shall prescribe.
SECTION 5.08. Vice Presidents. Vice Presidents shall perform such duties
as the President and Chief Executive Officer shall prescribe.
SECTION 5.09. The Secretary. The Secretary shall, to the extent
practicable, attend all meetings of the Board and all meetings of Stockholders
and shall record all votes and the minutes of all proceedings in a book to be
kept for that purpose, and shall perform the same duties for any committee of
the Board when so requested by such committee. He or she shall give or cause to
be given notice of all meetings of Stockholders and of the Board, shall perform
such other duties as may be prescribed by the Board, the Chairman or the
President and Chief Executive Officer and shall act under the supervision of the
Chairman and the President and Chief Executive Officer. He or she shall keep in
safe custody the seal of the Corporation and affix the same to any instrument
that requires that the seal be affixed to it and which shall have been duly
authorized for signature in the name of the Corporation and, when so affixed,
the seal shall be attested by his or her signature or by the signature of the
Treasurer of the Corporation or an Assistant Secretary or Assistant Treasurer of
the Corporation. He or she shall keep in safe custody the certificate books and
stockholder records and such other books and records of the Corporation as the
Board, the Chairman or the President and Chief Executive Officer may direct and
shall perform all other duties incident to the office of Secretary and such
other duties as from time to time may be assigned to him or her by the Board,
the Chairman or the President and Chief Executive Officer.
SECTION 5.10. Assistant Secretaries. Assistant Secretaries of the
Corporation, if any, shall generally assist the Secretary and perform such other
duties as the Board or the Secretary shall prescribe, and, in the absence or
disability of the Secretary, shall perform the duties and exercise the powers of
the Secretary.
SECTION 5.11. The Treasurer. The Treasurer of the Corporation shall have
the care and custody of all the funds of the Corporation and shall deposit such
funds in such banks or other depositories as the Board, or any officer or
officers, or any officer and agent jointly, duly authorized by the Board, shall,
from time to time, direct or approve. He or she shall disburse the funds of the
Corporation under the direction of the Board, the Chairman and the President and
Chief Executive Officer. He or she shall keep a full and accurate account of all
moneys received and paid on account of the Corporation and shall render a
statement of his or her accounts whenever the Board, the Chairman or the
President and Chief Executive Officer shall so request. He or she shall perform
all other necessary actions and duties in connection with the administration of
the financial affairs of the Corporation and shall generally perform all the
duties usually appertaining to the office of treasurer of a corporation. When
required by the Board, he or she shall give bonds for the faithful discharge of
his or her duties in such sums and with such sureties as the Board shall
approve.
SECTION 5.12. Assistant Treasurers. Assistant Treasurers of the
Corporation shall generally assist the Treasurer and perform such other duties
as the Board or the Treasurer shall prescribe, and, in the absence or disability
of the Treasurer, shall perform the duties and exercise the powers of the
Treasurer.
ARTICLE VI
DIVIDENDS, FINANCE, AND PROXIES
SECTION 6.01. Dividends. Dividends shall be declared only out of any
assets or funds of the Corporation legally available for the payment of
dividends at such times as the Board shall direct. Dividends shall be paid to
holders of the Shares in U.S. dollars. The Corporation shall make such
arrangements as are necessary or appropriate to ensure that all dividends
payable to Swedish Holders are paid in Swedish kronor.
SECTION 6.02. Checks, Drafts and Notes. All checks, drafts and other
orders for the payment of money, notes and other evidences of indebtedness
issued in the name of the Corporation shall be signed by
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such officer or officers, agent or agents of the Corporation and in such manner
as shall be determined, from time to time, by resolution of the Board.
SECTION 6.03. Execution of Proxies. The President and Chief Executive
Officer shall have the power and authority to transfer, vote, consent, or take
any other action with respect to any securities of another issuer which may be
held or owned by the Corporation and to make, execute, and deliver any waiver,
proxy or consent with respect to any such securities. All such proxies and
consents, unless otherwise authorized by the Board, shall be signed in the name
of the Corporation by the President and Chief Executive Officer or his or her
designee.
ARTICLE VII
SWEDISH DEPOSITARY SHARES PROGRAM
SECTION 7.01. SDSs and Swedish Holders. The Corporation shall use all
reasonable efforts to maintain the listing and index membership of its SDSs in
Sweden and its SDSs on the "A" list as such term is used by the SSE. The
Corporation shall use all reasonable efforts to establish arrangements such that
the Swedish Holders shall have the opportunity to exercise such rights with
respect to the Corporation as would be exercisable by such Swedish Holders if
they held shares of common stock of the Corporation directly.
ARTICLE VIII
REPORTING REQUIREMENTS
SECTION 8.01. Shareholder Communications. All communications to
Stockholders shall be made available in both the English and Swedish languages,
including, without limitation, the annual and any semiannual or quarterly
reports of the Corporation, and financial statements, and all such
communications shall be made available to all Swedish Holders.
ARTICLE IX
SHARES AND TRANSFERS OF SHARES
SECTION 9.01. Certificates Evidencing Shares. The shares of the
Corporation shall be evidenced by certificates in such form or forms as shall be
approved by the Board. Certificates shall be signed by the Chairman or the
President and Chief Executive Officer and by the Secretary or any Assistant
Secretary. Any signature on a certificate may be a facsimile. In the event any
such officer who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to hold such office or to be employed by the
Corporation before such certificate is issued, such certificate may be issued by
the Corporation with the same effect as if such officer had held such office on
the date of issue.
SECTION 9.02. Stock Ledger. A stock ledger in one or more counterparts
shall be kept by the Secretary, in which shall be recorded the name and address
of each person, firm or corporation owning the shares evidenced by each
certificate evidencing shares issued by the Corporation, the number of shares
evidenced by each such certificate, the date of issuance thereof and, in the
case of cancellation, the date of cancellation. Except as otherwise expressly
required by law, the person in whose name shares stand on the stock ledger of
the Corporation shall be deemed the owner and record holder thereof for all
purposes.
SECTION 9.03. Transfers of Shares. Registration of transfers of shares
shall be made only in the stock ledger of the Corporation upon request of the
registered holder of such shares, or of his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary, and upon the
surrender of the certificate or certificates evidencing such shares properly
endorsed or accompanied by a stock power duly executed, together with such proof
of the authenticity of signatures as the Corporation may reasonably require.
SECTION 9.04. Addresses of Stockholders. Each Stockholder and Swedish
Holder shall designate to the Secretary an address at which notices of meetings
and all other corporate notices may be served or mailed
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to such Stockholder or Swedish Holder, as the case may be, and, if any
Stockholder shall fail to so designate such an address, corporate notices may be
served upon such Stockholder by mail directed to the mailing address, if any, as
the same appears in the stock ledger of the Corporation or at the last known
mailing address of such Stockholder or Swedish Holder, as the case may be.
SECTION 9.05. Lost, Destroyed and Mutilated Certificates. Each Stockholder
shall promptly notify the Corporation of any loss, destruction or mutilation of
any certificate or certificates evidencing any share or shares of which he is
the recordholder. The Board may, in its discretion, cause the Corporation to
issue a new certificate in place of any certificate theretofore issued by it and
alleged to have been mutilated, lost, stolen or destroyed, upon the surrender of
the mutilated certificate or, in the case of loss, theft or destruction of the
certificate, upon satisfactory proof of such loss, theft or destruction, and the
Board may, in its discretion, require the recordholder of the shares evidenced
by the lost, stolen or destroyed certificate or his legal representative to give
the Corporation a bond sufficient to indemnify the Corporation against any claim
made against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
SECTION 9.06. Regulations. The Board may make such other rules and
regulations as it may deem expedient, not inconsistent with these By-Laws,
concerning the issue, transfer and registration of certificates evidencing
shares.
ARTICLE X
SEAL
SECTION 10.01. Seal. The Board may approve and adopt a corporate seal,
which shall be in the form of a circle and shall bear the full name of the
Corporation, the year of its incorporation and the words "Corporate Seal
Delaware".
ARTICLE XI
FISCAL YEAR
SECTION 11.01. Fiscal Year. The fiscal year of the Corporation shall end
on the thirty-first day of December of each year.
ARTICLE XII
INDEMNIFICATION AND INSURANCE
SECTION 12.01. Indemnification. (a) The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he or she is or was a
Director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a Director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him or her in connection with
such action, suit or proceeding if he or she acted in good faith and in a manner
he or she reasonably believed to be in, or not opposed to, the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
or she reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
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<PAGE> 16
(b) The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he or she is or was a Director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a Director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by him or her in connection with the
defense or settlement of such action or suit if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery of the State of Delaware or the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
(c) To the extent that a Director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 12.01(a) and (b) of these
By-Laws, or in defense of any claim, issue or matter therein, he or she shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him or her in connection therewith.
(d) Any indemnification under Sections 12.01(a) and (b) of these By-Laws
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the Director,
officer, employee or agent is proper in the circumstances because he or she has
met the applicable standard of conduct set forth in Sections 12.01(a) and (b) of
these By-Laws. Such determination shall be made (i) by the Board by a majority
vote of a quorum consisting of Directors who were not parties to such action,
suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if
obtainable, a quorum of disinterested Directors so directs, by independent legal
counsel in a written opinion, or (iii) by the Stockholders of the Corporation.
(e) A Director of this Corporation shall not be liable to the Corporation
or its Stockholders for monetary damages for breach of fiduciary duty as a
Director, except for liability (i) for any breach of the Director's duty of
loyalty to the Corporation or its Stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
the law, (ii) under Section 174 of the GeneralCorporation Law of the State of
Delaware (the "General Corporation Law"), or (iv) for any transaction from which
the Director derived an improper personal benefit.
(f) Expenses (including attorneys' fees) incurred by an officer or Director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the Corporation, as the Board deems appropriate, in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such Director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation pursuant to this Article XII. Such expenses
(including attorneys' fees) incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the Board deems appropriate.
(g) The indemnification and advancement of expenses provided by, or granted
pursuant to, other Sections of this Article XII shall not be deemed exclusive of
any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any law, by-law, agreement, vote of stockholders
or disinterested Directors or otherwise, both as to action in an official
capacity and as to action in another capacity while holding such office.
(h) For purposes of this Article XII, references to "the Corporation" shall
include, in addition to the Corporation, any constituent corporation, including
Pharmacia Aktiebolag ("Pharmacia"), The Upjohn Company ("Upjohn") and any
companies to which Pharmacia and Upjohn had previously extended rights similar
to those afforded by this Article XII which would have had power and authority
to indemnify its Directors, officers, employees or agents so that any person who
is or was a Director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a Director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise,
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<PAGE> 17
shall stand in the same position under the provisions of this Article XII with
respect to the resulting or surviving corporation as he or she would have with
respect to such constituent corporation if its separate existence had continued.
(i) For purposes of this Article XII, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a Director, officer, employee or agent of the Corporation which
imposes duties on, or involves service by, such Director, officer, employee or
agent with respect to any employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he or she
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this Article
XII.
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article XII shall, unless otherwise provided when authorized
or ratified, continue as to a person who has ceased to be a Director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
SECTION 12.02. Insurance for Indemnification. The Corporation may purchase
and maintain insurance on behalf of any person who is or was a Director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a Director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, is entitled
to indemnification under the Corporation's Restated Certificate of Incorporation
against any liability asserted against him or her and incurred by him or her in
any such capacity, or arising out of his or her status as such, whether or not
the Corporation would have the power to indemnify him or her against such
liability under the provisions of Section 145 of the General Corporation Law.
ARTICLE XIII
AMENDMENTS
SECTION 13.01. Amendments. (a) Except as provided in paragraph (b) below,
any By-Law (including these Restated By-Laws) may be adopted, amended or
repealed by the Stockholders, or by vote of the Board or by a written consent of
Directors pursuant to Section 3.09 hereof.
(b) Notwithstanding paragraph (a) above, (i) any amendment, alteration,
change or repeal in any respect of any provision of the first sentence of
Section 1.02, Section 3.02, Sections 3.03(a) and (c), the first sentence of
Section 4.05, Section 6.01, Article VII and Article VIII shall require the
affirmative vote of 80% of all the Directors or the affirmative vote of 66-2/3%
of the votes entitled to be cast on matters submitted to Stockholders generally
by all then outstanding shares of capital stock of the Corporation (the "Voting
Stock", and a "Supermajority Vote"); (ii) any amendment, alteration, change or
repeal in any respect of any provision of Section 2.01(b) shall require the
affirmative vote of 80% of the Directors or a Supermajority Vote, provided,
however, that in the event that (X) the number of persons that are residents in
or nationals of Sweden holding Shares, whether directly or as SDSs (the "Swedish
Persons"), falls below 5% of the total number of persons holding Voting Stock or
(Y) such Swedish Persons cease to beneficially own at least 5% of the Voting
Stock (including shares held by the Depositary), then any such amendment,
alteration, change or repeal in any respect of any of these provisions shall
require the affirmative vote of a majority of the Directors or the affirmative
vote of the holders of a majority of the Voting Stock; and (iii) any amendment,
alteration, change or repeal in any respect of Section 13.01(a) hereof or
subparagraphs (i) or (ii) of this Section 13.01(b) shall require the affirmative
vote of 80% of all the Directors or a Supermajority Vote.
17
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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
August 21, 1995
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES OF PHARMACIA & UPJOHN, INC.
Pharmacia & Upjohn Subsidiary, Inc.
<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. We also consent to the reference to our firm under the
caption "Experts".
/s/ COOPERS & LYBRAND L.L.P.
Chicago, Illinois
August 21, 1995
<PAGE> 1
EXHIBIT 23(B)
CONSENT OF JOINT INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 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
August 21, 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
August 21, 1995
<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 on , 1995 at 9:00 a.m., Eastern
Standard Time (the "Upjohn Special Meeting"), and at any adjournments or
postponements thereof, and the Prospectus furnished in connection therewith, and
(2) appoints , and , 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 (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 and approve 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
(the "Company"), and Pharmacia & Upjohn Subsidiary, Inc., a Delaware
corporation.
/ / FOR / / AGAINST / / ABSTAIN
(2) To adjourn and postpone the Upjohn Special Meeting to solicit additional
proxies in favor of the proposal to approve and adopt the Combination
Agreement in the event that there are not sufficient votes to approve the
Combination Agreement at the Upjohn Special Meeting.
/ / FOR / / AGAINST / / ABSTAIN
(3) In the discretion of proxies named above, on 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 and Upjohn Preferred 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.
